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): August 28, 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 August 28, 2006, eGames, Inc. (the "Company") issued a press release
announcing its financial results for the fiscal fourth quarter and year ended
June 30, 2006. 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 August 28, 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: August 28, 2006
EXHIBIT 99.1
eGames Announces Fiscal Year 2006 Financial Results
Langhorne, Pa., - August 28, 2006 (PRIMEZONE) - eGames, Inc. (OTCBB: EGAM), a
publisher of consumer entertainment PC software games, today announced financial
results for its fiscal fourth quarter and year ended June 30, 2006.
Fiscal Quarter ended June 30, 2006:
- -----------------------------------
Net sales increased by $249,000, or 31%, to $1,043,000 for the fiscal quarter
ended June 30, 2006, compared to $794,000 for the same fiscal quarter a year
earlier. Net loss was $504,000, or $0.04 per diluted share, for the fiscal
quarter ended June 30, 2006, compared to a net loss of $312,000, or $0.03 per
diluted share, for the same fiscal quarter a year ago.
Fiscal Year ended June 30, 2006:
- --------------------------------
Net sales decreased by $588,000, or 11%, to $4,756,000 for the fiscal year ended
June 30, 2006, compared to $5,344,000 for fiscal year 2005. Net loss was
$1,039,000, or $0.09 per diluted share, for the fiscal year ended June 30, 2006,
compared to a net loss of $155,000, or $0.01 per diluted share, for the prior
fiscal year.
Fiscal Year 2006 - Summary:
- ---------------------------
The $588,000 decrease in net sales for the fiscal year ended June 30, 2006
resulted primarily from a $1.2 million decrease in net sales of the eGames(R)
brand of value-priced PC software games due largely to a reduction in retail
shelf space allocated to $9.99 retail priced PC games in North America. This net
sales decrease was partially offset by a $0.5 million increase in net sales that
resulted from the launch of the Company's new Cinemaware Marquee(TM) brand of
higher-priced box titles in the second half of this fiscal year. Additionally,
the Company experienced minor increases in North American licensing revenues and
in net sales of end-of-lifecycle titles to inventory liquidators.
For the fiscal year ended June 30, 2006, the Company recognized a net loss of
$1,039,000 compared to the fiscal year ended June 30, 2005 in which the Company
reported a net loss of $155,000. This $884,000 increase in the net loss for the
fiscal year ended June 30, 2006 compared to the year ago period resulted
primarily from a $763,000 decline in gross profit, combined with a $146,000
increase in operating expenses.
The $763,000 decline in gross profit resulted from a $588,000 decrease in net
sales, combined with a 9.4% reduction in gross profit margin caused by an
increase in product costs, as a percentage of net sales. The factors
contributing to the increase in product costs, as a percentage of net sales,
were increased sales of:
o Titles sold to software distributors and retailers at reduced selling
prices below historical levels;
o Higher costing titles containing multiple CDs, posters, manuals and
other value added items; and
o End-of-lifecycle titles to inventory liquidators at prices
substantially lower than titles active in traditional retail channels.
The increase in operating expenses was largely traceable to increases in
advertising and product development costs incurred to support our new Cinemaware
Marquee box titles, as well as severance costs associated with the Company's
recent reduction in force that was affected to achieve future operating expense
savings and to better utilize the Company's resources.
