--------------------------------------------------------------------------------
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

    |X|          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended March 31, 1999
    |_|             TRANSITION REPORT PURSUANT TO SECTION 13 OR
                   15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-27102

                                  eGames, Inc.
             (Exact name of registrant as specified in its charter)

           PENNSYLVANIA                                 23-2694937
  (State or other jurisdiction of                      (IRS Employer
  incorporation or organization)                  Identification Number)

                      2000 Cabot Boulevard West, Suite 110
                            Langhorne, PA 19047-1833
                    (address of Principal executive offices)

          Issuer's Telephone Number, Including Area Code: 215-750-6606

                                 Not Applicable
                     (Former name, former address and former
                   fiscal year, if changed since last report.)

         Check whether the issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.

                                Yes ( X ) No ( )

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the  registrant  has filed all documents
and reports  required to be filed by Sections 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                                 Yes ( ) No ( )

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:  9,592,440 shares of common
stock, no par value per share, as of May 12, 1999.  Transitional  Small Business
Disclosure Format (check one):

                                Yes ( ) No ( X )


<PAGE>

                                  eGames, Inc.


                                      INDEX

                                                                           Page
                                                                           ----
Part I.        Financial Information

Item 1.        Financial Statements:

               Consolidated Balance Sheet as of March 31, 1999..........     3

               Consolidated Statements of Operations for the three 
                    and nine months ended March 31, 1999 and 1998 ......     4

               Consolidated Statements of Cash Flows for the nine months 
                    ended March 31, 1999 and 1998 ......................     5

               Notes to Consolidated Financial Statements...............    6-8

Item 2.        Management's Discussion and Analysis of Financial
                    Condition and Results of Operations .................   9-14

Part II.       Other Information

Item 6.        Exhibits and Reports on Form 8-K.........................     15

Signatures     .........................................................     16

Exhibit Index  .........................................................     17

Exhibits       .........................................................     18




                                     Page 2

<PAGE>

                                  eGames, Inc.


Item 1.  Financial Statements

                           Consolidated Balance Sheet
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                       As of
                                                                      March 31,
                                    ASSETS                              1999
                                                                     ----------
<S>                                                                  <C>    
Current assets:
   Cash and cash equivalents                                         $1,761,414
   Restricted cash                                                       17,296
   Accounts receivable, net of allowances - $915,262                  2,825,503
   Inventory                                                          1,105,675
   Prepaid expenses                                                     101,178
                                                                     ----------
          Total current assets                                        5,811,066

Furniture and equipment, net                                            399,493
Goodwill and other assets                                               547,413
                                                                     ----------
          Total assets                                               $6,757,972
                                                                     ==========


                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes payable                                                     $  169,572
   Accounts payable                                                   1,126,238
   Accrued expenses                                                     837,215
   Capital lease obligations                                             13,791
                                                                     ----------
          Total current liabilities                                   2,146,816

Capital lease obligations                                                28,507
Notes payable                                                           188,408
Convertible subordinated debt                                           150,000
                                                                     ----------
          Total liabilities                                           2,513,731

Stockholders' equity:

   Common stock, no par value (40,000,000 shares authorized;          
          9,791,508 issued)                                           8,796,889
   Additional paid in capital                                         1,148,550
   Accumulated deficit                                               (5,405,135)
   Treasury stock, at cost - 161,900 shares                            (277,928)
   Accumulated other comprehensive loss                                 (18,135)
                                                                     ----------
          Total stockholders' equity                                  4,244,241
                                                                     ----------
          Total liabilities and stockholders' equity                 $6,757,972
                                                                     ==========
</TABLE>


        See accompanying notes to the consolidated financial statements.



                                     Page 3


<PAGE>

                                                eGames, Inc.
<TABLE>
<CAPTION>

                                    Consolidated Statements of Operations
                                                (Unaudited)


                                                            Three months ended          Nine months ended
                                                                 March 31,                   March 31,
                                                         ------------------------    ------------------------

                                                            1999          1998          1999          1998
                                                         ----------    ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>           <C>

Net sales                                                $2,521,715    $2,953,543    $8,639,041    $7,344,727

Cost of sales                                               937,492     1,115,977     2,954,800     2,752,600
                                                         ----------    ----------    ----------    ----------

Gross profit                                              1,584,223     1,837,566     5,684,241     4,592,127

