Entertainment Games Announces First Quarter Fiscal 2012 Financial Results

LANGHORNE, Pa., Jan. 5, 2012 (GLOBE NEWSWIRE) — Entertainment Games, Inc. (OTC Markets: EGAM), a developer and publisher of casual games for leading social networks, the PC, game consoles and the Internet, today released financial results for the fiscal first quarter ended September 30, 2011.

COMMENTS:

“Our first quarter results continue to reflect the challenges in the traditional videogame segment of the market,” commented Jerry Klein, CEO of Entertainment Games. “Overall our revenues were down 37% this year compared to the same quarter last year, reflecting the continually shifting consumer behavior away from the traditional distribution channels for videogames to the digital distribution of videogames. This shift continues to underscore the importance of last year’s fourth quarter acquisition of Heyday Games and the dramatic change underway at our Company as a result. Our first quarter loss evidenced our commitment to spending to support this important acquisition,” added Klein.

“On November 8, 2011 we launched our new social gaming platform, Retro World, with the original episode of The OWL Files in beta test. The OWL Files – Monkey Business, was released on December 16, 2011 along with the Retro Boulevard Game Arcade, also in beta test mode,” stated Klein.

FINANCIAL DISCUSSION:

Fiscal First Quarter ended September 30, 2011:

Net revenues decreased by $321,000, or 37%, to $538,000 for the fiscal quarter ended September 30, 2011, compared to $859,000 for the comparative fiscal quarter a year earlier. This decrease in net revenues was traceable to decreases in all of our distribution channels.

Net loss was $1,385,000, or $0.08 per diluted share, for the fiscal quarter ended September 30, 2011, compared to a net loss of $350,000, or $0.03 per diluted share, for the year ago quarter. This $1,035,000 increase in the quarterly net loss resulted from:

  • $883,000 in increased operating expenses (traceable to increased product development expense relating to our new social network game – Retro World);
  • $128,000 decline in gross profit due to lower net revenues; and
  • $24,000 in increased interest expense. 

Liquidity Condition Update:

At December 15, 2011, the Company had approximately $85,000 in cash, compared to $328,000 at June 30, 2011. Considering the Company’s net losses for fiscal years 2011, 2010, 2009, 2008, 2007 and 2006, and the fact that it does not currently have access to a credit facility, the Company is continuing to evaluate its options to fund future operations.

The following tables represent the Company’s net revenues by distribution channel for the fiscal quarters ended September 30, 2011 and 2010, respectively:

Net Revenues by Distribution Channel
 (rounded to the nearest thousand)
             
  Quarters Ended    
  September 30,    
          Increase %
Distribution Channel 2011 % 2010 % (Decrease) Change
Traditional product revenues $333,000 62% $503,000 59% ($170,000) (34%)
Licensing revenues 66,000 12% 98,000 11% (32,000) (33%)
Internet revenues 137,000 26% 204,000 24% (67,000) (33%)
Product liquidation revenues 2,000 -0-% 54,000 6% (52,000) (96%)
Totals $538,000 100% $859,000 100% ($321,000) (37%)
 
Entertainment Games, Inc.
Balance Sheets
     
  As of As of
ASSETS  September 30, 2011  September 30, 2010
Current assets:    
 Cash $   35,913 $ 301,318
 Accounts receivable, net 118,477 292,171
 Financing receivable 878,750 – 0 –
 Inventory, net 457,674 616,634
 Prepaid and other current assets 121,383 94,031
 Total current assets 1,612,197 1,304,154
     
Furniture and equipment, net 8,951 4,399
Intangibles 1,497,346 24,089
Goodwill 680,000 – 0 –
 Total assets $ 3,798,494 $ 1,332,642
     
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)    
Current liabilities:    
 Note payable, current portion $ 138,549 $ – 0 –
 Accounts payable  892,814  737,579
 Unearned revenues 398,228 550,474
 Accrued expenses 492,920 312,118
 Total current liabilities 1,922,511 1,600,171
     
