UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                                   (MARK ONE)

              [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2005

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                                THE EXCHANGE ACT

                    For the transition period from ___ to ___

                       Commission file number: 333-5278-NY


                       POWERHOUSE TECHNOLOGIES GROUP, INC.
             (Exact Name of Registrant as Specified in Its Charter)

               Delaware                                 94-3334052
 ------------------------------------    -------------------------------------
   (State or Other Jurisdiction of        (I.R.S. Employer Identification No.)
    Incorporation or Organization)

  555 Twin Dolphin Drive, Suite 650
       Redwood City, California                           94065
 ------------------------------------    -------------------------------------
   (Address of Principal Executive                      (Zip Code)
              Offices)

       Registrant's telephone number, including area code: (650) 232-2600

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 [_]

As of August 12, 2005, there were 4,258,410 shares of the issuer's common stock,
$0.0001 par value per share ("Common Stock"), outstanding.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]


<PAGE>

                                TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION------------------------------------------------2

Item 1. Financial Statements.................................................2
        Consolidated Balance Sheets - June 30, 2005 Unaudited and
          March 31, 2004 Audited.............................................2
        Consolidated Statements of Operations - Three months ended
          June 30, 2005 and 2004, and Inception (May 16, 2002) to
          date - Unaudited...................................................3
        Consolidated Statement of Cash Flows - Three months ended
          June 30, 2005 - Unaudited..........................................4
        Notes to Consolidated Financial Statements...........................5
Item 2. Management's Discussion and Analysis or Plan of Operation...........11
Item 3. Controls and Procedures.............................................16

PART II. OTHER INFORMATION--------------------------------------------------18

Item 1. Legal Proceedings...................................................18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........18
Item 3. Defaults Upon Senior Securities.....................................18
Item 4. Submission of Matters to a Vote of Security Holders.................18
Item 5. Other Information...................................................18
Item 6. Exhibits............................................................18

SIGNATURES..................................................................20

<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                       POWERHOUSE TECHNOLOGIES GROUP, INC.
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  June 30,
                                                                    2005         March 31,
                                                                (Unaudited)         2005
                                                                ------------    ------------
<S>                                                             <C>             <C>
                                     ASSETS
Current Assets:
Cash and cash equivalents                                       $    393,132    $    423,729
Accounts receivable, net                                              24,020          34,411
Inventory                                                             41,969          86,063
Other current assets                                                 152,660          41,300
                                                                ------------    ------------
Total current assets                                                 611,781         585,503

Property and Equipment, net:                                          10,882          12,362
                                                                ------------    ------------

Other Assets:
Software technology, net                                           3,477,327       3,695,196
Other assets                                                          39,975          39,975
                                                                ------------    ------------
Total other assets                                                 3,517,302       3,735,171
                                                                ------------    ------------

Total Assets                                                    $  4,139,965    $  4,333,036
                                                                ============    ============

                 LIABILITIES AND STOCKHLODERS' (DEFICIT) EQUITY

Current Liabilities:
Convertible promissory notes                                    $    700,000    $         --
Accounts payable                                                   1,370,358       1,177,767
Accrued compensation                                                 169,428          53,446
Accrued liabilities                                                  894,627         665,199
Dividends payable                                                     62,184         261,570
                                                                ------------    ------------
Total current liabilities                                          3,196,597       2,157,982

Deferred Income Taxes                                              1,203,804       1,281,154
                                                                ------------    ------------

Total Liabilities:                                                 4,400,401       3,439,136
                                                                ------------    ------------

Commitments and Contingencies

Stockholders' Equity:
Senior A Preferred stock, $.0001 par value; 10,000,000 shares
authorized; 3,741,010 and 3,723,832 shares issued and
outstanding                                                              374             372
Junior A Preferred stock, $.0001 par value; 5,000,000 shares
authorized; 795,250 shares issued and outstanding                         79              80
Common stock, $.0001 par value; 200,000,000 shares
authorized; 4,063,870 and 3,864,364 shares issued and
outstanding                                                              407             387
Additional paid in capital                                        31,572,863      30,999,801
Deficit accumulated during development stage                     (31,650,559)    (29,923,140)
Treasury stock                                                      (183,600)       (183,600)
                                                                ------------    ------------
Total stockholders' equity                                          (260,436)        893,900
                                                                ------------    ------------

Total Liabilities and Stockholders' (Deficit) Equity            $  4,139,965    $  4,333,036
                                                                ============    ============
</TABLE>


  The accompanying notes are an intergral part of these financial statements.
                                        2
<PAGE>

                       POWERHOUSE TECHNOLOGIES GROUP, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      Statements of Operations (Unaudited)

<TABLE>
<CAPTION>
                                                                                    For the
                                                                                  Period from
                                                 Three months ending June 30,     May 16, 2002
                                                 ----------------------------    (Inception) to
                                                     2005          2004 (a)      June 30, 2005
                                                 ------------    ------------    --------------
<S>                                              <C>             <C>             <C>
Revenues                                         $     57,141    $     21,214    $      710,915
Cost of Sales                                         277,125          14,492         1,434,349
                                                 ------------    ------------    --------------

Gross Margin                                     $   (219,984)   $      6,722    $     (723,434)
                                                 ============    ============    ==============


Operating Expenses:
  Research and development                            192,443          18,336           937,694
  Sales and marketing                                 305,923         779,462         4,250,211
  General and administrative                          886,269         726,487         9,536,652
                                                 ------------    ------------    --------------

  Total operating expenses                          1,384,635       1,524,285        14,724,557
                                                 ------------    ------------    --------------

Non-operating expenses:
  Misappropriation loss and expenses related
    to raising capital                                                                3,142,759
  Other (income) expense                                   --        (555,739)       (1,506,868)
  Equity in loss of investee                               --          24,365           205,854
  Interest - net                                        5,133       2,838,084         2,910,314
                                                 ------------    ------------    --------------

  Total non-operating expenses                          5,133       2,306,710         4,752,059
                                                 ------------    ------------    --------------

Loss before income taxes                           (1,609,752)     (3,824,273)      (20,200,050)
Provision (Benefit) for income taxes                  (79,311)            800          (340,899)
                                                 ------------    ------------    --------------
Net Loss                                         $ (1,530,441)   $ (3,825,073)   $  (19,859,151)
Less: Dividends on Preferred Stock                    196,978       9,159,438        11,791,408
                                                 ------------    ------------    --------------
Net Loss Allocable to Common Shareholders        $ (1,727,419)   $(12,984,511)   $  (31,650,559)
                                                 ============    ============    ==============

Basic and Diluted Loss per Share                 $      (0.44)   $      (3.76)
                                                 ============    ============

Weighted Average Shares Outstanding                 3,951,559       3,456,439
                                                 ============    ============
</TABLE>

(a) As restated - see Note 7


   The accompanying notes are an intergral part of these financial statements.
                                        3
<PAGE>

