The information in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this report and with our annual report on Form 10-KSB for the fiscal year ended December 31, 2007. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Results of Operations

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Revenues for the three months ended June 30, 2008 were $1,518,992, compared to $819,330 for the three months ended June 30, 2007. This represents an increase of $699,662 or 85.4% from the previous year. The company had one flat fee release plus one new release in addition to large reorders of its Winter Sports (Wii) title for the quarter.

There was a 58.6% or $ 259,452 increase in Gross profit for the three months ended June 30, 2008 which was $701,953, compared to $442,500 for the three months ended June 30, 2007. This is primarily the result of large reorders of Winter Sports (Wii).

For the three months ended June 30, 2008, operating expenses totaled $562,494 as compared to $355,021 for the three months ended June 30, 2007. This was an increase of $207,473 or 58.4%. The increase in operating expenses resulted from an increase in marketing expenses of $66,795 or 76.9% from $86,897 for the three months ended June 30, 2007 to $153,692 for the three months ended June 30, 2008, a result of the company increasing its Investor Relations efforts by $42,033 as well as attending an industry trade show, and brining on additional external help to help prepare for the upcoming 3rd quarter releases. In addition, wages and salries increased $68,740 or 79.8% from $86,130 for the three months ended June 30, 2007 to $154,870 for the three months ended June 30, 2008 due to the additon of 3 employees. However, outside service decreased from $29,350 for the three months ended June 30, 2007 to $0 for the three months ended June 30, 2008 due to the increase in employees which reduced the need for temporary staff. Professional fees increased from $68,750 for the three months ended June 30, 2007 to $97,961 for the three months ended June 30, 2008, an increase of 42.5% or $29,211 due to an increase in attorney fees incurred during the quarter. Penalty increased $33,000 for the three months ended June 30, 2008 from $0 for the three months ended June 30, 2007 due to penalties incurred involving the company's debt to the Internal Revenue Service. Other than the decrease in outside service there were no significant decreases in expenses for the quarter despite our continued effort to reduce expenses.

Interest expense was $52,281 and $35,138 for the three months ended June 30, 2008 and 2007, respectively. This was an increase of $17,143, or 48.8%.

We received $110,128 in Other Income for the three months ended June 30, 2008 compared to $0 in Other Income for the three months ended June 30, 2007. The difference of $110,128 or 100% was a result of forgiven debt of a loan received from an individual.

We had $46,547 in Financing Expense for the three months ended June 30, 2008 compared to $58,710 of Financing Income for the three months ended June 30, 2007.

We had $7,720,019 Gain on Derivative Liability for the three months ended June 30, 2008 as compared to a Gain of $2,179,854 for the three months ended June 30, 2007.

Our net profit was $7,870,778 for the three months ended June 30, 2008 compared to a net gain of $2,173,485 for the three months ended June 30, 2007. The increase in profitability for the three months ended June 30, 2008 was due to Gain on Derivative Liability although Net Operating Income of $139,459 for the three months ended June 30, 2008 exceeded that of $87,479 for the three months ended June 30, 2007.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Revenues for the six months ended June 30, 2008 were $4,759,858, compared to $819,330 for the six months ended June 30, 2007. This represents an increase of $3,940,528 from the previous year. This year the we have released one flat fee title, 5 new titles and had substantial reorders of Winter Sports (Wii).

There was a 237.4% change in Gross profit for the six months ended June 30, 2008 which was $1,492,806, compared to $442,500 for the six months ended June 30, 2007. This is the result of the significant sales for the period as compared to 2007.

