At eGames, Inc

eGames Announces Second Quarter Fiscal 2010 Financial Results

Langhorne, Pa., – February 10, 2010 – Casual games publisher and developer eGames, Inc. (Pink Sheets: EGAM), today released financial results for its three and six months ended December 31, 2009.

COMMENTS:

“We continue to be encouraged by the strong sell-through of our latest titles at North American retail stores during the fiscal quarter ended December 31, 2009, driven by Mystery Legends™: Sleepy Hollow, which leads a strong lineup of eGames-branded hidden object and puzzle games now available at retail," said Jerry Klein, President and CEO of eGames. "The solid performance of our titles at retail stores, combined with an improved gross profit margin and reduced operating expenses, are promising factors that we hope to build upon during the second half of the fiscal year. While we have continued to reduce our development expenses, we have now redirected our development efforts towards games aimed at the fastest-growing segment of the video game market, the social network market,” Klein said.

“As we had announced at the end of 2009, our plans for the development of games for the social networks are well underway, as we expect to launch a social network version of our popular game Burger Island® on the leading Latin American social networks later this month. We are truly excited about the possibilities that these new markets represent for eGames. Our recent retail success has enabled us to fund our progress in expanding our games into the social networking markets, and we are hopeful that the combination of a strong retail presence and an aggressive online strategy will strengthen our Company’s outlook for the future.”

“Our games, including Burger Island, Satisfashion®, Purrfect Pet Shop®, and Puzzle City®, are ideally suited for the social network environment, as well as the micro-transaction monetization strategies that have proven successful on social networks to date. Our plan to launch social games in the Latin American social network market will put us in the forefront of development of the social game market in that region while leveraging our development relationships and capacity in Brazil,” Klein stated.

FINANCIAL DISCUSSION:

Three Months ended December 31, 2009:

Net revenues increased by $75,000, or 8%, to $1,042,000 for the quarter ended December 31, 2009, compared to $967,000 for the comparative quarter a year ago. The $75,000 increase in net revenues resulted from an increase in North American traditional product revenues, which was partially offset by decreases in licensing revenues and product liquidation revenues.

Net income was $177,000, or $0.01 per diluted share, for the quarter ended December 31, 2009, compared to a net loss of $394,000, or $0.03 per diluted share, for the comparative quarter a year earlier. This $571,000 improvement in profitability for the quarter ended December 31, 2009 resulted from:

· a $107,000 increase in gross profit due to higher revenues and a 6% improvement in gross profit margin due to reduced product and royalty costs per unit,

· a $417,000 decrease in operating expenses related to:

o $260,000 of reductions in product development expenses;

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

o a $7,000 decrease in other operating expenses; and a

· $47,000 federal income tax benefit traceable to tax law changes relating to net operating loss carry-back rules.

Six Months ended December 31, 2009:

Net revenues decreased by $113,000, or 6%, to $1,738,000 for the six months ended December 31, 2009, compared to $1,851,000 for the similar six-month period a year earlier. This $113,000 decrease in net revenues resulted from decreases in product liquidation revenues, North American traditional product revenues and Internet revenues, which were partially offset by increased licensing revenues.

Net income was $15,000, or nil per diluted share, for the six months ended December 31, 2009, compared to a net loss of $854,000, or $0.07 per diluted share, for the six months ended December 31, 2008. This $869,000 improvement in profitability for the six months ended December 31, 2009 was due to:

· a $38,000 increase in gross profit due to a 6% improvement in gross profit margin,

· a $784,000 decrease in operating expenses related to:

o $553,000 of reductions in product development expenses;

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

o $81,000 in other operating expense savings; and a

· $47,000 federal income tax benefit.

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

Net Revenues by Distribution Channel

(rounded to the nearest thousand)

	Three Months Ended December 31,
Distribution Channel	2009	%	2008	%	Increase (Decrease)	% Change
Traditional product revenues	$ 660,000	63%	$ 524,000	54%	$ 136,000	26%
Licensing revenues	120,000	12%	142,000	15%	(22,000)	(15%)
Internet revenues	246,000	24%	246,000	25%	- 0 -	0%
Product liquidation revenues	16,000	1%	55,000	6%	(39,000)	(71%)
Totals	$ 1,042,000	100%	$ 967,000	100%	$ 75,000	8%

	Six Months Ended December 31,
Distribution Channel	2009	%	2008	%	Increase (Decrease)	% Change
Traditional product revenues	$ 946,000	54%	$ 995,000	54%	($ 49,000)	(5%)
Licensing revenues	309,000	18%	296,000	16%	13,000	4%
Internet revenues	458,000	26%	469,000	25%	(11,000)	(2%)
Product liquidation revenues	25,000	2%	91,000	5%	(66,000)	(73%)
Totals	$ 1,738,000	100%	$ 1,851,000	100%	($ 113,000)	(6%)

Liquidity Condition:

At December 31, 2009, eGames had $263,000 in cash compared to $344,000 in cash at June 30, 2009. Additionally, at December 31, 2009 our net working capital deficit (current assets minus current liabilities) was $203,000 compared to a net working capital deficit of $284,000 at June 30, 2009. Due to our history of net losses, combined with 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 cannot sustain positive cash flow from operations in the future.

eGames, Inc.