                       POWERHOUSE TECHNOLOGIES GROUP, INC.
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENT OF CASH FLOWS


                      Statement of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
                                                                           For the three months        For the Period
                                                                              ending June 30,        from May 16, 2002
                                                                        -------------------------     (inception) to
                                                                            2005        2004 (a)       June 30, 2005
                                                                        -----------   -----------    -----------------
<S>                                                                      <C>           <C>           <C>
Cash Flows from Operating Activities:
  Net loss                                                              $(1,530,441)  $(3,825,073)     $   (19,859,151)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Common stock issued for services                                       58,758        86,251            2,653,103
      Equity in loss of investee                                                 --        24,365              205,854
      Depreciation and amortization                                         219,348            --              896,974
      Deferred income tax benefit                                           (77,350)           --             (343,196)
      Interest expense relating to amortization of debt issuance costs           --       185,037              206,298
      Interest expense relating to amortization of debt discount
         and beneficial conversion                                               --     2,611,234            2,649,000
      Remeasurement of warrants to fair value                                    --      (558,667)          (1,209,263)
      Stock based compensation                                               71,294            --              296,974
    Changes in operating assets and liabilities:                                 --            --                   --
      Accounts receivable                                                    10,391        22,938              (24,020)
      Inventory                                                              44,095      (153,002)             (41,968)
      Other assets                                                          (64,693)     (111,586)            (131,300)
      License fee                                                                --            --             (118,418)
      Accounts payable                                                      192,591      (219,898)           1,314,305
      Accrued compensation                                                  115,982       114,851              169,428
      Accrued liabilities                                                   229,428       638,993              588,714
      Due to officer                                                             --       (11,251)                  --
      Other non-current liabilities                                              --            --                8,546
                                                                         ----------    ----------    -----------------

        Net cash used in operating activities                              (730,597)   (1,195,808)         (12,738,120)
                                                                         ----------    ----------    -----------------

Cash Flows from Investing Activities:
      Acquisiton of First Person Software                                        --    (1,049,597)          (1,348,297)
      Purchase of equipment                                                      --            --              (15,847)
      Payment of deposits                                                                      --              (37,926)
      Investment in equity Investee                                              --            --             (130,000)
                                                                         ----------    ----------    -----------------

        Net cash used in investing activities                                    --    (1,049,597)          (1,532,070)
                                                                         ----------    ----------    -----------------

Cash Flows from Financing Activities:
  Payment of finders' fee                                                        --       (60,825)            (110,825)
  Payment of debt issuance costs                                                 --    (1,016,978)             (98,425)
  Principal payment on notes payable to equity investee                          --            --             (270,000)
  Advances on common stock subscriptions                                         --            --            2,233,676
  Proceeds from convertible notes                                           700,000       965,000            3,349,000
  Payments upon recission of common stock offering                               --      (215,000)            (215,000)
  Proceeds from sale of common stock                                             --            --            3,258,683
  Payment of equity financing costs                                                            --           (1,355,440)
  Proceeds from sale of preferred stock                                          --     6,083,604            7,871,653
                                                                         ----------    ----------    -----------------

        Net cash provided by financing activities                           700,000     5,755,801           14,663,322
                                                                         ----------    ----------    -----------------

Net Increase (decrease) in cash                                             (30,597)    3,510,396              393,132

Cash, beginning of period                                                   423,729       807,484                   --
                                                                         ----------   -----------    -----------------
Cash, end of period                                                      $  393,132   $ 4,317,880      $       393,132
                                                                         ==========   ===========    =================

Non-cash investing and financing activity :
  Issuance of note payable for acquisition of investment in equity
    investee                                                             $       --   $        --      $       270,000
  Issuance of common stock in exchange for an
    investment in equity investee                                                --            --              100,000
  Issuance of common stock in connection with the acquisition of
    First Person Software, Inc.                                                  --     1,000,000            1,196,135
  Debt discount recognized in connection with issuance of
    convertible notes                                                            --            --              239,008
  Liabilities assumed upon Company's combination with Agate
    Technologies, Inc.                                                           --            --              280,426
  Issuance of Senior A Preferred Stock in connection with conversion
    of debt                                                                      --            --            2,649,000
  Issuance of warrants in connection with preferred financing                    --            --            3,021,155
  Issuance of warrants in connection with rescission offer                       --       821,955              821,955
  Issuance of shares for dividends                                          396,364            --            1,489,180
</TABLE>

(a) As restated - see Note 7


  The accompanying notes are an intergral part of these financial statements.
                                        4
<PAGE>

PowerHouse Technologies Group, Inc.
(A Development Stage Company)

Notes to Financial Statements

For the Three Month Period Ended June 30, 2005 (Unaudited) and June 30,
2004(Unaudited), For the Period May 16, 2002 (inception) Through June 30, 2005
(Unaudited)

1.    Interim Financial Data

The accompanying unaudited financial statements have been prepared by PowerHouse
Technologies Group, Inc. ("PowerHouse" or "the Company") in accordance with
accounting principles generally accepted in the United States of America ("US
GAAP"). In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only those of a normal recurring
nature, necessary for a fair presentation of the Company's financial position,
results of operations and cash flows at the dates and for the periods indicated.
These financial statements should be read in conjunction with the financial
statements and notes related thereto, included in the Annual Report on Form
10-KSB for year ended March 31, 2005.

These results for the period ended June 30, 2005 are not necessarily indicative
of the results to be expected for the full fiscal year. The preparation of the
financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Forward-Looking Statements

This Quarterly Report on Form 10-QSB contains forward-looking statements
including, without limitation, statements concerning the future of the industry
in which the Company operates, its product development plans, business strategy,
financial estimates, continued acceptance of its products and dependence on
significant distributors and customers. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expects", "plans", "anticipates", "believes", "estimated", "predicts",
"potential", "continue" or the negative of such terms or other comparable
terminology. You should not place undue reliance on the forward-looking
statements contained in this document. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements made in this Quarterly Report on Form 10-QSB. Forward-looking
statements, particularly those concerning anticipated events relating to the
development and marketing of the Company's products and the timing or magnitude
of those events, are inherently uncertain. The risk factors discussed below and
other considerations noted throughout this Quarterly Report on Form 10-QSB could
cause its actual results to differ significantly from those contained in any
forward-looking statements.


