SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 23, 2002
eGames, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 0-27102 23-2694937
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2000 Cabot Blvd. West, Suite 110, Langhorne, PA 19047-1833
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 750-6606
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(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
Exhibit
Number Description
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99.1 Press Release dated October 23, 2002
Item 9. Regulation FD Disclosure
On October 23, 2002, eGames, Inc. (the "Company") issued a press release
announcing its financial results for the three months ended September 30, 2002,
as described in the press release attached as Exhibit 99.1 and incorporated
herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
eGames, Inc.
By: /s/ Thomas W. Murphy
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Thomas W. Murphy, Vice President and
Chief Financial Officer
Dated: October 24, 2002
EXHIBIT 99.1
At eGames, Inc.
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Jerry Klein, President & CEO
(215) 750-6606 (Ext. 118)
Tom Murphy, Vice President & CFO
(215) 750-6606 (Ext. 113)
For Immediate Release
eGAMES ANNOUNCES FIRST QUARTER
FISCAL 2003 FINANCIAL RESULTS
Langhorne, PA - October 23, 2002 - eGames, Inc. (OTCBB: EGAM), a publisher and
developer of Family Friendly(TM), value-priced consumer entertainment PC
software games, today announced its financial results for the three months ended
September 30, 2002.
Financial Results:
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For the three months ended September 30, 2002, net sales increased by $303,000,
or 20%, to $1,859,000 compared to $1,556,000 for the same quarter a year
earlier. This $303,000 increase in net sales resulted from a $782,000 increase
in net sales to North American traditional software customers and a $51,000
increase in net sales to North American OEM and licensing customers, which
increases were partially offset by net sales decreases to North American
non-traditional software customers and international customers of $489,000 and
$41,000, respectively.
For the three months ended September 30, 2002, net income was $213,000, or $0.02
per diluted share, compared to a net loss of ($383,000), or ($0.04) per diluted
share, for the same quarter last year. During this same period, the Company's
gross profit improved to $979,000 compared to $598,000 for the same quarter a
year ago. The $596,000 increase in net income resulted primarily from the 20%
increase in net sales, combined with a 14% improvement in gross profit margin,
as a percentage of net sales, and a 21% reduction in operating expenses.
Additionally, net sales and net income both benefited by approximately $81,000
from agreements the Company entered into during the quarter with two customers
to finalize their respective sales return allowances. For the three months ended
September 30, 2002, the Company's gross profit margin improved to 53% compared
to 39% for the same quarter a year earlier, resulting in a $381,000 improvement
in gross profit. The primary factors contributing to this 14% gross profit
margin improvement, include:
o increased distribution of higher-priced consumer entertainment gaming
software titles,
o product and royalty cost savings resulting from the discontinuation of
direct sales of lower margin third-party publisher software titles to
drug store retailers,
o reduced low margin inventory closeout sales, and
o reclamation, freight and inventory obsolescence cost savings resulting
from the termination of the Company's direct distribution to drug store
retailers, from which the Company had previously experienced high
product return rates.
These factors were partially offset by an increase in royalty payments to
third-party software developers as the cost to license new consumer
entertainment PC software game content continued to increase.
Additionally, for the three months ended September 30, 2002, the Company reduced
operating expenses by $202,000 or 21%, to $748,000, down from $950,000 during
the same quarter last year. The largest savings in operating expenses occurred
in marketing promotions, bad debt provisions and cash discounts. These cost
savings were substantially related to the Company's strategic decision to
transition its direct distribution to drug store retailers to a licensing
relationship with a third-party distributor, and to redirect the Company's
operational focus towards increasing product distribution with mass-merchant
retailers and distributors serving those retailers.
Comments:
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Jerry Klein, President and CEO of eGames, stated "Our first quarter fiscal 2003
financial results represent the continuing successful execution of our focused
business plan that we implemented as a result of the liquidity crisis we
addressed this time last year.
In particular, we've made significant progress in strengthening our balance
sheet by: converting accounts receivable balances and slow-moving inventory into
cash, reducing debt, achieving operational profitability, and returning both our
working capital and our stockholders' equity to positive levels. For example, as
of September 30, 2002, we had working capital of $301,000 and stockholders'
equity of $346,000, compared to September 30, 2001, when we had a working
capital deficiency of ($1,986,000), and a stockholders' deficit of ($2,498,000).
Continued strengthening of our balance sheet remains our dominant, focused
objective going forward."
Mr. Klein further commented, "We accomplished a number of operational objectives
in this year's fiscal first quarter that bode well for the remainder of fiscal
2003 such as significantly expanding our North American retail distribution to
more than three times the number of retail facings we enjoyed this same time
last year and our initial launch of higher-end PC software games retail priced
at $19.99 or $29.99. Our business plan is focused to serve our core value-priced
consumer and the retailers serving them and to gradually increase our product
offering to include titles that appeal to the higher-end game player that is
looking for a high-value gaming experience at an affordable price."
About the Company:
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eGames, Inc., headquartered in Langhorne, PA, develops, publishes and markets a
diversified line of Family Friendly(TM), value-priced consumer entertainment PC
software games. The Company promotes the eGames(TM), Game Master Series(TM), and
Outerbound(TM) brands in order to generate customer loyalty, encourage repeat
purchases and differentiate eGames software products to retailers and consumers.
eGames - Where the "e" is for Everybody! Additional information regarding
eGames, Inc. can be found on the Company's Web site at www.egames.com.
Forward-Looking Statement Safe Harbor:
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This press release contains certain forward-looking statements, including
without limitation, statements regarding the increase in the number of retail
facings carrying the Company's products and the launch of higher-priced,
higher-end PC software games, and the effect of accomplishing these operational
objectives on the financial results for the remainder of fiscal 2003; and the
Company's plan to gradually increase its product offering to include more
higher-priced PC software games. The actual results achieved by the Company and
the factors that could cause actual results to differ materially from those
indicated by the forward-looking statements are in many ways beyond the
Company's control. The Company cautions readers that the following important
factors, among others, could cause the Company's actual results to differ
materially from those expressed in this press release: the market acceptance and
successful sell-through results for the Company's products at retail stores,
particularly new titles that are priced higher than those that the Company has
historically sold; the market acceptance of increased pricing of the Company's
products; the amount of unsold product that is returned to the Company by retail
stores; the Company's ability to accurately predict the amount of product
returns that will occur and the adequacy of the reserves established for such
returns; the success of the Company's distribution strategy, including its
ability to enter into new distribution and direct sales relationships on
commercially acceptable terms; the continued allocation of adequate shelf space
for the Company's products in major retail chain stores; the Company's ability
to collect outstanding accounts receivable and establish adequate reserves for
uncollectible receivables; the ability to deliver products in response to orders
within a commercially acceptable time frame; downward pricing pressure;
fluctuating costs of developing, producing and marketing the Company's products;
the Company's ability to license or develop quality content for its products;
consumers' continued demand for value-priced software; increased competition in
the value-priced software category; and various other factors, many of which are
beyond the Company's control. Risks and uncertainties that may affect the
Company's future results and performance also include, but are not limited to,
those discussed under the heading "Risk Factors" in the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 2002 filed with the Securities
and Exchange Commission and also posted on the Company's website,
www.egames.com.
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