Balance Sheets


	At	At
	December 31,	June 30,
ASSETS	2009	2009
Current assets:
Cash and cash equivalents	$ 263,286	$ 344,432
Accounts receivable, net	550,721	279,827
Inventory, net	544,890	551,552
Prepaid and other expenses	56,680	88,017
Total current assets	1,415,577	1,263,828

Furniture and equipment, net	12,897	18,478
Intangibles	24,089	24,089
Total assets	$ 1,452,563	$ 1,306,395


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$ 663,670	$ 557,449
Unearned revenues	583,275	630,542
Accrued expenses	371,461	359,993
Total current liabilities	1,618,406	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	2,644,683	2,562,142
Accumulated deficit	(12,141,984)	(12,135,189)
Treasury stock, as cost	(552,937)	(552,937)
Total stockholders' equity (deficit)	(165,843)	(241,589)
Total liabilities and stockholders' equity (deficit)	$ 1,452,563	$ 1,306,395

eGames, Inc.

Statements of Operations

Three Months Ended

December 31,

Six Months Ended

December 31,

	2009	2008	2009	2008
Net revenues	$ 1,042,093	$ 967,061	$ 1,738,399	$ 1,850,793

Cost of revenues	411,243	443,829	687,908	838,699

Gross profit	630,850	523,232	1,050,491	1,012,094

Operating expenses:
Product development	212,594	472,673	375,361	928,417
Selling, general and administrative	438,359	445,354	856 898	939,138
Intangibles impairment (recovery)	(150,000)	- 0 -	(150,000)	- 0 -

Total operating expenses	500,953	918,027	1,082,259	1,867,555

Operating income (loss)	129,897	(394,795)	(31,768)	(855,461)

Interest income, net	24	586	38	1,392

Income (loss) before income taxes	129,921	(394,209)	(31,730)	(854,069)

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

Net income (loss)	$ 176,732	($ 394,209)	$ 15,081	($ 854,069)


Net income (loss) per common share:
- Basic	$ 0.01	($ 0.03)	$ 0.00	($ 0.07)
- Diluted	$ 0.01	($ 0.03)	$ 0.00	($ 0.07)


Weighted average common shares outstanding – Basic	12,398,218	11,957,193	12,258,858	11,957,193

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

Weighted average common shares outstanding - Diluted	12,398,218	11,957,193	12,258,858	11,957,193

eGames, Inc.

Statements of Cash Flows

Six Months Ended December 31,

	2009	2008
OPERATING ACTIVITIES:
Net income (loss)	$ 15,081	($ 854,069)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Stock-based compensation	60,665	63,685
Depreciation and amortization	6,727	11,470
Changes in operating assets and liabilities:

Accounts receivable, net	(270,894)	42,183
Inventory, net	6,662	33,354
Prepaid and other expenses	31,337	76,367
Accounts payable	106,221	109,647
Unearned revenues	(47,267)	234,370
Accrued expenses	11,468	(68,066)
Net cash used in operating activities	(80,000)	(351,059)

INVESTING ACTIVITIES:
Purchase of furniture and equipment	(1,146)	(14,639)
Net cash used in investing activities	(1,146)	(14,639)

FINANCING ACTIVITIES:
Net disbursements from issuance of preferred stock	- 0 -	(26,638)
Dividend payments to preferred stockholders	- 0 -	(21,646)
Net cash used in financing activities	- 0 -	(48,284)

Net decrease in cash and cash equivalents	(81,146)	(413,982)

Cash and cash equivalents:
Beginning of period	344,432	874,188
End of period	$ 263,286	$ 460,206

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						15,081			15,081

Vesting of Common stock options issued to employees and directors					41,274				41,274

Dividends declared on preferred stock			60,100		21,876	(21,876)			- 0 -

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

Balances at December 31, 2009	875,000	$ 704,568	12,616,140	$ 9,179,827	$ 2,644,683	($ 12,141,984)	(277,900)	($ 552,937)	($ 165,843)

Three Months Ended

Distribution Channel

Six Months Ended

Distribution Channel

ASSETS

LIABILITIES AND

STOCKHOLDERS' EQUITY (DEFICIT)

Treasury Stock