updated 2/28/2011 4:47:07 PM ET 2011-02-28T21:47:07

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)

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