At eGames, Inc

eGames Announces Fiscal Year 2009 Financial Results

Langhorne, Pa., – September 16, 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 fiscal fourth quarter and year ended June 30, 2009.

COMMENTS:

Commenting on fiscal 2009 results, Jerry Klein, President and CEO of eGames said, “While we were able to achieve many of our product development and distribution goals during this fiscal year, our sales results have been negatively affected by economic conditions, and specifically less retail store traffic, decreased consumer spending and decreased sales in the videogame sector overall. While we were able to minimize our net loss during the current quarter by reducing our product development expenses by $261,000 compared to the year ago quarter and focusing our resources on our strongest product development projects, this strategy has not offset the difficulty we have experienced in collecting accounts receivable or obtaining working capital financing to fund continued development and expansion of our proprietary product line.”

“We remain hopeful that the success of the titles we expect to release shortly, including (The Dracula Files, 4 Elements, G.H.O.S.T. Chronicles, First Class Flurry and Mystery Legends: Sleepy Hollow) will drive revenues in the coming fiscal quarters, but our challenge remains getting through the holiday selling season with enough working capital to fund the production and distribution of inventory to customers,” Klein said. “With video-game industry analysts predicting a positive turnaround in videogame sales during the next 12 months, our primary goal at this time is to achieve positive cash flow and obtain working capital funding to enable us to take advantage of that potential turnaround while riding out the current difficult economic conditions and retail environment.”

FINANCIAL DISCUSSION:

Fiscal Fourth Quarter ended June 30, 2009:

Net revenues decreased by $136,000, or 14%, to $839,000 for the fiscal quarter ended June 30, 2009, compared to $975,000 for the comparative fiscal quarter a year earlier.

Net loss was $636,000, or $0.05 per diluted share, for the fiscal quarter ended June 30, 2009, compared to a net loss of $467,000, or $0.04 per diluted share, for the same fiscal quarter a year ago. Included in the net loss for the quarter ended June 30, 2009 were two non-cash expenses:

$420,000 in operating expense traceable to the write-off of intangibles related to the Cinemaware game properties due to our assessment of impairment; and
$54,000 tax expense related to the write-off of the Company’s alternative minimum tax related deferred tax asset.

Fiscal Year ended June 30, 2009:

Net revenues decreased by $394,000, or 10%, to $3,562,000 for the fiscal year ended June 30, 2009, compared to $3,956,000 for fiscal year 2008. The $394,000 decrease in net revenues resulted from a decline in traditional product revenues of $622,000 (traceable to a reduction in retail distribution and lower consumer demand for the Company’s PC game titles) and a reduction in liquidation product revenues of $27,000.

Partially offsetting these revenue decreases were increases in Internet revenues of $180,000 (related to greater toolbar and egames.com revenues) and in licensing revenues of $75,000 (related to proprietary titles developed for the Nintendo DS and Wii game consoles).

Net loss was $1,707,000, or $0.14 per diluted share, for the fiscal year ended June 30, 2009, compared to a net loss of $902,000, or $0.08 per diluted share, for the prior fiscal year. This $805,000 increase in the net loss for the fiscal year ended June 30, 2009 resulted from three main factors:

· $420,000 in operating expense traceable to the non-cash write-off of intangibles related to the Cinemaware game properties due to our assessment of impairment;

· $335,000 decrease in gross profit traceable to lower net revenues along with a 2.8% decline in gross profit margin (due to higher contractual royalty rates for 3^rd party developed PC game titles sold during the year); and

· $54,000 tax expense related to the non-cash write-off of the Company’s alternative minimum tax related deferred tax asset.

Liquidity Condition Update:

At August 31, 2009, the Company had approximately $170,000 in cash, compared to $344,000 at June 30, 2009 and $874,000 at June 30, 2008. Considering the Company’s net losses for the most recent quarters in fiscal 2009 and for fiscal years 2008, 2007 and 2006, and the fact that it does not currently have access to a credit facility, the Company continues to evaluate its options to fund future operations.

The following tables represent the Company’s net revenues by distribution channel for the fiscal quarters and years ended June 30, 2009 and 2008, respectively:

Net Revenues by Distribution Channel

(rounded to the nearest thousand)

	Quarters Ended June 30,
Distribution Channel	2009	%	2008	%	Increase (Decrease)	% Change
Traditional product revenues	$ 402,000	48%	$ 603,000	62%	($ 201,000)	(33%)
Licensing revenues	177,000	21%	91,000	9%	86,000	95%
Internet revenues	238,000	28%	225,000	23%	13,000	6%
Liquidation product revenues	22,000	3%	56,000	6%	(34,000)	(61%)
Totals	$ 839,000	100%	$ 975,000	100%	($ 136,000)	(14%)

	Years Ended June 30,
Distribution Channel	2009	%	2008	%	Increase (Decrease)	% Change
Traditional product revenues	$ 1,850,000	52%	$ 2,472,000	62%	($ 622,000)	(25%)
Licensing revenues	553,000	16%	478,000	12%	75,000	16%
Internet revenues	1,041,000	29%	861,000	22%	180,000	21%
Liquidation product revenues	118,000	3%	145,000	4%	(27,000)	(19%)
Totals	$ 3,562,000	100%	$ 3,956,000	100%	($ 394,000)	(10%)

eGames, Inc.