Operating expenses:
    Product development                                     260,534        99,553       703,166       239,833
    Selling, general and administrative                   1,165,769     1,115,183     3,464,272     2,924,550
                                                         ----------    ----------    ----------    ---------- 

        Total operating expenses                          1,426,303     1,214,736     4,167,438     3,164,383
                                                         ----------    ----------    ----------    ----------

Operating income                                            157,920       622,830     1,516,803     1,427,744

Interest expense, net                                         8,146        13,608        32,427        37,617
                                                         ----------    ----------    ----------    ----------

Income before taxes                                         149,774       609,222     1,484,376     1,390,127

Provision for income taxes                                   74,520         1,904       158,787         3,069
                                                         ----------    ----------    ----------    ----------

Net income                                                   75,254       607,318     1,325,589     1,387,058

Accretion of beneficial conversion
    feature on preferred stock                                - 0 -         - 0 -         - 0 -      (117,991)
                                                         ----------    ----------    ----------    ----------

Net income attributable
    to common stock                                      $   75,254    $  607,318    $1,325,589    $1,269,067
                                                         ==========    ==========    ==========    ==========


Net income per common share:
            - Basic                                      $     0.01    $     0.07    $     0.14    $     0.15
            - Diluted                                    $     0.01    $     0.06    $     0.13    $     0.13
 
Weighted average common shares
    outstanding - Basic                                   9,467,659     9,283,659     9,459,673     8,498,607

Dilutive effect of common stock equivalents                 762,102       550,280       427,189     1,119,945
                                                         ----------    ----------    ----------    ----------

 Weighted average common shares
    outstanding - Diluted                                10,229,761     9,833,939     9,886,86      9,618,552
</TABLE>



        See accompanying notes to the consolidated financial statements.



                                     Page 4


<PAGE>

                                  eGames, Inc.


                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                              Nine months ended
                                                                  March 31,

                                                              1999           1998
                                                           ----------     ----------
<S>                                                        <C>            <C>    
Cash flows from operating activities:
    Net income                                             $1,325,589     $1,387,058
    Adjustment to reconcile net income to net cash
        provided by operating activities:
    Depreciation and amortization                             299,073        189,239
    Changes in items affecting operations net of effect
        from acquired business:
             Restricted  cash                                    (765)        10,000
             Accounts receivable                             (673,972)    (1,791,856)
             Prepaid expenses                                   1,703         68,915
             Inventory                                       (154,900)      (446,133)
             Accounts payable                                 (17,311)       791,190
             Accrued expenses                                 328,227        (81,755)
                                                           ----------     ----------    
Net cash provided by operating activities                   1,107,644        126,658
                                                           ----------     ----------    

Cash flows from investing activities:
    Acquisition, net of cash acquired                         (12,428)         - 0 -
    Purchase of furniture and equipment                      (185,457)      (139,040)
    Purchase of software rights and other assets              (98,490)      (143,900)
    Loan to related party                                       - 0 -          2,000
                                                           ----------     ----------
Net cash used in investing activities                        (296,375)      (280,940)
                                                           ----------     ----------    

Cash flows from financing activities:

    Purchase of treasury stock                               (277,928)         - 0 -
    Proceeds from exercise of warrants and options            407,063        274,200
    Repayment of notes payable                                (74,778)       (28,984)
    Repayment of lease obligations                            (57,860)       (23,366)
                                                           ----------     ---------- 
Net cash (used in) provided by financing activities            (3,503)       221,850
                                                           ----------     ----------


Net increase in cash and cash equivalents                     807,766         67,568

Cash and cash equivalents:
    Beginning of period                                       953,648        445,474
                                                           ----------     ----------  
    End of period                                          $1,761,414     $  513,042
                                                           ==========     ==========

Supplemental cash flow information:

Cash paid for interest                                     $   43,272     $   42,651
                                                           ==========     ==========

Cash paid for income taxes                                 $  112,051     $    3,069
                                                           ==========     ==========

Non cash investing and financing activities:

    Capital lease additions                                $   26,809     $    - 0 -
                                                           ==========     ==========


    150,000 shares of Common Stock issued in
         connection with an acquisition                    $  213,000     $    - 0 -
                                                           ==========     ==========
</TABLE>


          See accompanying notes to the consolidated financial statements.



                                     Page 5


<PAGE>

                                  eGames, Inc.


