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): November 1, 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)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On November 1, 2004, eGames, Inc. (the "Company") issued a press release
announcing its results for the quarter ended September 30, 2004. The full
text of the press release is set forth in Exhibit 99.1 hereto.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
The following document is filed as an exhibit to this report.
99.1 Press Release dated November 1, 2004.
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
--------------------
Thomas W. Murphy, Vice President and
Chief Financial Officer
Dated: November 1, 2004
EXHIBIT 99.1
For Immediate Release
eGames Announces Fiscal 2005 First Quarter Financial Results
Langhorne, Pa. - November 1, 2004 - eGames, Inc. (OTCBB: EGAM), a publisher of
Family Friendly(TM), affordable consumer entertainment PC software games, today
announced financial results for the three months ended September 30, 2004.
Net sales decreased by $874,000, or 43%, to $1,178,000 for the three months
ended September 30, 2004, compared to $2,052,000 in net sales for the three
months ended September 30, 2003. For the quarter ended September 30, 2004, the
Company experienced a net loss of $184,000, or $0.02 per diluted share, compared
to net income of $478,000, or $0.05 per diluted share, for the quarter ended
September 30, 2003.
The $874,000 decrease in net sales was caused by a $927,000 decrease in net
sales to software distributors that serve North American mass-merchants and
other major retailers. The primary factors contributing to this decrease in net
sales were:
o A significant retailer changed its marketing emphasis to featuring
higher retail price point ($19.99 and above) game and productivity
titles, thereby reducing its retail shelf space allocated to PC game
software titles at the $9.99 retail price point. This decision had a
negative impact on replenishment and initial product orders for the
quarter;
o Increased competition in the overall consumer entertainment
marketplace from a growing number of alternative game-playing
technologies available to consumers, including game consoles,
hand-held game devices, mobile phones and online game websites, and
the impact this competition has had on the PC game software market;
and
o No sales during the quarter ended September 30, 2004 of certain
promotional box titles retail priced at $19.99, which in the year
ago quarter had represented approximately $280,000 in net sales.
Partially offsetting the decrease in net sales was a $25,000 increase in net
sales on the Internet and a $38,000 increase in inventory liquidation sales.
The Company recognized a net loss of $184,000 during the September 30, 2004
quarter compared to the year ago quarter in which the Company earned $478,000 in
net income. The $662,000 decline in profitability for the quarter ended
September 30, 2004 compared to the year ago quarter was a result of the
following factors:
o a $627,000 decline in gross profit resulting from a 43% decrease in
overall net sales and the 8.6% decrease in the gross profit margin
that resulted from:
o a 4.1% increase in royalty costs due to product mix changes
and the write-off of advance royalty payments related to
various game titles removed from retail distribution;
o a 2.3% increase in freight costs due to a greater proportion
of sales to non-distributors; and
o a 2.2% increase in other costs related primarily to increased
sales of liquidated inventory; and
o an $81,000 increase in operating expenses, resulting from writing
off $122,000 in capitalized licensing and inventory costs related to
the RealAge Games & Skills project due to the Company's
determination during the quarter that the recovery of these costs in
future periods is unlikely. Partially offsetting the impact of this
write off expense was a $40,000 decrease in public relations
expenses compared to the quarter ended September 30, 2003.
During the quarter ended September 30, 2004, there were reductions of $6,000 in
net interest expense and $40,000 in state income tax expense compared to the
three months ended September 30, 2003, that partially offset the overall
decrease in profitability for the current quarter.
The following table represents the Company's net sales by distribution channel
for the quarters ended September 30, 2004 and 2003, respectively:
Net Sales by Distribution Channel
---------------------------------
(rounded to the nearest thousand)
---------------------------------
Quarters ended
September 30,
---------------------------------------
Increase %
Distribution Channel 2004 % 2003 % (Decrease) Change
- --------------------- ----------- ------- ----------- ------- --------- ------
Software Distributors $ 815,000 69% $ 1,742,000 85% ($ 927,000) (53%)
Software Retailers 160,000 14% 170,000 8% (10,000) (6%)
Licensing 101,000 9% 101,000 5% - 0 - n/m
Internet 64,000 5% 39,000 2% 25,000 64%
Inventory Liquidators 38,000 3% - 0 - n/m 38,000 n/m
- --------------------- ----------- ------- ----------- ------- --------- ------
Totals $ 1,178,000 100% $ 2,052,000 100% ($ 874,000) (43%)
=========== ==== =========== ==== ========= ===
Comments:
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"The first quarter of fiscal 2005 has been a very challenging period for our
organization," said Jerry Klein, President and Chief Executive Officer. "We, and
the PC games software market in general, are in a significant transitional phase
within the overall consumer entertainment arena. Consumers are dividing up their
entertainment dollars among a growing array of electronic gaming alternatives,
such as: multiple game console platforms, online game portals through increasing
availability to high-speed internet access, hand-held game devices and mobile
phones. Today the PC is the most ubiquitous and robust gaming platform in
existence and we need to find ways to communicate the many benefits of playing
PC games more effectively to more consumers. We now know that playing PC games
is excellent therapy for helping people maintain mental sharpness as they age
and reducing stress while having fun. We think these are good benefits and more
PC users should be playing fun, familiar, easy-to-play games like all of our
Family Friendly eGames products. Perhaps this is our greatest challenge as we
strive to increase our business."