For the six months ended June 30, 2008, operating expenses totaled $1,245,308 as compared to $527,961 for the six months ended June 30, 2007. This was an increase of $717,347 or 135.9%. The increase in operating expenses resulted from an increase in marketing expenses of $251,298 or 246.8% from $101,820 for the six months ended June 30, 2007 to $353,119 for the six months ended June 30, 2008, a result of the company receiving manufacturing approval for 5 titles during the six months ended June 30, 2008 and preparing 6 more titles which should receive approval in the upcoming quarter. In addition, wages and salaries increased $134,243 or 77.8% from $172,480 for the six months ended June 30, 2007 to $306,723 for the six months ended June 30, 2008 which was the result in the company adding 3 emplpoyees. However, Outside service decreased from $40,550 for the six months ended June 30, 2007 to $4,980 for the six months ended June 30, 2008 due to an increase in employees which reduced the need for temporary staff. Professional fees increased from $81,250 for the six months ended June 30, 2007 to $275,372 for the six months ended June 30, 2008, an increase of 238.9% or $194,122 due to consultants paid to assist with securing the 2008 title lineup as well as representing the company in negotiations for our 2009 lineup. In addition, Attorney and Accountant fees increased over the same period. Penalty also increased $65,972 from $0 for the six months ended June 30, 2007 to $65,972 for the six months ended June 30, 2008 a results of our negoatiations with the Internal Revenue Service to reduce our liability with them. Finally, Travel increased $33,659 or 178.6% from $18,851 for the six months ended June 2007 to $52,510 for the six months ended June 30, 2008 a result of the increased travel activity necessary to sign, secure and obtain manufacturing approval for titles during the period as well as upcoming titles. These increases were offset by significant decreases only in Outside Service as explained above.

Interest expense was $97,506 and $65,596 for the six months ended June 30, 2008 and 2007, respectively. This was an increase of $31,910, or 48.7%.

We received $110,128 in Other Income for the six months ended June 30, 2008 compared to $0 in Other Income for the six months ended June 30, 2007. The difference of $110,128 or 100% was a result of forgiven debt of a loan received from an individual.

We had $93,094 in Financing Expense for the six months ended June 30, 2008 compared to $104,780 for the six months ended June 30, 2007.

We had $4,683,396 Loss on Derivative Liability for the six months ended June 30, 2008 as compared to a Gain of $2,807,590 for the six months ended June 30, 2007.

Our net loss was $4,516,370 for the six months ended June 30, 2008 compared to a net income of $2,551,753 for the six months ended June 30, 2007. The decrease in profitability for the six months ended June 30, 2008 was due to Loss on Derivative Liability although Net Operating Income of 247,497 for the six months ended June 30, 2008 exceeded the $85,461 Net Operating Loss for the six months ended June 30, 2007.

Liquidity and Capital Resources

As of June 30, 2008 our cash balance was $523,501 compared to $539,990 at December 31, 2007. Total current assets at June 30, 2008 were $2,115,291 compared to $927,385 at December 31, 2007. We currently plan to use the cash balance and cash generated from operations for increasing our working capital reserves and, along with additional debt financing, for new product development, securing new licenses, building up inventory, hiring more sales staff and funding advertising and marketing. Management believes that the current cash on hand and additional cash expected from operations in fiscal 2008 will be sufficient to cover our working capital requirements for fiscal 2008. The Company reached this conclusion by recognizing that a major portion ($2,201,032) of our debt is attributed to convertible notes payable, which we expect to be converted into shares, Deferred Revenue ($3,217,049) will be reclassified as revenue upon the completion of the current projects in development, and Derivative Liability ($8,265,897) would be the amount of cash required should our investors call in our outstanding loans. We do not believe will happen anytime in the near future. We have informally negotiated with the IRS to pay down our Payroll Taxes liability in the amount of $10,000 per month. The Company is negotiating with several other parties to waive portions of our debt, or to pay the debt with the issuance of company stock including Deferred Compensation ($409,253). In addition, based on our schedule of development for the remainder of the year, we anticipate an increase in sales, profitability and cash receipts in 2008 which will allow the Company to continue to pay down our working capital requirements and help avoid additional need for working capital.

