Media Arts Group Reports Third Quarter and Nine Months 2002 Results; Company Returns to...

Business Editors

MORGAN HILL, Calif.--(BUSINESS WIRE)--Nov. 7, 2002

Media Arts Group, Inc. (NYSE:MDA) today announced financial results for the third quarter and nine months ended September 30, 2002.

Revenue for the third quarter of 2002 was $21.1 million as compared with

$24.8 million for the same quarter of the prior year. Gross profit for the quarter was $10.3 million as compared with $12.3 million for the same quarter last year. Revenue was impacted by the continued weak economy and gross profit was impacted by lower production volume. Net income for the quarter was $443,000, or $0.03 per diluted share, compared with a net loss of $3.5 million, or $0.26 per diluted share, for the same quarter of last year. The increase in net income for this quarter as compared with the same quarter last year was primarily due to the reductions in workforce and operating expenses that took place in the first and second quarters.

The company also announced that Tony Thomopoulos has been named CEO. Thomopoulos has been serving as interim CEO and continues as Chairman of the company's Board of Directors.

"We are starting to see the results of the major restructuring and the company's focus on the Thomas Kinkade Brand," said Tony Thomopoulos. "In June 2001, we started by eliminating non-core businesses; this enabled us to significantly reduce staff and operating expenses during the latter part of 2001 and into the first and second quarters of this year."

"Supported by our five independent directors, recruited in the fourth quarter of 2001 and representing a majority of the board, we maintained cost containment measures and emphasized strong business and cultural values with our management team," Thomopoulos adds. "In addition, streamlining our senior management structure to a core of five senior managers has enabled us to focus on short and long term issues and has accelerated our decision making process. That focus has also targeted expansion of the Thomas Kinkade brand licensing and the development of new channels of distribution that promise to reach previously unserved markets. We have accomplished a great deal over the last 15 months and now have a lean organization and a clear strategy to move the company forward."

"We are on track with our brand strategy while improving and realigning our cost structure to current market conditions," said Herb Montgomery, Executive Vice President and CFO. "Our financial condition has improved as we ended the quarter with $18.2 million in cash, $41.9 million in working capital and $62.3 million in shareholder's equity. In addition, we lowered our break-even point, returned to profitability, and have positioned the company to increase our investment in expanding the Thomas Kinkade brand."

Revenue for the nine months ended September 30, 2002 was $74.5 million, in line with the $74.5 million reported in the same period last year. Gross profit was $34.6 million as compared with $35.7 million for the same nine-month period of last year. The decline in gross profit compared to the same period last year was primarily due to the establishment of significant inventory reserves during the first quarter, offset by the cost reductions that occurred earlier this year. Net loss for the nine months ended September 30, 2002 was $2.5 million, or $0.19 per diluted share, compared with a net loss of $6.9 million, or $0.53 per diluted share, in the corresponding period last year.

Media Arts Group publishes the work of Thomas Kinkade and distributes his art and related collectibles through independently owned galleries worldwide, an extensive network of branded dealers, and strategic marketing relationships with such companies as Avon Products, Inc., QVC Inc. and more than 40 product licensees. The company's primary products are canvas and paper lithographs that feature Mr. Kinkade's artistic unique use of light and his peaceful and inspiring themes. Mr. Kinkade, known as the "Painter of Light(R)," is the most commercially successful and most collected living artist in U.S. history. For more information, please visit the company's web site at www.mediaarts.com.

The foregoing comments include forward-looking statements and actual results may vary. Such statements are indicated by words or phrases such as "promise," "believe," "intend," "expect," "seek," "plan" and similar words or phrases, and include the statement in the fifth paragraph regarding the development of new channels of distribution and in the sixth paragraph regarding our position to increase brand leverage. Such statements are based on current expectations and are subject to certain risks, uncertainties and assumptions, including economic cycles and general economic conditions, the success of product development efforts, consumer acceptance of licensed artwork and of the company's products based on such work, expansion of distribution channels for the company's products, the continued success of the Signature Gallery distribution channel and the continued control of operating expenses. Media Arts Group, Inc., expressly disclaims any obligation to release any updates or revisions to such forward-looking statements to reflect any change in its expectations with regard thereto or any change in events or circumstances on which any such statement is based. -0-

                         MEDIA ARTS GROUP, INC
             UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
               (In thousands, except per share amounts)

                          Three Months Ended       Nine Months Ended
                             September 30,           September 30,
                             2002     2001           2002     2001

Net Sales                  $21,103   $24,781       $74,533   $74,479
Cost of Sales               10,775    12,486        39,940    38,802
                            ------    ------        ------    ------
  Gross Profit              10,328    12,295        34,593    35,677
                            ------    ------        ------    ------
Operating expenses:
  Selling and marketing      4,869     6,707        17,950    21,672
  General and
   administrative            4,810     9,528        21,134    24,022
  Write-down of internet
   business assets               -     1,797             -     1,770
                             -----    ------        ------    ------
   Total operating expenses  9,679    18,032        39,084    47,464

Operating income (loss)        649    (5,737)       (4,491)  (11,787)
Interest income (expense)       74       169            21       228
Gain on sales of company
 owned stores                   28        44           122       560
                             -----    ------        ------    ------
Income (loss) before
 income taxes                  751    (5,524)       (4,348)  (10,999)
Provision for (benefit from)
 income taxes                  308    (2,043)       (1,802)   (4,060)
                             -----    ------        ------    ------
  Net income (loss)           $443   $(3,481)      $(2,546)  $(6,939)

  Net income (loss)
   per share:
    Basic                    $0.03    $(0.26)       $(0.19)   $(0.53)
    Diluted                  $0.03    $(0.26)       $(0.19)   $(0.53)

  Shares used in net income
   (loss) per share
   computation:
    Basic                   13,224    13,207        13,221    13,200
    Diluted                 13,224    13,207        13,221    13,200


                                 September 30,        December 31,
                                      2002                2001

Selected Balance Sheet Data
  Cash and cash equivalents          $16,248             $2,148
  Restricted cash                      2,000                  -
  Accounts receivable                 15,429             20,178
  Inventories                         13,200             18,271
  Working capital                     41,881             39,969
  Total assets                        81,325             85,490
  Total stockholders' equity          62,277             64,798