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eGames Announces Third Quarter Fiscal 2011 Financial Results

(June 06, 2011)

LANGHORNE, Pa., June 6, 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 nine months ended March 31, 2011.



"We have continued to experience challenges in our business during our third fiscal quarter, as revenues in all sectors of our business decreased. We believe these decreases reflect poor general market conditions as 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. "With these conditions we have actively and aggressively been seeking business opportunities in the online space, particularly in social games, both in Latin America and North America, in order to leverage our casual game experience and tap into the burgeoning social game industry. We are looking for the right opportunity that can best increase our company's competitive position and bolster its financial condition," Klein said.



FINANCIAL DISCUSSION:


Three Months ended March 31, 2011:




Net revenues decreased by $342,000, or 30%, to $782,000 for the quarter ended March 31, 2011, compared to $1,124,000 for the comparative quarter a year ago. The $342,000 decrease in net revenues resulted from declines in North American traditional product revenues ($268,000), Internet revenues ($34,000) and licensing revenues ($40,000).



Net loss was $178,000, or $0.01 per diluted share, for the quarter ended March 31, 2011, compared to net income of $20,000, or nil per diluted share, for the comparative quarter a year earlier. This $198,000 decline in profitability for the quarter ended March 31, 2011 resulted from:




  • $317,000 in decreased gross profit due to lower net revenues combined with a 14% decrease in gross profit margin caused by higher product costs and provision for inventory obsolescence; partially offset by


  • $119,000 in decreased operating expenses related to a $62,000 decrease in product development expense (due to less games being developed) and a $57,000 decrease in other operating expenses (traceable to salary & related expenses).



Nine Months ended March 31, 2011:



Net revenues decreased by $537,000, or 19%, to $2,325,000 for the nine months ended March 31, 2011, compared to $2,862,000 for the same nine-month period a year earlier. This $537,000 decrease in net revenues resulted from decreases in North American traditional product revenues ($328,000), licensing revenues ($152,000) and Internet revenues ($116,000), which were partially offset by increased product liquidation revenues of $59,000.



Net loss was $796,000, or $0.06 per diluted share, for the nine months ended March 31, 2011, compared to net income of $36,000, or nil per diluted share, for the nine months ended March 31, 2010. This $832,000 decline in profitability for the nine months ended March 31, 2011 was due to:




  • $681,000 in decreased gross profit due to a 15% reduction in gross profit margin related to similar factors that impacted the quarterly results along with lower net revenues,


  • $104,000 in increased operating expenses related to increased product development expenses traceable to this year's development of games to be played on the major Latin American social networks; and


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



The following tables represent eGames' net revenues by distribution channel for the three and nine months ended March 31, 2011 and 2010, respectively:












































































Net Revenues by Distribution Channel

(rounded to the nearest thousand)

 

 

 

Three Months Ended

March 31,

 

Distribution Channel

 

 

 2011

 

%

 

 2010

 

%

Increase

(Decrease)

%

Change

Traditional product revenues

 

$ 491,000

63%

$ 759,000

68%

($ 268,000)

(35%)

Licensing revenues

 

72,000

9%

112,000

10%

(40,000)

(36%)

Internet revenues

 

167,000

21%

201,000

18%

(34,000)

(17%)

Product liquidation revenues

 

52,000

7%

52,000

4%

 - 0 -

n/a

Totals

 

$  782,000

100%

$ 1,124,000

100%

($ 342,000)

(30%)






































































 

Nine Months Ended

March 31,

 

Distribution Channel

 

 

 2011

 

%

 

 2010

 

%

Increase

(Decrease)

%

Change

Traditional product revenues

 

$ 1,377,000

59%

$ 1,705,000

60%

($ 328,000)

(19%)

Licensing revenues

 

269,000

12%

421,000

15%

(152,000)

(36%)

Internet revenues

 

543,000

23%

659,000

23%

(116,000)

(18%)

Product liquidation revenues

 

136,000

6%

77,000

2%

59,000

77%

Totals

 

$ 2,325,000

100%

$ 2,862,000

100%

($ 537,000)

(19%)


Liquidity Condition:



At March 31, 2011, eGames had $175,000 in cash compared to $627,000 in cash at June 30, 2010. Additionally, at March 31, 2011 our net working capital deficit (current assets minus current liabilities) was ($702,000) compared to net working capital of $34,000 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

 

 

 

ASSETS

 At

March 31, 

2011

 

At

June 30,

2010

Current assets:

 

 

 

Cash and cash equivalents

$ 174,943

 

$ 626,748

Accounts receivable, net

145,668

 

310,931

Inventory, net

568,202

 

595,000

Prepaid and other expenses

101,672

 

99,233

Total current assets

990,485

 

1,631,912

 

 

 

 

Furniture and equipment, net

2,049

 

5,866

Intangibles

24,089

 

24,089

Total assets

$ 1,016,623

 

$ 1,661,867

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

Current liabilities:

 

 

 

Accounts payable

$ 858,947

 

$ 591,868

Unearned revenues

482,778

 

597,266

Accrued expenses

350,832

 

409,043

Total current liabilities

1,692,557

 

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

3,344,034

 

3,254,781

Accumulated deficit

 (13,351,426)

 

 (12,522,549)

Treasury stock, as cost

(552,937)

 

(552,937)

Total stockholders' equity (deficit)

(675,934)

 

63,690

Total liabilities and stockholders' equity (deficit)

$ 1,016,623

 

$ 1,661,867

































































































































































































































































 

eGames, Inc.

