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, 2004
                                  -------------

             [ ] 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                   (IRS Employer
     incorporation or organization)                Identification No.)

      2694 Bishop Drive, Suite 270
             San Ramon, CA                                94583
-----------------------------------------        ------------------------
         (Address of principal                         (Zip Code)
           executive offices)

       Issuer's telephone number:                    (925) 328-1100
                                                 ------------------------
 Former name, former address and former
   fiscal year, if changed since last                      N/A
                 report                          ------------------------

     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 September 13, 2004, there were 2,870,928 shares of the issuer's common
                     stock, $0.0001 par value, outstanding.

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

<PAGE>


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                                        1
<PAGE>

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

                        Condensed Balance Sheet as of June 30, 2004


                                                                  Jun. 30, 2004
                                                                   (Unaudited)

                                          ASSETS
                                          ------

Current Assets:
Cash and cash equivalents                                         $   4,317,880
Inventory                                                               169,090
                                                                  -------------
Total current assets                                                  4,486,970

Other Assets:
Software technology                                                   2,327,502
Other assets                                                             85,872
                                                                  -------------
Total other assets                                                    2,413,374


Total Assets                                                      $   6,900,344
                                                                  =============

     LIABILITIES AND Stockholders' Equity (Deficit)
     ----------------------------------------------

Current Liabilities:
Accounts payable                                                  $     766,218
Accrued compensation                                                    446,934
Accrued liabilities                                                   1,303,968
Dividends payable                                                        30,589
                                                                  -------------
Total current liabilities                                             2,547,709
                                                                  -------------
Total Liabilities                                                     2,547,709
                                                                  -------------
Commitments and contingencies

Stockholders' Equity (Deficit):
Senior A Preferred stock, $.0001 par value; 25,000,000 shares
authorized; 3,137,997 shares issued and outstanding, preference upon        314
liquidation of $14,449,290
Junior A Preferred stock, $.0001 par value; 5,000,000 shares
authorized; 1,082,026 shares issued and outstanding, preference upon
liquidation of $2,600,000                                                   108

Common stock, $.0001 par value; 200,000,000 shares authorized;
2,860,928 shares issued and outstanding                                     287

Additional Paid in Capital                                           23,903,427
Deficit accumulated in development stage                            (19,228,251)
Treasury stock                                                         (183,600)
Deferred consulting compensation                                       (139,650)
--------------------------------                                  -------------
Total stockholders' equity (deficit)                                  4,352,635
                                                                  -------------
Total Liabilities and Stockholders' Equity (Deficit)               $  6,900,344
                                                                  =============


See accompanying notes to consolidated financial statements.

                                        2
<PAGE>


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


<TABLE>
<CAPTION>
                                                                                                For the period from
CONDENSED STATEMENTS OF OPERATIONS                              For the three   For the three     May 16, 2002
                                                                months ended    months ended      (inception) to
                                                                Jun. 30, 2004   Jun. 30, 2003     June 30, 2004
                                                                (Unaudited)     (Unaudited)       (Unaudited)

<S>                                                             <C>             <C>                     <C>
Revenues                                                              $21,214              --              $366,799
                                                                -------------      ----------           -----------
       Total revenues                                                 $21,214              --              $366,799

Cost of Sales                                                         $14,492              --              $229,163
                                                                -------------      ----------           -----------
       Total cost of sales                                            $14,492              --              $229,163

Gross Profit                                                           $6,722              --              $137,636
                                                                -------------      ----------           -----------

Operating Expenses:

   Research and development                                            18,336          73,876               337,908
   Sales and marketing                                                779,462         566,365             2,748,618
   General and administrative                                         726,487         239,897             3,880,835
                                                                -------------      ----------           -----------
       Total operating expenses                                     1,524,285         880,138             6,967,361

Non-Operating Expenses:

   Other (income)\expense                                              $2,928              --               $23,292
   Loss due to theft                                                       --       1,676,570             3,142,759
   Equity in loss of investee                                          24,365          45,121               205,854
   Interest - Net                                                   2,143,084           2,220             2,210,963
                                                                -------------      ----------           -----------
       Total non-operating expenses                                 2,170,377       1,723,911             5,582,868

Loss Before Income taxes                                            3,687,940       2,604,049            12,412,593

Provision for Income Taxes                                                800              --                 2,400
                                                                -------------      ----------           -----------
Net Loss                                                           $3,688,740      $2,604,049           $12,414,993
                                                                =============      ==========           ===========

Net Loss                                                           $3,688,740      $2,604,049

Less:  Dividends on Sr. and Jr. Preferred stock                     6,813,257              --
                                                                -------------      ----------

Net Loss Allocatable to Common Shareholders                     $  10,501,997      $2,604,049
                                                                =============      ==========

