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-K for the fiscal year ended December 31, 2008. 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 March 31, 2009 Compared to Three Months Ended March 31, 2008

Revenues for the three months ended March 31, 2009 were $3,545,968, compared to $3,240,866 for the three months ended March 31, 2008. This represents an increase of $305,102 or 9.4%. This increase was primarily attributable to more balanced reorders unlike 2008 when the majority of sales was for Winter Sports (Wii) and the new releases of SBK on PS2, PS3, PSP and Xbox.

There was a 23.8% decrease in gross profit for the three months ended March 31, 2009, which was $602,363, compared to $790,854 for the three months ended March 31, 2008. This decrease in gross profit was primarily the result of the 2008 Winter Sports (Wii) sales being royalty free.

For the three months ended March 31, 2009, operating expenses totaled $439,588 as compared to $682,816 for the three months ended March 31, 2008. This was a decrease of $243,228 or 35.6%. The decrease in operating expenses resulted from a decrease in marketing expenses of $138,514 or 69.5% from $199,427 for the three months ended March 31, 2008 to $60,913 for the three months ended March 31, 2009, a result of the company not initiating any new IR campaigns. In addition, the Company incurred substantial marketing expenses in 2008 for SBK, which was released in the first quarter of 2009. In addition, Penalty expenses decreased $32,972 or 100% from $32,972 for the three months ended March 31, 2008 to $0 for the three months ended March 31, 2009, which was a result of our informal payment arrangement made with the IRS. Professional fees also decreased from $177,412 for the three months ended March 31, 2008 to $116,000 for the three months ended March 31, 2009, due to negotiations with consultants to lower fees. Finally, Travel decreased $23,083 or 75.9% from $30,422 for the three months ended March 31, 2008 to $7,340 for the three months ended March 31, 2009, a result of the Company utilizing overseas consultants to assist our partners instead of sending U.S. based staff. Auto expense increased by $11,424 or 138.5% from $8,248 for the three months ended March 31, 2008 to $19,673 for the three months ended March 31, 2009, as result of our agreements with consultants to cover their automobile expenses while working on our behalf in Europe. Finally, Rent increased $10,991 or 70.75% from $15,535 for the three months ended March 31, 2008 to 26,526 for the three months ended March 31, 2009 due to our expanding our office space in 2008.

Interest expense was $46,587 and $45,224 for the three months ended March 31, 2009 and March 31, 2008, respectively. This was a slight increase of $1,362, or 3%.

Our gain on valuation of derivative liability was $1,925,680 for the three months ended March 31, 2009, compared to a loss of $12,403,415 for the three months ended March 31, 2008. This was an increase of $14,329,095 or 115%.

Our net income was $2,038,685 for the three months ended March 31, 2009, compared to a net loss of $12,387,187 for the three months ended March 31, 2008. The increase in net income for the three months ended March 31, 2009 was due to a greater operational profit and a gain on valuation of derivative liability.

Liquidity and Capital Resources

As of March 31, 2009, our cash balance was $67,147, compared to $424,529 at December 31, 2008. Total current assets at March 31, 2009 were $401,967, compared to $681,349 at December 31, 2008. 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 2009 will be sufficient to cover our working capital requirements for fiscal 2009. The Company reached this conclusion by assuming that a major portion ($2,217,400) of our debt is attributed to convertible notes payable. The Company expects that this debt will be eventually be converted into shares (although there is no assurance that this debt will actually be converted into.) Deferred Revenue ($1,907,435) will be reclassified as revenue upon the completion of current projects in development. Derivative Liability ($890,924) represents the amount of cash required should our investors call in our outstanding loans. Although we can provide no assurance that this will not occur, we do not believe this 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 ($362,287). In addition, based on our schedule of development for the remainder of this year, we anticipate an increase in sales, profitability and cash receipts in 2009 which will allow the Company to continue to pay down our working capital requirements and help avoid the additional need for working capital.

For the three months ended March 31, 2009, net cash used in investing activities was $384,483, compared to net cash used in investing activities of $553,041 for the three months ended March 31, 2008. The decrease in cash used in investing activities can be attributed to less payments made for licensing and development.

For the three months ended March 31, 2009, net cash used by Financing Activities was $50,000 compared to cash provided in the amount of $185,000 for the three months ended March 31, 2008. This decrease in cash used by financing activities resulted primarily from the finance arrangement made in Februrary 2008.

Our accounts receivable at March 31, 2009 was $334,820, compared to $256,820 at December 31, 2008. The increase in accounts receivable is primarily attributable to a slight slowness in receiving payment from our major distributor who was purchased by a new owner.

As of March 31, 2009 we had a working capital deficiency of $9,387,214. A major portion of our debt is attributed to 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 March 31, 2009, 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.

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 March 31,
2009:

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

   Notes Payable                 $ 2,669,271     $ 2,669,271
   Operating Lease Obligations   $   152,080     $    96,376      $ 55,704
   License Fee Obligations       $    60,000     $    60,000
   Total                         $ 2,881,351     $ 2,825,647      $ 55,704

In September 2008, we entered into two notes payable agreements totaling $80,000 with two related parties. The notes have a fixed interest amount of $5,000 per each loan and will be paid in 2009. As of March 31, 2009 the balance owed to one part has been paid and $30,000 is due to the remaining party.

In February 2008, we entered into two notes payable agreements with accredited investors totaling $227,778. To date, these notes are past due and have not been called. The amount owed as of March 31, 2009 is $227,778.

In July 2007, we entered into a convertible debenture in the amount of $200,000. To date, these notes are past due and have not been called. As of March 31, 2009 the balance owed is $200,000.

In March 2007, we entered into a convertible notes agreement totaling $80,000. To date, these notes are past due and have not been called. As of March 31, 2009 the balance owed is $80,000.

In August 2006, we entered into a convertible notes agreement totaling $247,000. To date, these notes are past due and have not been called. As of March 31,2009 the balance owed is $247,000.

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. As of March 31, 2009 the balance owed is $194,093. The notes bear no interest and were due February 1, 2006.

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 March 31, 2009 is $1,690,400. To date, these notes are past due and have not been called.

We currently lease office space at 612 Santa Monica Boulevard in Santa Monica, California. Through the remainder of the lease term, our minimum lease payments are as follows:

2009 $ 96,376

2010 $ 55,704

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 recoverability 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.

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, 2009, the balance of the allowance for doubtful accounts is $0.

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 $2,732,791 at March 31, 2009. 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.