Statements of Operations

 

 

 

 

 

 

Three Months Ended

March 31,

Nine Months Ended

March 31,

 

2011

2010

2011

2010

Net revenues

$781,908

$1,123,636

$2,325,346

$2,862,035

 

 

 

 

 

Cost of revenues

423,916

448,229

1,280,065

1,136,137

 

 

 

 

 

Gross profit

357,992

675,407

1,045,281

1,725,898

 

 

 

 

 

Operating expenses:

 

 

 

 

Product development

152,208

213,789

693,550

589,150

Selling, general and administrative

383,580

441,205

1,147,896

1,298,103

Intangibles impairment (recovery)

 - 0 -

 - 0 -

 - 0 -

(150,000)

 

 

 

 

 

Total operating expenses

535,788

654,994

1,841,446

1,737,253

 

 

 

 

 

Operating income (loss)

(177,796)

20,413

(796,165)

(11,355)

 

 

 

 

 

Interest income, net

 - 0 -

67

102

104

 

 

 

 

 

Income (loss) before income taxes

(177,796)

20,480

(796,063)

(11,251)

 

 

 

 

 

Income tax benefit

 - 0 -

 - 0 -

 - 0 -

46,811

 

 

 

 

 

Net income (loss)

($177,796)

$20,480

($796,063)

$35,560

 

 

 

 

 

Net income (loss) per common share: 

 

 

 

 

 - Basic

($0.01)

$0.00

($0.06)

$0.00

 - Diluted

($0.01)

$0.00

($0.06)

$0.00

 

 

 

 

 

Weighted average common shares outstanding – Basic

13,638,324

12,575,933

13,614,414

12,364,550

 

 

 

 

 

Dilutive effect of common share equivalents

 - 0 -

83,327

 - 0 - 

 - 0 - 

 

 

 

 

 

Weighted average common shares outstanding - Diluted 

13,638,324

12,659,260

13,614,414

12,364,550


































































































































































 

eGames, Inc.

Statements of Cash Flows

 

 

 

 Nine Months Ended

March 31,

 

2011

2010

OPERATING ACTIVITIES:

 

 

Net income (loss)

($796,063)

$35,560

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

 

 

Stock-based compensation

75,294

81,302

Depreciation and amortization 

4,324

10,652

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

165,263

(115,623)

Inventory, net

26,798

(12,723)

Prepaid and other expenses

(21,294)

17,822

Accounts payable

267,079

31,626

Unearned revenues

(114,488)

(45,255)

Accrued expenses

(58,211)

13,532

Net cash provided by (used in) operating activities

(451,298)

16,893

 

 

 

INVESTING ACTIVITIES:

 

 

Purchase of furniture and equipment

(507)

(2,057)

Net cash used in investing activities

(507)

(2,057)

 

 

 

FINANCING ACTIVITIES:

 

 

Net proceeds from common stock private placement

- 0 -

500,000

Net cash provided by financing activities

- 0 -

500,000

 

 

 

Net increase (decrease) in cash and cash equivalents

(451,805)

514,836

 

 

 

Cash and cash equivalents:

 

 

Beginning of period

626,748

344,432

End of period

$174,943

$859,268







































































































































































































































































































































































 

eGames, Inc.

Statements of Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

Convertible

Preferred Stock

Common Stock

 

 

Treasury Stock

 

 

Shares

Amount

Shares

Amount

Additional

Paid-in Capital

Accumulated

Deficit

Shares

Amount

Stockholders'

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2009

875,000

$704,568

12,331,040

$9,179,827

$2,562,142

($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

 

 

 

81,940

 

 

 

 

 

 

 

 

 

 

Dividends declared on preferred stock

 

 

210,533

 

43,752

(43,752)

 

 

- 0 -

 

 

 

 

 

 

 

 

 

 

Common stock shares issued in connection with consulting agreement

 

 

225,000

 

19,391

 

 

 

19,391

 

 

 

 

 

 

 

 

 

 

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

 

 

1,000,000

 

497,280

 

 

 

497,280

 

 

 

 

 

 

 

 

 

 

Common stock shares issued in connection with consulting agreement

 

 

75,000

 

50,276

 

 

 

50,276

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2010

875,000

$704,568

13,841,573

$9,179,827

$3,254,781

($12,522,549)

(277,900)

($552,937)

$63,690

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

(796,063)

 

 

(796,063)

 

 

 

 

 

 

 

 

 

 

Common stock options issued to employees and directors

 

 

 

 

56,439

 

 

 

56,439

 

 

 

 

 

 

 

 

 

 

Dividends declared on preferred stock

 

 

89,161

 

32,814

(32,814)

 

 

- 0 -

 

 

 

 

 

 

 

 

 

 

Common stock shares issued in connection with common stock warrant exercise

 

 

35,321

 

- 0 -

 

 

 

- 0 -

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2011

875,000

$704,568

13,966,055

$9,179,827

$3,344,034

($13,351,426)

(277,900)

($552,937)

($675,934)


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: future general market conditions and industry trends remaining very challenging; our continued commitment to our social game development and distribution strategy; our plan to maintain our focus on the social games segment of the market; 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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