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): February 2, 2004
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 February 2, 2004
Item 12. Results of Operations and Financial Condition
On February 2, 2004, eGames, Inc. (the "Company") issued a press release
announcing its financial results for the three and six months ended December 31,
2003. A copy of the press release is furnished as Exhibit 99.1.
The information in this report shall not deemed to be "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise subject to the liability of that section, and shall not be
incorporated by reference into any registration statement or other document
filed under the Securities Act of 1933, as amended, or the Exchange Act, except
as shall be expressly set forth by specific reference in such filing.
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: February 2, 2004
EXHIBIT 99.1
At eGames, Inc.
Jerry Klein, President & CEO
(215) 750-6606 (Ext. 118)
Tom Murphy, Vice President & CFO
(215) 750-6606 (Ext. 113)
For Immediate Release
eGAMES ANNOUNCES
SECOND QUARTER FISCAL 2004 FINANCIAL RESULTS
Langhorne, PA - February 2, 2004 - 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 six months ended
December 31, 2003.
Three Months Ended December 31, 2003:
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For the three months ended December 31, 2003, net sales increased by $170,000,
or 9%, to $2,116,000 compared to $1,946,000 for the same quarter a year earlier.
Net income was $471,000, or $0.04 per diluted share, for the quarter ended
December 31, 2003 compared to $442,000, or $0.04 per diluted share, for the same
quarter a year ago.
The $170,000 increase in net sales resulted from a $211,000 increase in net
product sales to traditional software distributors and retailers due mostly to
increased distribution of the Company's software titles to major North American
mass-merchant and specialty retailers served by the Company's largest
distributor (Atari, Inc.). The $211,000 net sales increase to traditional
software distributors and retailers was partially offset by a $24,000 decrease
in licensing revenues, and minor decreases in net product sales to inventory
liquidation distributors and retailers and non-traditional software distributors
and retailers.
Six Months Ended December 31, 2003:
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For the six months ended December 31, 2003, net sales increased by $363,000, or
10%, to $4,168,000 compared to $3,805,000 for the same year ago period. Net
income was $950,000, or $0.09 per diluted share, compared to $655,000, or $0.06
per diluted share, for the same six-month period a year earlier.
The $363,000 increase in net sales resulted from a $717,000 increase in net
product sales to traditional software distributors and retailers, due primarily
to increased distribution of the Company's software titles to major North
American mass-merchant and specialty retailers served by Atari, Inc. The
$717,000 net sales increase to traditional software distributors and retailers
was partially offset by a $247,000 decrease in net product sales to inventory
liquidation distributors and retailers, a $78,000 decrease in net product sales
to non-traditional software distributors and retailers, and a $29,000 decrease
in licensing revenues.
The following table represents the Company's net sales by distribution channel
for the three and six months ended December 31, 2003 and 2002, respectively:
Net Sales by Distribution Channel
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(amounts in thousands)
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Three Months ended
December 31,
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Increase %
Distribution Channel 2003 2002 (Decrease) Change
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Traditional software distributors and retailers $ 1,941 $ 1,730 $ 211 12%
Licensing revenues 121 145 (24) (17%)
Inventory liquidation distributors and retailers 54 68 (14) (21%)
Non-traditional software distributors and retailers - 0 - 3 (3) (100%)
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Totals $ 2,116 $ 1,946 $ 170 9%
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Six Months ended
December 31,
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Increase %
Distribution Channel 2003 2002 (Decrease) Change
- --------------------------------------------------- ------- ------- -------- ------
Traditional software distributors and retailers $ 3,892 $ 3,175 $ 717 23%
Licensing revenues 222 251 (29) (12%)
Inventory liquidation distributors and retailers 54 301 (247) (82%)
Non-traditional software distributors and retailers - 0 - 78 (78) (100%)
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Totals $ 4,168 $ 3,805 $ 363 10%
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Second Quarter Fiscal 2004 - Key Items:
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The Company's second quarter fiscal 2004 financial results benefited from an
increase in overall net sales, combined with reductions in operating expenses
and interest costs. These financial improvements were partially offset by a
reduction in the gross profit margin due mainly to sales of titles with higher
product costs. The following highlights represent certain key items relating to
the second quarter of fiscal 2004 compared to the same period a year earlier:
o Net product sales to traditional software distributors and retailers
increased by $211,000 or 12%, but were negatively impacted by lower
than anticipated consumer demand for certain promotional box titles
distributed at mass-merchant retailers during the holiday season;
o Gross profit increased to $1,223,000 from $1,205,000;
o Gross profit margin decreased to 58% from 62%;
o Operating expenses reduced by $21,000 to $730,000;
o Operating margin remained constant at 23%;
o Net interest income increased to $1,000 from net interest expense of
($12,000); and
o Net income increased by 7% to $471,000.