                   Notes to Consolidated Financial Statements

1.  Summary of Significant Accounting Policies

Basis of Presentation

         The accompanying  unaudited interim  consolidated  financial statements
were prepared in accordance with generally  accepted  accounting  principles for
interim  financial  information.  Accordingly,  they do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for  complete  financial  statements.   The  Notes  to  Consolidated   Financial
Statements  included  in the Form 10-KSB for the fiscal year ended June 30, 1998
should be read in conjunction with the accompanying statements. These statements
include  all  adjustments  the  Company   believes  are  necessary  for  a  fair
presentation  of  the  statements.   The  interim   operating  results  are  not
necessarily indicative of the results for a full year.

Description of Business

         eGames, Inc., formerly RomTech,  Inc., (the "Company"),  a Pennsylvania
corporation incorporated in July 1992, develops,  publishes, markets and sells a
diversified  line  of  personal   computer   software   primarily  for  consumer
entertainment and small office/home  office  applications.  In October 1995, the
Company completed its initial public offering coincident with its acquisition of
Applied  Optical Media  Corporation  ("AOMC"),  a developer of  educational  and
reference  software titles.  In April 1996, the Company acquired Virtual Reality
Laboratories, Inc. ("VRLI"), a software developer of landscape generation, space
exploration,  scheduling and business  forms  manipulation  programs.  In August
1998, the Company  acquired all of the  outstanding  stock of Software  Partners
Publishing and Distribution Limited ("Software Partners"), a U.K. distributor of
personal  computer  software for consumer  entertainment  and small  office/home
office  applications.  On March 31, 1999,  Software Partners changed its name to
eGames Europe  Limited  ("eGames  Europe").  As a result of these  acquisitions,
together with the Company's own internal development efforts, the Company offers
software titles in the game and  personal/business  productivity markets for use
at home and in the  office.  The  Company's  product  lines  enable  it to serve
customers who are seeking a broad range of high-quality, value priced software.

Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company  and its  wholly-owned  subsidiaries.  All  inter-company  balances  and
transactions have been eliminated.

2.  Preferred Stock

         During the nine months ended March 31, 1998, the Company  amortized the
accretion of the beneficial  conversion  feature of the Company's  Class Two and
Class Three Convertible  Preferred Stock to accumulated deficit in the amount of
$117,991,  which negatively impacted the net income for that period.  During the
nine months  ended March 31,  1999,  there was no  Convertible  Preferred  Stock
outstanding.



                                     Page 6

<PAGE>

                                  eGames, Inc.


             Notes to Consolidated Financial Statements (continued)

3.  Acquisition

         On August 14, 1998, the Company acquired all of the outstanding  shares
of Software Partners Publishing and Distribution Limited ("Software  Partners"),
in  exchange  for  150,000  shares  of the  Company's  Common  Stock,  valued at
approximately  $213,000,  which was the fair value of the Company's Common Stock
on the closing date of the acquisition.  This acquisition was accounted for as a
purchase and the  corresponding  goodwill in the approximate  amount of $308,000
will be amortized over five years. On March 31, 1999,  Software Partners changed
its name to eGames Europe Limited ("eGames Europe"). For the quarter ended March
31, 1999,  eGames Europe  contributed  $774,000 in net sales and $183,000 in net
income,  and for the nine months ended March 31, 1999, eGames Europe contributed
$1,794,000 in net sales and $447,000 in net income.

         The  following  summary of unaudited  pro-forma  financial  information
gives effect to the eGames Europe  acquisition as though it had occurred on July
1, 1997, after giving effect to certain  adjustments,  primarily the elimination
of  inter-company  sales and amortization of goodwill.  The pro-forma  financial
information,  which is for  informational  purposes  only, is based upon certain
assumptions  and  estimates  and does not  necessarily  reflect the results that
would have  occurred  had the  acquisition  taken place at the  beginning of the
period  presented,  nor are they necessarily  indicative of future  consolidated
results.

<TABLE>
<CAPTION>

                                                   Pro-Forma Financial Information


                                            Three Months Ended         Nine Months Ended
                                                 March 31,                  March 31,
                                          -----------------------   -----------------------
                                             1999         1998         1999         1998
                                          ----------   ----------   ----------   ----------
<S>                                       <C>          <C>          <C>          <C>
 
Net sales                                 $2,522,000   $3,258,000   $8,697,000   $8,376,000
Net income attributable to common stock   $   75,000   $  508,000   $1,217,000   $1,044,000
Net income per diluted share              $     0.01   $     0.05   $     0.12   $     0.11
</TABLE>


