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): January 20, 2000
eGames, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 0-27102 23-2694937
(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)
<PAGE>
Item 5. Other Events.
On January 20, 2000, eGames, Inc. (the "Company") issued a press
release announcing the Company's unaudited results for the second quarter and
six months ended December 31, 1999, as described in the press release attached
as Exhibit 99.1 and incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a. None.
b. None.
c. Exhibits.
99.1 Press release dated January 20, 2000.
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/ Gerald W. Klein
-----------------------------
Gerald W. Klein, President and
Chief Executive Officer
Dated: January 21, 2000
EXHIBIT 99.1
At eGames, Inc. At The Financial Relations Board:
- ------------------------- ------------------------------------------------
Jerry Klein Glenn Sapadin (212) 661-8030 (General Inquiries)
President & CEO Jean Young (212) 661-8030 (Investor Inquiries)
(215) 750-6606 (Ext. 118) Deanne Eagle (212) 661-8030 (Media Inquiries)
Tom Murphy
Vice President & CFO
(215) 750-6606 (Ext. 113)
For Immediate Release
eGAMES ANNOUNCES REVENUE GROWTH OF 25%
IN FISCAL 2000 SECOND QUARTER
Fiscal 2000 2Q Highlights
- -------------------------
o Net sales increase 25%, to $4.5 million
o Company reports net income of $601,000, or $0.06 per diluted share
o Successfully penetrates food and drug chains with broad selection of eGames
products
o Receives initial orders from more than a dozen new retail chains
o eGames browsers serve over 72 million advertising impressions during first
half January
Langhorne, PA - January 20, 2000 - eGames, Inc. (Nasdaq: EGAM), a leading
publisher and developer of Family Friendly(TM), value-priced computer software
games for players of all ages, today announced results for the second quarter
and first six months of fiscal 2000, ended December 31, 1999.
For the second quarter of fiscal 2000, the Company's net sales increased 25% to
$4.5 million, compared to $3.6 million for the second quarter of fiscal 1999.
This increase in sales primarily reflects shipments to new customers,
particularly those in the food and drug retail channels. Of note, international
sales for the fiscal 2000 second quarter were flat compared to the second
quarter of fiscal 1999 as a result of pricing pressures and increased
competition primarily in the United Kingdom.
The Company's fiscal 2000 second quarter gross and operating margins were 65.5%
and 16.8% respectively, representing a decrease from the 68.5% and 25.4% margins
reported in the fiscal 1999 second quarter. This decrease in year-to-year
margins reflects increased marketing and promotional costs associated with the
Company's strategy to expand into new retail outlets and the hiring of
additional sales staff to meet the needs of the Company's rapidly expanding
distribution channels. Importantly, both gross and operating margins increased
sequentially over the 61.1% and 16.3% gross and operating margins reported for
the fiscal 2000 first quarter. On a sequential basis, the Company's margins
benefited from improved economies of scale as it more deeply penetrated newer
markets, leading to increased unit sales volumes.
-more-
<PAGE>
Net income for the fiscal 2000 second quarter was $601,000, or $0.06 per diluted
share, compared to net income of $847,000, or $0.09 per diluted share for the
fiscal 1999 second quarter. The bottom-line decrease reflects the effect of flat
international sales; continued distribution issues related to the Company's
relationship with GT Interactive's Value Products division in serving the large
national mass merchandisers in the United States and other costs related to
changes in the Company's business model resulting from the launch of its
direct-to-market sales strategy in April 1999.
For the first six months of fiscal 2000, ended December 31, 1999, net sales
increased 41.2% to $8.6 million compared to net sales of $6.1 million for the
six-month period ended December 31, 1998. Net income decreased slightly to $1.2
million, or $0.12 per share, compared to $1.3 million, or $0.13 per share, for
the first six months of fiscal 1999. It's noteworthy that gross sales for the
first six months of fiscal 2000 were $10,485,000 before provisions for returns
and other allowances of $1,846,000, whereas for the same six month period a year
ago gross sales were $6,278,000 before provisions for returns and other
allowances of $161,000. The increase of $1,685,000 in the provisions for returns
and other allowances is a result of the Company's shift to its direct-to-market
sales strategy.
