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 13, 2006
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 February 13, 2006, eGames, Inc. (the "Company") issued a press release
announcing its financial results for the second quarter ended December 31, 2005.
The full text of the press release is set forth in Exhibit 99.1 hereto.
In accordance with General Instruction B.2 of Form 8-K, the information in this
Current Report on Form 8-K, including Exhibit 99.1, shall not be 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.
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 February 13, 2006.
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: February 14, 2006
EXHIBIT 99.1
eGames Announces Second Quarter Fiscal 2006 Financial Results
LANGHORNE, Pa., - February 13, 2006 (PRIMEZONE) - eGames, Inc. (OTCBB: EGAM), a
publisher of consumer entertainment PC software games, today announced financial
results for the three and six months ended December 31, 2005.
Three Months ended December 31, 2005:
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Net sales decreased by $759,000, or 40%, to $1,154,000, for the quarter ended
December 31, 2005, compared to $1,913,000 for the year ago quarter. Net loss was
$233,000, or $0.02 per diluted share, for the quarter ended December 31, 2005,
compared to net income of $295,000, or $0.03 per diluted share, for the same
quarter a year earlier.
Six Months ended December 31, 2005:
- -----------------------------------
Net sales decreased by $642,000, or 21%, to $2,448,000, for the six months ended
December 31, 2005, compared to $3,090,000 for the six months ended December 31,
2004. Net loss was $287,000, or $0.03 per diluted share, for the six months
ended December 31, 2005, compared to net income of $111,000, or $0.01 per
diluted share, for the similar six month period a year ago.
Financial Summary - Quarter ended December 31, 2005:
- ----------------------------------------------------
The $759,000 decrease in net sales for the quarter ended December 31, 2005
resulted from a $752,000 decrease in net sales to North American software
distributors, primarily related to reduced distribution of eGames software
titles to mass-merchant retailers. Contributing to the decline in sales has been
the increasing number of competitors' titles vying for shelf slots within a
reduced amount of retail shelf space offering PC software games at the $9.99
retail price point.
For the quarter ended December 31, 2005, the Company realized a net loss of
$233,000 compared to net income of $295,000 for the similar quarter a year
earlier. The decrease in profitability resulted from a $598,000 reduction in
gross profit associated with the $759,000 decrease in comparative net sales
combined with a 14.9% reduction in gross profit margin. The decline in gross
profit margin was largely due to higher product costs per unit related to sales
of holiday promotional packs, combined with increased pricing pressures on
titles in certain traditional software retailers and incremental sales of last
generation titles to various discount retailers. Partially offsetting the
decline in gross profit were small comparative improvements in operating
expenses, net interest income and income tax expense.
The following table represents the Company's net sales by distribution channel
for the three and six months ended December 31, 2005 and 2004, respectively:
Net Sales by Distribution Channel
(rounded to the nearest thousand)
---------------------------------
Three Months Ended
December 31,
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Increase %
Distribution Channel 2005 % 2004 % (Decrease) Change
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Software Distributors $ 691,000 60% $ 1,443,000 76% ($ 752,000) (52%)
Software Retailers 167,000 14% 138,000 7% 29,000 21%
Licensing 179,000 16% 156,000 8% 23,000 15%
Internet 70,000 6% 72,000 4% (2,000) (3%)
Inventory Liquidators 47,000 4% 104,000 5% (57,000) (55%)
- ------------------------------------------------------------------------------------------
Totals $ 1,154,000 100% $ 1,913,000 100% ($ 759,000) (40%)
=========== ==== =========== ==== ========= ===
Six Months Ended
December 31,
----------------------------------------
Increase %
Distribution Channel 2005 % 2004 % (Decrease) Change
- ------------------------------------------------------------------------------------------
Software Distributors $ 1,461,000 60% $ 2,257,000 73% ($ 796,000) (35%)
Software Retailers 348,000 14% 298,000 10% 50,000 17%
Licensing 337,000 14% 249,000 8% 88,000 35%
Internet 144,000 6% 144,000 5% - 0 - 0%
Inventory Liquidators 158,000 6% 142,000 4% 16,000 11%
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Totals $ 2,448,000 100% $ 3,090,000 100% ($ 642,000) (21%)
=========== ==== =========== ==== ========= ===
Comments:
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Jerry Klein, President and CEO of eGames, commented "The second quarter of
fiscal 2006 was a challenging period that represented a transitional phase for
our business as we began reallocating our resources to increase our product
distribution at retail. We continue our aggressive search to secure rights to
higher quality gaming content from third-party software developers, which we
plan to release for retail distribution at higher price points during the second
half of this fiscal year. These titles include our recently announced Space
Rangers 2: Rise of the Dominators, Buccaneers Bounty, and Neighbors From Hell:
On Vacation, all to be released under the newly introduced Cinemaware Marquee
brand. Our recent acquisition of the Cinemaware intellectual properties,
including its well recognized gaming brand, represents an important step toward
improving the quality and brand recognition of our portfolio of consumer games.
