First Quarter 2010 Financial Highlights (as compared to first quarter of 2009)
• Revenues increased 23.4 percent to $17.1 million from $13.9 million
• Gross margins expanded to 21.1 percent from 17.3 percent
• Net income increased to $290,000 compared to a net loss of $1.4 million
• EBITDA was $1.2 million up from $64,000, reflecting strong revenue growth and operating leverage
• Adjusted EBITDA, excluding non-cash stock-based compensation of $246,000, was $1.4 million compared with $86,000
• SG&A expenses, excluding non-cash stock-based compensation, decreased to 12.8 percent of revenues as compared to 16.1 percent of revenues

First Quarter 2010 Operating Highlights
• Seven new SKUs released in the first quarter
• Games bundled with accessories made a growing contribution to sales
• Transition to direct-to-retail sales strategy is on track and driving margin expansion

CEO Commentary
“By every measure, we had an excellent first quarter and importantly, this marks our second consecutive quarter of profitability,” said Mark Seremet, Chief Executive Officer, Zoo Entertainment, Inc.

“Zoo Entertainment is a very different company today than it was a year ago,” Mr. Seremet added. “Our strategy of delivering value to our customers by developing new and innovative content is working. Our sales and profit margins are beginning to benefit from our transition to a direct-to-retail sales model. We are also realizing improved operating leverage due to our 2009 turnaround initiatives. Our first quarter EBITDA increased significantly to $1.2 million from $64,000 in the first quarter of 2009. We believe these results reflect the success of our newly implemented product development strategy which is creating value for our customers and shareholders alike.

“We are excited about the opportunity we see to lead the large and high-growth casual gaming sector. We have an experienced senior management team with a track record of industry success, a diverse content library of approximately 100 titles, and strong distribution partners ranging from large retailers to specialty stores. Looking ahead, we will continue to focus on our portfolio approach to product development which drives our powerful and diversified content library, thereby mitigating operational risk. Web connectivity is creating significant new digital opportunities for our industry and we are working to position Zoo Entertainment to capitalize on them. As our new licensing deals and digital strategy unfold, we believe our scaleable business model will result in further margin expansion.

“We are pleased with the progress we’ve made in the first quarter. It’s still early, however, and we expect the bulk of our sales to occur during our peak selling season in the second half of 2010. Based on our strong first quarter results and our outlook for continued growth, we have every reason to believe that 2010 will be an excellent year.”  

First Quarter 2010 Results
Revenues in the first quarter ended March 31, 2010 increased 23.4 percent to $17.1 million, compared with $13.9 million in the first quarter of 2009, driven by growing sales, new product introductions and increased distribution. First quarter sales were led by Deal or No Deal for the Nintendo Wii™, Deer Drive bundled with the company’s Gun Blaster for Nintendo Wii, and Dream Chronicles, Chocloatier, Hello Kitty Birthday Adventures for the Nintendo DS™.

Gross margins expanded to 21.1 percent of net revenues in the first quarter of 2010 compared with 17.3 percent in the year-ago quarter due to increased sales, the inclusion of several higher priced offerings in our sales mix, and the initial results of our transition to a direct-to-retail distribution strategy.  

General & administrative expenses were $1.6 million, or 9.4 percent of revenue compared with $1.4 million, or 10.0 percent of revenue in the first quarter of 2009. These expenses included a non-cash stock-based compensation charge of $246,000 and $22,000 in 2010 and 2009, respectively. Excluding the non-cash charge, G&A expense decreased to 7.9 percent of revenue in the first quarter of 2010 from 9.9 percent in the first quarter of 2009, reflecting the company’s cost reduction efforts. Selling and marketing expense was $836,000, or 4.9 percent of revenue compared with 6.2 percent of revenue in 2009. Total operating expenses were $2.9 million, or 17.2 percent of revenue compared with $2.8 million, or 20.0 percent of revenue a year ago. Interest expense declined to $253,000 from $1.0 million a year ago as the company’s recapitalization reduced debt and debt service levels.

Pre-tax income from operations rose to $423,000 in the first quarter of 2010 compared with a loss of $1.4 million a year ago, reflecting strong first quarter revenues, lower interest expense and ongoing expense controls. The first quarter of 2010 was the company’s second consecutive quarter of positive net income.

EBITDA, a measure of cash flow, increased to $1.2 million in the first quarter of 2010 from $64,000 in the first quarter of 2009, reflecting strong top line growth and operating leverage. Adjusted EBITDA before non-cash stock based compensation of $246,000 was $1.4 million compared to $86,000 during the first quarter of 2009. 