Mr. Klein continued, "Going forward, our strategy remains focused on executing
viable profit generating opportunities at retail, validating potentially
profitable business development options, maximizing Internet sales by expanding
our online gaming site offering, and increasing licensing revenues by doing more
profitable business with our current licensees, while finding incremental
opportunities with new licensees. In particular, the Internet and licensing
revenue channels represent relatively strong margins and lower working capital
requirements, compared to traditional PC software distribution. While we strive
to maximize all profitable revenue alternatives within this new and evolving
business model, we will also need to realign our resources and adjust expense
levels to amounts matched with expected sales while at the same time striving to
increase our business."
Mr. Klein further commented that, "Despite the difficult trends we are
experiencing, our current financial condition as measured by our balance sheet
remains strong. As of September 30, 2004, we had net working capital of $3.3
million, no borrowings and continued to have full access to the $500,000 credit
facility with Hudson United Bank."
eGames, Inc.
Balance Sheet
(Unaudited)
As of As of
September 30, June 30,
ASSETS 2004 2004
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Current assets:
Cash and cash equivalents $ 1,553,840 $ 1,742,224
Accounts receivable, net 1,121,740 1,533,859
Inventory, net 842,114 814,286
Prepaid and other expenses 473,896 440,131
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Total current assets 3,991,590 4,530,500
Furniture and equipment, net 74,969 74,859
Intangible assets 24,089 24,089
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Total assets $ 4,090,648 $ 4,629,448
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 359,575 $ 441,016
Accrued expenses 312,952 616,794
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Total current liabilities 672,527 1,057,810
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Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 1,359,970 1,329,164
Accumulated deficit (6,620,259) (6,435,936)
Treasury stock (501,417) (501,417)
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Total stockholders' equity 3,418,121 3,571,638
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Total liabilities and stockholders' equity $ 4,090,648 $ 4,629,448
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eGames, Inc.
Statements of Operations
(Unaudited)
Three Months ended
September 30,
----------------------------
2004 2003
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Net sales $ 1,177,829 $ 2,052,472
Cost of sales 571,158 818,185
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Gross profit 606,671 1,234,287
Operating expenses:
Product development 239,115 126,390
Selling, general and administrative 571,132 602,284
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Total operating expenses 810,247 728,674
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Operating income (loss) (203,576) 505,613
Interest (income) expense, net (1,230) 4,983
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Income (loss) before income taxes (202,346) 500,630
Provision (benefit) for income taxes (18,024) 22,284
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Net income (loss) $ (184,322) $ 478,346
============ ============
Net income (loss) per common share:
- Basic $ (0.02) $ 0.05
============ ============
- Diluted $ (0.02) $ 0.05
============ ============
Weighted average common shares outstanding - Basic 10,102,673 9,989,337
Dilutive effect of common share equivalents - 0 - 483,761
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Weighted average common shares and
common share equivalents outstanding - Diluted 10,102,673 10,473,098
============ ============
About eGames, Inc.
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eGames, Inc., headquartered in Langhorne, PA, publishes and markets a
diversified line of Family Friendly(TM), affordable consumer entertainment PC
software games. The Company promotes the eGames(TM) brand 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
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. 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 strategy of executing
viable profit generating opportunities at retail, validating potentially
profitable business development options, maximizing Internet sales by expanding
the Company's online gaming site offering, and increasing licensing revenues by
doing more profitable business with the Company's current licensees, while
finding incremental opportunities with new licensees; the Company's plans to
maximize all profitable revenue alternatives and to realign its resources and
adjust expense levels to amounts supportable by expected sales; and the
Company's continued access to a $500,000 credit line with Hudson United Bank;
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 risks and uncertainties
that may affect the Company's future results and performance include, but are
not limited to, those discussed under the heading "Factor Affecting Future
Performance" in the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2004 filed with the Securities and Exchange Commission.
Contact Information 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)