At eGames, Inc

eGames Announces Third Quarter Fiscal 2009 Financial Results

Langhorne, Pa., – May 20, 2009 – eGames, Inc. (Pink Sheets: EGAM), a developer and publisher of games for the PC, game consoles and the Internet, today released financial results for its three and nine months ended March 31, 2009.

COMMENTS:

“We continue to focus our product development efforts and spending on our most promising titles, while expanding our product offerings on www.egames.com, and entering into licensing deals with distributors and Internet portals around the world to expand our product distribution,” commented Jerry Klein, President and CEO of eGames. “The imminent release of Puzzle City for the Nintendo DS™, which follows the recent release of Burger Island for the Wii™ and iPhone, are evidence of our continuing efforts to expand our successful PC game franchises onto other platforms. The expected launch of our newest title, Dracula Files, in early fall is our latest offering that targets the popular hidden object genre, and we anticipate expanding this title onto other platforms as well,” he continued.

“Our plan is to maintain our focus in order to ride out the current economic and retail conditions, while positioning ourselves for growth when these conditions improve,” Klein said. “The fact that we are debt free, and a relatively lean organization, gives us an opportunity to capitalize on future growth opportunities in the video game sector.”

FINANCIAL DISCUSSION:

Three Months ended March 31, 2009:

Net revenues decreased by $212,000, or 20%, to $872,000 for the quarter ended March 31, 2009, compared to $1,084,000 for the year ago quarter. The $212,000 decrease in net revenues resulted from decreases in traditional product revenues of $177,000, licensing revenues of $43,000 and liquidation product revenues of $51,000. These revenue decreases were related to declines in consumer demand for PC games at many of the major retailers as well as to worldwide economic conditions. Our net revenues benefited from a $59,000 increase in Internet revenues due to increased consumer installations of the eGames toolbar (available on all eGames published PC games) and greater PC game sales on www.egames.com.

Net loss was $217,000, or $0.02 per diluted share, for the quarter ended March 31, 2009, compared to a net loss of $165,000, or $0.01 per diluted share, for the comparable quarter a year earlier. This $52,000 increase in the net loss for the quarter ended March 31, 2009 was comprised of an $84,000 decrease in gross profit (related to lower net revenues and a 4.4% improvement in the gross profit margin), along with a $33,000 decrease in operating expenses.

The 4.4% gross profit margin improvement related to a:

9.0% decrease in product cost, as a percentage of net revenues, due to a reduction in liquidation product revenues (carrying a high product cost percentage) and an increase in Internet revenues with no associated product costs, which was partially offset by a
4.6% increase in other cost of revenues, as a percentage of net revenues, attributable to a higher inventory provision for raw materials determined to no longer have value.

The $33,000 decrease in operating expenses related to a $96,000 decrease in product development expense, due to our more focused product development plan, partially offset by a $63,000 increase in other operating expenses related primarily to a bad debt provision for a North American licensee who filed for bankruptcy during this reporting period.

Nine Months ended March 31, 2009:

Net revenues decreased by $259,000, or 9%, to $2,722,000 for the nine months ended March 31, 2009, compared to $2,981,000 for the similar nine-month period a year earlier. This $259,000 decrease in net revenues resulted from net revenue declines of $421,000 in traditional product revenues and $12,000 in licensing revenues, which were partially offset by net revenue increases of $167,000 in Internet revenues and $7,000 in liquidation product revenues.

Net loss was $1,071,000, or $0.09 per diluted share, for the nine months ended March 31, 2009, compared to a net loss of $436,000, or $0.04 per diluted share, for the nine months ended March 31, 2008. This $635,000 increase in the net loss resulted from a $275,000 decrease in gross profit and a $360,000 increase in operating expenses, primarily related to product development costs during the nine months ended March 31, 2009.

The following tables represent eGames’ net revenues by distribution channel for the three and nine months ended March 31, 2009 and 2008, respectively:

Net Revenues by Distribution Channel

(rounded to the nearest thousand)

	Three Months Ended March 31,
Distribution Channel	2009	%	2008	%	Increase (Decrease)	% Change
Traditional product revenues	$ 453,000	52%	$ 630,000	58%	($ 177,000)	(28%)
Internet revenues	335,000	38%	276,000	26%	59,000	21%
Licensing revenues	79,000	9%	122,000	11%	(43,000)	(35%)
Liquidation product revenues	5,000	1%	56,000	5%	(51,000)	(91%)
Totals	$ 872,000	100%	$ 1,084,000	100%	($ 212,000)	(20%)

	Nine Months Ended March 31,
Distribution Channel	2009	%	2008	%	Increase (Decrease)	% Change
Traditional product revenues	$ 1,448,000	53%	$ 1,869,000	63%	($ 421,000)	(23%)
Internet revenues	803,000	30%	636,000	21%	167,000	26%
Licensing revenues	375,000	14%	387,000	13%	(12,000)	(3%)
Liquidation product revenues	96,000	3%	89,000	3%	7,000	8%
Totals	$ 2,722,000	100%	$ 2,981,000	100%	($ 259,000)	(9%)

Liquidity Condition:

At March 31, 2009, eGames had $516,000 in cash compared to $874,000 in cash at June 30, 2008. At March 31, 2009, we had a working capital deficit (current assets minus current liabilities) of $95,000 compared to positive working capital of $938,000 at June 30, 2008. Considering our net losses for the most recent quarters and for fiscal years 2008, 2007 and 2006, and the fact that we do not currently have access to a credit facility, we are continuing to evaluate our options to fund future operations if eGames does not become cash flow positive from operations in the future.

eGames, Inc.