Basic and Diluted Loss per Share                                $        3.04      $     1.28
                                                                =============      ==========
Weighted Average Shares Outstanding                                 3,456,439       2,037,552
                                                                =============      ==========

See accompanying notes to consolidated financial
statements.
</TABLE>

                                        3
<PAGE>

                                      POWERHOUSE TECHNOLOGIES GROUP, INC.
                                     Consolidated Statement of Cash Flows
                                                 June 30, 2004

<TABLE>
<CAPTION>
                                                                                                For the
                                                                                                period from
                                                            For the           For the           May 16, 2002
                                                            Period Ended      Period Ended      (inception) to
                                                            Jun. 30, 2004     Jun. 30, 2003     Jun. 30, 2004
                                                            -------------     -------------     --------------
Cash Flows from Operating Activities

<S>                                                         <C>               <C>               <C>
   Net loss                                                 (3,688,740)       (2,604,049)       (12,414,993)
   Adjustments to reconcile net loss to net cash used
     in operating activities
       Common stock issued for services                         86,250           500,000          1,290,025
       Equity in loss of investee                               24,365            45,121            205,854
       Accrued interest on notes                                    --             2,220                 --
       Interest expense relating to amortization of
         debt issuance costs                                   172,042                --          1,905,210
       Interest expense relating to amortization of
         debt discount                                       1,883,949                --            209,808
     Changes in operating assets and liabilities
       Accounts receivable                                      22,938                --                 --
       Inventory                                              (153,002)               --           (169,090)
       Other current assets                                     20,000            (4,000)                --
       License fee                                                  --                --           (118,418)
       Other assets                                            (83,823)               --            (85,872)
       Accounts payable                                       (107,791)          (70,901)           822,272
       Accounts compensation                                    97,351            54,850            429,434
       Accrued liabilities                                     251,037          (152,583)           629,896
                                                            ----------         ---------        -----------
         Net cash used in operating activities from
          continuing operations                             (1,475,424)       (2,229,342)        (7,295,874)
                                                            ----------         ---------        -----------
Cash Flows from Investing Activities
  Acquisition of First Software, Inc.                       (1,000,000)               --         (1,000,000)

  Investment in equity/investee                                     --                --           (130,000)
                                                            ----------         ---------        -----------

         Net cash used in investing activities              (1,000,000)               --         (1,130,000)
                                                            ----------         ---------        -----------
Cash Flows from Financing Activities

   Payment of finders' fee                                     (60,825)          (50,000)          (110,825)
   Payment of debt issuance costs                                   --                --            (98,425)
   Principal payment on notes payable to equity
     investee                                                       --           (90,000)          (270,000)
   Advances on common stock subscriptions                           --                --          2,233,676
   Proceeds from convertible notes                             980,000                --          2,664,000
   Proceeds from sale of common stock                        5,066,645         2,369,432          8,325,328
                                                            ----------         ---------        -----------
         Net cash provided by financing activities           5,985,820         2,229,432         12,743,754
                                                            ----------         ---------        -----------
Net Increase in cash and cash equivalents                    3,510,396                90          4,317,880
Cash and Cash Equivalents, beginning of period                 807,484                --                 --
                                                            ----------         ---------        -----------
Cash and Cash Equivalents, end of period                     4,317,880                90          4,317,880
                                                            ==========         =========        ===========

Non-cash investing and financing activity:
   Issuance of note payable for acquisition of
     investment in equity investee                                  --           270,000            270,000
   Issuance of common stock in exchange for an
     investment in equity investee                                  --           100,000            100,000
   Debt discount recognized in connection with
     issuance of convertible notes                                  --                --            239,008
   Liabilities assumed upon combination with
     Agate Technologies, Inc.                                       --                --            280,426
   Issuance of common stock in connection with
     the acquisition of First Person Software, Inc.          1,000,000                --          1,000,000
   Issuance of senior A preferred stock in
     connection with conversion of debt                      2,676,766                --          2,676,766
   Issuance of junior A preferred stock in exchange
     for common stock in connection with the
     rescission offer                                        5,410,130                --          5,410,130
</TABLE>

                                        4
<PAGE>


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

Notes to Financial Statements
For The Three Months Ended June 30, 2004 (Unaudited) and June 30, 2003
(Unaudited),
For The Period May 16, 2002 (inception) Through June 30, 2004 (Unaudited)

Forward-Looking Statements

This Quarterly Report on Form 10-QSB contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 or
under rules and regulations adopted by the Securities and Exchange Commission.
These forward-looking statements are based on the Company's current expectations
or beliefs, including, but not limited to, statements concerning our operations,
economic performance, financial condition, growth and acquisition strategies,
investments and operational plans. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements . Without limiting the generality of the foregoing,
words such as "believe," "anticipate," "expect," "intend," "plan," "will,"
"could," "might" or "continue" or the negative or other variations thereof and
other similar expressions identify forward-looking statements. In addition, any
statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking statements. These
forward-looking statements by their nature involve substantial risks and
uncertainties, including general economic and market conditions, the potential
loss or termination of existing clients and contracts and the ability of the
Company to successfully identify and thereafter consummate one or more
acquisitions, certain of which are beyond our control, and actual results may
differ materially.