Klein continued, "As we have stated previously, we realize that for eGames to
grow we must expand our business beyond the value-priced PC software market and
penetrate other retail gaming markets, such as higher-priced PC and other gaming
platforms. These markets continue to represent greater growth and profit
potential compared to the value-priced PC software market segment we have
primarily focused on in the past. As we continue to implement this more
aggressive business strategy, we will also search for alternative ways to
increase the distribution of our software titles to the major North American
retailers. To accomplish this specific objective we recently began shifting our
primary North American retail distribution accounts to Take-Two Interactive, a
company that we've had an excellent secondary distribution relationship with for
several years. We must successfully continue to implement a more aggressive and
opportunistic growth strategy in an effort to realize improved financial results
during the second half of our fiscal 2006. While our financial condition remains
relatively strong we are committed to executing a plan that will result in a
return to profitability and positive cash flow."
eGames, Inc.
Balance Sheet
(Unaudited)
December 31,
ASSETS 2005
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Current assets:
Cash and cash equivalents $ 1,742,396
Accounts receivable, net 824,810
Inventory, net 848,417
Prepaid and other expenses 348,191
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Total current assets 3,763,814
Furniture and equipment, net 36,804
Goodwill 420,000
Intangible assets 24,089
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Total assets $ 4,244,707
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 384,419
Accrued expenses 293,909
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Total current liabilities 678,328
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Stockholders' equity:
Common stock 9,179,827
Additional paid-in capital 2,093,378
Accumulated deficit (7,205,409)
Treasury stock (501,417)
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Total stockholders' equity 3,566,379
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Total liabilities and stockholders' equity $ 4,244,707
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eGames, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
2005 2004 2005 2004
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Net sales $ 1,154,053 $ 1,912,630 $ 2,448,064 $ 3,090,459
Cost of sales 678,619 839,234 1,382,424 1,410,392
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Gross profit 475,434 1,073,396 1,065,640 1,680,067
Operating expenses:
Product development 127,492 103,878 211,520 342,993
Selling, general and
administrative 593,674 647,533 1,161,901 1,218,665
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Total operating expenses 721,166 751,411 1,373,421 1,561,658
----------- ----------- ----------- -----------
Operating income (loss) (245,732) 321,985 (307,781) 118,409
Interest income, net 12,331 1,597 20,408 2,827
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Income (loss) before income taxes (233,401) 323,582 (287,373) 121,236
Provision for income taxes - 0 - 28,324 - 0 - 10,301
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Net income (loss) ($ 233,401) $ 295,258 ($ 287,373) $ 110,935
=========== =========== =========== ===========
Net income (loss)
per common share:
- Basic ($ 0.02) $ 0.03 ($ 0.03) $ 0.01
====== ====== ====== ======
- Diluted ($ 0.02) $ 0.03 ($ 0.03) $ 0.01
====== ====== ====== ======
Weighted average common shares
outstanding - Basic 11,618,717 10,116,329 11,262,736 10,109,501
Dilutive effect of common share
equivalents - 0 - 502,459 - 0 - 869,972
----------- ----------- ----------- -----------
Weighted average common shares
outstanding - Diluted 11,618,717 10,618,788 11,262,736 10,979,473
=========== =========== =========== ===========
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) and
Cinemaware(TM) brands 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 and
www.cinemaware.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 reallocation of
resources to increase product distribution at retail; the Company's strategy of
searching for and securing rights to higher quality gaming content for release
at retail at higher price points during the second half of fiscal 2006; the
Company's intention to expand its business beyond the value-priced PC software
market and into other retail gaming markets, such as higher-priced PC and other
gaming platforms; the expectation that higher-priced PC and other gaming
platforms represent greater growth and profit potential compared to the
value-priced PC market segment; the Company's implementation of more aggressive
and opportunistic growth strategies and its commitment to returning to
profitability and positive cash flow; the Company's efforts to increase the
distribution of its software titles to the major North American retailers; 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 Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005,
as 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)