The following tables represent the Company's net sales by distribution channel
for the fiscal quarters and years ended June 30, 2006 and 2005, respectively:
Net Sales by Distribution Channel
(rounded to the nearest thousand)
Quarters Ended
June 30,
---------------------------------------
Increase %
Distribution Channel 2006 % 2005 % (Decrease) Change
- ---------------------------------------------------------------------------------------
Software Distributors $ 520,000 50% $ 259,000 33% $261,000 101%
Software Retailers 169,000 16% 283,000 36% (114,000) (40%)
Licensing 164,000 16% 152,000 19% 12,000 8%
Internet 82,000 8% 81,000 10% 1,000 1%
Inventory Liquidators 108,000 10% 19,000 2% 89,000 n/m
- ---------------------------------------------------------------------------------------
Totals $ 1,043,000 100% $ 794,000 100% $249,000 31%
====== =========== ==== ========= ==== ======== ===
Years Ended
June 30,
---------------------------------------
Increase %
Distribution Channel 2006 % 2005 % (Decrease) Change
- ---------------------------------------------------------------------------------------
Software Distributors $ 2,826,000 59% $ 3,527,000 66% ($ 701,000) (20%)
Software Retailers 652,000 14% 722,000 13% (70,000) (10%)
Licensing 658,000 14% 575,000 11% 83,000 14%
Internet 294,000 6% 323,000 6% (29,000) (9%)
Inventory Liquidators 326,000 7% 197,000 4% 129,000 65%
- ---------------------------------------------------------------------------------------
Totals $ 4,756,000 100% $ 5,344,000 100% ($ 588,000) (11%)
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Comments:
Jerry Klein, President and CEO of eGames, commented "fiscal 2006 proved to be a
challenging year for us. In particular, our net sales continued to be negatively
impacted by the decline in retail shelf space retailers are allocating to
value-priced PC games at the $9.99 retail price point in North America. In our
attempt to overcome the unfavorable reality of a declining retail market for
value-priced PC games, we began changing our business model in order to better
address changes in consumer buying behavior for our category of products and to
increase the size and scope of the market we serve. In an effort to address both
issues, we purchased the assets of Cinemaware, Inc. in October 2005, and Lars
Furhken-Batista joined the Company as our new Vice President of development.
With the Cinemaware acquisition, we acquired a number of classic game properties
that we believe will be the basis for developing unique and compelling casual
games for the PC, other game platforms, and the Internet.
During the second half of fiscal 2006, we released six premium quality PC games
licensed under our "Cinemaware Marquee" and "eGames" brands. Consumer feedback
on these titles has been positive, and we will continue to seek high-quality
titles to license and publish under our Cinemaware Marquee brand, while at the
same time continuing to publish addictive value-priced PC games offered mostly
at the $9.99 retail price point under the eGames brand. During the fourth fiscal
quarter, we began implementing our strategy of developing our own PC game titles
from the ground up, utilizing some of the original Cinemaware intellectual
properties, as well as some new and unique game ideas. The first of these
internally-developed titles, "Boss Hunter(TM)," is being released as a $9.99
jewel case title under the eGames brand in September 2006, and will be
distributed in both Best Buy and Target stores. Four more titles are scheduled
for release at the beginning of calendar 2007, and will include a completely new
version of Cinemaware's best-known title, "Defender of the Crown(R)," as well as
"The Three Stooges(R)" and two other ground breaking titles to be announced at a
later date. The launch of these new titles will coincide with the introduction
of our new eGames web portal currently being developed to become a true
"destination" website for both serious and casual gamers."
Mr. Klein continued, "Our financial results for fiscal 2006 were disappointing
regardless of the fact that this year included the costs of investing in the
future. Today I believe we have realigned our resources in a way that will
better position us in fiscal 2007 to begin to better exploit both online and
retail opportunities. Additionally, by internally developing our own PC game
titles, we hope to gain additional revenue opportunities by leveraging these
wholly owned game properties in both retail and online markets worldwide. In the
past our segment of the PC game market was restricted to North American
retailers, some Internet retail websites, and certain international markets
where we had limited distribution rights for certain licensed properties. We are
confident that fiscal 2007 will mark the launch of an eGames business model
designed to adapt to the consumers continually evolving buying behavior - on the
Internet and at retail."
eGames, Inc.
Balance Sheets
(Audited)
As of As of
June 30, June 30,
----------- -----------
ASSETS 2006 2005
- ------ ----------- -----------
Current assets:
Cash and cash equivalents $ 1,526,629 $ 2,412,162
Accounts receivable, net 521,086 269,168
Inventory, net 973,735 893,766
Prepaid and other expenses 299,661 313,684
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Total current assets 3,321,111 3,888,780
Furniture and equipment, net 49,595 49,881
Goodwill 420,000 - 0 -
Intangible assets 24,089 24,089
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Total assets $ 3,814,795 $ 3,962,750
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 343,283 $ 156,592
Accrued expenses 614,668 409,640
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Total current liabilities 957,951 566,232
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Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 2,135,168 1,636,144
Accumulated deficit (7,956,734) (6,918,036)
Treasury stock (501,417) (501,417)
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Total stockholders' equity 2,856,844 3,396,518
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Total liabilities and stockholders' equity $ 3,814,795 $ 3,962,750
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eGames, Inc.