You are cautioned not to place undue reliance on these forward-looking
statements, which relate only to events as of the date on which the statements
are made. We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
You should refer to and carefully review the information in future documents we
file with the Securities and Exchange Commission.

1.    Basis of Presentation
      ---------------------

The accompanying unaudited condensed financial statements include all
adjustments which management believes are necessary for a fair presentation of
the Company's financial position at June 30, 2004, and results of operations for
the periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.

Results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year. The accompanying condensed
financial statements should be read in conjunction with the Company's audited
financial statements and footnotes as of and for the year ended March 31, 2004,
contained in our Form 10-KSB filed on July 14, 2004.

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 accounting principles
generally accepted in the United States of America. Actual results could differ
significantly from those estimates under different assumptions and conditions.
The Company does not consider any of its accounting policies to be critical. Our
significant accounting policies are described in Note 2 to the audited
consolidated financial statements contained in the Company's Form 10-KSB for the
year ended March 31, 2004, which was filed on July 14, 2004. The accounting
policies used in preparing our interim condensed consolidated financial
statements are the same as those described in our audited financial statements.

Revenue Recognition Policy

The Company recognizes revenue from distributors when the product has been sold
to third party customers. Revenue from sales through the Company's website is
recognized after the 30 day return period has lapsed.

Stock-based Compensation

                                        5
<PAGE>


The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"), and in accordance with FASB Interpretation No. 44.
Pursuant to these accounting pronouncements, the Company records compensation
for stock options granted to employees over the vesting period of the options
based on the difference, if any, between the exercise price of the options and
the market price of the underlying shares at that date. The Company has no
employee options outstanding.


New Accounting Pronouncements

On May 31, 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity ("SFAS
150"). SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity in its statement of financial position. It requires that an issuer
classify a financial instrument within its scope as a liability (or an asset in
some circumstances) because that financial instrument embodies an obligation of
the issuer. SFAS 150 is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted SFAS 150 during the fiscal
year ended March 31, 2004. The adoption of SFAS 150 did not impact the Company's
financial position, results of operations or cash flow for the year ended March
31, 2004.


3.    Stock Transactions
      ------------------

The Company entered into a Placement Agency Agreement, dated as of April 7,
2004, with Middlebury Capital, LLC ("Middlebury Capital") in connection with a
Senior A Units Offering of up to $15,000,000 of Senior A Units (each "Senior A
Preferred Unit" being comprised of four shares of the Company's Series A Senior
Convertible Preferred Stock (the "Senior A Preferred Stock") and a five-year
warrant to purchase one share of Common Stock at an exercise price of $3.83 (the
"Senior A Preferred Warrants")). Pursuant to the placement agent agreement, and
in conjunction with other underwriter compensation, the Company granted
Middlebury Capital five-year warrants exercisable for $2.29 per share to
purchase up to 68,559 shares of the Company's Common Stock (the "Common
Placement Agent Warrants") and five-year warrants exercisable at $3.06 per share
to purchase up to 264,775 shares of the Company's Senior A Preferred Stock (the
"Preferred Placement Agent Warrants"). As of June 30, 2004, all of the Common
Placement Agent Warrants had been granted, and 205,347 of the Preferred
Placement Agent Warrants had been granted. Subsequent to June 30, 2004,
additional funding under the Senior A Units Offering was received, the Senior A
Units Offering was terminated, and additional warrants were granted to
Middlebury Capital. (See note 7, "Subsequent Events, Senior A Preferred Stock
Second and Final Tranche Closing.")

On June 4, 2004, in connection with a rescission offer made to certain holders
of its Common Stock, the Company issued 1,082,026 shares of Series A Junior
Convertible Preferred Stock, convertible into Common Stock upon demand (the
"Junior A Preferred Stock"), in exchange for the same number of shares of the
Company's Common Stock. In addition, the Company issued, with the Junior A

                                        6
<PAGE>


Preferred Stock, five-year warrants exercisable at $3.83 per share to purchase
up to 270,507 shares of the Company's Common Stock (the "Junior A Preferred
Warrants"). During the quarter ended June 30, 2004, the Company recognized
dividends of $1,780,708 related to this offering. (See note 6, "Commitments and
Contingencies, Rescission Offer.")

On June 9, 2004, the Company issued 15,000 shares of restricted Common Stock in
full satisfaction for all services rendered under a professional services
agreement. The closing share price for our Common Stock on this date was $5.75
and the Company recorded consulting expense of $86,250 during the period.

