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 March 31, 2006





o 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 small business issuer as Specified in Its Charter)





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





**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 o





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act). Yes o No x





As
      of May
      15, 2006, there were 66,034,389 shares of the issuer's common stock, $0.0001
      par value per share ("Common Stock"), outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o No x











QUARTERLY
      REPORT





TABLE
      OF
      CONTENTS





PART
                I. FINANCIAL INFORMATION
            3Item
                1. Financial Statements
            3Consolidated
                Balance Sheet - March 31, 2006 Unaudited
            3Consolidated
                Statements of Operations -Three months endedMarch
                31, 2006 and 2005 Unaudited
            4Consolidated
                Statements of Cash Flows -Three months endedMarch
                31, 2006 and 2005 - Unaudited
            5Notes
                to Consolidated Financial Statements - Unaudited
            6Item
                2. Management's Discussion and Analysis or Plan of
                Operation
            15Item
                3. Controls and Procedures
            17PART
                II. OTHER INFORMATION
            19Item
                1. Legal Proceedings
            19Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            19Item
                3. Defaults Upon Senior Securities
            20Item
                4. Submission of Matters to a Vote of Security Holders
            20Item
                5. Other Information
            20Item
                6. Exhibits
            21SIGNATURES
            22





2





PART
      I.
      FINANCIAL INFORMATION





Item
      1.
      Financial Statements





POWERHOUSE
      TECHNOLOGIES GROUP, INC.


CONSOLIDATED
      BALANCE SHEET





As
                of
              March
                31,
              2006Unaudited**ASSETS*****Current
                Assets:***Cash
                and cash equivalents
            
            $
            366,821Short-term
                investments
            
            
            6,817,164Accounts
                receivable
            
            
            25,893Inventory
            
            
            4,320Other
                current assets
            
            
            11,522Total
                current assets
            
            
            7,225,720PROPERTY
                AND EQUIPMENT,net
                of accumulated depreciation of $9,466
            
            
            7,456OTHER
                ASSETS:Software
                technology, net of accumulatedamortization
                of $996,501
            
            
            1,825,836Other
                assets
            
            
            48,474**TOTAL
                ASSETS**
            
            $
            9,107,486**LIABILITIES
                AND STOCKHOLDERS' DEFICIT*****Current
                Liabilities:***Accounts
                payable
            
            $
            1,118,030Accrued
                compensation
            
            
            98,378Accrued
                liabilities
            
            
            568,651Total
                current liabilities
            
            
            1,785,059***Non-current
                liabilities:***Warrant
                liability, at fair value
            
            
            5,130,926Total
                Liabilities
            
            
            6,915,985Commitments
                and contingencies**Temporary
                Equity,**Common
                Stock, 27,879,700 shares issued and outstanding
            
            
            8,715,214**Stockholders'
                Deficit:**Junior
                A Preferred stock, $.0001 par value; 5,000,000 shares authorized,
                790,250
                shares issued and outstanding; preference upon liquidation of
                $2,600,000
            
            
            79Common
                stock, $.0001 par value; 100,000,000 shares authorized; 26,598,180
                and
                shares issued and outstanding
            
            
            2,670Additional
                paid in capital in excess of par value
            
            
            29,490,057Deferred
                Compensation Expense
            
            
            (395,464
            )Treasury
                Stock
            
            
            (386,400
            )Accumulated
                Deficit
            
            
            (35,234,655
            )**Total
                stockholders' deficit**
            
            
            (6,523,713
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIT**
            
            $
            9,107,486





The
      accompanying notes are an integral part of these financial
      statements .


3





POWERHOUSE
      TECHNOLOGIES GROUP, INC.


CONSOLIDATED
      STATEMENTS OF OPERATIONS





Three
                Months ended March 31, 2006
            
            Three
                Months ended March 31, 2005(Unaudited)
            
            (Unaudited)**Revenues**
            
            $
            41,229
            
            $
            73,546Cost
                of Sales
            
            
            156,044
            
            
            539,994Gross
                Loss
            
            
            (114,815
            )
            
            (466,448
            )**Operating
                Expenses**Research
                and development
            
            
            360,053
            
            
            171,058Sales
                and marketing
            
            
            262,390
            
            
            319,287General
                and administrative
            
            
            1,224,201
            
            
            1,251,323Total
                operating expenses
            
            
            1,846,644
            
            
            1,741,668**Non-operating
                Income (Expense)**Interest
                (net)
            
            
            63,912
            
            
            1,664Decrease
                in warrant liability
            
            
            166,538
            
            
            -Other
            
            
            (283,305
            )
            
            282,236Total
                non-operating expenses
            
            
            (52,855
            )
            
            283,900Loss
                Before Income Taxes
            
            
            (2,014,314
            )
            
            (1,924,216
            )Provision
                for Income Taxes
            
            
            -
            
            
            1,858**Net
                Loss**
            
            
            (2,014,314
            )
            
            (1,926,074
            )Deemed
                and Regular Preferred Stock Dividend
            
            
            -
            
            
            199,588Net
                Loss Attributable to Holders of common shares
            
            $
            (2,014,314
            )
            $
            (2,125,662
            )Basic
                and Diluted net loss attributable to commonstockholders
                per share
            
            $
            (0.04
            )
            $
            (0.64
            )Weighted
                Average Shares OutstandingBasic
                and Diluted
            
            
            56,214,838
            
            
            3,305,360





The
      accompanying notes are an integral part of these condensed financial
      statements .


