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): April 28, 2003
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(c). Exhibits
Exhibit
Number Description
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99.1 Press Release dated April 28, 2003
Item 9. Regulation FD Disclosure
The following information is also provided under Item 12 of Form 8-K in
accordance with Release No. 33-8216.
On April 28, 2003, eGames, Inc. (the "Company") issued a press release
announcing its financial results for the three and nine months ended March 31,
2003, as described in the press release attached as Exhibit 99.1 and
incorporated herein by reference.
The press release dated April 28, 2003 attached to this Form 8-K as Exhibit 99.1
contains non-GAAP financial information. The Company's management believes that
the presentation of the non-GAAP financial information in Exhibit 99.1 provides
useful information to investors in evaluating the Company's financial condition
and results of operations and comparing the current results of operations with
the prior periods' results. The Company believes that the information assists
investors in understanding the material impact on its operating results of the
agreements between the Company and certain food and drug retailers and other
distributors.
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: April 28, 2003
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 THIRD QUARTER
FISCAL 2003 FINANCIAL RESULTS
Langhorne, PA - April 28, 2003 - eGames, Inc. (OTCBB: EGAM), a publisher of
Family Friendly(TM), value-priced consumer entertainment PC software games,
today announced its financial results for the three and nine months ended March
31, 2003.
Three Months Ended March 31, 2003:
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For the three months ended March 31, 2003, net sales decreased by $2,095,000, or
58%, to $1,531,000 compared to $3,626,000 for the same quarter a year earlier.
Net income was $296,000, or $0.03 per diluted share, compared to $911,000, or
$0.09 per diluted share, for the same quarter a year ago. The $2,095,000
decrease in net sales resulted from a $2,281,000 net product sales decrease to
North American non-traditional software retailers and distributors, which
decrease was partially offset by a $167,000 increase in net product sales to
North American traditional software retailers and distributors and a $19,000
increase in worldwide licensing revenues.
Nine Months Ended March 31, 2003:
- ---------------------------------
For the nine months ended March 31, 2003, net sales decreased by $2,552,000, or
32%, to $5,336,000 compared to $7,888,000 for the same period a year earlier.
Net income was $951,000, or $0.10 per diluted share, compared to $1,009,000, or
$0.10 per diluted share, for the same nine-month period last year. The
$2,552,000 decrease in net sales resulted from a $3,965,000 net product sales
decrease to North American non-traditional software retailers and distributors,
combined with a $105,000 decrease in net product sales to international
distributors, which decreases were partially offset by a $1,410,000 increase in
net product sales to North American traditional software retailers and
distributors and a $108,000 increase in worldwide licensing revenues.
Impact From Agreements with Various Retailers and Distributors:
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During the three and nine month periods ended March 31, 2002, the Company had
entered into an agreement with one of its largest drug store retail customers,
which among other things, had eliminated any right of product return and allowed
the Company to recognize net product sales of approximately $2.1 million and net
income of approximately $1.1 million. During fiscal 2003, the Company entered
into similar agreements with other retailers and distributors, which allowed it
to recognize net product sales of $39,000 and net income of $27,000 in the three
months ended March 31, 2003, and net product sales of $120,000 and net income of
$108,000 in the nine months ended March 31, 2003. Most of these amounts had been
deferred in accordance with the Company's revenue recognition policy requiring
the Company to recognize sales relating to product shipments to food and drug
store retailers based on reported product sell-through to consumers.
Excluding the impact from these agreements, the Company would have recognized
net sales of approximately $1.5 million for each of the three month periods
ended March 31, 2003 and 2002, and net sales of approximately $5.2 million and
$5.8 million for the nine months ended March 31, 2003 and 2002, respectively.
Excluding the impact from these agreements, the Company would have recognized
net income of $269,000 or $0.03 per diluted share and a net loss of ($211,000)
or ($0.02) per diluted share for the three months ended March 31, 2003 and 2002,
respectively, and net income of $843,000 or $0.08 per diluted share and a net
loss of ($113,000) or ($0.01) per diluted share for the nine months ended March
31, 2003 and 2002, respectively.