On June 14, 2004, the Company closed upon the first tranche of the Company's
Senior A Units Offering, which consisted of approximately $8,722,605 in total
consideration from the sale of approximately 784,500 Senior A Units to certain
institutional investors. The amount included approximately $2,100,000 received
under a previously closed bridge financing and approximately $539,000 principal
amount of previously issued convertible notes, following the conversion of the
convertible notes into shares of Senior A Preferred Stock in connection with the
Senior A Units Offering. (See note 5, "Secured Convertible Notes and Secured
Bridge Notes.") In connection with the Senior A Units Offering, the Company
issued 3,137,997 shares of Senior A Preferred Stock. The Company also issued
five-year warrants exercisable at $2.29 per share to purchase 287,473 shares of
the Company's Common Stock related to the convertible and bridge financing, and
Senior A Preferred Warrants to purchase 784,500 shares of the Company's Common
Stock related to the Senior A Units Offering. (See note 5, "Secured Convertible
Notes and Secured Bridge Notes.") The Company recognized dividends of $5,021,960
related to the beneficial conversion of the Senior A Preferred Stock to Common
Stock in connection with the June 14, 2004 closing.

On June 18, 2004, the Company issued a total of 217,938 shares of Common Stock
in connection with the Company's acquisition of those shares of First Person
Software, Inc. ("First Person") that were not previously owned by the Company.
The Company also reserved for issuance an additional 108,991 shares of the
Company's Common Stock, the issuance of which is contingent upon the
satisfaction of certain performance milestones. (See note 6, "Commitments and
Contingencies, Merger with First Person Software, Inc.")

Subsequent to June 30, 2004, the Company closed on the second and final tranche
of the Senior A Units Offering. (See note 7, "Subsequent Events, Senior A
Preferred Stock Second and Final Tranche Closing.")

4.    Lease Agreements
      ----------------

In April 2003, the Company entered into a 20-month sub-lease agreement with a
third party for 2,186 square feet of office space located in San Ramon,
California. The agreement commenced May 1, 2003, and requires monthly sub-lease
payments of $3,607 through December 31, 2004. The payment includes the use of
existing furniture and equipment located on the premises. The agreement also
provided a right of first refusal on an additional 1,519 square feet that was
optioned to the Company on August 15, 2003. The Company agreed to lease the
additional space for an additional monthly payment of $2,506. The termination of
this portion of the lease is also December 31, 2004.

Future minimum facilities sublease rental expense as of June 30, 2004, is as
follows:

                  -----------------------------------------------
                  2005                             $    36,678
                  -----------------------------------------------

                  -----------------------------------------------
                  Total                            $    36,678
                  -----------------------------------------------

Subsequent to June 30, 2004, the Company entered into a further amendment
granting them additional space adjacent to the San Ramon facility. (See note 7,
"Subsequent Events, Lease Agreement.") Also, the Company entered into a new
lease for space in San Francisco. (See note 7, "Subsequent Events, Lease
Agreement.")

5.    Secured Convertible Notes and Secured Bridge Notes
      --------------------------------------------------

In October 2003, the Company offered up to $10,000,000 principal amount of
secured convertible notes, bearing 10% interest per annum with a maturity of 10
years (the "Convertible Notes"). At the time of issuance, the Convertible Notes
were secured by all of the Company's intellectual property and tangible assets,
current and future. The terms of the Convertible Notes provided that the holder
of the Convertible Notes, at its option, could convert the principal and
interest of the Convertible Notes into Common Stock at any time at an initial
conversion price of $4.00 per share. As of June 14, 2004, the Company had issued
approximately $539,000 of

                                        7
<PAGE>


Convertible Notes.

In March 2004 and in conjunction with the commencement of the Company's Senior A
Units Offering, the Company entered into a Security Agreement with, and issued
Secured Convertible Promissory Notes to, certain investors (the "Security
Agreement" and the "Bridge Notes", respectively, and collectively, the "Bridge
Financing") to secure immediate funding of up to $1,250,000. By their terms, the
Bridge Notes bore interest at the rate of 10% per annum, commencing 90 days from
the date of their issuance and were secured by all of the Company's assets
pursuant to the Security Agreement. The Bridge Notes were due on various dates
between March 2, 2005 to March 31, 2005, unless repaid in conjunction with the
Senior A Units Offering. As of June 14, 2004, the Company had issued
approximately $2,100,000 of Bridge Notes. In conjunction with the Bridge Notes,
the Company issued five-year warrants exercisable for $2.29 per share to
purchase up to 287,473 shares of the Company's Common Stock (the "Bridge
Warrants").