Among the Company's new retail partnerships established during the Company's
fiscal 2000 second quarter are relationships with The Walgreen Company, Eckerd
Corporation, Pathmark Stores, Inc., Duane Reade Inc, Community Distributors
(d.b.a. Cost Cutters and Drug Fair), Wakefern (d.b.a. ShopRite), The Wiz, Exel
Technologies, K's Merchandise, CompuTech, RCS, Nebraska Furniture Mart, A&B
Sound, Multi Micro, and eToys.
"We are very excited about our accomplishments during the first half of fiscal
2000. Our ability to build significant new retail relationships, including those
with major national food and drug chains, demonstrates the mass appeal of our
Family Friendly products. This expanded reach into new, non-traditional software
channels position us for continued growth in these sectors," said Jerry Klein,
President and CEO of eGames.
"Our ability to successfully expand our retail distribution channels has
lessened the impact of GT's declining distribution revenues. Of note, GT remains
the exclusive software distributor to Wal-Mart, Target, and Kmart for eGames, as
well as dozens of other software publishers. This said, we are working with GT
to improve distribution in these channels. The demand continues to be strong, we
simply need to get more product on the shelves of these major national
retailers. In the meantime, we have proven our ability to maintain our strong
revenue growth and profitability, despite these external challenges," Continued
Mr. Klein.
Mr. Klein went on to say, "The fiscal second quarter has witnessed some very
positive developments with regard to the successful implementation of our
business strategy. Perhaps most importantly, we are beginning to see the fruits
of our partnership with Conducent, Inc., which has enabled eGames to incorporate
advertising and Internet functionality into our eGames software products. This
is accomplished by embedding Conducent's proprietary ad-serving technology into
eGames' game offerings via our own browser-like interface that provides access
to the game play, product demos, ads, and internet links. Every time a game user
logs on to the Internet, the ads are updated and ad serving information is sent
back to Conducent's server.
-more-
<PAGE>
"Although modest at this point, Conducent's technology is beginning to generate
incremental advertising revenue through corporate sponsors that have purchased
linkable banner and interstitial ads. We are working towards increasing this
potential revenue stream in subsequent quarters as more information is available
from Conducent that proves the value of our browser," said Mr. Klein.
For the first half of January alone, installed eGames browsers have served more
than 72 million advertising impressions according to Conducent's reporting. At
this pace, the Company believes that ad impressions could increase significantly
during the third quarter as more eGames products containing the
advertising-enabled browser enter the marketplace.
"Our Family Friendly, value-priced gaming software continues to be well received
by retailers and consumers alike," continued Mr. Klein. "Our non-exclusive
distribution strategy has enabled us to emerge as a stronger company with a
significantly broader reach. Of note, our games are presently available in
approximately 24,000 retail locations throughout North America, compared to less
than 12,000 at this time last year. Going forward, we are focused on continuing
our strong sales growth, while translating more of each sales dollar to the
bottom line through leveraging our fixed expenses as we more deeply penetrate
existing retail relationships. As a result, we expect that fiscal 2000 will
represent our most profitable year to date."
As of December 31, 1999 the Company's balance sheet had improved from the end of
its fiscal year at June 30, 1999. Specifically, at December 31, 1999, the
Company had $4.3 million in working capital, long-term debt of $310,000, and
stockholders' equity of $4.6 million.
eGames, Inc., headquartered in Langhorne, PA, develops, publishes and markets a
diversified line of personal computer software primarily for consumer
entertainment and personal productivity. The Company promotes the eGames(TM),
Game Master Series(TM), Multi-Pack and Galaxy of Home Office Help(TM) brand
names in order to generate customer loyalty, encourage repeat purchases and
differentiate the eGames Software products to retailers and consumers.
Additional information regarding eGames, Inc. can be found on the Company's
web site at www.egames.com.