Balance Sheets

(Audited)


	As of	As of
	June 30,	June 30,
ASSETS	2009	2008
Current assets:
Cash and cash equivalents	$ 344,432	$ 874,188
Accounts receivable, net	279,827	467,506
Inventory, net	551,552	590,601
Prepaid and other expenses	88,017	284,380
Total current assets	1,263,828	2,216,675

Furniture and equipment, net	18,478	27,548
Intangibles	24,089	444,089
Total assets	$ 1,306,395	$ 2,688,312


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$ 557,449	$ 591,494
Unearned revenues	630,542	248,454
Accrued expenses	359,993	439,208
Total current liabilities	1,547,984	1,279,156


Stockholders' equity (deficit):
Convertible preferred stock	704,568	704,568
Common stock	9,179,827	9,179,827
Additional paid-in capital	2,562,142	2,462,406
Accumulated deficit	(12,135,189)	(10,384,708)
Treasury stock	(552,937)	(552,937)
Total stockholders' equity (deficit)	(241,589)	1,409,156
Total liabilities and stockholders' equity (deficit)	$ 1,306,395	$ 2,688,312

eGames, Inc.

Statements of Operations

(Unaudited)

Quarters Ended

June 30,

(Audited)

Years Ended

June 30,

	2009	2008	2009	2008
Net revenues	$ 839,185	$ 975,342	$ 3,561,607	$ 3,956,204

Cost of revenues	343,757	418,504	1,508,921	1,567,693

Gross profit	495,428	556,838	2,052,686	2,388,511

Operating expenses:
Product development	239,287	499,930	1,465,633	1,498,027
Selling, general and administrative	417,667	525,117	1,821,253	1,796,861
Intangibles impairment	420,000	- 0 -	420,000	- 0 -

Total operating expenses	1,076,954	1,025,047	3,706,886	3,294,888

Operating loss	(581,526)	(468,209)	(1,654,200)	(906,377)

Interest income, net	99	1,571	1,596	4,127

Loss before income taxes	(581,427)	(466,638)	(1,652,604)	(902,250)

Income tax expense	54,126	- 0 -	54,126	- 0 -

Net loss	($ 635,553)	($ 466,638)	($ 1,706,730)	($ 902,250)


Net loss per common share:
- Basic	($ 0.05)	($ 0.04)	($ 0.14)	($ 0.08)
- Diluted	($ 0.05)	($ 0.04)	($ 0.14)	($ 0.08)


Weighted average common shares outstanding – Basic	12,022,224	11,906,526	11,973,451	11,821,489

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

Weighted average common shares outstanding - Diluted	12,022,224	11,906,526	11,973,451	11,821,489

eGames, Inc.

Statements of Cash Flows

(Audited)

Years Ended June 30,

	2009	2008
OPERATING ACTIVITIES:
Net loss	($ 1,706,730)	($ 902,250)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation	104,959	102,216
Depreciation and amortization	23,914	21,524
Intangibles impairment	420,000	- 0 -
Alternative minimum tax	54,126	- 0 -
Changes in operating assets and liabilities:

Accounts receivable, net	187,679	(141,501)
Inventory, net	39,049	6,375
Prepaid and other expenses	131,076	(14,593)
Accounts payable	1,221	325,207
Unearned revenues	382,088	205,954
Accrued expenses	(90,153)	(175,069)
Net cash used in operating activities	(452,771)	(572,137)

INVESTING ACTIVITIES:
Purchase of furniture and equipment	(14,843)	(15,077)
Net cash used in investing activities	(14,843)	(15,077)

FINANCING ACTIVITIES:
Net proceeds from exercise of stock options	- 0 -	7,230
Net proceeds (payments) from issuance of preferred stock	(29,558)	814,163
Dividend payments to preferred stock shareholders	(32,584)	(4,515)
Net cash provided by (used in) financing activities	(62,142)	816,878

Net increase (decrease) in cash and cash equivalents	(529,756)	229,664

Cash and cash equivalents:
Beginning of period	874,188	644,524
End of period	$ 344,432	$ 874,188

eGames, Inc.

Statements of Stockholders’ Equity (Deficit)

(Audited)

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, 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						(1,706,730)			(1,706,730)

Common stock options issued to employees and directors					88,798				88,798

Dividends declared on preferred stock			95,947		10,938	(43,752)			(32,814)

Rounding						1			1

Balances at June 30, 2009	875,000	$ 704,568	12,331,040	$ 9,179,827	$ 2,562,142	($ 12,135,189)	(277,900)	($ 552,937)	($ 241,589)

Quarters Ended

Distribution Channel

Years Ended

Distribution Channel

ASSETS

LIABILITIES AND

STOCKHOLDERS' EQUITY (DEFICIT)

Treasury Stock