2.    Summary of Significant Accounting Policies

Critical Accounting Policies

The Company makes estimates and assumptions in the preparation of its
consolidated financial statements in conformity with US GAAP. These accounting
principles require management to make certain estimates, judgments and
assumptions. The Company believes that the estimates, judgments and assumptions
upon which it relies are reasonable based upon information available at the time
that these estimates, judgments and assumptions are made. These estimates,
judgments and assumptions can affect the reported amounts of assets and
liabilities as of the date of the financial statements, as well as the reported
amounts of revenues and expenses during the periods presented. To the extent
there are material differences between these estimates, judgments or assumptions
and actual results, the Company's financial statements will be affected. The
accounting policies that reflect more significant estimates, judgments and
assumptions which management believes are the most critical to aid in fully
understanding and


                                        5
<PAGE>

evaluating the Company's reported financial results include the following:

      Revenue Recognition

      Software Technology Assets

      Impairment of Long-Lived Assets

      Stock-based Compensation


In many cases, the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting principles and does not
require management's judgment in its application. There are also areas in which
management's judgment in selecting among available alternatives would not
produce a materially different result. The Company's significant accounting
policies are described in Note 2 to the audited consolidated financial
statements contained in Form 10-KSB for the year ended March 31, 2005
("Financial Statements"), which was filed on July 28, 2005. The accounting
policies used in preparing interim condensed consolidated financial statements
are the same as those described in our audited financial statements.

Revenue Recognition - The Company recognizes revenue in accordance with
Statement of Position ("SOP") 97 2, "Software Revenue Recognition", as amended,
and Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition".

The Company recognizes revenue from sales through its website after the 30-day
return period has lapsed. The Company's software products are licensed on a
perpetual basis. Revenue from the sale of software licenses is recognized only
when persuasive evidence of an arrangement exists, the product has been
delivered, the fee is fixed or determinable and collection of the resulting
receivable is reasonably assured. For sales over the Internet, the Company uses
a credit card authorization as evidence of an arrangement.

Revenue from direct sale contracts of the Company's products to commercial users
is recognized based on the terms of the agreement, after the product has been
delivered, and collection of the resulting receivable is reasonably assured.
Revenue from distributors is recognized when the product has been sold to third
party customers.

Software Technology Assets - Software technology assets, acquired as part of the
acquisition of First Person Software, Inc. ("First Person") (See Financial
Statements, Note 5,"Intangible Assets") are stated at cost. Amortization is
computed using the straight line method over an estimated useful life of five
years, based on management's best current assumptions and estimates.

Impairment of Long Lived Assets - Property, equipment, intangible and certain
other long lived assets are amortized over their useful lives. Useful lives are
based on management's estimates of the period that the assets will generate
revenues or provide utility in operations. Long lived assets are written down to
fair value whenever events or changes indicate that the carrying amount of an
asset may not be recoverable. The Company's policy is to review the
recoverability of all long lived assets at a minimum of once per year and record
an impairment loss when the fair value of the assets does not exceed the
carrying amount of the asset. The Company's most significant long-lived asset is
the software technology, which is currently being amortized on the straight-line
basis over 5 years, based on management's best current assumptions and
estimates. As circumstances change, the actual life and/or usage pattern may
vary in the future, which might result in either increases or decreases in
future amortization expense. Also, if circumstances and/or assumptions regarding
the utility and recoverability of the software technology change, future
writeoffs or writedowns might be required.

Stock Based Compensation - In December 2004, the FASB issued SFAS No. 123R,
"Share Based Payment." SFAS No. 123R establishes the accounting for grants of
stock options and other transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that are based on
the fair value of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. SFAS No. 123R (1) revises SFAS No. 123,
"Accounting for Stock Based Compensation," (2) supersedes Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
(3) establishes fair value as the measurement objective for share based payment
transactions. The Company has adopted SFAS No. 123R effective January 1, 2005 in
accordance with the standard's early adoption provisions. Prior to January 1,
2005, the Company's Board of Directors had not approved the granting of any
stock options. As such, the Company decided to follow the provisions of SFAS No.
123R on a


                                        6
<PAGE>

prospective basis, and for the period ended June 30, 2005, the Company recorded
$71,294 of compensation expense related to the granting of stock options to
employees.

3.    Debt

On June 9, 2005, the Company entered into several Secured Convertible Promissory
Notes ("Notes") with certain parties ("Payees") providing for an aggregate
$700,000 principal amount loan to the Company. Principal amounts owing under the
Notes bear interest at a fixed rate of 12% per annum. The Notes are due and
payable on the earlier of (i) August 31, 2005 or (ii) the date of closing of the
issuance of securities of the Company to one or more investors for cash in a new
transaction following the date of issuance of these Notes ("New Financing").

Payees have the right to convert the Payee's Note into the securities issued in
the New Financing. In the event a Payee elects to convert such Payee's Note in
connection with the New Financing, the principal amount of such Notes plus
accrued and unpaid interest will be converted at a conversion price equal to
seventy five percent (75%) of the price paid by investors for the securities
issuable by the Company in the New Financing.

Immediately upon completion of the New Financing, the Company will issue
warrants ("Payee Warrants") to the Payees in an amount equal to one hundred
fifty percent (150%) of the proportional warrant coverage received by investors
("Investor Warrants") in the New Financing. The Payee Warrants will be in the
same form as the Investor Warrants and will contain the same terms as the
Investor Warrants, including an exercise price equal to the exercise price set
forth in the Investor Warrant. The Payee Warrants will be in addition to any
Investor Warrants issued to the Payee upon conversion of the Payee's Note in
accordance with the terms of the Payee's Note.

Pursuant to the terms of the Notes, the Company is required either to make the
Payees a party to, or to grant to the Payees equal rights and interests with,
the persons and entities listed in the Series A Senior Preferred Equity Security
Agreement, dated as of April 23, 2004, ("Security Agreement") as a secured party
to the collateral set forth under the Security Agreement. Upon this action, the
Company's obligations under the Notes will be secured by a first priority
security interest in the assets covered by the Security Agreement. As of June
30, 2005 the Company had not completed its requirements under this obligation.

Pursuant to the terms of the Note the Company is required to enter into a
Registration Rights Agreement with the Payees, within 10 business days of the
issuance of the Notes, substantially in the form of the Company's Registration
Rights Agreement dated as of April 23, 2004, between the Company and the holders
of the Company's Series A Senior Convertible Preferred Stock, which would
provide the Payees with unlimited piggyback registration rights and one demand
registration right beginning 180 days after the issuance of the Notes.

Upon completion of the New Financing as specified in the Notes, the Company will
record discounts to the Notes related to the 75% conversion price to New
Financing, the issuance of the Payee Warrants, and any resulting beneficial
conversion effect. These discounts, which will be limited to the total proceeds
received, will be amortized to interest expense. Issuance of any Investor
Warrants upon conversion of the Payee Notes may also result in additional
discounts which would be treated as deemed dividends.

At June 30, 2005 no New Financing had been completed, accordingly the Company
is not yet able to estimate the effects of any beneficial conversion. As a
result, the accompanying Balance Sheet includes a short-term liability in the
amount of $700,000, representing the principal amount of the Notes, and has
accrued $5,133 related to earned but unpaid interest.