For the six months ended June 30, 2008, net cash provided by operating activities was $1,380,057 as compared to $80,678 for the six months ended June 30, 2007. The increase in cash provided by operating activities can be attributed to the net change in derivative liability of $4,683,396, increase in accounts receivable of 1,386,827 and deferred revenue of $1,890,396.

F or the six months ended June 30, 2008, net cash used in investing activities was $1,561,546, compared to net cash used in investing activities of $746,217 for the six months ended June 30, 2007. The increase in cash used in investing activities of $815,329 for the six months ending June 30, 2008, was due to payments made for development costs and licenses, and purchase of equipment.

For the six months ended June 30, 2008, net cash provided by Financing Activities was $165,000 compared to $908,750 for the six months ended June 30, 2007. The primary reason for this was $831,250 in advances received for the six months ended June 30, 2007 as compared to $0 for the six months ended June 30, 2008.

Our accounts receivable at June 30, 2008 was $1,441,790, compared to $110,195 at December 31, 2007. The change in accounts receivable is primarily due orders received in the amount of $1,105,290 on June 30, 2008.

As of June 30, 2008 we had a working capital deficiency of $16,052,805. A major portion of our debt is attributed to derivative liability, consulting fees, attorney fees, and payroll taxes payable. We plan to reduce these debts with proceeds generated from normal operational cash flow as well as the issuance of company stock.

At June 30, 2008 we had no bank debt.

Financings

On January 16, 2004, we received $50,000 from Calluna Capital Corporation under the terms of a February 25, 2003 convertible notes payable agreement bringing the total amount borrowed from Calluna Capital Corporation to $500,000.

On May 17, 2004, we sold 2,792,200 shares of common stock to accredited investors for $.10 per share, or an aggregate of $279,220.

On August 31, 2004, we sold an aggregate of $1,050,000 principal amount of 5% Secured Convertible Debentures, Class A Common Stock Purchase Warrants to purchase 21,000,000 shares of our common stock, and Class B Common Stock Purchase Warrants to purchase 21,000,000 shares of our common stock, to four institutional investors. We received gross proceeds totaling $1,050,000 from the sale of the Debentures and the Warrants.

On September 28, 2004, we sold a $50,000 principal amount 5% Secured Convertible Debenture, Class A Common Stock Purchase Warrants to purchase 1,000,000 shares of our common stock, and Class B Common Stock Purchase Warrants to purchase 1,000,000 shares of our common stock, to one institutional investor. We received gross proceeds totaling $50,000 from the sale of the Debentures and the Warrants.

On February 9, 2005, we sold an aggregate of $650,000 principal amount of 5% Secured Convertible Debentures, 13,000,000 Class A Common Stock Purchase Warrants, and 13,000,000 Class B Common Stock Purchase Warrants, to four accredited institutional investors for gross proceeds totaling $650,000.

On August 11, 2006, we sold an aggregate of $247,000 principal amount of 15% secured convertible notes to two accredited institutional investors for gross proceeds totaling $247,000 less expenses of $4,000.

On March 30, 2007, we sold an aggregate of $80,000 principal amount of 15% secured convertible notes to two accredited institutional investors for gross proceeds of $80,000 less expenses of $12,500.

We do not have any current plans to obtain additional debt or equity financing. We plan to satisfy our capital expenditure commitments and other capital requirements through cash generated from operations and through funds received upon exercise of outstanding warrants. We believe the proceeds from exercise of our outstanding warrants will be sufficient to fund any need for additional capital. We currently have outstanding 35,000,000 Class A Warrants and 35,000,000 Class B Warrants with exercise prices of the lower of $0.02 per share or 70% of the average five lowest closing bid prices of our Common Stock for the 30 trading days prior to the conversion date. Exercise of all of these warrants would provide gross proceeds of $8,750,000. However, at recent market prices of our common stock, none of these warrants are in the money. Thus, if the market price of our common stock does not increase and warrant holders do not exercise their warrants, we may be required to seek additional debt or equity financing. If additional financing is required and we cannot obtain additional financing in sufficient amounts or on acceptable terms when needed, our financial condition and operating results will be materially adversely affected.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations as of June 30, 2008:

                                                  Payments due by period
                                                  Less than                      More
   Contractual Obligations          Total         One Year      Years 1-2    than 2 years

   Notes Payable                 $ 2,608,253     $ 2,608,253
   Operating Lease Obligations   $   147,845     $   116,611      $ 31,234
   License Fee Obligations       $    60,000     $    60,000
   Total                         $ 2,816,898     $ 2,784,864      $ 31,234

In February 2008, we obtained an unsecured loan from two accredited investors in the amount of $227,889. The note was issued at a 10% discount and is being amortized over the one year note. We received a net of $205,000 from this loan. As of June 30, 2008 the balance owed net of discount is $213,128.

In July 2007, we entered into a convertible debenture in the amount of $200,000, as of June 30, 2008 net of discount, the balance owed is $183,632.

In March 2007, we entered into a convertible debenture in the amount of $80,000.

In August 2006, we entered into a convertible notes agreement totaling $247,000. The notes if called would be payable February 2007.

On August 5, 2005 and August 8, 2005, two accredited investors loaned us an aggregate of $223,600 in gross proceeds in exchange for two notes payable. The notes bear no interest and were due February 1, 2006. As of June 30, 2008 the balance due is $194,093.

On February 9, 2005, we entered into three convertible notes payable agreements totaling $650,000, and
in September and October 2004, we entered into two convertible notes payable agreements totaling $1.1 million. The balance due as of June 30, 2008 is $1,690,400. To date, these notes are past due and have not been called.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Summary of Significant Accounting Policies

Assignment of Accounts Receivable. We regularly assign our receivables to vendors with recourse. Assigned accounts receivable are shown on the accounts receivable section of the balance sheet until collected by the beneficiary. Should the accounts receivable become uncollectible, we are ultimately responsible for paying the vendor and recording an allowance for potential credit losses as deemed necessary. The assigned accounts receivable are generally collected within 90 days; therefore, the balance shown approximates its fair value.

Capitalized Development Costs and Licenses. Capitalized development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation.

Capitalized Development Costs. For products where proven technology exits, this may occur early in the development cycle. Technological feasibility is evaluated on a product-by-product basis. Prior to a product's release, we expense, as part of cost of sales, development costs when we believe such amounts are not recoverable. Amounts related to capitalized development costs that are not capitalized are charged immediately to cost of sales. We evaluate the future recoverability of capitalized amounts on a quarterly basis. The recoverablility of capitalized development costs is evaluated based on the expected performance of the specific products for which the costs relate. The following criteria are used to evaluate expected product performance: historical performance of comparable products using comparable technology and orders of the product prior to its release. Commencing upon product release, capitalized development costs are amortized to cost of sales - software royalties and amortization is based on the ratio of current revenues to total projected revenues, generally resulting in an amortization period of one year or less. For products that have been released in prior periods, we evaluate the future recoverability of capitalized amounts on a quarterly basis. The primary evaluation criterion is actual title performance.

Capitalized Licenses. Capitalized license costs represent license fees paid to intellectual property rights holders for use of their trademarks or copyrights in the development of the products. Depending on the agreement with the rights holder, we may obtain the rights to use acquired intellectual property in multiple products over multiple years, or alternatively, for a single product over a shorter period of time.

We evaluate the future recoverability of capitalized licenses on a quarterly basis. The recoverability of capitalized license costs is evaluated based on the expected performance of the specific products in which the licensed trademark or copyright is to be used. Prior to the related product's release, we expense, as part of cost of sales, licenses when we believe such amounts are not recoverable. Capitalized development cost for those products that are cancelled or abandoned are charged to cost of sales. The following criteria are used to evaluate expected product performance: historical performance of comparable products using comparable technology and orders for the product prior to its release.