4.  Comprehensive Income

         On July 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income".  This  Statement  requires  that  all  items  that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other financial statements. Comprehensive income is computed as follows:

<TABLE>
<CAPTION>

                                                    Three Months Ended         Nine Months Ended
                                                         March 31,                 March 31,
                                                 ----------------------    -------------------------
                                                  1999           1998         1999           1998
                                                 -------       --------    ----------     ----------
<S>                                              <C>           <C>         <C>            <C>
Net income attributable to common stock          $75,254       $607,318    $1,325,589     $1,269,067
Other comprehensive loss:
   Foreign currency translation adjustment       (19,104)         - 0 -       (18,135)         - 0 -
                                                 -------       --------    ----------     ----------
Comprehensive income                             $56,150       $607,318    $1,307,454     $1,269,067
                                                 =======       ========    ==========     ==========
</TABLE>



                                     Page 7


<PAGE>

                                  eGames, Inc.


             Notes to Consolidated Financial Statements (continued)

5.  Common Stock

         On October 26, 1998,  the Company's  Board of Directors  authorized the
Company  to  purchase  up to  $1,000,000  of  its  shares  of  Common  Stock  in
open-market purchases on the Nasdaq SmallCap Market. As of May 12, 1999, 216,900
shares at an  approximate  cost of  $446,000  had been  acquired  by the Company
pursuant to the repurchase program.

6.  Revolving Line of Credit

         On March 10, 1999,  the Company  entered  into a  $1,000,000  revolving
credit facility with a commercial bank.  Amounts  outstanding  under this credit
facility  are charged  interest  at  one-half  of one  percent  above the bank's
current  prime rate and such interest is due monthly.  This credit  facility was
established to provide,  among other things,  additional  working capital during
the Company's  anticipated continued growth. As of May 12, 1999, the Company had
not utilized any amount of this credit facility.



                                     Page 8

<PAGE>

                                  eGames, Inc.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

         The accompanying consolidated financial statements as of March 31, 1999
include the accounts of eGames, Inc., formerly RomTech,  Inc.,  ("eGames"),  and
its wholly owned subsidiaries.

Results of Operations

Three Months Ended March 31, 1999 and 1998

         Net sales for the three  months  ended March 31,  1999 were  $2,522,000
compared to $2,954,000 for the three months ended March 31, 1998, representing a
decrease of $432,000 or 14.6%.  The reduction in sales  resulted  primarily from
the  transition  to the  Company's new sales and  distribution  strategy,  which
involved  terminating  the  Company's  exclusive  North  American   distribution
relationship with GT Interactive Software  Corporation's Value Products Division
("GT Value  Products").  The Company  believes that this strategy could increase
the Company's direct sales to retailers,  improve the Company's future operating
margins and expand its North American  retail  distribution.  The sales decrease
reflects a decrease in sales of the Company's Galaxy of Games and Galaxy of Home
Office Help product lines in the amounts of $415,000 and $882,000  respectively,
which were partially  offset by a $1,040,000  increase in sales of the Company's
Game Master Series and Galaxy of Arcade products.  The increases in sales of the
Game Master  Series and Galaxy of Arcade  products are a result of the Company's
continuing   transition  from   distributing   primarily   shareware  titles  to
full-release  software game titles, which incorporate  proprietary software into
the products rather than using  shareware  content.  eGames Europe,  acquired on
August 14, 1998,  accounted for $774,000 in net sales for the three months ended
March 31, 1999, which represented 30.7% of the Company's sales for that period.

         Upon  the  Company's   termination  of  its  exclusive  North  American
distribution relationship with GT Value Products, the Company entered into a new
relationship  with GT Value Products  whereby GT Value Products will continue to
serve as the  Company's  exclusive  distributor  of the  Company's  products  to
WalMart,  Target and Kmart stores.  The new understanding with GT Value Products
will also allow the  Company  to pursue  relationships  with other  distribution
partners and accept orders  directly from  retailers.  The Company has added two
experienced  professionals  to its  sales  force in order  to help  support  the
Company's direct sales to retailers.

