eGames Announces Fiscal Year 2006 Financial Results

Langhorne, Pa., – August 28, 2006 (PRIMEZONE) – eGames, Inc. (OTCBB: EGAM), a publisher of consumer entertainment PC software games, today announced financial results for its fiscal fourth quarter and year ended June 30, 2006.

Fiscal Quarter ended June 30, 2006:

Net sales increased by $249,000, or 31%, to $1,043,000 for the fiscal quarter ended June 30, 2006, compared to $794,000 for the same fiscal quarter a year earlier. Net loss was $504,000, or $0.04 per diluted share, for the fiscal quarter ended June 30, 2006, compared to a net loss of $312,000, or $0.03 per diluted share, for the same fiscal quarter a year ago.

Fiscal Year ended June 30, 2006:

Net sales decreased by $588,000, or 11%, to $4,756,000 for the fiscal year ended June 30, 2006, compared to $5,344,000 for fiscal year 2005. Net loss was $1,039,000, or $0.09 per diluted share, for the fiscal year ended June 30, 2006, compared to a net loss of $155,000, or $0.01 per diluted share, for the prior fiscal year.

Fiscal Year 2006 – Summary:

The $588,000 decrease in net sales for the fiscal year ended June 30, 2006 resulted primarily from a $1.2 million decrease in net sales of the eGames® brand of value-priced PC software games due largely to a reduction in retail shelf space allocated to $9.99 retail priced PC games in North America. This net sales decrease was partially offset by a $0.5 million increase in net sales that resulted from the launch of the Company’s new Cinemaware Marquee™ brand of higher-priced box titles in the second half of this fiscal year. Additionally, the Company experienced minor increases in North American licensing revenues and in net sales of end-of-lifecycle titles to inventory liquidators.

For the fiscal year ended June 30, 2006, the Company recognized a net loss of $1,039,000 compared to the fiscal year ended June 30, 2005 in which the Company reported a net loss of $155,000. This $884,000 increase in the net loss for the fiscal year ended June 30, 2006 compared to the year ago period resulted primarily from a $763,000 decline in gross profit, combined with a $146,000 increase in operating expenses.

The $763,000 decline in gross profit resulted from a $588,000 decrease in net sales, combined with a 9.4% reduction in gross profit margin caused by an increase in product costs, as a percentage of net sales. The factors contributing to the increase in product costs, as a percentage of net sales, were increased sales of:

· Titles sold to software distributors and retailers at reduced selling prices below historical levels;

· Higher costing titles containing multiple CDs, posters, manuals and other value added items; and

· End-of-lifecycle titles to inventory liquidators at prices substantially lower than titles active in traditional retail channels.

The increase in operating expenses was largely traceable to increases in advertising and product development costs incurred to support our new Cinemaware Marquee box titles, as well as severance costs associated with the Company’s recent reduction in force that was affected to achieve future operating expense savings and to better utilize the Company’s resources.

The following tables represent the Company’s net sales by distribution channel for the fiscal quarters and years ended June 30, 2006 and 2005, respectively:

Net Sales by Distribution Channel

(rounded to the nearest thousand)

	Quarters Ended June 30,
Distribution Channel	2006	%	2005	%	Increase (Decrease)	% Change
Software Distributors	$ 520,000	50%	$ 259,000	33%	$ 261,000	101%
Software Retailers	169,000	16%	283,000	36%	(114,000)	(40%)
Licensing	164,000	16%	152,000	19%	12,000	8%
Internet	82,000	8%	81,000	10%	1,000	1%
Inventory Liquidators	108,000	10%	19,000	2%	89,000	n/m
Totals	$ 1,043,000	100%	$ 794,000	100%	$ 249,000	31%

	Years Ended June 30,
Distribution Channel	2006	%	2005	%	Increase (Decrease)	% Change
Software Distributors	$ 2,826,000	59%	$ 3,527,000	66%	($ 701,000)	(20%)
Software Retailers	652,000	14%	722,000	13%	(70,000)	(10%)
Licensing	658,000	14%	575,000	11%	83,000	14%
Internet	294,000	6%	323,000	6%	(29,000)	(9%)
Inventory Liquidators	326,000	7%	197,000	4%	129,000	65%
Totals	$ 4,756,000	100%	$ 5,344,000	100%	($ 588,000)	(11%)

