updated 6/6/2011 4:17:46 PM ET 2011-06-06T20:17:46

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)

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