In connection with the Bridge Financing, the Company and the holders of the
Convertible Notes agreed to exchange the Convertible Notes for Bridge Notes. On
June 14, 2004, the first tranche of the Senior A Units Offering was completed,
and in accordance therewith, all of the Bridge Notes then outstanding, including
the Convertible Notes that had been exchanged for Bridge Notes, were, by
agreement between the Company and the holders of the Bridge Notes, exchanged
into Senior A Units. The Company recorded discounts related to the allocation of
the proceeds to the Bridge Warrants and beneficial conversion features of the
Convertible Notes and Bridge Notes of $1,717,726. Such discounts were recorded
as interest expense upon conversion of the Convertible Notes and Bridge Notes
into shares of Senior A Preferred Stock. No further obligations related to the
Convertible Notes or Bridge Notes remained as of June 30, 2004.

6.    Commitments and Contingencies
      -----------------------------

Rescission Offer

Contemporaneous with the commencement of the Senior A Units Offering, the
Company conducted a Rescission Offer that it made to certain of its existing
stockholders who had originally acquired their shares of Common Stock in
connection with a private placement conducted from June 2002 through July 2003
by PowerHouse Studios, Inc. (and after May 19, 2003, by the Company). Pursuant
to the Rescission Offer, these stockholders were given the opportunity to
rescind the purchase of such shares for either the cash consideration paid for
the shares, with interest, or Series A Junior Units, each such Junior A
Preferred Unit being comprised of four shares of Junior A Preferred Stock, and
Junior A Preferred Warrants.

The Rescission Offer was based on certain of the matters alleged by the Company
in the Proctor Litigation. (See this note 6, "Commitments and Contingencies,
Litigation.") Stockholders who accepted the Rescission Offer were required to
give general waivers and releases with respect to certain potential claims
against the Company. The Junior A Preferred Stock has certain preferences over
the Common Stock, including an anti-dilution provision in the event the Company
is unsuccessful in its current litigation with the Proctor Group. The Junior A
Preferred Warrants contain customary anti-dilution provisions for stock
dividends, stock splits and the like.

The Rescission Offer was completed on June 4, 2004, and holders of approximately
1,082,026 shares of Common Stock accepted the Rescission Offer in exchange for
Series A Junior Units and holders of approximately 46,500 shares of Common Stock
accepted the Rescission Offer for cash consideration. Holders of approximately
119,665 shares of Common Stock retained their ownership of Common Stock as
originally purchased.

Merger with First Person Software, Inc.

On May 28, 2004, the Company entered into a merger agreement (the "FPS Merger
Agreement") with First Person and its stockholders (either directly as
signatories to the FPS Merger Agreement or as parties in interest to the FPS
Merger Agreement, represented by a duly authorized representative) to acquire
approximately 51% of the shares of outstanding common stock of First Person in
consideration of cash and shares of Common Stock of the Company, at an aggregate
consideration of $2,500,000 (the "FPS Merger"). The Company issued 217,938
shares of Common Stock to the holders of First Person shares. The consideration
included a certain amount of cash that was held in escrow by an authorized agent
and was released, subsequent to June 30, 2004, upon the satisfactory review by
the Company of First Person's financial statements, and further includes 108,991
shares of Common Stock that are currently being held in escrow by the same agent
and that will only be released upon the satisfactory achievement by the Company
of certain performance milestones within the applicable periods specified in the
FPS Merger Agreement. (See note 7, "Subsequent Events, Release of First Person
Escrow Cash Consideration.") Pursuant to the FPS Merger Agreement, the number of
shares issued in connection with the FPS Merger was based on the average closing
price of the Company's Common Stock for a total of 20 days immediately prior and
subsequent to the announcement of the acquisition. Immediately prior to the FPS
Merger, the Company owned approximately 49% of the outstanding shares of First
Person stock, which shares were originally purchased by the Company in November
2002. The FPS Merger became effective on June 18, 2004. All the employees of
First Person were offered, and accepted, employment in the Company.

The Company will give accounting recognition for the shares held in escrow
related to the performance milestones noted above, if and when the performance
milestones are achieved and the shares are released from escrow. The first
evaluation period occurs approximately 90 days from the closing of the
transaction. The allotted shares, when released from escrow due to the
attainment of the performance milestones, will result in an increase to the
value of the assets of First Person purchased by the Company.


                                        8
<PAGE>

As of June 18, 2004, the effective date of the FPS Merger, the assets and
liabilities of First Person have been allocated as follows:

Cash                                             $     403
Stock of the Company (to become treasury shares)   183,600
Software technology                              2,327,502
Accounts payable                                   (56,054)
                                                 ---------
                                               $ 2,455,451

The Company's assessment is that the weighted average useful life of the
acquired net intangible assets will be 5 years. The acquired net intangible
assets will be amortized using the straight-line method.