First quarter 2010 net income was $290,000, or $0.26 per basic share, compared with a net loss of $1.4 million, or $22.01 per basic share, in the year-ago quarter. Weighted average shares outstanding used in calculating earnings per share were 1.1 million in the first quarter of 2010 compared with 63,740 in the prior year period. The change in shares outstanding reflects the company’s recent recapitalization which included a 1:600 reverse stock split completed on May 10, 2010.  

First Quarter Product Update 
New Product Introductions – Zoo Entertainment released seven new SKUs during the first quarter of 2010: Dream Chronicles, Remington Hunt, Arcade Shooting Gallery, Hello Kitty Birthday Adventures, Hall of Fame Basketball and Chocolatier. The company now has nearly 100 titles in its library covering a wide variety of categories including game show, racing, childrens’, simulation and shooter games. The company’s robust new release schedule for 2010 includes approximately 45 SKUs for Nintendo Wii, Nintendo DS, Sony Playstation®, Sony PlayStation® Portable, Sony PlayStation® Network, iPhone, and PC platforms.

Zoo Entertainment’s strategy of bundling games with accessories is producing early success. The company’s games in the shooter category such as Deer Drive, Duck Hunting and Chicken Shoot are among the best-selling titles in this category. Zoo Entertainment’s library is a core and valuable asset that can be leveraged to drive additional sales with limited investment.

Partnering and Licensing – Video games that are connected to a recognized brand or celebrity typically outsell generic games and Zoo Entertainment’s new product development strategy includes leveraging established world class brands and celebrities. The company has licensing partnerships with many widely respected brands, including NBC Universal, Chrysler, Endemol, Yamaha, Sanrio, Cold Stone, BIGFOOT and others. Licensed titles are an important part of our overall sales mix and expanding our partnering and licensing arrangements is a key component of Zoo Entertainment’s sales strategy. 

About Zoo Entertainment 
As a leader in the high growth, casual gaming sector, Zoo Entertainment, Inc. licenses, develops and publishes a wide variety of casual and family-friendly video games for the Nintendo Wii™, Nintendo DS™, Sony Playstation®, Sony PlayStation® Portable, Sony PlayStation® Network, iPhone, and PC platforms through the company’s wholly owned subsidiaries, Zoo Games, Inc. and Zoo Publishing, Inc.
Founded in 2007, Zoo Entertainment is based in Cincinnati, Ohio.

Led by a team of veteran industry executives, Zoo Entertainment has a diverse and growing library of nearly 100 high-value interactive game titles in a variety of categories including game show, racing, childrens’, simulation, and shooter. The company’s portfolio approach to product development drives its powerful and diversified content library, thereby mitigating operational risk. Zoo Entertainment has a well-established distribution network and sells its products to national and regional retailers, specialty retailers and video game rental outlets. The company also has licensing relationships with many widely respected brands. With its innovative content creation site, IndiePubGames.com, Zoo Entertainment is poised to capitalize on opportunities in the emerging and high growth digital entertainment space. 

Non-GAAP Financial Measures
In compliance with Regulation G, promulgated pursuant to the Sarbanes Oxley Act, Zoo Entertainment, Inc. has attached to this press release and will post to its investor relations web-site (www.zoogamesinc.com) any reconciliation of differences between GAAP and non-GAAP financial information that may be required in connection with issuing its first quarter financial results. 

As is common in the industry, the company uses EBITDA as a measure of performance to demonstrate earnings exclusive of interest and non-cash events. The company in its management of its business affairs and analysis of its monthly, quarterly and annual performance makes decisions based on cash flows. The company, in managing its current and future affairs, cannot affect the amortization of intangible assets to any material degree, and therefore uses EBITDA as its primary management guide. Since an outside investor may evaluate a company’s performance based on the company’s net lost, not its cash flows, there is a limitation to the EBITDA measurement. EBITDA is not, and should not be considered an alternative to net loss, loss from operations, or any other measure of determining operating performance or liquidity, as determined under accounting principles generally accepted in the United States (GAAP).

Forward-Looking Statements 
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Zoo Entertainment, Inc. Forward-looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of Zoo Entertainment, Inc.'s management, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: general economic conditions; geopolitical events and regulatory changes; requirements or changes adversely affecting the businesses in which Zoo Entertainment is engaged; demand for the products and services that Zoo Entertainment provides, as well as other relevant risks detailed in Zoo Entertainment, Inc.'s filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Zoo Entertainment, Inc. assumes no obligation to update the information contained in this press release.

Investor Contacts:
Joseph Fitzgerald
Financial Profiles, Inc. 
Telephone: 310-478-2700 x14
jfitzgerald@finprofiles.com

Company Contact:
Telephone: 513-824-8297
IR@zoogamesinc.com