4


**POWERHOUSE
      TECHNOLOGIES GROUP, INC.**


**Consolidated
      Statements of Cash Flows**





**Three
                Months Ended March 31, 2006**
            
            **Three
                Months Ended March 31, 2005**(Unaudited)
            
            (Unaudited)Cash
                Flows from Operating Activities:Net
                loss
            
            $
            (2,014,314
            )
            $
            (1,926,074
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Common
                stock and options issued for services
            
            
            -
            
            
            294,920Inventory
                write-downs
            
            
            11,122
            
            
            70,914Depreciation
                and amortization
            
            
            140,805
            
            
            135,241Amortization
                of deferred compensation
            
            
            132,230
            
            
            -Interest
                expense relating to amortization of debt issuance costs
            
            
            -
            
            
            29,200and
                beneficial conversion
            
            
            -
            
            
            5,819Re-measurement
                of warrants to fair value
            
            
            (166,538
            )
            
            -Stock
                based compensation
            
            
            494,134
            
            
            225,680Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (525
            )
            
            54,993Inventory
            
            
            313
            
            
            32,524Other
                current assets
            
            
            71,461
            
            
            92,106Other
                assets
            
            
            (9,000
            )
            
            12,050Accounts
                payable
            
            
            13,873
            
            
            (369,599
            )Accrued
                compensation
            
            
            20,294
            
            
            (17,344
            )Accrued
                liabilities
            
            
            (456,018
            )
            
            (57,609
            )Net
                cash used in operating activities
            
            
            (1,762,163
            )
            
            (1,417,179
            )Cash
                Flows from Investing Activities:Purchases
                of available-for-sale investments
            
            
            (3,942,164
            )
            
            -Acquisition
                of First Person Software
            
            
            -
            
            
            6,761Purchase
                of equipment
            
            
            (1,073
            )
            
            -Net
                cash provided by (used in) investing activities
            
            
            (3,943,237
            )
            
            6,761Cash
                Flows from Financing Activities:Payment
                of debt issuance costs
            
            
            -
            
            
            (1,355,438
            )Payments
                upon rescission of common stock
            
            
            -
            
            
            (12,500
            )Payment
                of equity financing costs
            
            
            (413,483
            )
            
            -Proceeds
                from sale of common stock
            
            
            3,975,000
            
            
            -Proceeds
                from sale of preferred stock
            
            
            -
            
            
            1,308,805Net
                cash provided by (used in) financing activities
            
            
            3,561,517
            
            
            (59,133
            )NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (2,143,883
            )
            
            (1,469,551
            )CASH
                AND CASH EQUIVALENTS, Beginning of period
            
            
            2,510,704
            
            
            1,893,280CASH
                AND CASH EQUIVALENTS, End of period
            
            $
            366,821
            
            $
            423,729


**Non-cash
                investing and financing activity:**Issuance
                of shares for dividends
            
            
            -
            
            $
            1,092,816Restricted
                Stock Issued
            
            $
            65,000


Common
                Stock Purchase Warrant Issued to Placement Agent
            
            $
            246,971
            
            
            -**Supplemental
                Disclosure of cash paid for :**Interest
            
            
            -
            
            
            -Income
                Taxes
            
            $
            800
            
            $
            1,000





The
      accompanying notes are an integral part of these financial
      statements .





5





Notes
      to
      Financial Statements





For
      the
      Three Month Ended March 31, 2006 (Unaudited) and March 31, 2005
      (Unaudited).





1.
            Interim
                Financial Data and Basis of
                Presentation





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 of 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\T for the nine months ended December 31, 2005. The Company was
      a
      development stage enterprise from May 16, 2002 (inception) through June 30,
      2005. On January 9, 2006, the Board of Directors of the Company determined
      to
      change the Company’s fiscal year end to December 31 from March 31, effective for
      the year ended December 31, 2005.





These
      results for the period ended March 31, 2006 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", "estimates", "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 and in the Company’s
      other SEC filings. 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 and other considerations noted in the Company’s SEC filings
      could cause the Company’s actual results to differ significantly from those
      contained in any forward-looking statements.





2.
            Summary
                of Significant Accounting Policies





*Basis
      of Presentation* - The
      accompanying financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States (“US GAAP”), which
      contemplate continuation of the Company as a going concern. However, the Company
      is subject to the risks and uncertainties associated with a new business and
      has
      incurred significant losses from operations. 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 sufficient revenues from
      its operating activities, or that it will achieve and sustain a profit during
      any future period, particularly if operations remain at current levels.
      Management estimates that the current funds available and on-hand will be
      adequate to fund operations throughout 2006.





6


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





*Principles
      of Consolidation* - The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries, PowerHouse Acquisition LLC, and PowerHouse Studios, Inc. All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.





*Use
      of Estimates* - The
      preparation of 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 reported periods. Management bases its estimates and
      assumptions on historical experience and on various other assumptions that
      it
      believes are reasonable under the circumstances. Actual results could materially
      differ from those estimates. Significant estimates include the valuation of
      acquired software technology and revenue recognition.





*Cash,
      Cash Equivalents* - The
      Company considers temporary liquid investments with an original maturity of
      three months or less to be cash equivalents.





*Accounts
      Receivable* -
      Accounts receivable are stated at the amount management expects to collect
      from
      outstanding balances. An allowance for doubtful accounts is provided for those
      accounts receivable considered to be uncollectible, based upon historical
      experience and management's evaluation of outstanding accounts receivable at
      the
      end of the year. At March 31, 2006 management believed that all amounts were
      collectible.





*Inventory* ** -
      Inventory is valued at the lower of cost or market with cost determined by
      the
      first-in, first-out method. At March 31, 2006 inventory consisted of finished
      goods of which certain amounts were on consignment with third party distributors
      and resellers. Although the Company is principally in the business of developing
      software, to support sales of software licenses it may at times purchase
      hardware and resell it with its software pre-installed. As a result, the Company
      may be exposed to a number of factors that could result in portions of its
      inventory becoming either obsolete or in excess of anticipated usage. These
      factors include, but are not limited to, technological changes in its markets,
      competitive pressures in products and prices, and the introduction of new
      product lines. The Company regularly evaluates its ability to realize the value
      of its inventory based on a combination of factors, including historical usage
      rates, forecasted sales, product life cycles, and market acceptance of new
      products. When inventory that is obsolete or in excess of anticipated usage
      is
      identified, it is written down to realizable salvage value or an inventory
      valuation reserve is established.





7


For
      the
      three months ended March 31, 2006 and 2005, the Company recorded an expense
      of
      $11,122 and $70,914, respectively, related to the write-down of the Company’s
      inventory to its realizable value.