The following unaudited proforma condensed statement of operations assumes the
acquisition occurred as of the beginning of the periods presented and presents
proforma financial information for the periods ended June 30, 2004 and 2003.
There would be no proforma impact on revenue from this acquisition. In the
Company's opinion, all adjustments necessary to present fairly such unaudited
proforma condensed statement of operations have been made.

                                               June 30, 2004       June 30, 2003
                                               -------------       -------------
Net Loss as reported                              $3,688,740          $2,604,049
Adjustment for First Person (1)                       26,437              46,963
Proforma Net Loss                                 $3,715,177          $2,651,012
Basic and Diluted as reported                        ($3.04)             ($1.28)
Proforma Basic and Diluted                           ($3.05)             ($1.30)

(1) Reflects additional loss related to the 51% not owned by the Company as of
April 1, 2004

Litigation
----------

Proctor, et. al. and Related Matters

On September 15, 2003, the Company filed a complaint in the Superior Court of
the State of California in and for the County of Los Angeles, South West
District (the "Superior Court") captioned PowerHouse Technologies Group, Inc. v.
Proctor, et. al., (case no: YC047491) (the "Proctor Litigation"). Named as
defendants therein are Joseph Ford Proctor ("Proctor"), the Chief Executive
Officer of MayFair Capital Group Limited, BrickHouse Capital Venture Limited
("BrickHouse"), Julie Holfinger, and others. The complaint alleges that the
defendants, in connection with a capital-raising effort for the Company,
diverted a significant amount of funds from the Company. The complaint seeks to
recover the diverted funds and to enjoin the transfer, sale or exercise of
voting rights with respect to approximately 7,000,000 shares of Common Stock
claimed by the defendants, which would represent approximately 67% of the total
shares of Common Stock currently outstanding (the "Proctor Group Shares"). On
November 5, 2003, the Superior Court, without prejudice, declined to continue
the temporary restraining order granted to the Company on September 15, 2003.
Subsequent to June 30, 2004, Proctor's lawyers terminated their representation
of him and certain of the other defendants in the case and no new counsel has
made an appearance in this case to date. Trial is tentatively set for November
2004.

The Company and its Board of Directors believes, based upon a review of all
relevant information available to the Company and after consulting with the
Company's counsel, that the Proctor Group Shares were illegally and invalidly
issued and, therefore, the Board of Directors of the Company has determined that
the Proctor Group Shares are, and are to be deemed to be, not validly issued and
outstanding and that the holders of those shares shall not be entitled to
exercise any of the voting and other rights and privileges of stockholders of
the Company in respect of such shares. The Board of Directors of the Company has
taken actions it believes to be necessary and appropriate to implement the
foregoing determinations. However, an unsuccessful result in the Proctor
Litigation or actions against the Company and certain of its officers and
directors with respect to matters included in or arising from the Proctor
Litigation, if brought by stockholders, could have an adverse impact on the
market for and the value of the Company's securities and the Company's ability
to raise additional funds and continue its operations.

By letters dated November 20, 2003, and December 2, 2003, BrickHouse demanded
payment by the Company of $5,000 for monthly consultant services for July 2003
and August 2003 and $622,354.86 for expenses allegedly advanced to, or for the
benefit of, the Company. The Company has declined the request for payment and
has informed BrickHouse that such amounts that may be owed to or from BrickHouse
and its affiliates, or the Company and its affiliates, are the subject of the
Proctor Litigation pending in the Superior Court.

By letters dated May 9, 2003, and June 9, 2003, six persons indicated that in
2001 they invested an aggregate of approximately $179,450, at $1.00 per share,
in the Company "through Joseph Proctor and Julie Holfinger." The alleged
investors informed the Company that they have not received confirmation of their
investments nor any stock certificates despite sending "numerous" communications
to Mr. Proctor and Ms. Holfinger. The alleged investors advised the Company that
they will pursue criminal and civil actions against the Company. Despite
requests made to the alleged investors, the Company has not received any
documentation evidencing the investments. The Company is investigating this
matter and intends to formulate a response in light of the results of its
investigation and whatever additional documentation may be produced by the
parties involved. Based upon all of the available information, the Company has
determined that no accrual for any potential liability is required.

Dieterich, et. al. and Related Matters

In March 2004, the Company commenced an action in the Superior Court of the
State of California against Christopher Dieterich and Dieterich & Associates
("Dieterich "), who were the Company's counsel during the time period in which
the transactions occurred that are the subject of the Proctor Litigation. The
complaint alleges that the defendants are liable to the Company for, among other
things, professional negligence, breach of fiduciary duties, and wrongfully
withholding documents belonging to the Company. The action is in its early
stages and the outcome cannot be predicted

