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eGames Announces Second Quarter Fiscal 2011 Financial Results

(February 28, 2011)

LANGHORNE, Pa., Feb. 28, 2011 (GLOBE NEWSWIRE) -- eGames, Inc. (Pink Sheets:EGAM), a developer and publisher of casual games for the leading social networks, PC, Nintendo DS and Wii, iPhone and the Internet, today released financial results for its three and six months ended December 31, 2010.



COMMENTS:



"Traditional product revenues were very disappointing during the second quarter as general market conditions and trends in our industry continued to prove very challenging. These market conditions adversely affected sales of our physical products at the large national retail chain stores in North America as well as our Internet-related and licensing revenues," stated Jerry Klein, eGames President and CEO. "We have enjoyed increased retail distribution of box products at large North American national retail chain stores during the early weeks of our fiscal third quarter. However, general market conditions and industry trends remain very challenging. We remain committed to our social game development and distribution strategy. Satisfashion launched recently on the Quepasa.com and Orkut networks in Latin America, and we anticipate increasing its distribution in the months ahead and ultimately monetizing the game. We currently anticipate launching Coffee Central during the 2011 fiscal year," said Klein.


"The free-to-play micro-transaction model used for social games continues to demonstrate its sustainability as a profitable business model while social games continue growing in popularity. Our plan remains to maintain our focus on this segment of the market and developing top-performing games," added Klein.




FINANCIAL DISCUSSION:



Three Months ended December 31, 2010:



Net revenues decreased by $357,000, or 34%, to $685,000 for the quarter ended December 31, 2010, compared to $1,042,000 for the comparative quarter a year ago. The $357,000 decrease in net revenues resulted from revenue declines in North American traditional product revenues ($277,000), Internet revenues ($73,000) and licensing revenues ($21,000), which revenue decreases were partially offset by a $14,000 increase in product liquidation revenues. Negatively impacting net revenues was a $104,000 charge-back we received during the current quarter from a North American retailer reflecting a fee for a prior year's product recall.



Net loss was $268,000, or $0.02 per diluted share, for the quarter ended December 31, 2010, compared to net income of $177,000, or $0.01 per diluted share, for the comparative quarter a year earlier. This $445,000 decline in profitability for the quarter ended December 31, 2010 resulted from:




  • $308,000 in decreased gross profit due to lower net revenues combined with a 13% erosion in gross profit margin caused by increased product costs and provision for inventory obsolescence;


  • $90,000 in increased operating expenses related to $150,000 in a non-recurring expense recovery recognized in last year's comparative quarter associated with certain previously written down game properties; which non-recurring expense recovery was partially offset by a $60,000 reduction in other operating expenses; and


  • $47,000 in a non-recurring federal income tax benefit reflected in last year's comparative quarter traceable to tax law changes related to net operating loss carry-back rules.



Six Months ended December 31, 2010:



Net revenues decreased by $195,000, or 11%, to $1,543,000 for the six months ended December 31, 2010, compared to $1,738,000 for the similar six-month period a year earlier. This $195,000 decrease in net revenues resulted from decreases in licensing revenues ($112,000), Internet revenues ($82,000) and North American traditional product revenues ($60,000), which were partially offset by increased product liquidation revenues of $59,000. Negatively impacting net revenues was a $104,000 charge-back we received during the current period from a North American retailer reflecting a fee for a prior year's product recall.



Net loss was $618,000, or $0.05 per diluted share, for the six months ended December 31, 2010, compared to net income of $15,000, or nil per diluted share, for the six months ended December 31, 2009. This $633,000 decline in profitability for the six months ended December 31, 2010 was due to:




  • $363,000 in decreased gross profit due to a 16% reduction in gross profit margin related to similar factors that impacted the quarterly results along with lower net revenues,


  • $223,000 in increased operating expenses related to:





  • $150,000 in a non-recurring expense recovery reflected in last year's comparative six month period;


  • $166,000 in increased product development expenses traceable to this year's development of games to be played on the major Latin American social networks, partially offset by a


  • $93,000 reduction in other operating expenses across various expense categories; and





  • $47,000 in a non-recurring federal income tax benefit reflected in last year's comparable period.



The following tables represent eGames' net revenues by distribution channel for the three and six months ended December 31, 2010 and 2009, respectively:




















































































































































































Net Revenues by Distribution Channel

 (rounded to the nearest thousand)

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

 

 

 

 

Increase

%

Distribution Channel

2010

%

2009

%

(Decrease)

Change

Traditional product revenues

$383,000

56%

$660,000

63%

($277,000)

(42%)

Licensing revenues

99,000

15%

120,000

12%

(21,000)

(18%)

Internet revenues

173,000

25%

246,000

24%

(73,000)

(30%)

Product liquidation revenues

30,000

4%

16,000

1%

14,000

88%

Totals

$685,000

100%

$1,042,000

100%

($357,000)

(34%)

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

December 31,

 

 

 

 

 

 

 

Increase

%

Distribution Channel

2010

%

2009

%

(Decrease)

Change

Traditional product revenues

$886,000

57%

$946,000

54%

($60,000)

(6%)

Licensing revenues

197,000

13%

309,000

18%

(112,000)

(36%)

Internet revenues

376,000

24%

458,000

26%

(82,000)

(18%)

Product liquidation revenues

84,000

6%

25,000

2%

59,000

236%

Totals

$1,543,000

100%

$1,738,000

100%

($195,000)

(11%)


Liquidity Condition:



At December 31, 2010, eGames had $226,000 in cash compared to $627,000 at June 30, 2010. Considering our net losses for the most recent quarters and the last six fiscal years, and the fact that we do not currently have access to a credit facility, we are continuing to evaluate our options to fund future operations if eGames does not become cash flow positive from operations in the very near future.






















































































































































































eGames, Inc.