*Property
      and Equipment*  - Property
      and equipment are stated at cost. Depreciation is computed using the
      straight-line method over estimated useful lives of three to five years.
      Leasehold improvements are amortized over the shorter of the lease term or
      the
      estimated useful life. The Company capitalizes costs associated with acquiring
      and installing software to be used for internal purposes.





*Software
      Technology Assets*  - Software
      technology assets, acquired as part of the First Person Software acquisition
      (Note 4) are stated at cost. Amortization is computed using the revenue or
      straight-line method, whichever is greater, over an estimated useful life of
      five years.





*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. 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 its software technology. Differences
      between the Company’s original forecasts and actual results have resulted
      primarily from the Company’s change in focus from selling directly to consumers
      primarily through advertising to selling through partners such as M-Systems.
      While the change in focus resulted in lower than projected revenues being
      achieved, operating expenses have also declined significantly. In
      calculating the current value for the Company’s core software technology, the
      Company primarily relies upon its estimates of the future cash flows (net
      realizable value) derived from the sale of its software. Among the key
      assumptions used by management are projected sales via M-Systems and other
      potential partners, assumptions regarding the potential conversion percentages
      of users upgrading their version of Migo software, costs to develop additional
      features for the Migo software, as well as projected headcount, marketing and
      general and administrative expenses. The software remains the core component
      of
      the current version of the Migo software. 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 write-offs or write-down might be
      required.





*Revenue
      Recognition* - The
      Company recognizes revenue in accordance with Statement of Accounting 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 the Company's 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.





8


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.





*Basic
      and Diluted Loss Per Share* - In
      accordance with the Financial Accounting Standards Board’s (“FASB”) SFAS No.
      128, “Earnings Per Share,” the basic loss per common share, which excludes
      dilution, is computed by dividing the net loss available to common shareholders
      by the weighted average number of common shares outstanding. Diluted loss per
      common share reflects the potential dilution that could occur if all potential
      common shares had been issued and if the additional common shares were dilutive.
      As a result of net losses for all periods presented, there is no difference
      between basic and diluted loss per share of common stock. Potential shares
      of
      common stock to be issued upon the exercise of all stock options and warrants
      amounted to 35,147,844 as of March 31, 2006 and 2,867,401 shares at March 31,
      2005.





*Comprehensive
      Loss* -
      Comprehensive loss is comprised of net loss and other comprehensive income
      (loss). Other comprehensive income (loss) includes certain changes in
      stockholders’ equity that are excluded from net loss, such as unrealized gains
      and losses on marketable securities and currency translation adjustments.
      Comprehensive income (loss) for the three months ended March 31, 2006 equals
      net
      loss.





*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 Board (“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 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 prospective basis, and for the three months ended March 31, 2006
      the
      Company issued 2,010,000 stock options to employees with a fair market value
      of
      $1,065,513 and 100,000 shares of restricted stock with a fair market value
      of
      $65,000. For the three months ended March 31, 2006 and 2005, the Company
      recorded $494,134 and $225,860, respectively in compensation expense
      related to the granting of stock options and restricted stock to employees. Unrecognized compensation cost related stock options
      and
      restricted stock to employees totaled approximately $3,544,000 at March 31,
      2006.




*Research
      and Development* -
      Research and development costs are charged to operations as incurred, and
      totaled $360,053 for the three months ended March 31, 2006 and $171,058 for
      the
      three months ended March 31, 2005. Some of the Company’s products include
      certain software applications that are integral to the operation of the core
      product. The costs to develop such software have not been capitalized, as the
      Company believes its current software development process is essentially
      completed concurrent with the establishment of technological feasibility of
      the
      software.





*Fair
      Value of Financial Instruments* - The
      estimated fair values for financial instruments under SFAS No. 107, *Disclosures
      about Fair Value of Financial Instruments* ,
      are
      determined at discrete points in time based on relevant market information.
      These estimates involve uncertainties and cannot be determined with precision.
      For certain of the Company’s financial instruments, including certain assets,
      accounts payable, accrued liabilities and debt, the carrying amounts approximate
      fair value due to their maturities.





9


*Concentrations
      of Credit Risk* - Credit
      risk represents the accounting loss that would be recognized at the reporting
      date if counter parties failed completely to perform as contracted. The
      Company’s product revenues are concentrated in the software industry, which is
      highly competitive and rapidly changing. Significant technological changes
      in
      the industry or customer requirements, or the emergence of competitive products
      with new capabilities or technologies, could adversely affect operating results.
      Concentrations of credit risk (whether on or off balance sheet) that arise
      from
      financial instruments exist for groups of customers or counter parties when
      they
      have similar economic characteristics that would cause their ability to meet
      contractual obligations to be similarly affected by changes in economic or
      other
      conditions described below. Financial
      instruments that subject the Company to credit risk consist of cash balances
      maintained in excess of federal depository insurance limits and accounts
      receivable, which have no collateral or security. The Company maintains its
      cash
      balances with high credit quality financial institutions. At times, cash
      deposits may be in excess of Federal Deposit Insurance Corporation’s limits. To
      date, the Company has not experienced any such losses and believes it is not
      exposed to any significant credit risk with respect to its cash
      balances.





*Financial
      Instruments-* The
      Company’s financial instruments consist pri marilyo f
      cas h
      and
      cashequivalentsand
      auction rate securities. These balances, as presented in the consolidated
      financial statements at March 31,
      2006,
      approximate their fair value.





*Short-term
      Investments-* The
      Company’s shor t-termi nvest ments
      consist
      primarily of Auction RateSecurities,or ARS,
      which represent funds available for current operations. In accordance with
      SFAS,
      No. 115,*“Accounting
      for Certain Investments in Debt and Equity Securities,”*these
      short-term investments are classified as available-for-sale and are carried
      at
      cost or par value, which approximates the fair market value. These securities
      have stated maturities beyond three months but are priced and traded as
      short-term instruments





*Income
      Taxes* - The
      Company accounts for income taxes using the asset and liability method, as
      set forth in
      SFAS No. 109, *Accounting
      for Income Taxes* ,
      wherein
      deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between financial statement carrying
      amounts of existing assets and liabilities and their respective tax bases.
      Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which the temporary
      differences are expected to be recovered or settled. Reserves against deferred
      tax assets are provided when management cannot conclude that realization of
      such
      assets is probable.




