PhotoWorks Inc.
1260 16th Avenue West
Seattle, WA 98119-340
www.photoworks.com
NEWS RELEASE
- ------------------------------------------------------------------------------
Company Contact:
Gary Christophersen
(206) 281-1546
ir@photoworks.com
PHOTOWORKS, INC. ANNOUNCES THIRD QUARTER RESULTS
-Howard Lee Resigns as President and CEO-
Seattle, August 9, 2001 -- PhotoWorks, Inc. [Nasdaq NM: FOTO], a leading
online, direct mail and retail photo services company today announced financial
results for its third quarter and nine months ended June 30, 2001.
Net revenues for the third quarter were $14,365,000, compared to
$19,862,000 for the third quarter of fiscal 2000. Significant decreases in
marketing expenditures for fiscal 2001 of approximately $27,000,000, combined
with an overall softness in the photofinishing industry contributed to the lower
net revenues as compared to the prior year. The Company reported a net loss of
$3,046,000, or a loss of $.18 per share, for the third quarter compared to a net
loss of $21,902,000, or a loss of $1.33 per share, in the third quarter of
fiscal 2000.
Net revenues for the nine months ended June 30, 2001 were $42,040,000
compared to $59,149,000 for the comparable period of fiscal 2000. The Company
reported a net loss of $12,975,000, or a loss of $.78 per share, for the nine
months ended June 30, 2001, compared to a net loss of $27,165,000, or a loss of
$1.66 per share in the comparable period of fiscal 2000.
The Company also announced the resignation of Howard Lee as President, CEO
and director of PhotoWorks. Gary Christophersen, Chairman, will return as
interim CEO to lead the existing management team. At this time, the Company has
no plans to conduct a search for a new CEO.
Company Continues to Anticipate Fourth (July-September) Quarter Profitability
"As we anticipated, net revenues decreased for the quarter, but we have
accomplished short-term goals such as expense reductions and prudent marketing
spends that we believe will help us achieve our projection of profitability this
July-September quarter," said Gary Christophersen, Chairman and interim CEO of
PhotoWorks. "I anticipate that we will generate positive operating cash flow and
net income in our fourth quarter of fiscal 2001, which is typically the
strongest quarter, due primarily to the seasonality of the photofinishing
business. Under current operating plans for fiscal 2002, we expect to generate
positive operating cash flow for fiscal year 2002, but profitability will vary
by quarters due to seasonality and other factors such as marketing spends and
market conditions."
On July 13, 2001, the Company announced that it received a Nasdaq Staff
Determination indicating that the Company failed to comply with the net tangible
assets requirement for continued listing under Marketplace Rule 4450(a)(3), and
that its securities are, therefore, subject to delisting from The Nasdaq
National Market. The Company has requested a hearing before a Nasdaq Listing
Qualifications Panel to review the Staff's Determination. The Company is
reviewing its options to meet all Nasdaq listing qualifications but believes
there is a strong possibility that it will be delisted from the Nasdaq. If
delisting occurs, management believes its stock is eligible to trade on the OTC
Bulletin Board.
Without admitting wrongdoing or liability, the Company previously announced
that it had reached an out-of-court settlement regarding a nationwide class
action lawsuit related to the Company's processing and film offers. The
settlement agreement was approved by the Court on July 16, 2001. The Company
accrued a non-cash expense of $675,000 in the third quarter of fiscal 2001
related to the future distribution of film to class members pursuant to terms of
the final settlement.
Conference Call
An investor conference call has been scheduled for today, Thursday, August
9, 2001 at 8:00 a.m. Pacific Daylight Time to discuss the third 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 August 9, 2001 at 10:00 a.m. Pacific Daylight
Time to August 16, 2001 at 10:00 a.m. Pacific Daylight Time by dialing
1-800-633-8284 and entering access code 19431921.
--more--
<Page>
About PhotoWorks(R)
PhotoWorks is a leading 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.
Based in Seattle, PhotoWorks, Inc. [Nasdaq NM: FOTO] was founded in 1978.
The Company generated $65 million in net revenues for the 12 months ended June
30, 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 fourth quarter profitability and
positive operating cash flow, current projections and assumptions for fiscal
2002, ability to meet Nasdaq listing qualifications, ability to trade on OTC
Bulletin Board, leadership in online digital imaging and photo-sharing,
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 ability to generate
cash to fund operations; 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.
Any forward looking-statements in this news release reflect the Company's
expectations at the time of this release only, and the Company disclaims any
responsibility to revise or update any such forward-looking statements except as
may be required by law.
-Financial Tables Follow-
PHOTOWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share and share data)
<Table>
<Caption>
Third Quarter Ended Nine Months Ended
----------------------------------- ------------------------------------
June 30, 2001 June 24, 2000 June 30, 2001 June 24, 2000
Net revenues $ 14,365 $19,862 $ 42,040 $ 59,149
Cost of goods and services 10,926 15,543 34,171 42,501
------ ------- ------ ------
Gross profit 3,439 4,319 7,869 16,648
Operating Expenses:
Marketing expenses 2,570 23,606 10,335 37,429
Research and development 895 779 3,420 1,862
General and administrative 2,165 1,976 6,102 5,007
Lawsuit settlement 759 - 1,094 -
------- -------- ------- ------
Total operating expenses 6,389 26,361 20,951 44,298
------- -------- ------- ------
Loss from operations (2,950) (22,042) (13,082) (27,650)
Other income (expense), net (96) 323 107 913
------- -------- -------- ------
Loss before income taxes (3,046) (21,719) (12,975) (26,737)
Income tax expense - (183) - (428)
------ ------- ------ --------
Net loss (3,046) (21,902) (12,975) (27,165)
Preferred stock accretion - (1,511) - (2,546)
------ -------- ------ --------
Net loss applicable to common
shareholders $(3,046) $(23,413) $(12,975) $(29,711)
====== ======= ======= =======
Net loss per share $ (.18) $ (1.33) $ (.78) $ (1.66)
====== ======= ======= =======
Net loss per common share $ (.18) $ (1.43) $ (.78) $ (1.81)
====== ======= ======= =======
Weighted average number of
shares outstanding 16,612,000 16,415,000 16,547,000 16,370,000
========== ========== ========== ==========
</Table>
PHOTOWORKS, INC.
SELECTED CONSOLIDATED BALANCE SHEET DATA
<Table>
<Caption>
(Audited)
June 30, 2001 September 30, 2000
------------- ------------------
Cash and Investments $ 1,605,000 $ 2,651,000
Inventories 2,350,000 5,562,000
Prepaid expenses 285,000 2,759,000
Current Assets 5,266,000 12,272,000
Total Assets $ 13,558,000 $24,662,000
========== ==========
Current Liabilities $ 10,765,000 $10,135,000
Total Liabilities 13,406,000 11,658,000
Total Shareholders' Equity 152,000 13,004,000
Total Liabilities and Shareholders' Equity $ 13,558,000 $24,662,000
========== ==========
</Table>
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