Draft, Inc. and Related Matters

On December 1, 2003, the Company and its subsidiary, Forward Solutions, Inc.,
were served a complaint filed in the Superior Court of the State of California
and for the County of Los Angeles, Central District by Draft, Inc., ("Draft"), a
Delaware corporation (case no. BC306660), alleging breach of contract and
related claims pursuant to an alleged contract to develop and implement a direct
marketing program for the Company. The suit claims damages of approximately
$445,000 plus an alleged bonus based on product sales. The Company believes the
complaint is without merit and intends to defend it vigorously and believes that
the loss, if any,

                                        9
<PAGE>


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 May 21, 2004, the Company filed a Cross-Complaint against Draft and its Chief
Executive Officer, Howard Draft, alleging negligent misrepresentation, breach of
oral contract and the covenant of good faith and fair dealing, and unjust
enrichment. The Cross-Complaint seeks to recover $85,000 that the Company paid
to Draft for its services and an additional unspecified amount based on the
negligence claim.

Subsequent to June 30, 2004 the Company settled various legal matters with
Draft, Inc. and its Chief Executive Officer, Howard Draft. The settlement
agreement provided for a mutual release of all current and future claims and
terminated the existing legal actions. (See note 7, "Subsequent Events,
Settlement Agreement.")

The Company is not aware of any additional litigation as of September 13, 2004.

7.    Subsequent Events
      -----------------

Senior A Preferred Stock Second and Final Tranche Closing
---------------------------------------------------------

On August 14, 2004, the Company issued 584,329 shares of Senior A Preferred
Stock upon the closing of the second and final tranche of the Senior A Units
Offering. The offer consisted of approximately $1,788,048 in funding of Senior A
Units with certain institutional investors. All terms and conditions for the
second and final tranche were the same as those in the first tranche closing
held on June 14, 2004. The Senior A Units Offering was terminated upon
completion of the second and final closing.

Consulting Agreements - Subsequent to June 30, 2004, the Company entered into
several 3-month consulting agreements with certain parties for marketing and
strategy related services. The agreements call for periodic cash payments and
can be terminated by either party with 30 days' notice. The Company considers
the aggregate consideration paid in connection with these consulting agreements
not to be material to the Company.

Lease Agreement - On July 2, 2004, the Company entered into a 25-month lease
agreement with a third party for additional office space, comprised of 2,335
square feet located in San Francisco, California. The agreement commenced July
1, 2004, and requires monthly lease payments of $4,281 through July 31, 2006.

Lease Amendment - On July 28, 2004, the Company entered into a second amendment
to the agreement of April 21, 2003 for office space located in San Ramon,
California. The agreement commenced August 1, 2004, and increased the rentable
square feet by 3,047 and increased the monthly lease payments to $7,637 through
December 31, 2004.

Release of First Person Escrow Cash Consideration - On August, 27, 2004,
pursuant to the FPS Merger Agreement and upon the Company's satisfactory review
of First Person's financial statements, the Company agreed to release the cash
consideration, approximately $100,061, that was being held in escrow by an
authorized agent to the shareholder representative.

                                       10
<PAGE>


ITEM  2. PLAN OF OPERATION

Company Background

PowerHouse Technologies Group, Inc. (the "Company") is in the business of
developing, acquiring and marketing computing 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"). On May 19, 2003, PowerHouse Studios
completed a business combination with Agate Technologies, Inc., a publicly
traded company that thereupon became the predecessor of the Company ("Agate").
Following that transaction, Agate effected a 1:122 reverse stock split and
changed its name to "PowerHouse Technologies Group, Inc."

On June 18, 2004, the Company acquired the remaining 51% of First Person
Software, Inc. ("First Person") that it did not already own in consideration of
cash and shares of common stock of the Company, $0.0001 per share ("Common
Stock). (See Part II, Other Information, Item 3, Changes in Securities, Merger
with First Person Software, Inc.) First Person is the developer of a patent
pending software system created for external memory technology and a key
component of the Company's Migo(R) product.

The Company has developed the Migo, a compact personal computing system that
combines the easy portability and functionality of Universal Serial Bus
memory-storage devices with the our advanced synchronization, personalization
and data management software. 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.

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

Three months ended June 30, 2004 and 2003

We had revenues of $21,214 for the three months ended June 30, 2004, and no
revenues for the corresponding period ended June 30, 2003. During the first
quarter of fiscal 2005, we sold our products through distributor channels and
directly through our website. We continue to add distributors as a method to
expand the availability of our products. We had no direct or private label sales
during the quarter. Our costs associated with the sale of products for the
period ended June 30, 2004 were $14,492 and consisted of expenses for the Migo
devices, and services related to loading software, packaging and shipping.