4.    Balance Sheet Components

The primary components of accrued liabilities are as follows:


                                        7
<PAGE>

                                         June 30, 2005   March 31, 2005
                                         -------------   --------------
      Accrued pending settlements             $484,386         $484,386
      Options to be issued                      95,284           95,284
      Accrued operating expenses               314,957           85,529
                                         -------------   --------------
                                              $894,627         $665,199
                                         =============   ==============


5.    Intangible assets

      During fiscal year 2003, the Company purchased a 49% interest of the then
      outstanding shares of First Person. The total purchase price of the
      investment in First Person was $500,000. This purchase was accounted for
      under the equity method, for which the investment in stock of First Person
      has been recorded at cost and the carrying amount of the investment has
      been adjusted to record the Company's share of the earnings/losses of
      First Person after the date of acquisition.

      During the first quarter of fiscal year 2005, the Company purchased the
      remaining 51% of the outstanding shares of First Person that it did not
      previously own in consideration of cash and shares. The total purchase
      price was approximately $2,750,000, which included cash of $1,000,000,
      217,938 shares of Common Stock valued at $1,000,000 at the date of the
      acquisition, direct acquisition costs of $349,000 and the elimination of
      certain inter-company accounts including $97,000 of accrued expenses,
      $208,000 of prepaid royalties and the remaining balance of the Company's
      investment in First Person totaling $294,000 at the date of acquisition.
      Also, there was additional purchase consideration contingent upon certain
      performance milestones. The transaction was treated as an asset purchase
      for accounting purposes. The Company recorded the transaction as an asset
      purchase to allocate the deferred tax liability to the assets acquired. As
      a result, the total value of the purchase was $4,369,377, which includes
      all assets of First Person, a deferred tax benefit of $1,547,000, and
      various transaction costs. In addition, as a result of the issuance of
      54,482 shares valued at $196,135 associated with the completion of certain
      milestones, the software technology asset was increased by $196,135
      subsequent to the effective date of the acquisition.

      Intangible assets, which result from the First Person acquisition entered
      into in June 2004, consist of the following:


      Software technology asset   $4,369,297
      Accumulated amortization      (891,970)
                                  ----------
                                  $3,477,327
                                  ==========

      The Company is currently amortizing its acquired intangible asset over
      five years. Amortization expense related to the software technology asset
      amounted to $674,141 for the year ended March 31, 2005, and $217,868 for
      the quarter ended June 30, 2005.


6.    Retention of Investment Banking firm

On May 6, 2005, the Company retained C.E. Unterberg, Towbin, LLC ("CEUT") to
provide investment banking and advisory services. The agreement grants CEUT an
exclusive right to act as the placement agent for up to $10 million of the
Company's securities. As of June 30, 2005 the Company had not completed a
placement of securities under this agreement, however the Company did complete
the Secured Convertible Promissory Notes described in Note 3 above.

7.    Adjusted Restatement of Quarterly Financial Statements

As previously reported in the Company's 10-KSB filed on July 28, 2005, the
Company discovered that several accounting errors were made that required
restatement of results previously reported in its quarterly filings for the year
ended March 31, 2005, including:


                                        8
<PAGE>

      o     Interest expense relating to the beneficial conversion feature of
            the convertible debt and Bridge Notes and debt discount relating to
            warrants issued with said convertible debt and Bridge Notes were
            understated by $692,000 during the first quarter.

      o     In its previously reported quarterly financial statements, the
            Company recorded the Senior A Preferred Stock and the related
            warrants to purchase Common Stock as permanent equity at the time of
            issuance. The Registration Rights Agreement gave the holders an
            ultimate put right pending an effective Registration Statement, of
            the underlying shares of Common Stock, with the SEC; consequently,
            at the time of issuance, the Senior A Preferred Stock and the
            related warrants should have been classified as mezzanine equity and
            a liability, respectively. Upon effective registration with the SEC
            on December 23, 2004, the Company should have reclassified the
            Senior A Preferred Stock and warrants to permanent equity. Quarterly
            results of operations have been restated to properly reflect this
            accounting treatment, At the time of issuance, the Company
            recalculated the beneficial conversion feature and the fair market
            value of the warrants and determined that additional deemed
            dividends of $2,346,181 and $556,974 for the first and second
            quarters, respectively, were to be recorded. Additionally, due to
            the classification of the warrants as a liability, the Company was
            required to mark them to market at each period end. As a result of
            the fluctuation of the Company's stock price and corresponding
            fluctuation of the fair value of the warrant liability, the Company
            recorded other income of $558,667 and $1,112,375 for the first
            quarter and second quarter, respectively. Upon effective
            registration by the SEC on December 23, 2004, the Company
            re-calculated the warrant liability and marked it to market at that
            date, and recorded other expense of $461,780 for the third quarter.
            Upon registration, the Series A Senior Preferred Stock, at a
            carrying value of $9,165,214, and the warrants, with an adjusted
            carrying value of $3,482,936, were reclassified to permanent equity.

      o     The Company has also restated previously reported cost of revenues
            and operating expenses to correct the classification of amortization
            on its software technology asset from general and administrative to
            cost of sales. This change resulted in a reclassification of
            $154,525, $137,893, and $140,525 for the second, third and fourth
            quarters of the fiscal year ended March 31, 2005, respectively.

      o     The Company has also restated the previously reported allocation of
            the purchase price related to the acquisition of First Person . The
            restatement was made to record a deferred tax liability for the
            future tax consequences attributable to the difference between the
            financial statement carrying amount of the software technology asset
            and its tax basis. As a result of this restatement, a deferred tax
            liability of $1,547,000 was recorded, with an offsetting increase to
            the software technology asset. The resulting recognition of deferred
            tax benefits were $96,796, $86,006 and $83,004 for the second, third
            and fourth quarters. Total deferred tax benefits for the year ending
            March 31, 2005 as a result of this reclassification were $265,846.
            Additionally, as a result in the increase in the carrying value of
            the software technology asset, additional amortization expense
            reclassifications in the amounts of $87,527, $77,771 and $75,092
            were reflected in the second, third and fourth quarters of the
            fiscal year ended March 31, 2005, respectively. This amortization
            expense reclassification totaled $140,390 for the fiscal year ended
            March 31, 2005.

      o     The Company recognized a deferred income tax benefit relating to the
            deferred liability recognized as part of the First Person
            acquisition. The Company is amortizing the value of this asset
            concurrent with the amortization of the Software technology. During
            the quarter ended June 30, 2005 the Company recognized expense of
            $77,350 related to the amortization of the deferred liability.

Had the Company properly accounted for these items in their quarterly reports
filed with the SEC during the fiscal year ended March 31, 2005, the information
would be as presented below. Additional restatements to the financial statements
are not anticipated.