         The Company's product sales to GT Value Products  accounted for 70% and
86% of the  Company's  net sales for the three  months  ended March 31, 1999 and
1998,  respectively.  This  reduction in sales to GT Value  Products  during the
third fiscal quarter reflects the change in the Company's  relationship  with GT
Value  Products.  The Company  believes  that for the year ending June 30, 1999,
sales to GT Value Products could account for  approximately 75% of the Company's
net sales,  which would be less than the 81% of the  Company's  sales through GT
Value  Products  for the year ended June 30,  1998.  In a  continuing  effort to
diversify the Company's  distribution  channels,  including distribution via the
Internet,  the Company has added features to its existing web-site to facilitate
on-line orders and launched a new web-site  offering  demonstration  versions of
the Company's  products,  that can be downloaded from the Internet.  In December
1998,  the Company  entered into a  distribution  and marketing  agreement  with
Digital  River Inc. to  facilitate  the sale of the  Company's  products via the
Internet.  For the three  months  ended March 31,  1999,  the  Company  recorded
$23,000 in net sales from the Internet,  which reflects a 240% increase from the
preceding three month period.

         Cost of sales for the three months ended March 31, 1999,  were $938,000
compared to $1,116,000 for the three months ended March 31, 1998, representing a
decrease of $178,000 or 15.9%. This decrease resulted  primarily from a $323,000
decrease  in  product  costs  associated  with the  decrease  in  sales,  net of
manufacturing  cost  improvements,  which was  partially  offset  by a  $130,000



                                     Page 9

<PAGE>

                                  eGames, Inc.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

increase in royalty  expense  relating to sales of the Company's  products.  The
increase in royalty  expense is attributable in part to the Company's shift from
shareware products to full-release  products.  The Company's gross profit margin
increased  to 62.8% for the three months ended March 31, 1999 from 62.2% for the
three months ended March 31, 1998.  The primary causes of this increase were the
increased  sales derived from the higher margin Game Master Series  products and
cost  reductions  due to higher  production  volumes  and  improved  third party
manufacturing processes.

         Product development  expenses for the three months ended March 31, 1999
were $261,000 compared to $100,000 for the three months ended March 31, 1998, an
increase of $161,000 or 161%.  This  increase was  primarily due to increases in
salary and related costs and outside  developer  costs  resulting from increased
product  development efforts incurred to improve the quality and quantity of the
Company's product  offerings.  The largest component of the Company's  increased
development   efforts   reflects  the  Company's   continuing   transition  from
distributing  shareware-based  software  titles  to  distributing  full  release
software titles, such as the Company's Game Master Series, Galaxy of Arcade, and
Galaxy of Games  products.  Also,  certain  employment  costs have been incurred
relating to the  Company's  increased  efforts to improve the quality  assurance
process of the Company's product development activities.

         Selling, general and administrative expenses for the three months ended
March 31, 1999 were $1,166,000 compared to $1,115,000 for the three months ended
March 31, 1998,  representing  an increase of $51,000 or 4.6%. This increase was
primarily  due  to the  increased  operating  expenses  associated  with  eGames
Europe's United Kingdom-based operations, which was acquired on August 14, 1998.
These increased operating expenses were offset by certain decreases in marketing
promotional costs.

         Net  interest  expense  for the three  months  ended March 31, 1999 was
$8,000  compared  to  $14,000  for  the  three  months  ended  March  31,  1998,
representing a decrease of $6,000 due primarily to a reduction in debt.

         Income  tax  expense  for the three  months  ended  March 31,  1999 was
$75,000  compared  to  $2,000  for  the  three  months  ended  March  31,  1998,
representing  an increase of  $73,000.  This  increase is largely due to foreign
income tax  liabilities,  which are not  offset by the  Company's  existing  net
operating loss from its United States' operations.

Results of Operations

Nine Months Ended March 31, 1999 and 1998

         Net sales for the nine  months  ended  March 31,  1999 were  $8,639,000
compared to $7,345,000 for the nine months ended March 31, 1998, representing an
increase of $1,294,000 or 17.6%.  The sales increase  resulted  primarily from a
$3,800,000  increase in sales of the Company's  Game Master Series and Galaxy of
Arcade  products,  which  was  partially  offset  by  decreases  in sales of the
Company's  Galaxy of Games and Galaxy of Home Office Help  product  lines in the
amounts of $1,030,000  and $827,000  respectively.  The increase in sales of the
Company's  Game  Master  Series  and  Galaxy  of  Arcade  products,   which  are
full-release  software  products,  reflects  the  continuing  transition  of the
Company from distributing mainly shareware titles to full-release  software game
titles. eGames Europe,  acquired on August 14, 1998, accounted for $1,794,000 in
net sales for the nine months  ended March 31,  1999,  and  amounted to 20.8% of
Company's  sales for that  period.  For the nine months ended March 31, 1999 and
1998,  the  Company's   international   sales  accounted  for  24.6%  and  6.5%,
respectively.