Balance Sheets

 

 

 

 

 

 

 

At

At

 

December 31,

June 30,

ASSETS

2010

2010

Current assets:

 

 

Cash and cash equivalents

$226,453

$626,748

Accounts receivable, net

194,770

310,931

Inventory, net

660,259

595,000

Prepaid and other expenses

117,739

99,233

Total current assets

1,199,221

1,631,912

 

 

 

Furniture and equipment, net

2,994

5,866

Intangibles

24,089

24,089

Total assets

$1,226,304

$1,661,867

 

 

 

 

 

 

LIABILITIES AND 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

Current liabilities:

 

 

Accounts payable

$811,904

$591,868

Unearned revenues

526,761

597,266

Accrued expenses

404,590

409,043

Total current liabilities

1,743,255

1,598,177

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

Convertible preferred stock

704,568

704,568

Common stock

9,179,827

9,179,827

Additional paid-in capital

3,314,283

3,254,781

Accumulated deficit

 (13,162,692)

 (12,522,549)

Treasury stock, as cost

(552,937)

(552,937)

Total stockholders' equity (deficit)

(516,951)

63,690

Total liabilities and stockholders' equity (deficit)

$1,226,304

$1,661,867






































































































































































































































































































eGames, Inc.

Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

Six Months Ended

 

December 31,

December 31,

 

 

 

 

 

 

2010

2009

2010

2009

Net revenues

$684,862

$1,042,093

$1,543,438

$1,738,399

 

 

 

 

 

Cost of revenues

361,905

411,243

856,150

687,908

 

 

 

 

 

Gross profit

322,957

630,850

687,288

1,050,491

 

 

 

 

 

Operating expenses:

 

 

 

 

Product development

210,678

212,594

541,342

375,361

Selling, general and administrative

380,520

438,359

764,315

856 898

Intangibles impairment (recovery)

- 0 -

(150,000)

- 0 -

(150,000)

 

 

 

 

 

Total operating expenses

591,198

500,953

1,305,657

1,082,259

 

 

 

 

 

Operating income (loss)

(268,241)

129,897

(618,369)

(31,768)

 

 

 

 

 

Interest income, net

6

24

102

38

 

 

 

 

 

Income (loss) before income taxes

(268,235)

129,921

(618,267)

(31,730)

 

 

 

 

 

Income tax benefit

- 0 - 

46,811

- 0 - 

46,811

 

 

 

 

 

Net income (loss)

($268,235)

$176,732

($618,267)

$15,081

 

 

 

 

 

 

 

 

 

 

Net income (loss) per 

 

 

 

 

common share: 

 

 

 

 

- Basic

($0.02)

$0.01

($0.05)

$0.00

- Diluted

($0.02)

$0.01

($0.05)

$0.00

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

13,629,894

12,398,218

13,602,460

12,258,858

 

 

 

 

 

Dilutive effect of common share equivalents

 - 0 - 

 - 0 - 

 - 0 - 

 - 0 - 

 

 

 

 

 

Weighted average common shares outstanding - Diluted 

13,629,894

12,398,218

13,602,460

12,258,858









































































































































































eGames, Inc.

Statements of Cash Flows

 

 

 

 

 

 

 

Six Months Ended 

 

December 31,

 

2010

2009

OPERATING ACTIVITIES:

 

 

Net income (loss)

($618,267)

$15,081

Adjustments to reconcile net income (loss) to net cash used in operating activities: 

 

 

Stock-based compensation

50,196

60,665

Depreciation and amortization 

2,872

6,727

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net

116,161

(270,894)

Inventory, net

(65,259)

6,662

Prepaid and other expenses

(31,076)

31,337

Accounts payable

220,036

106,221

Unearned revenues

(70,505)

(47,267)

Accrued expenses

(4,453)

11,468

Net cash used in operating activities

(400,295)

(80,000)

 

 

 

INVESTING ACTIVITIES:

 

 

Purchase of furniture and equipment

- 0 -

(1,146)

Net cash used in investing activities

- 0 -

(1,146)

 

 

 

FINANCING ACTIVITIES:

 

 

Net cash provided by (used in) financing activities

- 0 --

- 0 --

 

 

 

Net decrease in cash and cash equivalents

(400,295)

(81,146)

 

 

 

Cash and cash equivalents:

 

 

Beginning of period

626,748

344,432

End of period

$226,453

$263,286























































































































































































































































































































































































































































































































eGames, Inc.