Commencing upon the related products release, capitalized license costs are amortized to cost of sales - licenses based on the ratio of current revenues for the specific product to total projected revenues for all products in which the licensed trademark or copyright will be utilized. As license contracts may extend for multiple years, the amortization of capitalized intellectual property license costs relating to such contracts may extend beyond one year. For intellectual property included in products that have been released, we evaluate the future recoverability of capitalized amounts on a quarterly basis. The primary evaluation criterion is actual title performance.

Revenue Recognition. Revenue from video game distribution contracts, which provide for the receipt of non-refundable guaranteed advances, is recognized when the games are delivered to the distributor by the manufacturer under the completed contract method, provided the other conditions of sale are satisfied.

Until all of the conditions of the sale have been met, amounts received on such distribution contracts are recorded as deferred income. Although we regularly enter into the assignment of accounts receivable to vendors, we do not record revenues net versus gross since we:

i. Act as the principal in the transaction.

ii. Take title to the products.

iii. Have risks and rewards of ownership, such as the risk of loss for collection, delivery, or returns.

iv. Do not act as an agent or broker.

At all times, we maintain control of the development process and is responsible for directing the vendor. Other than for payment, the customer does not communicate with the vendor.

We utilize the completed contract method of revenue recognition as opposed to the percentage-of-completion method of revenue recognition for substantially all of its products since the majority of its products are completed within six to eight months. We complete the products in a short period of time since we obtain video games that are partially complete or obtain foreign language video games published by foreign manufacturers that are completed.

Allowance For Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We regularly review the adequacy of our accounts receivable allowance after considering the size of the accounts receivable balance, each customer's expected ability to pay and our collection history with each customer. We review significant invoices that are past due to determine if an allowance is appropriate based on the risk category using the factors described above. In addition, we maintain a general reserve for certain invoices by applying a percentage based on the age category. We also monitor our accounts receivable for concentration to any one customer, industry or geographic region. The allowance for doubtful accounts represents our best estimate, but changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. As of March 31, 2007, the allowance for doubtful accounts holds $0 balance as none of our accounts receivable are deemed uncollectible.

Valuation of Long-Lived Intangible Assets Including Capitalized Development Costs and Licenses. Capitalized development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products.

We account for software development costs in accordance with SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation. The accumulation of appropriate costs as a capitalized, long-term asset involves significant judgment and estimates of employee time spent on individual software projects. The accumulation and timing of costs recorded and amortized may differ from actual results.

Our long-lived assets consist primarily of capitalized development costs and licenses. We review such long-lived assets, including certain identifiable intangibles, for impairment whenever events or changes in circumstances indicate that we will not be able to recover the asset's carrying amount in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or asset, a significant decrease in the benefits realized from the software products, difficulty and delays in sales or a significant change in the operations of the use of an asset.

Recoverability of long-lived assets by comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value.

Capitalized development costs and licenses, net of accumulated amortization, totaled approximately $2,544,043 at June 30, 2008. Factors we consider important which could trigger an impairment review include, but are not limited to, significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of our assets or the strategy for our overall business or significant negative economic trends. If this evaluation indicates that the value of an intangible asset may be impaired, an assessment of the recoverability of the net carrying value of the asset over its remaining useful life is made. If this assessment indicates that an intangible asset is not recoverable, based on the estimated undiscounted future cash flows or other comparable market valuations, of the entity or technology acquired over the remaining amortization period, the net carrying value of the related intangible asset will be reduced to fair value and the remaining amortization period may be adjusted. Any such impairment charge could be significant and could have a material adverse effect on our reported financial statements.

Income Taxes. We account for income taxes under SFAS No. 109, "Accounting for Income Taxes," which involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. In concluding that a valuation allowance is required to be applied to certain deferred tax assets, we considered such factors as our history of operating losses, our uncertainty as to the projected long-term operating results, and the nature of our deferred tax assets. Although our operating plans assume taxable and operating income in . . .