                                        9
<PAGE>

<TABLE>
<CAPTION>
                                          First           Second          Third           Fourth
                                         Quarter         Quarter         Quarter         Quarter
                                       ------------    ------------    ------------    ------------
<S>                                    <C>             <C>             <C>             <C>
As restated
Revenues                               $     21,214    $     73,309    $    140,120    $     73,546
Cost of Revenues                             14,492         295,776         309,617         322,668
Gross Profit (Loss)                           6,722        (222,467)       (169,497)       (249,122)
Operating Expenses                        1,524,285       1,927,726       2,410,749       2,034,086
Non-Operating (Income) Expenses           2,306,710      (1,140,280)        454,906        (286,901)
Net Loss                                 (3,825,073)       (913,117)     (2,949,146)     (1,915,161)
Net Loss Allocable to shares of
  Common Stock                          (12,984,511)     (2,265,457)     (3,832,209)     (2,114,750)
Basic and Diluted Loss per Share              (3.76)          (0.79)          (1.26)          (0.57)

Balance Sheet at quarter end:
Software technology asset              $  3,874,502    $  4,023,135    $  3,910,812    $  3,695,196
Deferred income tax asset                 1,547,000       1,450,204       1,364,198       1,281,194
Liability for warrants                    3,259,314       2,559,376               1              --
Mezzanine equity                          7,715,626       9,165,214              --              --
Total stockholders' equity (deficit)     (6,621,597)     (8,016,356)      1,282,657         868,444

As previously reported:
Revenues                               $     21,214    $     73,309    $    140,120    $     73,546
Cost of Revenues                             14,492          53,724          93,953         107,051
Gross Profit (Loss)                           6,722          19,585          46,167         (33,305)
Operating Expenses                        1,524,285       2,082,251       2,548,642       2,174,611
Non-Operating (Income) Expenses           2,173,377         (27,905)          6,874        (286,901)
Net Loss                                 (3,691,740)     (2,034,761)     (2,495,601)     (1,923,073)
Net Loss Allocable to shares of
  Common Stock                          (10,504,977)     (2,830,127)     (3,378,664)     (2,122,662)
Basic and Diluted Loss per Share              (3.04)          (0.99)          (1.11)          (0.58)

Balance Sheet at quarter end:
Liability for warrants                 $         --    $         --    $         --    $         --
Mezzanine equity                                 --              --              --              --
Total stockholders' equity (deficit)      4,352,635       3,698,965       1,265,154         868,444
</TABLE>


8.    Related Party Transactions

Accrued Compensation - During the quarter ended June 30, 2005, the Company
accrued $110,687 in wages due to senior officers. The Company intends to pay
these amounts as funds become available.

Termination of Chief Operating Officer - On June 11, 2005, Manijeh Moghis'
employment with the Company was terminated. She had been the Company's Chief
Operating Officer. On June 13, 2005, Ms. Moghis resigned from her position as a
Director effective June 11, 2005. A copy of the letter Ms. Moghis sent to the
Company resigning from the Company's Board of Directors was filed as an exhibit
to a current report on Form 8-K filed with the SEC on June 16, 2005.

9.    Equity transactions

During the period ended June 30, 2005 the Company issued 93,500 shares of Common
Stock for certain consulting services, and recognized expense of $58,758 and
deferred expense of $46,667. The Company also issued 118,184 shares of Series A
Senior Preferred Stock in conjunction with the semi-annual payment due June 1,
2005 of the 8% annual dividend payable on outstanding Series A Senior Preferred
Stock. The Company recognized expense of $134,794 for the period from April 1,
2005 to June 1, 2005 for dividends earned, and retired accrued dividends of
$261,570, for a total cost of $396,364. The Company also accrued an additional
expense of $62,184 for the period from June 2, 2005 through June 30, 2005.
During the period ending June 30, 2005 the Company issued 106,006 shares of
Common Stock related to the conversion of 101,006 shares of Series A Senior
Preferred Stock and 5,000


                                       10
<PAGE>

shares of Series A Junior Preferred Stock.

10.   Commitments and Contingencies

Litigation

On January 4, 2005, the Company received a demand for arbitration from The Wall
Street Group, a former service provider, which alleges breach of contract and
related claims pursuant to an alleged contract for services, primarily services
related to raising capital. The demand claims damages of approximately $950,000,
and an alleged option to purchase 138,948 shares of Common Stock. The Company
believes the complaint is without merit and intends to defend it vigorously and
believes that the loss, if any, resulting from the suit will not have a material
effect on the Company's financial position, results of operations, or cash flows
in future years.

On June 9, 2005, the Company received notice of a legal action commenced by
Richard Dobies, an individual who allegedly purchased Common Stock in June 2003.
Mr. Dobies did not timely respond to the Rescission Offer made by the Company in
June 2004 (see Item 6, Management's Discussion and Analysis or Plan of
Operation, under the caption "Significant Events for Fiscal Year 2005" of the
Company's Annual Report on Form 10-KSB filed with the SEC on July 28, 2005) and,
for that and other reasons, was excluded from participating in the Rescission
Offer. The suit claims damages of approximately $400,000, plus interest from the
time of investment. The Company intends to defend it vigorously and believes
that the loss, if any, resulting from the suit will not have a material impact
on the Company's financial position, results of operations, or cash flows in
future years.

On June 29, 2005, the Company received notice of a legal action commenced by
Manijeh Moghis related to her former employment with the Company. Ms. Moghis
filed a complaint seeking damages of approximately $140,000 related to her offer
of employment which allowed for continuation of benefits in the event of her
termination. The offer of employment provided that in the event of termination
`for cause', no continuation of benefits would be due to Ms. Moghis. Ms. Moghis
states in her complaint that her termination of employment with the Company was
in breach of her employment agreement with the Company and she is therefore due
the above damages. The Company believes the complaint is without merit and
intends to defend it vigorously and believes that the loss, if any, resulting
from the suit will not have a material impact on the Company's financial
position, results of operations, or cash flows in future years.

In the normal course of business, the Company is subject to various claims and
litigation matters none of which in management's opinion will have a material
effect on financial results.

11.   Subsequent Events

Subsequent to June 30, 2005, the Company received notice of a legal action
commenced by Joshua Feller related to his former employment with the Company.
Mr. Feller filed a claim with the Labor Commissioner of the State of California
("Labor Board") on July 12, 2005, and a separate action in the Superior Court of
California, County of Contra Costa, ("Superior Court") on July 13, 2005 seeking
damages related to his employment. In both cases Mr. Feller claims that an oral
agreement with the Company existed for the payment of performance and other
bonuses, and that his resignation on June 3, 2005 was for "Good Cause",
therefore making him eligible for severance benefits. Mr. Feller also claims
interest in stock options of the Company although no agreement exists for those
options. The Labor Board action seeks damages of approximately $540,000; the
Superior Court action seeks similar damages. The Company believes the complaint
is without merit and intends to defend it vigorously and believes that the loss,
if any, resulting from the suit will not have a material impact on the Company's
financial position, results of operations, or cash flows in future years.


Item 2. Management's Discussion and Analysis or Plan of Operation.