                                    Page 10

<PAGE>

                                  eGames, Inc.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

         The Company's product sales to GT Value Products  accounted for 74% and
83% of the  Company's  net sales for the nine  months  ended  March 31, 1999 and
1998, respectively. This decline in the percentage of GT Value Products sales to
net  sales is the  result  of the  increase  in net sales  from  other  sources,
principally  increased  international  sales.  The Company believes that for the
year  ending  June 30,  1999,  sales  to GT Value  Products  could  account  for
approximately  75% of the Company's net sales,  which would be less than the 81%
of the  Company's  sales that  occurred  through GT Value  Products for the year
ended  June  30,  1998.  In a  continuing  effort  to  diversify  the  Company's
distribution channels,  including distribution via the Internet, the Company has
added  features  to its  existing  web-site  to  facilitate  on-line  orders and
launched  a new  web-site  offering  demonstration  versions  of  the  Company's
products, that can be downloaded from the Internet.

         Cost of sales for the nine months ended March 31, 1999 were  $2,955,000
compared to $2,753,000 for the nine months ended March 31, 1998, representing an
increase of $202,000 or 7.3%. This increase resulted primarily from increases in
royalty  costs  and  inventory   obsolescence  costs  of  $293,000  and  $83,000
respectively,  which were  partially  offset by a decrease  in product  costs of
$184,000  relating to various  manufacturing  cost  improvements.  The Company's
gross profit margin  increased to 65.8% for the nine months ended March 31, 1999
from 62.5% for the nine months ended March 31, 1998.  The primary causes of this
increase  were the  increased  sales  derived from the higher margin Game Master
Series and cost reductions due to higher  production  volumes and improved third
party manufacturing processes.

         Product  development  expenses for the nine months ended March 31, 1999
were $703,000  compared to $240,000 for the nine months ended March 31, 1998, an
increase of $463,000 or 192.9%.  This increase was primarily due to increases in
salary and related costs and outside  developer  costs  resulting from increased
product  development  efforts  incurred to improve  quality and  quantity of the
Company's full release product offerings. The largest component of the Company's
increased  development efforts reflects the Company's continuing transition from
distributing  shareware-based  software  titles  to  distributing  full  release
software titles, such as the Company's Game Master Series, Galaxy of Arcade, and
Galaxy of Games  products.  Also,  certain  employment  costs have been incurred
relating to the  Company's  increased  efforts to improve the quality  assurance
process of the Company's development effort.

         Selling,  general and administrative expenses for the nine months ended
March 31, 1999, were $3,464,000 compared to $2,925,000 for the nine months ended
March 31, 1998, representing an increase of $539,000 or 18.4%. This increase was
primarily  due  to the  increased  operating  expenses  associated  with  eGames
Europe's  United  Kingdom-based  operations,  which were  acquired on August 14,
1998.

         Net  interest  expense  for the nine  months  ended  March 31, 1999 was
$32,000  compared  to  $38,000  for  the  nine  months  ended  March  31,  1998,
representing a decrease of $6,000.

         Income  tax  expense  for the nine  months  ended  March  31,  1999 was
$159,000  compared  to  $3,000  for  the  nine  months  ended  March  31,  1998,
representing  an increase of $156,000.  This  increase is largely due to foreign
income tax  liabilities,  which are not  offset by the  Company's  existing  net
operating loss from its United States' operations.



                                    Page 11

<PAGE>

                                  eGames, Inc.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Liquidity and Capital Resources

The financial information presented reflects the Company's financial position at
March 31, 1999.

         As of March 31, 1999, the Company's cash and working  capital  balances
were  $1,761,000 and  $3,664,000,  respectively.  Net cash provided by operating
activities for the nine months ended March 31, 1999 and 1998 were $1,108,000 and
$127,000, respectively. The $1,108,000 net cash provided by operating activities
for the nine  months  ended March 31, 1999 was caused  primarily  by  profitable
results  from  operations  and an  increase  in  accrued  expenses,  which  were
partially offset by increases in accounts receivable and inventory.

         Net cash used in investing  activities  for the nine months ended March
31,  1999 and 1998  were  $296,000  and  $281,000,  respectively.  Purchases  of
software  rights and of furniture  and  equipment  totaled  $99,000 and $186,000
respectively for the nine months ended March 31, 1999.

