At eGames, Inc

eGames Announces Third Quarter Fiscal 2010 Financial Results

Langhorne, Pa., – May 12, 2010 – eGames, Inc. (Pink Sheets: EGAM), a developer and publisher of casual games for leading social networks, the PC, game consoles and the Internet, today released financial results for its three and nine months ended March 31, 2010.

Comments:

"The solid performance of our titles at North American retail stores led by Mystery Legends®: Sleepy Hollow, Hidden Relics, 4 Elements™, and Adventures of Robinson Crusoe, combined with an improved gross profit and reduced operating expenses, are factors that we continued to build upon during the third quarter of the fiscal year,” said Jerry Klein, President and CEO. “While we continued to reduce development expenses during the third quarter compared to the year ago period, we have now been focusing our development efforts towards games aimed at the fastest-growing segment of the video game market, the social network market,” Klein said.

“We recently launched our first social game application, Burger Island®, on Sonico, the Latin American social network that helps people organize their lives online, and on the Orkut® online community, the leading social network in Brazil. In the coming weeks we also expect to launch Burger Island on Latin America-targeted MySpace and hi5 websites, both leading Latin American social networks. Burger Island was developed in conjunction with our partner, Brazil-based Techfront Studios. Burger Island is the first of five social network games we plan to release in calendar 2010 and we are excited about the possibilities these new markets represent for eGames. Burger Island is based on the award-winning downloadable casual game of the same name. Our recent retail success and private placement completed in March has enabled us to fund the expansion of our games into the social network markets, and we are hopeful the combination of a strong retail presence and an aggressive online strategy will strengthen our outlook for the future,” Klein stated.

FINANCIAL DISCUSSION:

Three Months ended March 31, 2010:

Net revenues increased by $252,000, or 29%, to $1,124,000 for the quarter ended March 31, 2010, compared to $872,000 for the comparative quarter a year earlier. The $252,000 increase in net revenues resulted from increases in North American traditional product revenues, product liquidation revenues and licensing revenues, which revenue increases were partially offset by a decrease in Internet revenues.

Net income was $20,000, or nil per diluted share, for the quarter ended March 31, 2010, compared to a net loss of $217,000, or $0.02 per diluted share, for the comparative quarter a year earlier. This $237,000 improvement in profitability for the quarter ended March 31, 2010 resulted from:

· a $130,000 increase in gross profit due to a 29% improvement in net revenues, partially offset by a 2% decline in gross profit margin traceable to increased low-margin product liquidation shipments, and

· a $107,000 decrease in operating expenses related to:

o an $84,000 reduction in product development expenses; and

o a $23,000 decrease in other operating expenses.

Nine Months ended March 31, 2010:

Net revenues increased by $140,000, or 5%, to $2,862,000 for the nine months ended March 31, 2010, compared to $2,722,000 for the similar nine-month period a year earlier. This $140,000 increase in net revenues resulted from increases in North American traditional product revenues and licensing revenues, which revenue increases were partially offset by decreases in Internet revenues and product liquidation revenues.

Net income was $36,000, or nil per diluted share, for the nine months ended March 31, 2010, compared to a net loss of $1,071,000, or $0.09 per diluted share, for the nine months ended March 31, 2009. This $1,107,000 improvement in profitability for the nine months ended March 31, 2010 was due to:

· a $169,000 increase in gross profit due to a 3% improvement in gross profit margin on higher net revenues,

· an $893,000 decrease in operating expenses related to:

o $637,000 of reductions in product development expenses;

o $150,000 in expense recovery associated with previously written down game properties; and

o $106,000 in other operating expense savings;

· a $47,000 federal income tax benefit, and

· a $2,000 reduction in interest income.

The following tables represent eGames’ net revenues by distribution channel for the three and nine months ended March 31, 2010 and 2009, respectively:

Net Revenues by Distribution Channel

(rounded to the nearest thousand)

	Three Months Ended March 31,
Distribution Channel	2010	%	2009	%	Increase (Decrease)	% Change
Traditional product revenues	$ 759,000	68%	$ 453,000	52%	$ 306,000	68%
Licensing revenues	112,000	10%	79,000	9%	33,000	42%
Internet revenues	201,000	18%	335,000	38%	(134,000)	(40%)
Product liquidation revenues	52,000	4%	5,000	1%	47,000	n/a
Totals	$ 1,124,000	100%	$ 872,000	100%	$ 252,000	29%

	Nine Months Ended March 31,
Distribution Channel	2010	%	2009	%	Increase (Decrease)	% Change
Traditional product revenues	$ 1,705,000	60%	$ 1,448,000	53%	$ 257,000	18%
Licensing revenues	421,000	15%	375,000	14%	46,000	12%
Internet revenues	659,000	23%	803,000	30%	(144,000)	(18%)
Product liquidation revenues	77,000	2%	96,000	3%	(19,000)	(20%)
Totals	$ 2,862,000	100%	$ 2,722,000	100%	$ 140,000	5%

Liquidity Condition:

At March 31, 2010, eGames had $859,000 in cash compared to $344,000 in cash at June 30, 2009. Additionally, at March 31, 2010 our net working capital (current assets minus current liabilities) was $341,000 compared to a net working capital deficit of $284,000 at June 30, 2009.

