EXHIBIT 99.1
PRESS RELEASE
PhotoWorks(R)
picture what's next(TM)
NEWS RELEASE
PhotoWorks, Inc. 1260 16th Avenue West, Seattle, WA 98119 www.photoworks.com
- --------------------------------------------------------------------------------
Company Contact: Investor Contact:
- ---------------- -----------------
Howard Lee, CEO/President Lillian Armstrong/David Barnard
Loran Cashmore Bond, CAO/Treasurer lillian@lhai-sf.com/david@lhai-sf.com
(206) 281-1546 Lippert/Heilshorn & Associates
ir@photoworks.com (415) 433-3777
- ----------------- Keith Lippert (212) 838-3777
PHOTOWORKS, INC. ANNOUNCES SECOND QUARTER FISCAL 2001 RESULTS
Company raises $2.5 million in new financing
Seattle, April 26, 2001 -- PhotoWorks, Inc. [Nasdaq NM: FOTO], the leading
online photo services company, today announced financial results for its second
quarter ended March 31, 2001. During the quarter, the Company continued to
realign its cost structure to actively manage expenses and cash as it focuses
its efforts on future profitability. The Company also has secured $2.5 million
in new financing with investment advisory clients of Zesiger Capital Group LLC.
New Financing
The Company closed $2.5 million subordinated debentures with investment advisory
clients of Zesiger Capital Group LLC on April 25, 2001. The subordinated
debentures carry a 7% interest rate and are convertible at the discretion of the
holders, into Series B Preferred Stock at a conversion price of $75.00 per
share, one year after closing. Each share of Series B Preferred Stock is
convertible, at the option of the holder, at any time into 100 shares of Common
stock (Series B conversion to common stock results in $.75 per common share). If
not previously converted, the Debentures will be repaid five years from closing.
Company Expects to be Close to Cash Flow Neutral for Remainder of Fiscal 2001
The Company continues to manage its costs to support the current level of
revenues, with the goals of being close to cash flow neutral for the remainder
of fiscal 2001 and profitable in the fourth quarter (July-September) of fiscal
2001. In March 2001, the Company continued to gain operating efficiencies and
lower its cost structure by reducing its workforce by approximately 18%. In
addition, the Company anticipates the introduction of new products and services
combined with marketing initiatives will contribute to sequentially stronger
revenues in the third and fourth quarters of fiscal 2001. As discussed in the
first quarter of fiscal 2001, current marketing initiatives focus on the
Company's current customer base through reactivation and retention programs.
Early results from the retention and reactivation programs and other
merchandizing tests indicate some promising results.
Second Quarter Results
As expected, the Company reported a decline in net revenues in the second
quarter of fiscal 2001. Net revenues for the second quarter were $12,690,000,
compared to $18,796,000 for the second quarter of fiscal 2000. Significant
decreases in marketing expenditures in the first and second quarters of fiscal
2001 combined with an overall softness in the industry contributed to the lower
net revenues as compared to the prior year. The Company reported a net loss of
$6,896,000, or a loss of $.42 per share, for the second quarter compared to a
net loss of $4,791,000, or a loss of $.29 per share, in the second quarter of
fiscal 2000.
"As we anticipated, revenues and earnings decreased for the quarter, but we have
accomplished short-term goals that we believe will help us achieve projected
profitability in the fourth quarter of fiscal 2001," said Howard Lee, President
and CEO of PhotoWorks. "We believe the $2.5 million financing, which closed
yesterday, combined with cost effective marketing and lower operational costs
will carry us through a tough time in the photofinishing and online services
industries. We expect that upcoming product introductions will continue our
tradition of providing customers with innovative ways to use and enjoy their
photos. In addition, we will continue to execute our plan to achieve
profitability and explore and investigate alternatives to gain operational
efficiencies and strengthen our company for the future."
Second Quarter Highlights
During the second quarter of fiscal 2001, the Company made significant progress
in resolving certain outstanding issues. The Company announced yesterday that it
has reached an out-of-court settlement regarding a nationwide class action
lawsuit related to the Company's processing and film offers. Without admitting
wrongdoing or liability, PhotoWorks agreed with class representatives to settle
the lawsuit for agreements regarding future business conduct, distribution of
film and discount coupons to the public and disclosure of film processing
information. The Company also agreed to amounts payable to the class
representatives and class counsel of approximately $335,000 that was accrued in
the second quarter of fiscal 2001 as other expense. The settlement is subject to
Court approval.
In addition, the Company negotiated with several of its Internet partners to
reduce cash payments and other promotional expenses related to partnering
agreements. The Company also wrote off approximately $236,000 of fixed assets no
longer in use due to reductions in processing volumes and other production
changes.
