EXHIBIT 99.1
eGames Announces Fiscal Year 2005 Financial Results
Langhorne, Pa., - August 18, 2005 (PRIMEZONE) - eGames, Inc. (OTCBB: EGAM), a
publisher of Family Friendly(TM), affordably priced consumer entertainment PC
software games, today announced financial results for its fiscal fourth quarter
and year ended June 30, 2005.
Year ended June 30, 2005:
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Net sales decreased by $2,694,000, or 34%, to $5,344,000 for the year ended June
30, 2005, compared to $8,038,000 for fiscal year 2004. Net loss was ($155,000),
or ($0.01) per diluted share, for the year ended June 30, 2005, compared to net
income of $1,740,000, or $0.16 per diluted share, for the prior fiscal year.
Quarter ended June 30, 2005:
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Net sales decreased by $923,000, or 54%, to $794,000 for the quarter ended June
30, 2005, compared to $1,717,000 for the same quarter a year earlier. Net loss
was ($312,000), or ($0.03) per diluted share, for the quarter ended June 30,
2005, compared to net income of $262,000, or $0.02 per diluted share, for the
same quarter a year earlier.
Fiscal Year 2005 - Summary:
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The $2.7 million decrease in net sales for the year ended June 30, 2005 was
driven by a $3.1 million decrease in net sales to Atari (the Company's primary
software distributor within the United States) that resulted from the
combination of a reduction in the overall retail shelf space allotted to PC
software games at the $9.99 retail price point, and a decrease in product
sell-through rates of the Company's titles to consumers at retail stores. The
current year's decline in consumer demand for the Company's titles was due in
part to an increase in competitors' previously higher-priced titles
transitioning down to the $9.99 retail price category more quickly than in the
past, along with a greater number of competitive titles within the Company's
core gaming genres. The decrease in net sales to software distributors was
partially offset by increases of $188,000 in licensing revenues, $62,000 in net
sales direct to retailers, and $39,000 in Internet related sales.
For the year ended June 30, 2005, the Company recognized a net loss of
($155,000) compared to the year ago period in which the Company earned net
income of $1,740,000. This $1,895,000 decrease in profitability for the year
ended June 30, 2005 compared to the year ago period was primarily a result of a
$1,865,000 decline in gross profit and a $126,000 increase in operating expenses
traceable to increased legal fees incurred in enforcing the Company's
intellectual property rights, which were partially offset by a $90,000 decrease
in the Company's income tax provision due to the reduction in taxable income.
The $1,865,000 decline in gross profit resulted from a $2.7 million decrease in
net sales, combined with a 5.3% reduction in gross profit margin which resulted
from cost increases, as a percentage of net sales, of:
o 3.0% in royalty expense due to accelerated expensing of royalty
payments because of shorter life-cycles for various titles that did not
achieve anticipated consumer demand, combined with the impact from
product mix changes;
o 1.6% in freight expense traceable to increased product shipments of
smaller deliveries that incurred fixed minimum fees allocated to fewer
units per order, combined with a decreased proportion of product
deliveries to Atari that are more cost effective per unit due to
shorter shipping distances and greater quantities per shipment; and
o 0.7% in other cost of sales mostly due to higher reclamation fees from
increased processing of product returns.
The following tables represent the Company's net sales by distribution channel
for the quarters and years ended June 30, 2005 and 2004, respectively:
Net Sales by Distribution Channel
(rounded to the nearest thousand)
Quarters Ended
June 30,
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Increase %
Distribution Channel 2005 % 2004 % (Decrease) Change
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Software Distributors $ 259,000 33% $ 1,354,000 79% ($ 1,095,000) (81%)
Software Retailers 283,000 36% 130,000 8% 153,000 118%
Licensing 152,000 19% 95,000 5% 57,000 60%
Internet 81,000 10% 66,000 4% 15,000 23%
Inventory Liquidators 19,000 2% 55,000 3% (36,000) (65%)
Other - 0 - 0% 17,000 1% (17,000) N/M
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Totals $ 794,000 100% $ 1,717,000 100% ($ 923,000) (54%)
========= ==== =========== ==== ============= ===
Years Ended
June 30,
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Increase %
Distribution Channel 2005 % 2004 % (Decrease) Change
- ------------------------------------------------------------------------------------------
Software Distributors $ 3,527,000 66% $ 6,522,000 81% ($ 2,995,000) (46%)
Software Retailers 722,000 13% 660,000 8% 62,000 9%
Licensing 575,000 11% 387,000 5% 188,000 49%
Internet 323,000 6% 284,000 4% 39,000 14%
Inventory Liquidators 197,000 4% 166,000 2% 31,000 19%
Other - 0 - 0% 19,000 0% (19,000) N/M
- ------------------------------------------------------------------------------------------
Totals $ 5,344,000 100% $ 8,038,000 100% ($ 2,694,000) (34%)
=========== ==== =========== ==== ============= ===
No Cash Dividend This Quarter
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The Company also announced today that its Board of Directors has determined that
the Company will not pay a cash dividend to shareholders of its common stock
this quarter. It is the Company's intention to continue to evaluate the
feasibility of paying a quarterly cash dividend to shareholders of its common
stock in future periods. However, the payment of any future cash dividends
depends entirely upon the discretion of the Company's Board of Directors.