Balance Sheets


	As of	As of
	March 31,	June 30,
ASSETS	2009	2008
Current assets:
Cash and cash equivalents	$ 515,660	$ 874,188
Accounts receivable, net	303,984	467,506
Inventory, net	579,974	590,601
Prepaid and other expenses	173,691	284,380
Total current assets	1,573,309	2,216,675

Furniture and equipment, net	24,700	27,548
Intangible assets	444,089	444,089
Total assets	$ 2,042,098	$ 2,688,312


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 704,118	$ 591,494
Unearned revenues	588,755	248,454
Accrued expenses	375,898	439,208
Total current liabilities	1,668,771	1,279,156


Stockholders' equity:
Convertible preferred stock	704,568	704,568
Common stock	9,179,827	9,179,827
Additional paid-in capital	2,530,567	2,462,406
Accumulated deficit	(11,488,698)	(10,384,708)
Treasury stock, at cost	(552,937)	(552,937)
Total stockholders' equity	373,327	1,409,156
Total liabilities and stockholders' equity	$ 2,042,098	$ 2,688,312

eGames, Inc.

Statements of Operations

Three Months Ended

March 31,

Nine Months Ended

March 31,

	2009	2008	2009	2008
Net revenues	$ 871,629	$ 1,083,795	$ 2,722,422	$ 2,980,862

Cost of revenues	326,464	454,579	1,165,164	1,149,189

Gross profit	545,165	629,216	1,557,258	1,831,673

Operating expenses:
Product development	297,929	394,494	1,226,346	998,097
Selling, general and administrative	464,448	400,991	1,403,586	1,271,743

Total operating expenses	762,377	795,485	2,629,932	2,269,840

Operating loss	(217,212)	(166,269)	(1,072,674)	(438,167)

Interest income, net	105	1,233	1,497	2,555

Loss before income taxes	(217,107)	(165,036)	(1,071,177)	(435,612)

Provision for income taxes	- 0 -	- 0 -	- 0 -	- 0 -

Net loss	($ 217,107)	($ 165,036)	($ 1,071,177)	($ 435,612)


Net loss per common share:
- Basic	($ 0.02)	($ 0.01)	($ 0.09)	($ 0.04)
- Diluted	($ 0.02)	($ 0.01)	($ 0.09)	($ 0.04)


Weighted average common shares outstanding – Basic	11,957,193	11,833,193	11,957,193	11,793,143

Dilutive effect of common share equivalents	- 0 -	- 0 -	- 0 -	- 0 -

Weighted average common shares outstanding - Diluted	11,957,193	11,833,193	11,957,193	11,793,143

eGames, Inc.

Statements of Cash Flows

Nine Months Ended

March 31,

	2009	2008
OPERATING ACTIVITIES:
Net loss	($ 1,071,177)	($ 435,612)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation	84,322	70,208
Depreciation and amortization	17,692	15,338
Changes in operating assets and liabilities:

Accounts receivable, net	163,522	(73,958)
Inventory, net	10,627	34,088
Prepaid and other expenses	94,528	(30,813)
Accounts payable	152,890	93,082
Unearned revenues	340,301	49,188
Accrued expenses	(74,248)	(197,651)
Net cash used in operating activities	(281,543)	(476,130)

INVESTING ACTIVITIES:
Purchase of furniture and equipment	(14,843)	(10,640)
Net cash used in investing activities	(14,843)	(10,640)

FINANCING ACTIVITIES:
Net proceeds (disbursements) from issuance of preferred stock	(29,558)	778,436
Dividend payments to preferred stockholders	(32,584)	- 0 -
Proceeds from stock option exercises	- 0 -	7,230
Net cash (used in) provided by financing activities	(62,142)	785,666

Net increase (decrease) in cash and cash equivalents	(358,528)	298,896

Cash and cash equivalents:
Beginning of period	874,188	644,524
End of period	$ 515,660	$ 943,420

eGames, Inc.

Statements of Stockholders’ Equity

Convertible

Preferred Stock

Common Stock

Additional Paid-in

Accumulated

Treasury Stock

Stockholders’

	Shares	Amount	Shares	Amount	Capital	Deficit	Shares	Amount	Equity

Balances at June 30, 2007	- 0 -	$ - 0 -	11,956,093	$ 9,179,827	$ 2,205,242	($ 9,467,234)	(231,900)	($ 501,417)	$ 1,416,418

Net loss						(902,250)			(902,250)
Shares issued and retired in connection with stock option exercises			95,000		58,750		(46,000)	(51,520)	7,230

Common stock options issued to employees and directors					79,585				79,585

Shares issued in connection with consulting agreement			60,000		38,792				38,792

Shares issued in connection with preferred stock offering	875,000	875,000							875,000

Costs incurred and common stock shares and warrant issued in connection with preferred stock offering		(170,432)	124,000		80,037				(90,395)

Dividends declared on preferred stock						(15,223)			(15,223)

Rounding						(1)			(1)
Balances at June 30, 2008	875,000	$ 704,568	12,235,093	$ 9,179,827	$ 2,462,406	($ 10,384,708)	(277,900)	($ 552,937)	$ 1,409,156

Net loss						(1,071,177)			(1,071,177)

Common stock options issued to employees and directors					68,161				68,161

Dividends declared on preferred stock						(32,814)			(32,814)

Rounding						1			1
Balances at March 31, 2009	875,000	$ 704,568	12,235,093	$ 9,179,827	$ 2,530,567	($ 11,488,698)	(277,900)	($ 552,937)	$ 373,327

Three Months Ended

Distribution Channel

Nine Months Ended

Distribution Channel

ASSETS

LIABILITIES AND STOCKHOLDERS' EQUITY

Treasury Stock