General

You are cautioned to read the following discussion in conjunction with the
Company's financial statements and the notes thereto included elsewhere herein.
All statements in this Form 10-QSB related to the Company's ongoing financial
operations and expected future results constitute forward-looking statements.
The actual results may differ materially from those anticipated or expressed in
such statements.

Company Background

The Company is in the business of developing, acquiring and marketing software
and infrastructure technologies designed to improve the way mobile information
is personalized, secured, carried and accessed. The Company was founded in May
2002 as PowerHouse Studios, Inc. ("PowerHouse Studios")and is a development
stage company under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage
Enterprises". On May 19, 2003, PowerHouse Studios completed a business
combination


                                       11
<PAGE>

with Agate Technologies, Inc., a publicly traded company. Following that
transaction, the Company changed its name to "PowerHouse Technologies Group,
Inc." On June 18, 2004, the Company acquired 51% of First Person Software, Inc.
("First Person") having acquired its original 49% ownership in November 2002;
the transaction was effected through a merger of First Person with and into
PowerHouse Acquisition, LLC ("PowerHouse Acquisition"), a wholly owned
subsidiary of the Company, with PowerHouse Acquisition remaining as the
surviving entity.

In March 2005, the Company entered into a three year development agreement (the
"Development Agreement") with M Systems Flash Disk Pioneers Ltd., an Israeli
company ("M-Systems"). Pursuant to the Development Agreement, the Company
granted to M-Systems and its affiliates a worldwide, transferable license to use
and distribute the Company's Migo products, and to use related trademarks, as an
integrated part of M-Systems' Universal Serial Bus ("USB") drive product lines
(see Item 2, Management's Discussion and Analysis or Plan of Operation under the
caption "Significant Events During Fiscal Year 2005" below). As of June 30,
2005, the Company had not yet begun shipping product under this agreement,
however, the Company does anticipate shipments to commence during the quarter
ended September 30, 2005.

Company Technology: The Migo(R)
The Company has developed the Migo(R) ("Migo"), a software computing system that
performs advanced synchronization, personalization and data management functions
when installed on portable memory storage devices that use USB ports on Windows
based computers. The Company believes that, in a manner similar to that in which
the cellular phone revolutionized the way that many people communicate, the Migo
has the potential to change the way people work with and away from their
personal computers, whether in the office, at home, or from other remote
locations while traveling. The Migo is designed to improve the mobile computing
experience by allowing computer users to easily transport the personalized
desktop environment of their personal computers (complete with the same files,
Microsoft(R) Outlook(R) e mail, Internet Explorer favorites, wallpaper,
presentations, photos, MP3 audio files and/or various other features) and then
access that same environment by displaying it on any other Windows based
computer. In addition, the Migo is designed so that once it has been
disconnected from a non native computer through which a user's personalized
environment has been accessed, no trace of the user's computer environment or
its data will be left behind on that machine.

The Migo software currently supports the Microsoft(R) Windows(R) operating
system (Win 98SE to XP) and Outlook(R) email program. The Company is developing
its Migo software to function with other popular email applications (such as
Exchange and Lotus Notes(R)), web browsers, and other frequently used tools and
applications, and is in the process of researching and developing a range of
Migo software for use on other hardware devices, including larger capacity USB
storage devices, MP3 music players, mobile cellular phones, PDAs and other
mobile data communication platforms. The Company believes these products will
have the potential for customized use across a broad range of industries,
including healthcare, insurance, banking and financial services and education.

Sales Channels

The Company sells, or expects to sell, its products through various channels and
in a variety of different markets. Sales efforts are planned though the
following:

1.    Software-only sales. The Company has entered into an agreement to license
      its software for distribution by M-Systems, a USB Flash drive
      manufacturer. The Company expects to enter into similar software licensing
      contracts with other hardware manufacturers and distributors for non-USB
      Flash devices. It also anticipates selling software upgrades and service
      contracts to existing users of its products and users of other USB Flash
      drive products.

2.    Web based sales. The Company is currently selling software and bundled
      products directly to consumers through its website, www.pwhtgroup.com. The
      Company expects to make its Migo software available for USB Flash and
      other memory products already in the market.

3.    Direct sales, Commercial and Consumer. The Company also sells products
      through agreements directly with commercial end users and anticipates
      eventually selling to consumers directly.

4.    International sales. The Company anticipates entering into distribution
      and reseller agreements to sell its products outside the US, especially in
      Europe and Asia. The Company has already entered into such agreements in
      Asia, Australia, Canada, South Africa and the United Kingdom.

5.    Distributors/VARs. The Company has an agreement with a nation wide firm to
      distribute its products through their centralized distribution system to a
      national network of resellers, value added seller


                                       12
<PAGE>

      redistributors ("VARs") and system integrators. The Company has entered
      into a distribution agreement with a large educational distributor in the
      US and has launched its products in June 2005 through them to educational
      resellers and direct to universities and colleges.

The Company cannot provide assurances regarding its ability to meet any sales
targets, as it may be affected by many factors not within its control, including
acceptance of its products by consumers, competition, technological advances by
others, and general economic and political issues. General economic and
political issues affect foreign operations more significantly than domestic
operations. Further, all of the potentially adverse factors that can affect a
business in its line are more likely to affect a new company than an established
enterprise.

Patents, Proprietary Technology and Other Intellectual Property

The Company relies primarily on a combination of copyright, trademark and patent
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. For example, the Company seeks to avoid
disclosure of its trade secrets by requiring those persons with access to the
Company's proprietary information to execute confidentiality agreements with the
Company and by restricting access to the Company's software source code. The
Company also relies on unpatented proprietary know how in developing its
products, and employs various methods, including confidentiality agreements with
employees, consultants and others, to protect its trade secrets and know how.

Irrespective of the foregoing, the Company cannot be sure that these methods of
protecting its proprietary technology, information and know how will afford
complete protection. Patents may not be enforceable or provide the Company with
meaningful protection from competitors. If a competitor were to infringe on the
Company's patents, the costs of enforcing the Company's patent rights might be
substantial or even prohibitive. Likewise, the Company cannot be sure that
others will not independently develop its trade secrets and know how or obtain
access to them.

Despite the Company's efforts to protect its proprietary rights, parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In addition, the laws of many
countries do not protect the Company's proprietary rights to as great an extent
as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology.

The Company expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in different
industry segments overlap. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the
Company's business, results of operations and financial condition.

Employees

The Company has 17 full-time employees, as well as a number of consultants who
provide development, sales, administrative and management services similar to
those that would be provided by full and part-time employees. The Company has
also entered into consulting agreements to obtain counsel and services relating
to marketing, media relations and business development.