Note payable, long-term portion 230,915  – 0 –
     
 Total liabilities 2,153,426 1,600,171
     
Stockholders’ equity (deficit)    
Preferred stock, no par value (10,000,000 authorized; 875,000 shares of Convertible Preferred issued and outstanding) 704,568 704,568
Common stock, no par value (40,000,000 shares authorized; 20,530,428 and 13,857,099 issued respectively and 20,252,528 and 13,579,199 outstanding respectively) 14,476,006 10,518,661
 Additional paid-in capital 2,136,651 1,945,698
 Accumulated deficit  (15,119,220)  (12,883,519)
 Treasury stock, 277,900 shares, at cost (552,937) (552,937)
 Total stockholders’ equity (deficit) 1,645,068 (267,529)
 Total liabilities and stockholders’ equity (deficit) $ 3,798,494 $ 1,332,642
 
Entertainment Games, Inc.
Statements of Operations
 
  Quarters Ended September 30,
   2011  2010
Net revenues $ 538,456 $ 858,576
     
Cost of revenues 302,146 494,244
     
Gross profit 236,310 364,332
     
Operating expenses:    
 Product development 566,209 330,664
 Selling, general and administrative  1,031,132  383,795
     
 Total operating expenses 1,597,341 714,459
     
Operating loss (1,361,031) (350,127)
     
Interest income (expense), net  (23,613)  95
     
Loss before income taxes (1,384,644) (350,032)
     
Income tax expense (benefit)  – 0 –  – 0 –
     
Net loss ($ 1,384,644) ($ 350,032)
     
Net loss per common share:     
 – Basic ($ 0.08) ($ 0.03)
 – Diluted ($ 0.08) ($ 0.03)
     
Weighted average common shares outstanding – Diluted  18,400,326 13,575,025
 
Entertainment Games, Inc.
Statements of Cash Flows
 
  Three Months Ended September 30,
   2011  2010
OPERATING ACTIVITIES:    
 Net loss ($ 1,384,644) ($ 350,032)
 Adjustments to reconcile net loss to net cash used in operating activities:    
 Stock-based compensation 140,240 25,098
 Loss on retirement of accounts payable through  issuance of common stock 170,174 – 0 –
 Bad debt expense (recovery) – 0 – (23,270)
 Provision for product returns and price markdowns 29,360 35,443
 Provision for inventory obsolescence 85,068 95,479
 Depreciation and amortization 40,190 1,467
 Changes in operating assets and liabilities:    
 Accounts receivable, net (4,440) (16,683)
 Inventory, net (72,871) (117,113)
 Prepaid and other current assets (2,692) (1,083)
 Accounts payable 308,753 145,711
 Unearned revenues (34,353) (46,792)
 Accrued expenses 115,441 (73,655)
Net cash used in operating activities (609,774) (325,430)
     
INVESTING ACTIVITIES:    
 Purchase of internet domain (10,757) – 0 –
 Purchase of furniture and equipment (876) – 0 –
Net cash used in investing activities (11,633) – 0 –
     
FINANCING ACTIVITIES:    
 Net proceeds from common stock private placement 350,000 – 0 –
 Repayments of note payable (21,047) – 0 –
Net cash provided by financing activities 328,953 – 0 –
     
Net decrease in cash and cash equivalents (292,454) (325,430)
     
Cash:    
 Beginning of period 328,367 626,748
 End of period $ 35,913 $ 301,318
     
Supplemental cash flow information:    
 Cash paid for interest $ 23,470 $  – 0 –
     
 Summary of Noncash Investing and Financing Activities:    
 Preferred dividends paid through issuance of  common stock shares $   10,938 $ 10,938
 Retirement of accounts payable through issuance and utilization of common stock shares $ 257,576 $ – 0 –
 Financing receivable $ 878,750 $ – 0 –
 
Entertainment Games, Inc.
Statements of Stockholders’ Equity (Deficit)
 
  Convertible
Preferred Stock
Common
Stock
Additional
Paid-in
Accumulated Treasury Stock Stockholders’
  Shares Amount Shares Amount Capital Deficit Shares Amount Equity (Deficit)
                   