Conference Call
An investor conference call has been scheduled for today, Thursday, April 26,
2001 at 8:00 am Pacific Time to discuss the second quarter results. The
conference call will be broadcast live over the Internet. To listen to the call
over the Internet, go to PhotoWorks' Web site at www.photoworks.com. If you
cannot listen to the conference call live, a replay will be available on
PhotoWorks' Web site for 90 days. If you do not have Internet access, a replay
of the call will be available from April 26, 2001 at 10:00 a.m. Pacific Time to
May 3, 2001 at 10:00 a.m. Pacific Time by dialing 1-800-633-8284 and entering
access code 18417406.
About PhotoWorks(R)
PhotoWorks is the leading online photo services company dedicated to providing
its customers with innovative ways to enjoy and use their photos. The PhotoWorks
service provides both traditional and digital camera owners with the easiest way
to archive and organize photos online, share them with friends and family, and
order reprints, photo albums and other gifts.
PhotoWorks draws upon a unique dual heritage as a top-rated photofinisher with
over twenty years of experience along with a tradition of innovation and
leadership in digital and online photo services. PhotoWorks was the first to
offer free scanning, online archiving and e-mail sharing services to both
traditional and digital camera users, and hosts the largest consumer online
photo archive in the world, currently with over 175 million images.
Based in Seattle, PhotoWorks, Inc. [Nasdaq NM: FOTO] was founded in 1978. The
Company generated over $70 million in net revenues for the 12 months ended March
31, 2001. More information is available at www.photoworks.com or by calling
1.800.746.8696.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
Statements in this news release concerning future profitability, fourth quarter
profitability and cash neutral goals, leadership in online digital imaging and
photo-sharing, sequentially stronger revenues, results from retention and
reactivation programs, results from merchandizing tests, operational
efficiencies, seasonality, growth of archive as an indicator of future business
activities, marketing initiatives, product launches, future products, services
and opportunities in online digital imaging and photo sharing, and any other
statement which may be construed as a prediction of future capabilities,
performance or events are forward-looking statements, the occurrence of which
are subject to a number of known and unknown risks and uncertainties which might
cause actual performance to differ materially from those expressed or implied by
such statements. These risks and uncertainties include the possibility of delays
in the expansion of image storage capacity due to delays in deliveries from
suppliers or technical problems; system performance problems due to technical
difficulties, system malfunctions, Internet interruptions or other factors;
pricing and other activities by competitors, execution of marketing programs;
and other risks including those described in the Company's Annual Report on Form
10-K and those described from time to time in the Company's other filings with
the Securities and Exchange Commission, press releases and other communications.
-Financial Tables Follow-
PHOTOWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share data)
Second Quarter Ended Six Months Ended
----------------------------------- ------------------------------------
March 31, 2001 March 25, 2000 March 31, 2001 March 25, 2000
Net revenues $ 12,690 $18,796 $27,675 $39,287
Cost of goods and services 10,947 13,506 23,245 26,958
------ ------ ------ ------
Gross profit 1,743 5,290 4,430 12,329
Operating Expenses:
Marketing expenses 5,1997,516 7,765 13,823
Research and development 1,350 618 2,525 1,083
General and administrative 2,088 1,796 3,937 3,031
------- ------- ------- -------
Total operating expenses 8,637 9,930 14,227 17,937
------- ------- ------ ------
Loss from operations (6,894) (4,640) (9,797) (5,608)
Other income (expense), net (2) 345 (132) 591
---------- ------- ------- --------
Loss before income taxes (6,896) (4,295) (9,929) (5,017)
Income tax expense - (496) - (246)
---------- --------- ---------- --------
Net loss (6,896) (4,791) (9,929) (5,263)
Preferred stock accretion - (1,035) - (1,035)
---------- -------- ---------- -------
Net loss applicable to common
shareholders $(6,896) $(5,826) $(9,929) $(6,298)
====== ====== ====== ======
Net loss per share $(.42) $(.29) $(.60) $(.32)
==== ==== ==== ====
Net loss per common share $(.42) $(.36) $(.60) $(.39)
==== ==== ==== ====
Weighted average number of
shares outstanding 16,522,000 16,368,000 16,514,000 16,347,000
========== ========== ========== ==========
PHOTOWORKS, INC.
SELECTED CONSOLIDATED BALANCE SHEET DATA
March 31, 2001 September 30, 2000
-------------- ------------------
Cash and Investments $ 531,000 $ 2,651,000
Inventories 2,881,000 5,562,000
Prepaid expenses 1,024,000 2,759,000
Current Assets 5,511,000 12,272,000
Total Assets $15,149,000 $24,662,000
=========== ===========
Current Liabilities $11,764,000 $10,135,000
Total Liabilities 11,951,000 11,658,000
Total Shareholders' Equity 3,198,000 13,004,000
Total Liabilities and Shareholders' Equity $15,149,000 $24,662,000
=========== ===========
########