*Recently
      Issued Accounting Pronouncements* - In
      December 2004, the FASB issued SFAS No. 153, *Exchanges
      of Non-monetary Assets* .
      SFAS
      No. 153 amends the guidance in APB Opinion No. 29, *Accounting
      for Non-monetary Transactions,* to
      eliminate certain exceptions for non-monetary exchanges of similar productive
      assets, and replaces it with a general exception for exchanges of non-monetary
      assets that do not have commercial substance. The Company does not believe
      that
      adoption of SFAS No. 153 will have a material effect on its financial position,
      results of operations, or cash flows.





10


In
      May
      2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections* ,
      which
      addresses the accounting and reporting for changes in accounting principles.
      SFAS No. 154 replaces APB Opinion No. 20 and FIN 20 and is effective for
      accounting changes in fiscal years beginning after December 31, 2005. This
      Statement applies to all voluntary changes in accounting principle. This
      Statement defines retrospective application as the application of a different
      accounting principle to prior accounting periods as if that principle had always
      been used or as the adjustment of previously issued financial statements to
      reflect a change in the reporting entity. This Statement redefines restatement
      as the revising of previously issued financial statements to reflect the
      correction of an error.





In
      February 2006, the FASB issued SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments* which
      amends SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* and
      SFAS
      No. 140, *Accounting
      or the Impairment or Disposal of Long-Lived Assets* .
      Specifically, SFAS No. 155 amends SFAS No. 133 to permit fair value
      remeasurement for any hybrid financial instrument with an embedded derivative
      that otherwise would require bifurcation, provided the whole instrument is
      accounted for on a fair value basis. Additionally, SFAS No. 155 amends SFAS
      No.
      140 to allow a qualifying special purpose entity to hold a derivative financial
      instrument that pertains to a beneficial interest other than another derivative
      financial instrument. SFAS No. 155 applies to all financial instruments acquired
      or issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006, with early application allowed. The adoption of SFAS No.
      155
      is not expected to have a material impact on the Company’s results of operations
      or financial position.





3.
            Debt





The
      Company had no debt outstanding as of March 31, 2006.





4.
            Balance
                Sheet Components





The
      primary components of accrued liabilities at March 31, 2006 are as
      follows:




Accrued
                equity financing costs
            
            $
            283,305Accrued
                operating expenses
            
            
            285,346$
            568,651





5.
            Intangible
                assets




Intangible
      assets consist of  the
      following:





Software
            
            $
            2,822,337Accumulated
                amortization
            
            
            (996,501
            )$
            1,825,836




11


The
      Company is currently amortizing its acquired intangible asset over five years.
      Amortization expense related to the software technology asset amounted to
      $139,267 and $154,524 for the three months ended March 31, 2006 and 2005,
      respectively.





6.
            Related
                Party Transactions





An
      entity
      owned and controlled by Alex Mashinsky, one of the members of the Company's
      Board of Directors invested $400,000 as a part of the March 2006 private equity
      placement for 1,250,000 shares of Common Stock and warrants to purchase 625,000
      shares of Common Stock.





7.
            Equity
                transactions





On
      March
      17, 2006, the Company completed a follow-on private placement to the September
      2005 Placement and the December 2005 Placement under which the investors
      purchased a total of 12,421,875 shares of the Company’s Common Stock and
      warrants to purchase 6,210,938 shares of Common Stock. The securities were
      sold
      at $.32 per unit, each unit consisting of one share of Common Stock and a
      warrant to purchase one-half of one share of Common Stock, exercisable at $.40
      per share. The aggregate offering price was $3,975,000. The investor warrants
      issued in connection with the March 2006 Placement expire on September 26,
      2008,
      unless theretofore exercised, contain a call provision in favor of the Company
      at a price of $.01 per share if the stock price should exceed $2.00 per share
      and permit cashless exercise at any time. C. E. Unterberg Towbin, LLC was paid
      a
      placement fee of $397,500 in connection with this transaction. The private
      placement was effected through Common Stock and Warrant Purchase Agreements
      by
      and among the Company and the private placement investors.





On
      September 26, 2005, the Company completed a private placement with certain
      investors of the Company's Common Stock for the issuance of a total of
      19,910,950 shares of Common Stock and warrants to purchase a total of 10,900,400
      shares of the Company's Common Stock. The securities were sold at $0.32 per
      unit, each unit consisting of one share of Common Stock and a warrant to
      purchase one-half of one share of Common Stock. The aggregate offering price
      was
      $6,045,000 and the aggregate placement fee was $191,360 and warrants to purchase
      1,278,490 shares of Common Stock. Fifty percent (50%) of all Warrants issued
      were exercisable at $0.40 per share, and the remaining fifty percent (50%)
      were
      exercisable at $0.48 per share. After taking into account an anti-dilution
      adjustment as a result of the December 2005 placement described below, all
      of
      the Warrants are exercisable at $.40 per share. All Warrants expire after three
      years, unless theretofore exercised, contain a call provision in favor of the
      Company at a price of $.01 if the stock price should exceed $2.00 per share,
      and
      permit cashless exercise only if there is no registration statement in effect
      after one year. The proceeds of the private placement included $883,333 of
      principal and $23,765 of accrued interest converted into Common Stock from
      short-term bridge financing obtained by the Company earlier in 2005. The
      conversion resulted in the issuance of a total of 3,779,700 shares of Common
      Stock at $0.24 per share.





The
      private placement was effected through Common Stock and Warrant Purchase
      Agreements, dated as of September 26, 2005, by and among the Company and the
      private placement investors who are named therein (the "Purchase Agreement").
      As
      a condition to the transaction, all of the Company's Series A Senior Preferred
      Convertible Stock (the "Senior A Stock") were converted into 20,632,952 shares
      of Common Stock at a conversion ratio of 5.3685 shares of Common Stock for
      each
      share of Senior A Stock, and a Warrant Exchange Agreement, dated as of September
      26, 2005, was entered into with Middlebury Capital LLC under which the holders
      of warrants to purchase 264,725 shares at $3.06 per share exchanged their
      warrants for new warrants for 700,000 shares at $.40 per share. In addition,
      the
      Company executed a Registration Rights Agreement, dated as of September 26,
      2005, with the private placement investors, wherein the Company agreed to
      register under the Securities Act of 1933, as amended (the "Securities Act")
      the
      shares of Common Stock acquired in the private placement and the shares issuable
      upon exercise of the Warrants issued in the private placement.