The Company completed a private placement on March 19, 2010 in which eGames received a total of $500,000 in gross cash proceeds in exchange for 1,000,000 shares of restricted eGames Common Stock and a three-year Warrant to purchase 1,000,000 shares of eGames Common Stock at an exercise price of $0.80 per share. The Company is using the net cash proceeds from the private placement to fund product development of new game titles for social networks and for general working capital requirements.

eGames, Inc.

Balance Sheets


	At	At
	March 31,	June 30,
ASSETS	2010	2009
Current assets:
Cash and cash equivalents	$ 859,268	$ 344,432
Accounts receivable, net	395,450	279,827
Inventory, net	564,275	551,552
Prepaid and other expenses	70,196	88,017
Total current assets	1,889,189	1,263,828

Furniture and equipment, net	9,882	18,478
Intangibles	24,089	24,089
Total assets	$ 1,923,160	$ 1,306,395


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$ 589,075	$ 557,449
Unearned revenues	585,287	630,542
Accrued expenses	373,525	359,993
Total current liabilities	1,547,887	1,547,984


Stockholders' equity (deficit):
Convertible preferred stock	704,568	704,568
Common stock	9,179,827	9,179,827
Additional paid-in capital	3,176,258	2,562,142
Accumulated deficit	(12,132,443)	(12,135,189)
Treasury stock, as cost	(552,937)	(552,937)
Total stockholders' equity (deficit)	375,273	(241,589)
Total liabilities and stockholders' equity (deficit)	$ 1,923,160	$ 1,306,395

eGames, Inc.

Statements of Operations

Three Months Ended

March 31,

Nine Months Ended

March 31,

	2010	2009	2010	2009
Net revenues	$ 1,123,636	$ 871,629	$ 2,862,035	$ 2,722,422

Cost of revenues	448,229	326,464	1,136,137	1,165,164

Gross profit	675,407	545,165	1,725,898	1,557,258

Operating expenses:
Product development	213,789	297,929	589,150	1,226,346
Selling, general and administrative	441,205	464,448	1,298,103	1,403,586
Intangibles impairment (recovery)	- 0 -	- 0 -	(150,000)	- 0 -

Total operating expenses	654,994	762,377	1,737,253	2,629,932

Operating income (loss)	20,413	(217,212)	(11,355)	(1,072,674)

Interest income, net	67	105	104	1,497

Income (loss) before income taxes	20,480	(217,107)	(11,251)	(1,071,177)

Income tax benefit	- 0 -	- 0 -	46,811	- 0 -

Net income (loss)	$ 20,480	($ 217,107)	$ 35,560	($ 1,071,177)


Net income (loss) per common share:
- Basic	$ 0.00	($ 0.02)	$ 0.00	($ 0.09)
- Diluted	$ 0.00	($ 0.02)	$ 0.00	($ 0.09)


Weighted average common shares outstanding – Basic	12,575,933	11,957,193	12,364,550	11,957,193

Dilutive effect of common share equivalents	83,327	- 0 -	- 0 -	- 0 -

Weighted average common shares outstanding - Diluted	12,659,260	11,957,193	12,364,550	11,957,193

eGames, Inc.

Statements of Cash Flows

Nine Months Ended

March 31,

	2010	2009
OPERATING ACTIVITIES:
Net income (loss)	$ 35,560	($ 1,071,177)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Stock-based compensation	81,302	84,322
Depreciation and amortization	10,652	17,692
Changes in operating assets and liabilities:

Accounts receivable, net	(115,623)	163,522
Inventory, net	(12,723)	10,627
Prepaid and other expenses	17,822	94,528
Accounts payable	31,626	152,890
Unearned revenues	(45,255)	340,301
Accrued expenses	13,532	(74,248)
Net cash provided by (used in) operating activities	16,893	(281,543)

INVESTING ACTIVITIES:
Purchase of furniture and equipment	(2,057)	(14,843)
Net cash used in investing activities	(2,057)	(14,843)

FINANCING ACTIVITIES:
Net proceeds (disbursements) from issuance of preferred stock	- 0 -	(29,558)
Dividend payments to preferred stockholders	- 0 -	(32,584)
Net proceeds from common stock private placement	500,000	- 0 -
Net cash provided by (used in) financing activities	500,000	(62,142)

Net increase (decrease) in cash and cash equivalents	514,836	(358,528)

Cash and cash equivalents:
Beginning of period	344,432	874,188
End of period	$ 859,268	$ 515,660

eGames, Inc.

Statements of Stockholders’ Equity (Deficit)

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, 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)

Vesting of 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)

Net income						35,560			35,560

Vesting of Common stock options issued to employees and directors					61,911				61,911

Dividends declared on preferred stock			196,559		32,814	(32,814)			- 0 -

Shares issued to investor relations service provider			225,000		19,391				19,391

Common stock shares and warrant issued in connection with private placement			1,000,000		500,000				500,000

Balances at March 31, 2010	875,000	$ 704,568	13,752,599	$ 9,179,827	$ 3,176,258	($ 12,132,443)	(277,900)	($ 552,937)	$ 375,273

Three Months Ended

Distribution Channel

Nine Months Ended

Distribution Channel

ASSETS

LIABILITIES AND

STOCKHOLDERS' EQUITY (DEFICIT)

Treasury Stock