         On August 14, 1998, the Company acquired all of the outstanding  shares
of Software Partners Publishing and Distribution Limited ("Software  Partners"),
in  exchange  for  150,000  shares  of the  Company's  Common  Stock,  valued at
approximately  $213,000. On March 31, 1999 Software Partners changed its name to
eGames  Europe  Limited.   Acquisition   costs,  net  of  cash  received,   were
approximately $12,000.

         Net cash used in  financing  activities  was $4,000 for the nine months
ended March 31, 1999 and net cash provided by financing  activities was $222,000
for the nine months ended March 31, 1998.  On October 26,  1998,  the  Company's
Board of Directors  authorized  the Company to purchase up to  $1,000,000 of its
shares of Common Stock in open-market  purchases on the Nasdaq SmallCap  Market.
As of March 31, 1999, 161,900 shares at an approximate cost of $278,000 had been
acquired by the  Company  pursuant to the  repurchase  program.  As of March 31,
1999,  the Company had received  net proceeds  from the exercise of Common Stock
warrants and options totaling approximately $407,000.

         On March 10, 1999,  the Company  entered  into a  $1,000,000  revolving
credit facility with a commercial bank.  Amounts  outstanding  under this credit
facility  are charged  interest  at  one-half  of one  percent  above the bank's
current  prime rate and such interest is due monthly.  This credit  facility was
established to provide,  among other things,  additional  working capital during
the Company's  anticipated continued growth. As of May 12, 1999, the Company had
not utilized any amount of this credit facility.

         The  Company's  ability to achieve  positive  cash flow  depends upon a
variety of factors,  including  the  timeliness  and success of  developing  and
selling its products,  the costs of  developing,  producing  and marketing  such
products and various  other  factors,  some of which may be beyond the Company's
control.  In the future, the Company's capital  requirements will be affected by
each of these factors.  The Company  believes cash and working capital  balances
will be sufficient to fund the Company's  operations for the foreseeable future.
However,  there can be no assurances  that the Company will be able to sustain a
positive cash flow or that  additional  financing  will be available if and when
required or, if available, will be on terms satisfactory to the Company.



                                    Page 12


<PAGE>

                                  eGames, Inc.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Year 2000

The Company's State of Readiness

         The Company has reviewed its critical information systems for Year 2000
compliance.  The  compliance  review  revealed that all but one of the Company's
critical  information systems were Year 2000 compliant due to the fact that most
of the  Company's  network  hardware and operating  systems are  "off-the-shelf"
products from third parties with Year 2000 compliant versions.  The one critical
information  system that  required an upgrade to become Year 2000  compliant was
upgraded during December 1998.

         The Company has determined that there should be no Year 2000 issues for
the  products it has already  sold since the  Company's  products  predominantly
contain no date-sensitive software.

         As part of the Company's Year 2000 compliance review, the Company is in
the process of contacting  its primary  vendors,  distributors  and customers to
determine the extent to which the Company is  vulnerable to such third  parties'
failures to address their Year 2000 compliance issues. The Company will continue
to work to obtain  sufficient  information  and assurances  from its significant
vendors,  distributors and customers as part of its Year 2000 compliance review.
However,  there can be no guarantee  that third  parties on which the  Company's
business relies will adequately address their Year 2000 compliance issues nor is
there any guarantee  that the failure by such third  parties to adequately  deal
with such issues would not have a material adverse effect on the Company and its
operations.

The Cost to Address the Company's Year 2000 Issues

         The Company estimates that the cost of its Year 2000 compliance review,
including the upgrading of its critical information  systems,  will be less than
$15,000 and is not expected to be material to the Company's  financial position,
cash flow or results of operations.

The Risks Associated with the Company's Year 2000 Compliance

         The Company  believes that its primary risk  associated  with Year 2000
compliance  is the failure of third  parties  upon whom the  Company's  business
relies to timely  address  their Year 2000 issues.  Failure by third  parties to
adequately  address  their Year 2000 issues in a timely  manner  could result in
disruptions  in  the  Company's  supply  of  products,   packaging  and  related
materials,  late, missed or unapplied payments,  temporary  disruptions in order
processing and other general problems related to the Company's daily operations.
While the Company  believes  its Year 2000  compliance  review  procedures  will
adequately  address the Company's  internal Year 2000 issues,  until the Company
receives  responses  from  all  of its  significant  vendors,  distributors  and
customers,  the  overall  risks  associated  with the Year 2000 issue  currently
remain  difficult  to  accurately  describe  and  quantify,  and there can be no
guarantee that such  uncertainty  will not have a material adverse effect on the
Company's business, operating results and financial position.