Financial Results, Liquidity and Management's Plan (Unaudited)

Three months ended June 30, 2005 and 2004

The Company reported revenues of $57,141 for the three months ended June 30,
2005, and revenues of $21,214 for the corresponding period ended June 30, 2004.
During the quarter ended June 30, 2005, the Company sold its software through
online downloads, packaged through distributors and bundled with memory
products. The Company is expanding its online capabilities and advertising to
promote sales. The Company's costs associated with the sale of products for the
period ended June 30, 2005 were $277,125 and consisted mainly of the
amortization of Software technology assets, expenses for the hardware devices
sold with its software pre-loaded, and services


                                       13
<PAGE>

related to loading software, packaging and shipping. For the period ended June
30, 2004, the Company incurred costs associated with the sale of its products of
$14,492; during this period no amortization of the Software technology assets
was incurred.

The Company's operating expenses for the three months ended June 30, 2005
decreased by approximately $140,000 from the same period in 2004 due to several
factors. Research and development expenses were $190,000 for the three months
ended June 30, 2005, up from $18,000 in the corresponding period in 2004, due to
the increase of staff dedicated to the development of new products, and the
completion of products to be made available for sale and upgrade through the
M-Systems contract. This increase was offset by the Company's selling expenses
which were reduced from $780,000 for the three months ended June 30, 2004 to
$305,000 for the three months ended June 30, 2005 due to limited financial
resources. The Company also incurred one-time charges in 2004 related to a
settlement and the issuance of options for services. General and administrative
costs increased $160,000 to $886,000 for the period ended June 30, 2005 due to
increased staffing costs for accounting and related professional services, and
audit costs.

Liquidity and Capital Resources

At June 30, 2005, the Company had negative working capital of $2,585,000 as
compared to negative working capital of $1,570,000 at March 31, 2005. The
increase in negative working capital is mainly due to the assumption of debt as
disclosed in Note 3, an increase in accounts payable, and increases to accrued
compensation and accrued liabilities from normal operations. For the three
months ended June 30, 2005, net cash used in operating activities approximated
$730,000, consisting of a net loss of $1,530,000, offset by non-cash charges of
$59,000 and $220,000 relating to Common Stock issued for services and
depreciation and amortization, respectively, as well as increases in accounts
payable, accrued compensation and other accrued liabilities. For the three
months ended June 30, 2004, net cash used in operating activities approximated
$1,195,000, consisting of a net loss of $3,825,000, offset by non-cash charges
of approximately $2,800,000 in interest expense relating to debt discounts and
issuance costs, and beneficial conversion of debt and equity instruments.

Recent and Expected Losses

From inception, the Company has never been profitable and has sustained
substantial net losses from operations. There can be no assurance that it will
ever generate positive revenues from our operating activities, or that it will
achieve and sustain a profit during any future period, particularly if
operations remain at current levels. Failure to achieve significant revenues or
profitability would materially and adversely affect the Company's business,
financial condition, and results of operations. For the three months ended June
30, 2005 and 2004, the Company incurred net pre-tax losses of $1,610,000 and
$3,825,000, respectively and the Company has incurred a net pre-tax loss of
$20,200,050 since inception

Substantial Doubt About the Company's Viability as a Going Concern

The Company's financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern that
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company had limited revenues,
minimal assets, and negative working capital as of June 30, 2005, and has
incurred losses since inception. The Company is a development stage company. To
date, the Company has relied primarily on loans from stockholders and officers
and the sale of its equity securities, and to a lesser degree on revenues from
operations, which have not been significant, to fund operations. The Company's
auditors, BDO Seidman LLP, issued an opinion in connection with the Company's
financial statements for the fiscal year ended March 31, 2005 noting that while
the Company has recently obtained additional financing, the sustained recurring
losses raise substantial doubt about its ability to continue as a going concern.

During the quarter ended June 30, 2005, the Company successfully completed a
bridge loan for $700,000 from certain investors (see Note 3). The loan is
convertible into equity should the Company complete a proposed equity financing.
The Company's management is continuing their efforts to raise additional equity
financing (see Note 6). While the Company anticipates raising adequate capital
to support continued normal operations, there can be no assurance that the
Company will obtain such additional financing.

Satisfaction of Current and Future Capital Requirements

No assurance can be given that the Company will be able to obtain the additional
financing it requires to continue normal operations. The Company cannot provide
assurances that it will be able to develop its business to the point of
generating consolidated net operating profits and positive cash flows from
operations. If funds from these sources are not sufficient to offset operating
expenses, the Company would seek to institute cost-saving measures that would
not only reduce overhead, but also curtail operations. The Company cannot assure
that such measures, if implemented, would be sufficient to offset all of its
operating expenses. If any capital subsequently raised from the sale of
securities is not sufficient to fund the balance of its operating expenses after
implement certain cost-cutting


                                       14
<PAGE>

measures, the Company could be forced to discontinue certain operations or may
be unable to continue as a going concern.

Any further issuances of any additional equity securities to raise capital may
be on terms that are detrimental to existing stockholders. In order to meet its
capital requirements, the Company may continue to offer equity securities for
sale, and existing stockholders will experience additional dilution. Any new
equity securities issued may have rights, preferences or privileges senior to
those of existing holders of existing equity securities.


                                       15
<PAGE>

Item 3. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of its senior management,
including the Chief Executive Officer and Principal Financial and Accounting
Officer, the Company conducted an evaluation of the effectiveness of the design
and operation of its disclosure controls and procedures, as defined in Rules 13a
15(e) and 15d 15(e) under the Exchange Act, as of the end of the period covered
by this Quarterly Report (the "Evaluation Date"). Among other things, the
Company evaluated its accounting procedures and control processes related to
material transactions to ensure they are recorded timely and accurately in the
financial statements. Based on this evaluation, the Company's Chief Executive
Officer and Principal Financial and Accounting Officer concluded as of the
Evaluation Date that certain of the Company's disclosure controls and procedures
were not effective.

In connection with the audit of the Company's consolidated financial statements
for the fiscal year ended March 31, 2005, and the review of the quarter ended
June 30, 2005, and in light of new, recently issued interpretative guidance in
relation to the assessment of the operating effectiveness of internal controls,
management and the Company's independent registered public accounting firm, BDO
Seidman, LLP, identified certain "material weaknesses" (as such term is defined
under Public Company Accounting Oversight Board Auditing Standard No. 2 ) in the
Company's internal controls.

The Company identified the following material weaknesses as of March 31, 2005,
which are still outstanding as of June 30, 2005:

      1.    insufficient numbers of internal personnel possessing the
            appropriate knowledge, experience and training in applying US GAAP
            and in reporting financial information in accordance with the
            requirements of the SEC;

      2.    insufficient numbers of internal personnel having sufficient
            technical accounting expertise for certain complex transactions,
            resulting in the Company's reporting incorrect amounts in its
            financial statements; and

      3.    lack of audit committee to oversee the Company's accounting and
            financial reporting processes, as well as approval of the Company's
            independent auditors.

