This past year saw a dramatic shift in the form of our business. We began the year fully into the bi-monthly publication schedule and the increased level of retail support we talked about in 1994. The results of these attempts at further growth were disappointing and by November we had entered a fiscal crisis generated by our cash flow situation. I'll refer you to my Outbrief in OPS #19 for more detail on the reasons behind the cash flow problem and not elaborate on them here. Suffice it to say, lack of direct sales (the pre-pubs we had done since we started, but discontinued for 18 months), wasteful employees, expenses in the retail support effort, and growing inventory all contributed to our first year of negative cash flow since 1989.

The expected growth did not occur.

The Bad News

While we sold some 17,932 game units (not quite the 19,000 I predicted in last year's report), this number was based on 7 releases-giving a paltry 2,562 unit sales per release as opposed to the 3,545 for 1994. In that, the new games were not at fault (they sold normally)-the problem was the old game sales did not keep up with the number of new releases. This may mean that the raw number of older games going out the door is relatively fixed from year to yearadding more releases only dilutes that pool. Only time will tell if that theory holds true.

The largest single cause of the cash flow reversal was the increase in inventory (generated mainly by our own over-production). The year saw an increase in raw inventory of no less than $12 1,000. That is all cash expense which the accountants still count as money on hand (it just happens to be in the form of inventory). To finance this increase in inventory, the company debt-load increased by $84,500 over the course of the year.

Cutting off our pre-pub offers really hit us in terms of the cash influx we need to survive and that was my mistake. I had hoped that without our pre-pub sales, the stores would be able to generate more sales which would make up for their lack of dollars per sale by sheer volume. This was not to be. The simple fact is that we earn nearly four times as much money from a direct sale as the same game going out over some store's shelf.

In the past, 20% of our unit sales were direct (making up an incredible 55% of our total revenue) -- the 80% of the units (those sold to distributors) made up the remaining 45%. To compete on a dollar basis, the stores would have had to increase their volume to nearly double their previous amounts to make up for the dropping of direct sales. Suffice it to say that this did not happen, their sales shrank mildly instead. The differential was something we could not withstand for long.

The Good News

In the two months of 1995 after we asked for your help, some $86,574 in sales occurred (24% of the year's volume in 8% of the time). The deliberate increase in emphasis in direct sales made this happen and will be the way the company to rebuild itself fiscally. That will take time, but the boat is headed in the right direction.

The projected changes to print runs (changing from 5,000 to 3,000) will take effect slowly over the next year or so (since parts for games out through Champion Hill were purchased last year before the changes were made). The unreliable workers have long since been removed. The extraordinary amounts expended on sales activities have been eliminated.

So where does all this leave us? On a cash basis, we scored a loss of $57,624. In the world of accountants (and tax men), we made a $34,632 profit. While the latter number sounds better, my family eats off the former. Fatal? No, but it ate into our carefully hoarded reserves at a rate we cannot support. Thankfully, the problem was recognized, and your help obtained, before it was too late. Thank You.

Income	Expenses	Profit (Loss)
$367,734	333,101	34,632

Stock No.	Title	Units SOld
1-01	In their Quiet Fields II	1,784
1-02	Thunder at the Crossroads	458
1-07	Embrace an Angry Wind	80
1-08	No Better Place to Die	400
1-09	April's Harvest	2,098
2-04	Matanikau	212
2-05	GD'40	281
2-06	Hunters from the Sky	484
2-07	Black Wednesday	2,004
2-08	Leros (two months)	1,583
3-01	Force Eagle's War	62
4-01	Guderian's Blitzkrieg	62
4-02	Enemy at the Gates	601
4-03	Tunisia	2,168
5-02	Afrika	220
5-03	Ardennes	831
5-04	Yom Kippur	2,288
6-01	Austerlitz	365
6-02	Marengo	1,738