--------------
This press release contains certain forward-looking statements, including
without limitation, statements regarding the Company's ability to continue to
expand distribution of its products into the non-traditional software channels;
the Company's ability to generate advertising revenue as a result of its
partnership with Conducent, Inc.; increases in ad impressions from
Conducent-powered ads in the Company's products during the third quarter of
fiscal 2000; improvements to the Company's gross profit and operating margins;
the Company's ability to continue to increase sales; and the success of eGames'
sales and distribution strategy. The actual results achieved by eGames 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
continue to enter into new distribution and direct sales relationships on
commercially acceptable terms; the allocation of adequate shelf space for the
Company's products in major chain retail stores; successful sell-through results
for the Company's products at retail stores; the amount of unsold product that
is returned to the Company by retail stores; downward pricing pressure;
fluctuating costs of developing, producing and marketing the Company's products;
the Company's ability to license or develop quality content for its products;
the timeliness and success of developing and selling products; the acceptance by
the market of the Company's products; consumers' continuing demand for
value-priced personal computer software; competition; the ability to create
successful strategic partnerships and implement the Company's Internet strategy;
and various other factors described in the Company's reports, including Form
10-KSB for the year ended June 30, 1999 and Form 10-QSB for the quarter ended
September 30, 1999, filed by eGames with the Securities and Exchange Commission.
-financial tables follow-
<PAGE>
eGames, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,521,390 $ 3,611,126 $ 8,638,965 $ 6,117,326
Cost of sales 1,561,637 1,136,731 3,164,945 2,017,308
------------ ------------ ------------ ------------
Gross profit 2,959,753 2,474,395 5,474,020 4,100,018
Operating expenses:
Product development 220,745 236,965 463,592 442,632
Selling, general and administrative 1,980,596 1,318,861 3,581,002 2,298,503
------------ ------------ ------------ ------------
Total operating expenses 2,201,341 1,555,826 4,044,594 2,741,135
------------ ------------ ------------ ------------
Operating income 758,412 918,569 1,429,426 1,358,883
Interest expense, net (4,977) (13,632) (10,077) (24,281)
------------ ------------ ------------ ------------
Income before income taxes 753,435 904,937 1,419,349 1,334,602
Provision for income taxes (152,107) (57,967) (241,402) (84,267)
------------ ------------ ------------ ------------
Net income $ 601,328 $ 846,970 $ 1,177,947 $ 1,250,335
============ ============ ============ ============
Net income per common share:
- basic $ 0.06 $ 0.09 $ 0.12 $ 0.13
============ ============ ============ ============
- diluted $ 0.06 $ 0.09 $ 0.12 $ 0.13
============ ============ ============ ============
Weighted average common shares
outstanding - basic 9,697,486 9,469,031 9,665,729 9,445,680
Dilutive effect of common stock equivalents 437,493 189,156 439,866 171,234
------------ ------------ ------------ ------------
Weighted average common shares
outstanding - diluted 10,134,979 9,658,187 10,105,595 9,626,914
============ ============ ============ ============
</TABLE>
<PAGE>
eGames, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
As of
December 31,
ASSETS 1999
<S> <C>
Current assets:
Cash and cash equivalents $ 858,656
Accounts receivable, net of allowances totaling $1,763,373 4,530,277
Inventory 1,438,631
Prepaid expenses 73,748
-----------
Total current assets 6,901,312
Furniture and equipment, net 327,758
Other assets 384,930
-----------
Total assets $ 7,614,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 52,218
Accounts payable 1,351,127
Accrued expenses 1,219,504
Capital lease obligations 21,820
-----------
Total current liabilities 2,644,669
Capital lease obligations 11,465
Note payable 148,386
Convertible subordinated debt 150,000
-----------
Total liabilities 2,954,520
Stockholders' equity:
Common stock, no par value (40,000,000 shares authorized;
9,977,675 issued and 9,745,775 outstanding) 9,122,432
Additional paid in capital 1,148,550
Accumulated deficit (5,090,221)
Treasury stock, at cost - 231,900 shares (501,417)
Accumulated other comprehensive loss (19,864)
-----------
Total stockholders' equity 4,659,480
-----------
Total liabilities and stockholders' equity $ 7,614,000
===========
</TABLE>