Balances at June 30, 2010 875,000 $ 704,568 13,841,573 $ 10,507,723 $ 1,926,885 ($ 12,522,549) (277,900) ($ 552,937) $ 63,690
                   
Net loss           (1,157,337)     (1,157,337)
                   
Stock-based compensation for common
stock options issued to employees and directors
        75,252       75,252
                   
Dividends declared on preferred stock     128,365 43,752   (43,752)     – 0 –
                   
Common stock shares issued upon
warrant exercise
    35,321   – 0 –       – 0 –
                   
Common stock warrant issued         88,746       88,746
                   
Common stock shares issued to acquired company     3,706,387 2,180,000         2,180,000
 
Balances at June 30, 2011 875,000 $ 704,568 17,711,646 $ 12,731,475 $ 2,090,883 ($ 13,723,638) (277,900) ($ 552,937) $ 1,250,351
Net loss           (1,384,644)     (1,384,644)
                   
Stock-based compensation for common
stock options issued to employees and directors
        45,768       45,768
                   
Dividends declared on preferred stock     28,597 10,938   (10,938)     – 0 –
                   
Common stock shares issued in private placement     700,000 350,000         350,000
                   
Common stock shares issued in retirement
of accounts payable
    1,950,000 1,306,500         1,306,500
                   
Common stock shares issued in connection
with consulting agreement
    100,000 57,000         57,000
                   
Common stock shares issued in connection
with consulting agreement
    40,185 20,093         20,093
 
Balances at September 30, 2011 875,000 $ 704,568 20,530,428 $ 14,476,006 $ 2,136,651 ($ 15,119,220) (277,900) ($ 552,937) $ 1,645,068

About Entertainment Games, Inc.

Entertainment Games, Inc. (formerly eGames, Inc), headquartered in Langhorne, Pennsylvania, develops and publishes casual games for leading Social Networks, the PC, Nintendo DS and Wii, iPhone, and the Internet including The Dracula Files, Burger Island®, Burger Island 2: The Missing Ingredient, Satisfashion®, Purrfect Pet Shop®, and more. Additional information regarding eGames, Inc. can be found at http://www.egames.com.

The Entertainment Games, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7123

Accessing Our Financial Information

Shareholders have three ways to access the Company’s financial and other information: by going to the Investor Relations page of the Company’s website at www.egames.com, where the Company’s fiscal 2010 annual report, as well as fiscal 2011 press releases containing quarterly financial information, can be accessed; by going to the Pink Sheets website at www.pinksheets.com and typing in the Company’s symbol “EGAM”; or by requesting a paper copy of financial information by contacting the Company by mail at Entertainment Games, Inc. 2000 Cabot Boulevard West, Suite 110, Langhorne, Pennsylvania 19047 to the attention of the Chief Financial Officer. Shareholders can also be placed on a list to receive press releases, as they are issued, via email by going to the following link on the eGames investor relations webpage: http://www.egames.com/investors/contact-us/email-alerts/.

Forward-Looking Statement Safe Harbor

This press release contains certain forward-looking statements, including without limitation, statements regarding:   shifting consumer behavior away from the traditional distribution channels for videogames to the digital distribution of videogames; the importance of our acquisition of Heyday Games and the dramatic change underway as a result; and our goal to release at least two new interactive adventure stories, in addition to several new platform features, through February 2012, with monthly story and game features coming after that. 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; inability to fund continued development of future titles; technical and other issues that may delay or halt development of future titles; competition in the social gaming market; the failure of new titles to sell well or be used by consumers on social networks; our inability to enter into and maintain commercially successful publishing, licensing and distribution relationships; and an increase in worldwide competition in the overall videogame market; as well as the risks and uncertainties discussed under the heading “Factors Affecting Future Performance” in the Company’s Annual Report for the fiscal year ended June 30, 2010 as posted on the Company’s website and on www.pinksheets.com.

CONTACT: Entertainment Games, Inc.          Jerry Klein, CEO          (215) 750-6606 (Ext. 118)          Gene Mauro, President and COO          (203) 878-5022

Entertainment Games, Inc. Logo

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