The primary cause of the 4% decrease in the quarterly gross profit margin was an
increase in product costs, as a percentage of net sales, due to:
o Increased distribution of box titles which included two to six compact
disks (CD's), compared to the year ago period, when most of our titles
in distribution contained only one CD; and
o New requirement by certain mass-merchant retailers to have security
sensor tags included in software packages.
The following table represents the Company's summary balance sheet information
as of December 31, 2003 and June 30, 2003, respectively:
Summary Balance Sheet Information
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(amounts in thousands)
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As of
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December 31, June 30, Increase
Description 2003 2003 Decrease)
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Cash and cash equivalents $ 1,787 $ 1,024 $ 763
Accounts receivable, net 1,108 1,149 (41)
Inventory, net 738 500 238
Other assets 372 256 116
Total liabilities (1,284) (1,183) 101
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Stockholders' equity $ 2,721 $ 1,746 $ 975
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Comments:
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Jerry Klein, President and Chief Executive Officer, commented, "Midway through
fiscal 2004 we have exceeded our expectations in most aspects of the business.
One of our most important accomplishments has been our ability to gain new
business relationships at a number of retailers, including Office Max, Sam's
Club and BJ's. We have also enjoyed greater breadth of distribution at existing
retail accounts, such as Wal-Mart, Target, Best Buy and Circuit City."
Mr. Klein further stated, "One area that we will continue to focus on improving
is our profitability, which for the first six months of fiscal 2004 reflected a
45% increase over our net income earned during the prior year's six month
period, but only reflected a minor improvement in the current quarter's results
over the year ago quarter. Throughout the first half of fiscal 2004 we have
remained committed to our business plan, which continues to focus on providing
fun, familiar, easy-to-play, value-priced consumer entertainment PC software
games to the value conscious consumer, at prices that are both attractive to
consumers and profitable to retailers and eGames. In particular, during the
first six months of fiscal 2004 we have increased our cash position by $763,000,
our working capital by $958,000, and we have continued to remain free of any
long-term debt. Finally as fiscal 2004 continues, we remain committed to being
financially disciplined while searching for incremental ways to increase
profitability and to maximize shareholder value."
About eGames, Inc.
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eGames, Inc., headquartered in Langhorne, PA, publishes and markets a
diversified line of Family Friendly(TM), value-priced consumer entertainment PC
software games. The Company promotes the eGames(TM) and Game Master Series(TM)
brands in order to generate customer loyalty, encourage repeat purchases and
differentiate eGames software products to retailers and consumers. eGames also
publishes and markets RealAge(R) Games & Skills, a collection of PC software
activities and games designed to help build and maintain mental sharpness.
RealAge Games & Skills also provides information and knowledge about aging
gathered from over twenty-five years of research funded by the National
Institute on Aging. Additional information regarding eGames, Inc. and RealAge
Games & Skills can be found at www.egames.com and www.realagegames.com
respectively. eGames -- Where the "e" is for Everybody!(R)
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 objectives of improving
the Company's financial strength and maximizing shareholder value by leveraging
the Company's recent success and specifically by continuing to be financially
disciplined, profitable and cash flow positive; the Company's continuing
commitment to improving profitability and maximizing cash flow; 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 Company's ability to maintain or increase
the number of retail facings carrying our products; the continued success of the
Company's third party distribution relationships, including the financial
viability of its largest distributors; the market acceptance and successful
sell-through results for the Company's products at retail stores; the market
acceptance of increased pricing of some of the Company's products; the amount of
unsold product that is returned to the Company by retail stores and
distributors; the Company's ability to accurately estimate the amount of product
returns and price markdowns that will occur and the adequacy of the allowances
established for such product returns and price markdowns; the Company's ability
to collect outstanding accounts receivable and establish adequate allowances for
uncollectible receivables; 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, 2003 and Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2003 filed with the Securities and Exchange Commission.