12


On
      December 23, 2005, the Company completed a follow-on private placement (the
      “December 2005 Placement”) with certain investors of its Common Stock for the
      issuance of a total of 7,968,750 shares of the Company's Common Stock and
      warrants to purchase 3,984,375 shares of Common Stock. The securities were
      sold
      at $.32 per unit, each unit consisting of one share of Common Stock and warrants
      to purchase one-half of one share of Common Stock. The aggregate offering price
      was $2,550,000, and the placement fee was paid in the form of Placement Agent
      Warrants to purchase 796,875 shares of Common Stock. The investor warrants
      and
      placement agent warrants issued in connection with the December 2005 Placement
      are exercisable at $.40 per share, expire on September 26, 2008, unless
      theretofore exercised, contain a call provision in favor of the Company at
      a
      price of $.01 per share if the stock price should exceed $2.00 per share and
      permit cashless exercise at any time. The private placement was effected through
      Common Stock and Warrant Purchase Agreements, dated as December 23, 2005, with
      the private placement investors.


The
      holders of the Common Shares acquired in the September 2005, December 2005,
      and
      March 2006 private placements have registration rights that require the Company
      to file and have declared effective a registration statement with the SEC to
      register the resale of the Common Stock and the Common Stock issuable upon
      exercise of warrants. In the event the Company is unable to cause the
      registration to be effective within 90 to 120 days from the date of issuance
      for
      the Common Shares acquired in the private placements, the Company would be
      penalized. The penalty accrues at a rate of 3% per month of the original amount
      invested, up to a maximum of 30%, at which point the holders of the Common
      Shares acquired in the private placements have the right to put the stock and
      warrant back to the Company for full redemption. Pursuant to the terms of the
      Registration Rights Agreement, during the first 90 days in which the penalty
      is
      earned, the penalty is payable either in cash or in shares of Common Stock,
      at
      the Company's election. After that 90-day period expires, the penalty must
      be
      paid in cash. However, in April 2006, the holders of the Common Stock acquired
      in the private placements waived their right to ever put the stock and warrant
      back to the Company for full redemption, and also gave the Company the right
      to
      pay any penalty, in either cash or common stock, at the Company’s
      option.





Under
      EITF-00-19, the ability to register stock, or keep the registration effective,
      is deemed to be outside of the Company's control. Accordingly, the Company
      has
      treated the issuance of the Common Stock as temporary equity and the warrant
      value as a liability as the Registration Statement was not yet declared
      effective by the SEC as of March 31, 2006. The Company calculated the total
      fair
      market value of the warrants based on the Black-Scholes model, which was
      recorded as a discount to the Common Stock and an accrued warrant liability
      in
      the consolidated balance sheet, and the warrant liability is marked to market
      at
      the end of each quarter.





For
      the
      12,178,892 warrants issued in connection with the September 2005 transaction,
      the Company recorded temporary equity of $4,136,149 and an initial warrant
      liability of $2,773,553 which was adjusted at December 31, 2005 to $2,652,319,
      the market value at that date. The Company marked this warrant liability to
      market as of March 31, 2006 and recorded $143,952 of other income, as the value
      of the warrants had decreased to $2,508,367 at that date.





For
      the
      4,781,250 warrants issued in connection with the December 2005 transaction,
      the
      Company recorded temporary equity of $1,771,887 and an initial warrant liability
      of $1,260,283, which was adjusted at December 31, 2005 to $1,230,353, the market
      value at that date. The Company marked this warrant liability to its $1,221,783
      market value as of March 31, 2006 and recorded $8,570 of other
      income.





13


For
      the
      6,210,938 warrants issued in connection with the March 2006 transaction, the
      Company recorded temporary equity of $2,807,178 and an initial warrant liability
      of $1,167,822. Adjustment of this warrant liability to market at March 31,
      2006 was not required, as the portion of the proceeds in the March 2006
      transaction allocated to the warrants exceeded the potential penalty the Company
      could be required to pay.





In
      February 2006, the Company paid a Finders Fee related to the Company’s September
      2005 private equity placement, totaling $175,000 and issued to both Hugh Deane
      and Richard Wells ("Deane and Wells") a warrant to purchase 250,000 of the
      Company’s Common Stock at $.32 per share. These warrants contain cashless
      exercise provisions and expire on March 10, 2010. For the
      500,000 warrants issued to Deane and Wells, the Company recorded an initial
      warrant liability of $246,971, which was adjusted at March 31, 2006 to $232,955
      and recorded $14,016 of other income.





8.
            Commitments
                and Contingencies





Litigation





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 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. In March 2006, a settlement was negotiated
      with Mr. Dobies’ estate that will require the Company to pay a total of $130,000
      to settle the case plus legal expenses of $20,000, which amount had been accrued
      on the Company’s financial statements as of December 31, 2005.





In
      July
      2005, the Company received notice of a legal action commenced by Joshua Feller
      related to his former employment with us. Mr. Feller filed a claim with the
      Labor Commissioner of the State of California on July 12, 2005 seeking damages
      of approximately $540,000 related to his employment. Mr. Feller claims that
      an
      oral agreement existed for the payment of performance and other bonuses of
      approximately $415,000, and that his resignation on June 3, 2005 was for “good
      cause”, therefore making him eligible for severance benefits of approximately
      $90,000. Mr. Feller also claims interest in stock options valued at
      approximately $33,000, although no agreement exists for those options. The
      Company believes the complaint is without merit, intends to defend it vigorously
      and believes that the loss, if any, resulting from the suit will not have a
      material impact on its financial position, results of operations, or cash flows
      in future years.





