Hip Interactive Fiscal Results: Gaming News

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Hip Interactive Fiscal Results

(Press Release)

MISSISSAUGA, Ontario--(BUSINESS WIRE)--May 28, 2004 Hip Interactive Corp. (TSX:HP), Canada's leading provider of electronic entertainment products, today announced results for its fiscal year ended March 31, 2004. Sales for the year were $425.8 million, an increase of 18% compared to $360.7 million in fiscal 2003. Net earnings were $9.6 million compared to $11.0 million in 2003. Fully diluted earnings of $0.16 per share were down from $0.20 per share in 2003.

Sales by Hip's distribution divisions (Video Games, PC Games and Movies) increased by 13% over fiscal 2003, while Hip Gear(TM) sales increased by 133% and Hip Games(TM) sales increased by 69%. Overall gross margin decreased to 10.1% in fiscal 2004 from 11.4% in 2003. This was due mainly to lower margins in the Video Game distribution division, specifically hardware margins. Selling, general & administrative expenses were $25.0 million in 2004, up $5.2 million over 2003. As a percentage of sales, Selling, general and administrative expenses rose to 5.9% from 5.5% in 2003. The increase in expenses included $1.5 million relating to Hip's expanded U.S. operations, $2.2 million relating to Tevica Inc. (acquired in August 2002 and, therefore, included for only part of fiscal 2003) and $0.8 million related to stock option expenses and incremental systems maintenance and variable warehouse costs.

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The Company had borrowings of $22.5 million at March 31, 2004, compared to a net cash position of $3.3 million at the close of the previous fiscal year. The primary uses of these funds were $12.8 million of new investments in publishing and exclusive distribution titles, a $15 million increase in inventory levels (primarily Hip Gear(TM) accessories, video game software and movies), and a $3 million increase in receivables (relating mainly to Hip's U.S.

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operations). In addition, during the fourth quarter of fiscal 2003, the Company sold approximately $8 million of product on special payment terms for which cash was collected prior to the end of that fiscal year.

"While we are disappointed with our results this year, we are pleased with the performance of our strategically important Hip Gear(TM) and Hip Games(TM) Divisions," stated Mr. Arindra Singh, President and Chief Executive Officer of Hip. "We are optimistic about Hip's prospects for Fiscal 2005 and are committed to restoring the confidence of our shareholders and business partners over the next few quarters."

AS STATED IN THE NEWS RELEASE OF TUESDAY, MAY 25, 2004, HIP WILL HOST AN INVESTOR CONFERENCE CALL AND WEBCAST AT 10:00 A.M. (TORONTO TIME) ON MONDAY, MAY 31, 2004 TO REVIEW THE COMPANY'S FINANCIAL RESULTS. PARTICIPANTS CAN CALL 416-640-1907 (LOCAL) OR 800-814-3911 (LONG DISTANCE). THE AUDIO WEBCAST WILL BE AVAILABLE ON HIP'S WEBSITE (WWW.HIPINTERACTIVE.COM - MEDIA - UPCOMING). A REPLAY OF THE CALL WILL BE AVAILABLE ONE HOUR AFTER THE CALL UNTIL MIDNIGHT ON JUNE 7, 2004. TO ACCESS THE REPLAY, CALL 416-640-1917 - PASSCODE 21051774#. THE WEBCAST WILL BE AVAILABLE FOR 30 DAYS FOLLOWING THE LIVE CALL.

About Hip Interactive

Hip Interactive (www.hipinteractive.com) is a leading provider of electronic entertainment products, including PC and video games, movies, video arcade games, and proprietary games, branded as Hip Games(TM), and accessories, branded as Hip Gear(TM). The Company distributes all first party products, including Sony, Microsoft and Nintendo hardware, software and accessories, as well as third party licensed video game software. With offices across North America and in Europe, Hip uses its distribution business to leverage into higher margin, higher growth areas of the electronic entertainment industry, such as licensing, publishing and its proprietary games and accessories. Hip Interactive trades on The Toronto Stock Exchange under the trading symbol HP and has 62,994,254 common shares issued and outstanding.