Statements of Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 Convertible 

 

 

Additional 

 

Preferred Stock

Common Stock

Paid-in

 

 

 

 

 

 

 

Shares

Amount

Shares

Amount

Capital

Balances at June 30, 2009

875,000

$704,568

12,331,040

$9,179,827

$2,562,142

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

Common stock options issued to employees and directors

 

 

 

 

81,940

 

 

 

 

 

 

Dividends declared on preferred stock

 

 

210,533

 

43,752

 

 

 

 

 

 

Common stock shares issued in connection with consulting agreement

 

 

225,000

 

19,391

 

 

 

 

 

 

Common stock shares and warrant issued in connection with private placement financing

 

 

1,000,000

 

497,280

 

 

 

 

 

 

Common stock shares issued in connection with consulting agreement

 

 

75,000

 

50,276

 

 

 

 

 

 

Balances at June 30, 2010

875,000

$704,568

13,841,573

$9,179,827

$3,254,781

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

Common stock options issued to employees and directors

 

 

 

 

37,626

 

 

 

 

 

 

Dividends declared on preferred stock

 

 

39,330

 

21,876

 

 

 

 

 

 

Common stock shares issued in connection with common stock warrant exercise

 

 

35,321

 

- 0 -

 

 

 

 

 

 

Balances at December 31, 2010

875,000

$704,568

13,916,224

$9,179,827

$3,314,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

Treasury Stock

Stockholders'

 

 

 

 

 

 

 

 

Deficit

Shares

Amount

Equity (Deficit)

 

Balances at June 30, 2009

($12,135,189)

(277,900)

($552,937)

($241,589)

 

 

 

 

 

 

 

Net loss

(343,608)

 

 

(343,608)

 

 

 

 

 

 

 

Common stock options issued to employees and directors

 

 

 

81,940

 

 

 

 

 

 

 

Dividends declared on preferred stock

(43,752)

 

 

- 0 -

 

 

 

 

 

 

 

Common stock shares issued in connection with consulting agreement

 

 

 

19,391

 

 

 

 

 

 

 

Common stock shares and warrant issued in connection with private placement financing

 

 

 

497,280

 

 

 

 

 

 

 

Common stock shares issued in connection with consulting agreement

 

 

 

50,276

 

 

 

 

 

 

 

Balances at June 30, 2010

($12,522,549)

(277,900)

($552,937)

$63,690

 

 

 

 

 

 

 

Net loss

(618,267)

 

 

(618,267)

 

 

 

 

 

 

 

Common stock options issued to employees and directors

 

 

 

37,626

 

 

 

 

 

 

 

Dividends declared on preferred stock

(21,876)

 

 

- 0 -

 

 

 

 

 

 

 

Common stock shares issued in connection with common stock warrant exercise

 

 

 

- 0 -

 

 

 

 

 

 

 

Balances at December 31, 2010

($13,162,692)

(277,900)

($552,937)

($516,951)

 


About eGames, Inc.



eGames, Inc., headquartered in Langhorne, Pennsylvania, develops and publishes casual games for leading social networks, the PC, Nintendo DS and Wii, iPhone, and the Internet. Additional information regarding eGames, Inc. can be found at http://www.egames.com.



The eGames Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7123



Accessing Our Financial Information



Shareholders have three ways to access our financial and other information: by going to the Investor Relations page of the eGames website at www.egames.com, where shareholders can access our annual reports for fiscal 2010 and 2009, as well as press releases containing quarterly financial information for fiscal 2011, 2010, 2009, 2008 and 2007; by going to the Pink Sheets website at www.pinksheets.com and typing in our symbol "EGAM"; or by requesting a paper copy of financial information by contacting us 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: eGames cautions readers that the risks and uncertainties that may affect our future results and performance include, but are not limited to: increased retail distribution of our box products at large North American national retail chain stores during the early weeks of our fiscal third quarter; future general market conditions and industry trends remaining very challenging; our continued commitment to our social game development and distribution strategy; our expectation that we will increase distribution of our Satisfashion social game title in the months ahead and ultimately monetize the game; our expectation that our Coffee Central social game will be launched during our 2011 fiscal year; our plan to maintain our focus on the social games segment of the market and develop top-performing games; and our continued evaluation of options to fund future operations if eGames does not become cash flow positive from operations in the very near future; continued overall economic problems in the United States and around the world that negatively affect consumer spending, retail markets and the videogame industry; the potential failure of business partners with which we do business, including developers, distributors, retailers, licensees and publishers; delays in the development and release 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 be accepted by consumers, to sell well or achieve retail placement; our inability to enter into and maintain commercially successful publishing, licensing and distribution relationship; and an increase in competition; as well as the risks and uncertainties discussed under the heading "Factors Affecting Future Performance" in our Annual Report for the fiscal year ended June 30, 2010 as posted on the Company's website and on www.pinksheets.com.


CONTACT: eGames, Inc.
Jerry Klein, President & CEO
(215) 750-6606 (Ext. 118)
Tom Murphy, Vice President & CFO
(215) 750-6606 (Ext. 113)



eGames, Inc. Logo


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