On
      December 20, 2005, two former employees made a demand for arbitration with
      JAMS, San Francisco alleging that each claimant is entitled to $129,000 in
      severance pay following their resignations in February 2005. The
      claimants were employed by the Company as part of the 2004 acquisition of First
      Person Software, Inc. The Company believes the claims are baseless and
      intends to vigorously defend this matter. The Company has filed
      an answer to the demand and has filed a cross-claim against claimants
      seeking damages attributable to an alleged breach of their agreements with
      the Company. The Company believes that the loss, if any, resulting from the
      arbitration will not have a material impact on its financial position, results
      of operations or cash flow.





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.





The
      Company is not aware of any additional pending litigation as of March 31,
      2006.





14


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





The
      following discussion should be read in conjunction with the selected
      consolidated financial information and the consolidated financial statements
      and
      notes appearing elsewhere in this Form 10-QSB. The following discussion
      contains forward-looking statements, such as statements of expected revenues
      and
      expenses that involve many risks and uncertainties. We assume no obligation
      to
      update any such forward-looking statements. Our actual results could differ
      materially from those anticipated in these forward-looking statements. Factors
      that could cause or contribute to such differences include, but are not limited
      to, those detailed from time to time in our filings with the Securities and
      Exchange Commission and those discussed in this Form 10-QSB, particularly
      in this Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.





In
      January 2006, we changed our fiscal year-end from March 31 to December 31.
      As a
      result, references in this Form 10-QSB to the first quarter of 2006 are
      references to the three-month period ended March 31, 2006 and references to
      the
      first quarter of 2005 are references to the three-month period ended March
      31,
      2005. Unless expressly stated or the context otherwise requires, the terms
“we”,
“our”, “us”, “the Company”, and “Migo” refer to Powerhouse Technologies Group,
      Inc. and its subsidiaries as a whole.





General





We
      are in
      the business of developing, acquiring and marketing software
      designed to improve the way mobile information is personalized, secured, carried
      and accessed.




Our
      Technology: The Migo ®





We
      have
      developed Migo® ("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.
      We believe that 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.





Migo
      seeks to significantly improve the mobile computing experience. Migo is designed
      to make it very easy for users to take their unique, personal data with them,
      without the need to bring along their laptop or link back to their office
      machine. Migo allows users to easily load their entire personalized desktop
      environment, Microsoft® Outlook® e-mail, Internet Explorer favorites, wallpaper,
      presentations, photos, MP3 audio files and/or various other features, and then
      access their personal data on any other Windows-based, “guest” computer. Migo is
      designed so that once it has been disconnected from a “guest” computer, no trace
      of the user's computer environment or its data will be left behind on the
“guest” machine.





Migo
      software currently supports the Microsoft® Windows® operating system (Win 98SE
      to XP) and Outlook® and Outlook Exchange® email programs. We are developing Migo
      software to function with other popular email applications such as Outlook
      Express® and Lotus Notes®, new web browsers such as Mozilla Firefox, and other
      frequently used tools and applications. Migo is in the process of researching
      and developing a range of Migo software for use on other hardware devices,
      including larger capacity SIM Card storage devices, MP3 music players, portable
      disc drives, cellular phones, digital cameras, PDAs and other mobile data
      communication platforms. We believe these products will have the potential
      for
      customized use across a broad range of industries, including healthcare,
      insurance, banking and financial services and education.





15





Agreement
      with M Systems Flash Disk Pioneers Ltd.





On
      March
      30, 2005, we entered into a three-year Development Agreement
      with M Systems Flash Disk Pioneers Ltd. (“M-Systems”). Pursuant to the Development  Agreement,
      we granted to M-Systems and its affiliates a worldwide, transferable license
      to
      use and distribute our Migo products, and to use related trademarks, as an
      integrated part of M-Systems ’ USB
      flash drive product lines. Migo products are offered to M-Systems customers
      with
      either (i) limited functionality or (ii) full functionality for a period of
      45
      days, after which the end-user may purchase a license directly from us to
      continue full functionality or otherwise retain limited functionality.





We
      are
      continuing to develop software applications to bundle our Migo products with
      M-Systems USB Drives, and we agreed to provide first level support for Migo
      products to M-Systems and M-Systems ’ customers and end-users, if desired. We are also prohibited from (i) providing
      any other party or their customers with services or applications for USB Drives
      that are provided to M-Systems under the Agreement, and (ii) bundling Migo
      products with any USB Drive other than M-System s’ USB Flash
      drives .





Financial
      Results, Liquidity and Management's Discussion and Analysis
      (Unaudited)





Three
      months ended March 31, 2006 and 2005





We
      reported revenues of $41,229 for the three months ended March 31, 2006 and
      revenues of $73,546 for the corresponding period ended March 31, 2005. During
      the quarter ended March 31, 2006, we sold our software packaged through
      M-Systems, via online downloads, distributors and bundled with memory products.
      We are working to expand our OEM relationships to promote sales.





Our
      costs
      associated with the sale of products for the three month period ended March
      31,
      2006 were $156,044 and consisted almost entirely of the amortization of software
      technology $139,267, as well as expenses related to fees for customer downloads
      of our software, and packaging and shipping costs. For the period ended March
      31, 2005, we incurred costs associated with the sale of our products of
      $539,994, of which $140,525 was for amortization of software technology.





Research
      and development expenses totaled $360,053 for the three months ended March
      31,
      2006, up from $171,058 in the corresponding period in 2005, due primarily 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 partially offset by our reducing selling
      expenses from $319,287 for the three months ended March 31, 2005 to $262,390
      in
      the period ended March 31, 2006 primarily due the cessation of consumer directed
      advertising. General and administrative costs decreased slighty to $1,224,201
      for the period ended March 31, 2006 from $1,251,323 due to the implementation
      of
      cost containment measures.