These material weaknesses may also constitute deficiencies in the disclosure of
controls and procedures. In light of these weaknesses, the Company's management,
including the Chief Executive Officer and Principal Financial and Accounting
Officer, have concluded that as of June 30, 2005, the disclosure controls and
procedures were not effective. However, during the quarter reported in this
10-QSB, and subsequent to June 30, 2005, the Company was in the process of
taking corrective actions, including the search for additional staff with
certain qualifications and independent internal reviews of key account
reconciliations, to ensure that the financial statements and other financial
information included in this annual report are complete and accurate in all
material respects. The Company is also actively recruiting outside board members
that will qualify as the Audit Committee Financial Expert as defined in Item
401(e)(2) of Regulation S B, in anticipation of establishing an audit committee
in accordance with Section 3(2)(58)(A) of the Exchange Act.

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2005, the Company continued implementing
changes that it conceived during the fiscal year ended March 31, 2005. During
that period, following a comprehensive review, the Company concluded that the
weaknesses it had found, as noted above, were a direct result of its being
understaffed in its accounting area. The Company retained an outside firm of
accounting consultants to support and extend the capabilities of its internal
staff, and simultaneously employed additional experienced accounting staff
personnel. Additionally, the Company prepared a comprehensive set of accounting
procedures for use in connection with assuring the timely, complete and accurate
recording of all its transactions and the preparation and filing of its required
reports under the Exchange Act. The Company will continue to engage its outside
accounting consultants until its internal staff is adequate and has demonstrated
an ability to fulfill all the aforementioned requirements. Although the
Company's Chief Executive Officer and Principal Financial and Accounting Officer
believed the Company had made material progress towards building effective
controls and procedures by June 30, 2005, they remained of the view that
additional work was required in connection with developing, memorializing and
implementing effective internal disclosure and control policies, procedures and
responsibilities. Based on subsequent internal reviews of the procedures and
staffing to date and communications with its outside consultants and auditors,
the Company believes its disclosure controls and procedures related to complex,
non-routine equity transactions were not yet effective.

A material weakness is a control deficiency (within the meaning of PCAOB
Auditing Standard No. 2), or


                                       16
<PAGE>

combination of control deficiencies, that results in there being more than a
remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis by
employees in the normal course of their assigned functions. This control
deficiency resulted in adjustments to its quarterly financial data as presented
in Item 7, Financial Statements, Note 13 "Selected Combined Quarterly Data for
the Year ended March 31, 2005" of the Company's Annual Report on Form 10-KSB as
filed with the SEC on July 28, 2005. The Company prepared its original
accounting for certain complex, non-routine equity transactions which were
reported initially for the period ending June 30, 2004 without the benefit of
the additional staff and outside consultants discussed above.

The Company intends to continue to evaluate the remediation efforts addressing
the material weaknesses identified, and to take appropriate action to correct
the deficiencies identified. In addition, as part of the assessment of its
internal controls over financial reporting that it will undergo during its 2006
fiscal year in connection with the process required by Section 404 of the
Sarbanes-Oxley Act of 2002, the Company intends to continue to review, evaluate
and strengthen its controls and processes. The Board of Directors is performing
oversight of the implementation of enhancements and improvements to our internal
controls, and will transfer this responsibility to the Audit Committee once
formed.


                                       17
<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On June 9, 2005, the Company received notice of a legal action commenced by
Richard Dobies, an individual who allegedly purchased Common Stock in June 2003.
Mr. Dobies did not timely respond to the Rescission Offer made by the Company in
June 2004 (see Item 6, Management's Discussion and Analysis or Plan of
Operation, under the caption "Significant Events for Fiscal Year 2005" of the
Company's Annual Report on Form 10-KSB filed with the SEC on July 28, 2005) and,
for that and other reasons, was excluded from participating in the Rescission
Offer. The suit claims damages of approximately $400,000, plus interest from the
time of investment. The Company intends to defend it vigorously and believes
that the loss, if any, resulting from the suit will not have a material impact
on the Company's financial position, results of operations, or cash flows in
future years.

On June 29, 2005, the Company received notice of a legal action commenced by
Manijeh Moghis related to her former employment with the Company. Ms. Moghis
filed a complaint seeking damages of approximately $140,000 related to her offer
of employment which allowed for continuation of benefits in the event of her
termination. The offer of employment provided that in the event of termination
`for cause', no continuation of benefits would be due to Ms. Moghis. Ms. Moghis
states in her complaint that her termination of employment with the Company was
in breach of her employment agreement with the Company and she is therefore due
the above damages. The Company believes the complaint is without merit and
intends to defend it vigorously and believes that the loss, if any, resulting
from the suit will not have a material impact on the Company's financial
position, results of operations, or cash flows in future years.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.



Item 3. Defaults Upon Senior Securities

None.



Item 4. Submission of Matters to a Vote of Security Holders

None.



Item 5. Other Information

None.



Item 6. Exhibits

a)
      Exhibit 31.1. Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

      Exhibit 31.2. Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

      Exhibit 32.1. Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

      Exhibit 32.2. Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

b)    The Company filed the following reports on Form 8-K during the quarter
ended June 30, 2005.


On April 11, 2005 the Company filed Form 8-K related to its contract with
M-Systems and its subsequent


                                       18
<PAGE>

announcement through a press release, on Item 1.01, Entry into a Material
Definitive Agreement and Item 8.01, Other Events.

On June 3, 2005 the Company filed Form 8-K related to the resignation of Robin
Hutchison from its Board of Directors on Item 5.02, Departure of Directors or
Principal Executive Officers; Election of Directors; Appointment of Principal
Officers.

On June 14, 2005 the Company filed Form 8-K related to entering into secured
promissory notes for a total of $700,000 on Item 1.01, Entry into a Material
Definitive Agreement and Item 2.03, Creation of a Direct Financial Obligation or
an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On June 16, 2005 the Company filed a Form 8-K related to the appointment of
Gregory Osborn to its Board of Directors, and the resignation of Manijeh Moghis
as a member of the Board of Directors, and the termination of Manijeh Moghis as
Chief Operating Officer of the Company, on Item 5.02, Departure of Directors or
Principal Executive Officers; Election of Directors; Appointment of Principal
Officers.


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<PAGE>

                                   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.

                       POWERHOUSE TECHNOLOGIES GROUP, INC.




Date: August 15, 2005              By: /s/ Jay Elliot
                                      -------------------------------------
                                      Jay Elliot
                                      Chairman of the Board and Chief
                                      Executive Officer
                                      (Principal Executive Officer)

Date: August 15, 2005              By: /s/ David R. Wells
                                      -------------------------------------
                                      David R. Wells
                                      Vice President, Finance
                                      (Principal Financial and Accounting
                                      Officer)


                                       20
<PAGE>

EXHIBIT INDEX:
--------------

Exhibit                            Description Number
-------                            ------------------

31.1        Certification of Chief Executive Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002.

31.2        Certification of Chief Financial Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002.

32.1        Certification of Chief Executive Officer pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.

32.2        Certification of Chief Financial Officer pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.


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