Comments:
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"Fiscal 2005 reflected a year when the per store retail shelf space displaying
$9.99 retail priced PC software games decreased, while at the same time, the
amount of competitive titles vying for those reduced retail shelf positions
increased. We believe that the combination of these factors had a negative
impact on consumer demand for our titles and accordingly on our net sales
compared to the year ago period. In particular during fiscal 2005, a number of
our core game genres have become increasingly crowded with competitors' titles.
Additionally, our net sales were negatively impacted by an increase in the
amount of competitors' previously higher-priced titles with very recognizable
brands defaulting down to the $9.99 retail price, much more quickly than in the
past," said Jerry Klein, President and Chief Executive Officer.
Mr. Klein continued, "although we fell far short of achieving our desired
financial results in fiscal 2005, we were able to generate $670,000 in positive
cash flow for the year. As we begin fiscal 2006, we believe our business model
is still viable and we continue to seek innovative and profitable ways to grow
our business and expand our share of the North American retail market for
affordably priced PC software games.
In fiscal 2005 we initiated a cash dividend program that we hoped would
ultimately increase the value of the Company's shares. Unfortunately, the
commencement of the cash dividend program coincided with the difficult market
conditions we have discussed throughout this fiscal year and as a result the
cash dividends have not achieved the desired goal. It is appropriate that we
suspend any cash dividend payments at this time as we seek and evaluate other
alternatives for building shareholder value while we focus on executing our
plans to achieve and maintain profitability and positive cash flows."
eGames, Inc.
Balance Sheets
(Audited)
As of As of
June 30, June 30,
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ASSETS 2005 2004
- ------ ----------- -----------
Current assets:
Cash and cash equivalents $ 2,412,162 $ 1,742,224
Accounts receivable, net 269,168 1,533,859
Inventory, net 893,766 814,286
Prepaid and other expenses 313,684 440,131
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Total current assets 3,888,780 4,530,500
Furniture and equipment, net 49,881 74,859
Intangible assets 24,089 24,089
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Total assets $ 3,962,750 $ 4,629,448
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 156,592 $ 441,016
Accrued expenses 409,640 616,794
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Total current liabilities 566,232 1,057,810
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Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 1,636,144 1,329,164
Accumulated deficit (6,918,036) (6,435,936)
Treasury stock (501,417) (501,417)
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Total stockholders' equity 3,396,518 3,571,638
----------- -----------
Total liabilities and stockholders' equity $ 3,962,750 $ 4,629,448
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eGames, Inc.
Statements of Operations
(Unaudited) (Audited)
Quarters Ended Years Ended
June 30, June 30,
------------------------ --------------------------
2005 2004 2005 2004
---------- ----------- ----------- -----------
Net sales $ 793,899 $ 1,717,277 $ 5,343,981 $ 8,038,169
Cost of sales 426,713 727,075 2,483,220 3,312,120
---------- ----------- ----------- -----------
Gross profit 367,186 990,202 2,860,761 4,726,049
Operating expenses:
Product development 93,115 123,851 538,002 510,282
Selling, general and administrative 612,723 593,300 2,492,357 2,393,571
---------- ----------- ----------- -----------
Total operating expenses 705,838 717,151 3,030,359 2,903,853
---------- ----------- ----------- -----------
Operating income (loss) (338,652) 273,051 (169,598) 1,822,196
Interest income, net 2,297 1,383 7,130 296
---------- ----------- ----------- -----------
Income (loss) before income taxes (336,355) 274,434 (162,468) 1,822,492
Provision (benefit) for income taxes (24,355) 12,358 (7,571) 82,692
---------- ----------- ------------ -----------
Net income (loss) ($ 312,000) $ 262,076 ($ 154,897) $ 1,739,800
---------- =========== ============ ===========
Net income (loss) per common
share:
- Basic ($ 0.03) $ 0.03 ($ 0.01) $ 0.17
========== =========== =========== ===========
- Diluted ($ 0.03) $ 0.02 ($ 0.01) $ 0.16
========== =========== =========== ===========
Weighted average common shares
outstanding - Basic 10,906,754 10,018,417 10,445,216 9,996,607
Dilutive effect of common share
equivalents - 0 - 1,480,534 - 0 - 1,068,884
---------- ----------- ----------- -----------
Weighted average common shares
outstanding - Diluted 10,906,754 11,498,951 10,445,216 11,065,491
========== ========== ========== ==========
About eGames, Inc.
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eGames, Inc., headquartered in Langhorne, PA, publishes and markets a
diversified line of Family Friendly(TM), affordably priced 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. Additional information
regarding eGames, Inc. can be found at www.egames.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 intention to continue to
evaluate the feasibility of paying a quarterly cash dividend to shareholders of
its common stock in future periods; the Company's intention to continue to seek
innovative and profitable ways to grow its business and expand its share of the
North American retail market for affordably priced PC software games; the
Company's intention to evaluate alternatives for building shareholder value
while focusing on achieving and maintaining profitability and positive cash
flows; 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 "Factors Affecting Future
Performance" in the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2005 and Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2004, both filed with the Securities and Exchange Commission.
Contact:
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eGames, Inc.
Jerry Klein, President & CEO
(215) 750-6606 (Ext. 118)
Tom Murphy, Vice President & CFO
(215) 750-6606 (Ext. 113)