Non-operating
      income totaled $(52,855) for the three months ended March 31, 2006 compared
      with
      $283,900 for the three months ended March 31, 2005. Interest (net) increased
      for
      the three months ended March 31, 2006 by $62,248 due to the increased investment
      income earned from the monies raised from the September 2005, December 2005,
      and
      March 2006 equity private placements. During the three months ended March 31,
      2005, we reversed, on a one time basis, an expense of $282,236 related to
      Agate Technologies, which was not present in the same period in 2006. Due to
      a
      decline in our stock price between December 31, 2005 and March 31,
      2006, we recorded a decrease in warrant liability of $166,538, and we also
      recorded an expense of $283,305 during the three months ended March 31, 2006
      due
      to provisions in our Registration Rights Agreement dated September 2005 related
      to the issuance of additional shares to investors caused by delays in filing
      a
      Registration Statement by January 25, 2006.





16





Liquidity
      and Capital Resources





At
      March
      31, 2006, we had working capital of $5,440,661 as compared to a working capital
      of $3,055,929 at December 31,2005. The increase in working capital is mainly
      due
      to raising, net of fess, approximately $3.5 million of equity capital in March
      2006, which also increased Temporary Equity and Warrant Liability by $2,807,178
      and $1,248,254, respectively. For the three months ended March 31, 2006, net
      cash used in operating activities was $1,762,163. We believe we have sufficient
      cash to fund our operations through 2006. Thereafter, we will depend on cash
      from operations, and additional financing, if available.





Recent
      and Expected Losses





From
      inception, we have never been profitable and have sustained substantial net
      losses from operations. There can be no assurance that we will ever generate
      positive revenues from our operating activities, or that we 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 our business, financial condition, and results
      of operations. For the three months ended March 31, 2006 and 2005, we incurred
      net pre-tax losses of $2,014,314 and $1,924,216 respectively.





Satisfaction
      of Current and Future Capital Requirements





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





**Item
      3. Controls and Procedures**





Evaluation
      of Disclosure Controls and Procedures





As
      of the
      end of the period covered by this report, under the supervision and with the
      participation of our management, including our chief executive officer ("CEO")
      and chief financial officer ("CFO"), we evaluated the design and operation
      of
      our disclosure controls and procedures (as defined in Rules 13a-15(e) and
      15d-15(e) of the Securities Exchange Act of 1934, as amended, or the "Exchange
      Act").  While we believe we have made significant improvements,
      insufficient time has passed to demonstrate complete effectiveness, and
      based on this evaluation, our management, including our CEO and CFO, has
      concluded that our disclosure controls and procedures as designed, are
      not yet effective to give reasonable assurance that the information we are
      required to disclose is recorded, processed, summarized and reported within
      the
      time periods specified in the SEC’s rules and forms.





17


Changes
      in Internal Control Over Financial Reporting




During
      the quarter ended March 31, 2006, we continued implementing changes that we
      conceived during the nine months ended December 31, 2005. During that period,
      following a comprehensive review, we concluded that the weaknesses we had found,
      as noted in prior SEC filings, were a direct result of our being understaffed
      in our accounting area. We made increased use of an outside firm of
      accounting consultants to support and extend the capabilities of our internal
      staff, and simultaneously employed additional experienced accounting staff
      personnel. We will continue to engage our outside accounting consultants until
      our internal staff is adequate and has demonstrated an ability to fulfill all
      the aforementioned requirements. While our Chief Executive Officer and Principal
      Financial and Accounting Officer believe we have made material progress towards
      building effective controls and procedures for the period ended March 31, 2006,
      a s
      part of
      the assessment of our internal controls over financial reporting that we
      will undergo during our 2006 fiscal year in connection with the process required
      by Section 404 of the Sarbanes-Oxley Act of 2002, we intend to continue to
      review, evaluate and strengthen our controls and processes. Our Board of
      Directors is performing oversight of the implementation of enhancements and
      improvements to our internal controls, and expects to transfer this
      responsibility to an Audit Committee by June 30, 2006.





18





PART
      II.
      OTHER INFORMATION





Item
      1.
      Legal Proceedings





On
      June
      9, 2005, we 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 us in June 2004, 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. In March 2006, a settlement was negotiated with Mr. Dobies’ estate
      that will require us to pay a total of $130,000 to settle the case plus legal
      expenses of $20,000, which amount had been accrued on our financial statements
      as of December 31, 2005.





In
      July
      2005, we received notice of a legal action commenced by Joshua Feller related
      to
      his former employment with us. Mr. Feller filed a claim with the Labor
      Commissioner of the State of California on July 12, 2005 seeking damages of
      approximately $540,000 related to his employment. Mr. Feller claims that an
      oral
      agreement with us existed for the payment of performance and other bonuses
      of
      approximately $415,000, and that his resignation on June 3, 2005 was for “good
      cause”, therefore making him eligible for severance benefits of approximately
      $90,000. Mr. Feller also claims interest in stock options valued at
      approximately $33,000, although no agreement exists for those options. We
      believe the complaint is without merit, intend to defend it vigorously and
      believe that the loss, if any, resulting from the suit will not have a material
      impact on our financial position, results of operations, or cash flows in future
      years.





On
      December 20, 2005, two former employees of ours made a demand for
      arbitration with JAMS, San Francisco alleging that each claimant is entitled
      to
      $129,000 in severance pay following their resignations in
      February 2005. We employed the claimants as part of the 2004
      acquisition of First Person Software, Inc. We believe the claims are
      baseless and intend to vigorously defend this matter. We have filed
      our answer to the demand and have filed a cross-claim against
      claimants seeking damages attributable to an alleged breach of their
      agreements with us. We believe that the loss, if any, resulting from the
      arbitration will not have a material impact on our financial position, results
      of operations or cash flow.





We
      are
      not aware of any additional pending litigation as of March 31,
      2006.





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





On
      March
      17, 2006, we completed a private placement with certain investors for the
      issuance of a total of 12,421,875 shares of Common Stock and warrants to
      purchase a total of 6,210,937 shares of our Common Stock. The securities were
      sold at $0.32 per unit, with each unit consisting of one share of Common Stock
      and a warrant to purchase 0.5 share of Common Stock. The aggregate offering
      price was $3,975,000.  The Warrants are exercisable at $0.40 per share,
      expire in September 2008, unless theretofore exercised, contain a call provision
      in favor of us at a price of $0.01 if the stock price should exceed $2.00 per
      share, and permit cashless exercise.  We
      paid
      C. E. Unterberg Towbin, LLC a placement fee of $397,500 in connection with
      this
      transaction. We relied on Section 4(2) of the Securities Act and Regulation
      D
      promulgated thereunder, as the basis for an exemption from registering the
      sale
      of these shares of Common Stock and Warrants under the Securities
      Act.