The Company's Contingency Plan

         The Company has not, to date, implemented a Year 2000 contingency plan.
The Company  intends to develop and implement a  contingency  plan by the end of
June 1999.  It is the  Company's  intention  to devote  whatever  resources  are
necessary to assure that all of its Year 2000 compliance issues are resolved.



                                    Page 13

<PAGE>

                                  eGames, Inc.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Forward-Looking Statements

         This report contains statements that are forward-looking,  as that term
is defined by the Private  Securities  Litigation  Reform Act of 1995 and by the
Securities and Exchange  Commission in rules,  regulations  and releases.  These
statements include, but are not limited to, statements  regarding:  increases in
the Company's  sales  directly to retailers as opposed to through a distributor;
improvements in the Company's  future  operating  margins;  the expansion of the
Company's North American retail distribution;  the projected percentage of sales
of the Company's  products to GT Value Products during the 1999 fiscal year; the
Company's efforts in developing  "full-release"  software titles;  the Company's
Internet marketing  strategy;  the sufficiency of the Company's cash and working
capital  balances  to fund  the  Company's  operations  in the  future;  and the
Company's  expectations  and cost estimates  regarding its Year 2000  compliance
efforts.  All  forward-looking  statements  are  based on  current  expectations
regarding significant risk factors, and the making of such statements should not
be regarded  as a  representation  by the  Company or any other  person that the
results expressed in this report will be achieved.

         The  following  important  factors,   among  others,  could  cause  the
Company's  actual  results  to differ  materially  from those  indicated  by the
forward-looking  statements  contained  in  this  report:  the  success  of  the
Company's  branding strategy and market acceptance of the Company's  products in
the United States and  international  markets;  the allocation of adequate shelf
space for the  Company's  products  in major  retail  chain  stores;  successful
sell-through  results for the Company's products at retail stores; the Company's
ability to place orders  directly with  retailers as opposed to achieving  sales
through a  distributor;  the  success of the revised  distribution  relationship
between  the Company  and GT Value  Products;  the  continued  expansion  of the
computer  in homes in North  America  and the  world;  the  ability  to  deliver
products in  response to orders  within a  commercially  acceptable  time frame;
downward  pricing  pressure;  fluctuating  costs of  developing,  producing  and
marketing the Company's products;  access to alternative  distribution  channels
and the success of the  Company's  efforts to develop and implement its Internet
marketing  strategy;  consumers'  continued  demand for  value-priced  software;
increased competition in the value-priced software category;  the ability of the
Company and its key distributors,  vendors and suppliers to effectively  address
Year  2000  compliance  issues;  and  various  other  factors  described  in the
Company's  reports,  including  Form 10-KSB,  dated June 30, 1998,  filed by the
Company with the  Securities and Exchange  Commission,  many of which are beyond
the   Company's   control.   The  Company  does  not  undertake  to  update  any
forward-looking  statement  made in this report or that may be made from time to
time by or on behalf of the Company.



                                    Page 14

<PAGE>

                                  eGames, Inc.


Part II. Other Information

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

      Exhibit No.           Description of Exhibit
      -----------           ----------------------

         27.1               Financial Data Schedule



(b) Reports on Form 8-K

         On March 22, 1999, the Company filed a report on Form 8-K regarding the
Company  entering into a $1 million  revolving credit facility with a commercial
bank.

         On April 21, 1999,  the Company  filed a report on Form 8-K regarding a
press release  announcing the Company's  unaudited results for the third quarter
ended March 31, 1999.



                                    Page 15

<PAGE>

                                  eGames, Inc.


                                   SIGNATURES



         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                  eGames, Inc.
                                  (Registrant)




Date:  May 13, 1999                          /s/  Gerald W. Klein
       ------------                          --------------------
                                             Gerald W. Klein, President, 
                                             Chief Executive Officer, Chief 
                                             Financial Officer and Director


Date: May 13, 1999                           /s/ Thomas W. Murphy
      ------------                           --------------------
                                             Thomas W. Murphy, Controller 
                                             and Chief Accounting Officer






                                    Page 16
<PAGE>

                                  eGames, Inc.


                                  Exhibit Index



      Exhibit No.          Description of Exhibit                Page Number
      -----------          ----------------------                -----------

         27.1              Financial Data Schedule







                                    Page 17