Statements of Operations
(Unaudited) (Audited)
Quarters Ended Years Ended
June 30, June 30,
--------------------------- ----------------------------
2006 2005 2006 2005
------------ ----------- ------------ ------------
Net sales $ 1,043,224 $ 793,899 $ 4,756,187 $ 5,343,981
Cost of sales 564,927 426,713 2,658,574 2,483,220
------------ ----------- ------------ ------------
Gross profit 478,297 367,186 2,097,613 2,860,761
Operating expenses:
Product development 185,313 93,115 561,621 538,002
Selling, general and administrative 804,946 612,723 2,614,723 2,492,357
------------ ----------- ------------ ------------
Total operating expenses 990,259 705,838 3,176,344 3,030,359
------------ ----------- ------------ ------------
Operating loss (511,962) (338,652) (1,078,731) (169,598)
Interest income, net 8,256 2,297 40,033 7,130
------------ ----------- ------------ ------------
Loss before income taxes (503,706) (336,355) (1,038,698) (162,468)
Benefit for income taxes -0- 24,355 -0- 7,571
------------ ----------- ------------ ------------
Net loss ($ 503,706) ($ 312,000) ($ 1,038,698) ($ 154,897)
============ =========== ============ ============
Net loss per common share:
- Basic ($ 0.04) ($ 0.03) ($ 0.09) ($ 0.01)
====== ====== ====== ======
- Diluted ($ 0.04) ($ 0.03) ($ 0.09) ($ 0.01)
====== ====== ====== ======
Weighted average common shares
outstanding - Basic 11,724,193 10,906,754 11,493,464 10,445,216
Dilutive effect of common share
equivalents - 0 - - 0 - - 0 - - 0 -
------------ ----------- ------------ ------------
Weighted average common shares
outstanding - Diluted 11,724,193 10,906,754 11,493,464 10,445,216
============ =========== ============ ============
About eGames, Inc.
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eGames, Inc., headquartered in Langhorne, Pennsylvania, publishes and markets a
diversified line of interactive entertainment titles which now include the
eGames(TM), Cinemaware(R) and Cinemaware Marquee(TM) brands. Additional
information regarding eGames, Inc. can be found at www.egames.com.
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Forward-Looking Statement Safe Harbor:
- --------------------------------------
This press release contains certain forward-looking statements, including
without limitation, statements regarding: continuing to seek high-quality titles
to license and publish under the Cinemaware Marquee brand; continuing to publish
value-priced PC games under the eGames brand; the expected release of the
Company's first internally-developed title, "Boss Hunter," as a $9.99 jewel case
title in September 2006, with distribution in both Best Buy and Target stores;
the expected release of four more titles at the beginning of calendar 2007,
including "Defender of the Crown" and "The Three Stooges," and two other titles
to be announced at a later date; the expected launch of these new titles
coinciding with the introduction of a new eGames web portal; the expectation
that the Company has realigned its resources to better position the Company in
fiscal 2007 to exploit both online and retail opportunities; the expectation
that the Company can gain additional revenue opportunities by leveraging its
internally-developed titles in both retail and online markets worldwide; the
Company's expectation that fiscal 2007 will mark the launch of an eGames
business model designed to adapt to consumers' continually evolving buying
behavior on the Internet and at retail. 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, delays in the development of future
titles and the new game portal; inability to fund continued development of
future titles and the new game portal; technical and other issues that may delay
or halt development of future titles and the new game portal; as well as the
risks and uncertainties 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:
- --------
eGames, Inc.
Jerry Klein, President & CEO
(215) 750-6606 (Ext. 118)
Tom Murphy, Vice President & CFO
(215) 750-6606 (Ext. 113)
The Three Stooges(R) is a registered trademark of C3 Entertainment, Inc.