19





Item
      3.
      Defaults Upon Senior Securities





None.





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





On
      or
      about January 6, 2006, we received written consents in lieu of a meeting of
      Stockholders from holders of 24,329,983 shares representing approximately 52.6%
      of the 46,279,380 shares of the total issued and outstanding shares of our
      voting stock as of the December 1, 2005 record date for this action, approving
      an Amendment to our Certificate of Incorporation (the "Amendment"), pursuant
      to
      which the maximum number of shares of Common Stock that we shall be authorized
      to have outstanding at any time was increased to 100,000,000 shares of Common
      Stock at a par value of $0.0001 per share.





Item
      5.
      Other Information





None.





20





Item
      6.
      Exhibits




EXHIBIT
      INDEX:




Exhibit
            Description
                Number





3
      .1
      Amended Articles of Incorporation, hereby incorporated by reference to Exhibit
      3.1 of the Annual Report on Form 10-KSB filed with the SEC on July 14, 2004.





3
      .2
      Bylaws, hereby incorporated by reference to Exhibit 3.2 of the Annual Report
      on
      Form 10-KSB filed with the SEC on July 14, 2004.





3
      .3 Text
      of amended provision of the Company’s Bylaws, hereby incorporated by reference
      from the Company’s Current Report on Form 8-K filed with the Commission on
      September 27, 2005.





3
      .4 Form
      of Certificate of Amendment to the Certificate of Designations, Preferences
      and
      Rights of the Series A Senior Convertible Preferred Stock, hereby incorporated
      by reference from the Company’s Current Report on Form 8-K filed with the
      Commission on September 27, 2005.





3
      .5
      Certificate of Amendment of Certificate of Incorporation, hereby incorporated
      by
      reference from the Company’s Information Statement filed with the Commission on
      January 30, 2006.




10.1
        Common Stock and Warrant Purchase Agreement with LB I Group, Inc. dated as
        of
        March 10, 2006, hereby incorporated by reference from the Company’s Current
        Report on Form 8-K filed with the Commission on March 21,
        2006.




10.2
      Warrant issued to LB I Group, Inc. , hereby incorporated by reference from
      the
      Company’s Current Report on Form 8-K filed with the Commission on March 21,
      2006.





10.3
      Registration Rights Agreement with LB I Group, Inc. dated as of March 10, 2006,
      hereby incorporated by reference from the Company’s Current Report on Form 8-K
      filed with the Commission on March 21, 2006.





10.4
      Common Stock and Warrant Purchase Agreement with other investors, hereby
      incorporated by reference from the Company’s Current Report on Form 8-K filed
      with the Commission on March 21, 2006.


10.5 Employment
          Agreement dated May 10, 2006, between Powerhouse Technologies
          Croup, Inc. and Kent Heyman.
 10.6 Employment
          Agreement dated May 10, 2006, between Powerhouse Technologies
          Croup, Inc. and Richard Liebman.


10.7
      Common Stock and Warrant Purchase Agreement dated March 17, 2006, hereby
      incorporated by reference from the Company’s Current Report on Form 8-K filed
      with the Commission on March 21, 2006.




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.


21





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:
              May 15,2006
            By:
            /s/
              Kent
              HeymanKent
              HeymanChief
                Executive Officer
              (Principal
                Executive Officer) Date:
              May 15,2006
            By:
            /s/
              Richard LiebmanRichard
              LiebmanChief
                Financial Officer
              (Principal
                Financial and AccountingOfficer)




22




EXHIBIT
      INDEX:





Exhibit
            Description
                Number





3
      .1
      Amended Articles of Incorporation, hereby incorporated by reference to Exhibit
      3.1 of the Annual Report on Form 10-KSB filed with the SEC on July 14, 2004.





3
      .2
      Bylaws, hereby incorporated by reference to Exhibit 3.2 of the Annual Report
      on
      Form 10-KSB filed with the SEC on July 14, 2004.





3
      .3 Text
      of amended provision of the Company’s Bylaws, hereby incorporated by reference
      from the Company’s Current Report on Form 8-K filed with the Commission on
      September 27, 2005.





3
      .4 Form
      of Certificate of Amendment to the Certificate of Designations, Preferences
      and
      Rights of the Series A Senior Convertible Preferred Stock, hereby incorporated
      by reference from the Company’s Current Report on Form 8-K filed with the
      Commission on September 27, 2005.





3
      .5
      Certificate of Amendment of Certificate of Incorporation, hereby incorporated
      by
      reference from the Company’s Information Statement filed with the Commission on
      January 30, 2006.





10.1
      Common Stock and Warrant Purchase Agreement with LB I Group, Inc. dated as
      of
      March 10, 2006, hereby incorporated by reference from the Company’s Current
      Report on Form 8-K filed with the Commission on March 21, 2006.





10.2
      Warrant issued to LB I Group, Inc. , hereby incorporated by reference from
      the
      Company’s Current Report on Form 8-K filed with the Commission on March 21,
      2006.





10.3
      Registration Rights Agreement with LB I Group, Inc. dated as of March 10, 2006,
      hereby incorporated by reference from the Company’s Current Report on Form 8-K
      filed with the Commission on March 21, 2006.





10.4
      Common Stock and Warrant Purchase Agreement with other investors, hereby
      incorporated by reference from the Company’s Current Report on Form 8-K filed
      with the Commission on March 21, 2006.


10.5 Employment
          Agreement dated May 10, 2006, between Powerhouse Technologies
          Croup, Inc. and Kent Heyman.
 10.6 Employment
          Agreement dated May 10, 2006, between Powerhouse Technologies
          Croup, Inc. and Richard Liebman.


10.7
      Common Stock and Warrant Purchase Agreement dated March 17, 2006, hereby
      incorporated by reference from the Company’s Current Report on Form 8-K filed
      with the Commission on March 21, 2006.




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.




23