The following table presents the net sales, net income (loss), and net income
(loss) per diluted share for the three and nine month periods ended March 31,
2003 and 2002, respectively, as reported and then excluding the benefit
recognized as a result of the agreements with various retailers and distributors
discussed above:
(amounts in thousands, except per share amounts)
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Three Months ended Nine Months ended
March 31, March 31,
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Increase Increase
2003 2002 (Decrease) 2003 2002 (Decrease)
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As reported:
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Net sales $ 1,531 $ 3,626 ($ 2,095) $ 5,336 $ 7,888 ($ 2,552)
======== ======== ========== ======== ======== =========
Net income (loss) $ 296 $ 911 ($ 615) $ 951 $ 1,009 ($ 58)
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Net income (loss) per diluted share $ 0.03 $ 0.09 ($ 0.06) $ 0.10 $ 0.10 $ - 0 -
======== ======== ========== ======== ======== =========
Excluding agreements with
retailers and distributors:
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Net sales $ 1,492 $ 1,511 ($ 19) $ 5,216 $ 5,773 ($ 557)
======== ======== ========== ======== ======== =========
Net income (loss) $ 269 ($ 211) $ 480 $ 843 ($ 113) $ 956
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Net income (loss) per diluted share $ 0.03 ($ 0.02) $ 0.05 $ 0.08 ($ 0.01) $ 0.09
======== ======== ========== ======== ======== =========
Financial Highlights:
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The Company's fiscal 2003 third quarter financial results benefited from
continuing improvements in the Company's gross profit margin, combined with
reductions in operating expenses due to cost saving initiatives and reduced
interest costs. The Company repaid all of its bank debt on January 16, 2003.
The following items represent certain key financial highlights:
o Quarterly net product sales to North American traditional software
retailers and distributors increased by $167,000 or 13%,
o Quarterly worldwide licensing revenues increased by $19,000 or 44%,
o Quarterly gross profit margin increased to 62% from 47%,
o Quarterly operating expenses decreased by $73,000 or 9%,
o Quarterly interest expense decreased by $25,000 or 80%,
o Stockholders' equity increased by more than $2.2 million compared to the
year ago period, and
o Working capital increased by more than $2.0 million compared to the same
period a year earlier.
Factors contributing to the 15% gross profit margin improvement for the current
quarter include cost savings, as a percentage of net sales, from:
o Lower product costs resulting from the discontinuation of direct sales
of lower margin third-party publisher software titles to food and drug
store retailers, a reduction in lower margin inventory closeout sales,
and the continued distribution of higher-priced PC gaming software
titles,
o Lower inventory obsolescence provision due to improved inventory cost
recoverability, and
o Lower freight costs due to a greater percentage of cost effective
product shipments to a concentrated group of distribution customers,
combined with more cost effective direct-to-store order fulfillment.
In addition to these improvements in the gross profit margin, the Company's
financial results benefited from operating expense savings for the three and
nine months ended March 31, 2003 of $73,000 and $330,000, respectively. The
largest operating expense reductions were in marketing promotion costs and
professional service fees, as well as depreciation and amortization expense,
which decreases were partially offset by increases in insurance and stock
compensation costs. The Company's financial results continue to benefit from the
strategic decision to transition both of its direct retail drug store
distribution and international distribution to licensing relationships. This
decision has allowed the Company to focus its business plan on serving its core
customer (the value conscious consumer of PC gaming software) by increasing
product distribution at mass-merchant, specialty and software retailers where
these consumers shop for this type of entertainment product.
Additional Net Sales Information:
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(amounts in thousands)
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Three Months ended
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March 31, March 31, Increase
Distribution Channel 2003 2002 (Decrease)
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North American traditional software retailers and distributors $ 1,425 $ 1,258 $ 167
North American non-traditional software retailers and distributors 44 2,325 (2,281)
International software distributors - 0 - - 0 - - 0 -
Worldwide licensing revenues 62 43 19
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Three Months Net Sales $ 1,531 $ 3,626 ($ 2,095)
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Nine Months ended
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March 31, March 31, Increase
Distribution Channel 2003 2002 (Decrease)
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North American traditional software retailers and distributors $ 4,901 $ 3,491 $ 1,410
North American non-traditional software retailers and distributors 117 4,082 (3,965)
International software distributors 5 110 (105)
Worldwide licensing revenues 313 205 108
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Nine Months Net Sales $ 5,336 $ 7,888 ($2,552)
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Comments:
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Jerry Klein, President and CEO of eGames, stated "Our third quarter fiscal 2003
financial results represent the continuing progress of our business plan
implemented more than a year ago to improve our financial condition. We have
successfully aligned our limited resources to satisfy an increasing number of
retail consumers through a concentrated group of cost effective distribution
relationships. While doing so, we have made significant progress in
strengthening our financial condition by: converting accounts receivable
balances and certain slow-moving software titles into cash, reducing trade debt,
eliminating bank debt, and improving our gross profit margin by controlling
costs. Continuing to improve our Company's financial strength remains the
dominant objective of our focused business plan."
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!(R) 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 Company's intention to continue to
improve its financial condition; and other statements that contain the words
"believes," "expects," "may," "should," or "anticipates". 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 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 and Quarterly Report on
Form 10-QSB for the quarter ended December 31, 2002 filed with the Securities
and Exchange Commission.