Comments:

Jerry Klein, President and CEO of eGames, commented “fiscal 2006 proved to be a challenging year for us. In particular, our net sales continued to be negatively impacted by the decline in retail shelf space retailers are allocating to value-priced PC games at the $9.99 retail price point in North America. In our attempt to overcome the unfavorable reality of a declining retail market for value-priced PC games, we began changing our business model in order to better address changes in consumer buying behavior for our category of products and to increase the size and scope of the market we serve. In an effort to address both issues, we purchased the assets of Cinemaware, Inc. in October 2005, and Lars Furhken-Batista joined the Company as our new Vice President of development. With the Cinemaware acquisition, we acquired a number of classic game properties that we believe will be the basis for developing unique and compelling casual games for the PC, other game platforms, and the Internet.

During the second half of fiscal 2006, we released six premium quality PC games licensed under our “Cinemaware Marquee” and “eGames” brands.  Consumer feedback on these titles has been positive, and we will continue to seek high-quality titles to license and publish under our Cinemaware Marquee brand, while at the same time continuing to publish addictive value-priced PC games offered mostly at the $9.99 retail price point under the eGames brand. During the fourth fiscal quarter, we began implementing our strategy of developing our own PC game titles from the ground up, utilizing some of the original Cinemaware intellectual properties, as well as some new and unique game ideas. The first of these internally-developed titles, “Boss Hunter™,” is being released as a $9.99 jewel case title under the eGames brand in September 2006, and will be distributed in both Best Buy and Target stores. Four more titles are scheduled for release at the beginning of calendar 2007, and will include a completely new version of Cinemaware’s best-known title, “Defender of the Crown®,” as well as “The Three Stooges®” and two other ground breaking titles to be announced at a later date. The launch of these new titles will coincide with the introduction of our new eGames web portal currently being developed to become a true “destination” website for both serious and casual gamers.”

Mr. Klein continued, “Our financial results for fiscal 2006 were disappointing regardless of the fact that this year included the costs of investing in the future. Today I believe we have realigned our resources in a way that will better position us in fiscal 2007 to begin to better exploit both online and retail opportunities. Additionally, by internally developing our own PC game titles, we hope to gain additional revenue opportunities by leveraging these wholly owned game properties in both retail and online markets worldwide. In the past our segment of the PC game market was restricted to North American retailers, some Internet retail websites, and certain international markets where we had limited distribution rights for certain licensed properties. We are confident that fiscal 2007 will mark the launch of an eGames business model designed to adapt to the consumers continually evolving buying behavior – on the Internet and at retail.”

eGames, Inc.

Balance Sheets

(Audited)

	As of	As of
	June 30,	June 30,
ASSETS	2006	2005
Current assets:
Cash and cash equivalents	$ 1,526,629	$ 2,412,162
Accounts receivable, net	521,086	269,168
Inventory, net	973,735	893,766
Prepaid and other expenses	299,661	313,684
Total current assets	3,321,111	3,888,780
Furniture and equipment, net	49,595	49,881
Goodwill	420,000	- 0 -
Intangible assets	24,089	24,089
Total assets	$ 3,814,795	$ 3,962,750
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 343,283	$ 156,592
Accrued expenses	614,668	409,640
Total current liabilities	957,951	566,232
Stockholders' equity:
Common stock	9,179,827	9,179,827
Additional paid-in capital	2,135,168	1,636,144
Accumulated deficit	(7,956,734)	(6,918,036)
Treasury stock	(501,417)	(501,417)
Total stockholders' equity	2,856,844	3,396,518
Total liabilities and stockholders' equity	$ 3,814,795	$ 3,962,750

eGames, Inc.

Statements of Operations

(Unaudited) Quarters Ended June 30,

(Audited) Years Ended June 30,

	2006	2005	2006	2005
Net sales	$ 1,043,224	$ 793,899	$ 4,756,187	$ 5,343,981
Cost of sales	564,927	426,713	2,658,574	2,483,220