Our spending for the three months ended June 30, 2004 increased from the same
period in 2003 due to several factors. Reflecting a significant increase in the
number of persons employed by us, our spending for wages and related expenses
were $399,634 for the three months ended June 30, 2004, up from $103,750
(excluding expense related to the granting of shares of $500,000) in the
corresponding period in 2003. Our selling expenses increased as we prepared for
additional advertising to increase the market visibility of our products. We
also continued our relationships with certain professional services firms to
assist our development of strategies and related materials to successfully
market and sell our products. During the quarter ended June 30, 2004, we
incurred costs totaling $91,829 related to our litigation with the Proctor
Group, Dieterich and Draft. (See Part I, Financial Information, Item 1,
Financial Statements, note 6 to the financial statements.) We also incurred
approximately $35,000 in expenses related to the audit of our fiscal 2004
financial statements.

Our costs associated with the raising of equity have been applied to the
proceeds and total $1,016,980. (See Part II, Other Information, Item 3, Changes
in Securities, Senior A Units Offering - Closing of First Tranche.) Costs
associated with the raising of debt totaled $140,577 and were expensed during
the quarter. As well, we incurred costs of $1,918,968 during the quarter ended
June 30, 2004, for the beneficial conversion features and the fair value of the
Bridge Warrants issued in connection with the Convertible Notes and Bridge
Notes.

Liquidity and Capital Resources
-------------------------------

At June 30, 2004, we had working capital of $1,939,261 as compared to working
capital of ($2,021,537) at March 31, 2004. This increase is mainly due to the
conversion of Convertible Debt (the balance of which was $1,492,758 at March 31,
2004) to equity. (See Part I, Financial Information, Item 1, Financial
Statements, note 3 to the financial statements.)

                                       11
<PAGE>


Recent and Expected Losses
--------------------------

The Company is a development stage company and has never been profitable and has
sustained substantial net losses from operations. There can be no assurance that
we will ever generate positive cash flow from our operating activities, or that
the Company will achieve and sustain a profit during any future period,
particularly if operations remain at current levels. Failure to achieve
significant revenues, positive cash flow or profitability would materially and
adversely affect the Company's business, financial condition, and results of
operations. For the fiscal year ended March 31, 2003, the Company incurred a net
pre-tax loss of $(2,327,360) and, for the fiscal year ended March 31, 2004, the
Company incurred a net pre-tax loss of $(6,397,293). The Company's auditors,
Hein & Associates LLP, issued an opinion in connection with the Company's
financial statements for the fiscal year ended March 31, 2004, noting that while
the Company has recently obtained additional financing, sustained recurring
losses raise substantial doubt about its ability to continue as a going concern.

The Company's results of operations were materially affected in the three months
ended June 30,2004, and our results of operations for the fiscal year ending
March 31,2005, are expected to be materially affected, by the impact of having
sold and exchanged Senior A Units and Junior A Units during those periods for
consideration that was substantially below the market price of our Common Stock
as of the dates of our issuance of such Units (which are comprised of securities
that are ultimately convertible into or exercisable for shares of Common Stock).
The Company is required to reflect this "discount" from market value, computed
on an as-if-beneficially-converted-into-Common Stock-on-the-date-of-issuance
basis, as interest expense in our Condensed Statement of Operations and
dividends in our Condensed Balance Sheet, the effect of which is to
significantly increase our net loss allocable to holders of our Common Stock and
our basic and diluted loss per share of Common Stock.

Substantial Doubt About Our 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
and minimal assets as of June 30, 2004, 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 auditor has therefore
recognized that there is substantial doubt about the Company's ability to
continue as a going concern.

Subsequent to June 30, 2004, the Company successfully completed the Senior A
Units Offering. Through August 27, 2004, the Company had raised approximately
$10,510,653 from this offering.

Satisfaction of Current and Future Capital Requirements
-------------------------------------------------------

No assurance can be given that proceeds to the Company from the recently
completed Senior A Units Offering will satisfy the Company's capital
requirements. 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, will
be sufficient to offset all of our operating expenses. If any capital
subsequently raised from sales of securities is not sufficient to fund the
balance of our operating expenses after we implement cost-cutting 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 we issue may have rights, preferences or privileges senior to
those of existing holders of our equity securities.

ITEM  3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

Under the supervision and with the participation of our senior management,
including our chief executive officer and chief financial 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 Securities Exchange Act of 1934, as amended, 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, it was
concluded that certain disclosure controls and procedures were not effective as
they relate to timely preparation. As a result, during the preparation of this
Form 10-QSB, certain changes were made to the process of completing our
financial statements, including the addition of internal staff to support our
daily work flow, and the retention of external support for statement
preparation, disclosure and review.

Based on these changes, our Chief Executive Officer and Principal Financial and
Accounting Officer concluded as of the Evaluation Date that our disclosure
controls and procedures will become effective.

Changes in Internal Control Over Financial Reporting
----------------------------------------------------

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, it was concluded that certain
disclosure controls and procedures were not effective as they relate to timely
preparation. As a result certain changes were made to the process of completing
our financial statements, including the addition of internal staff to support
our daily work flow.

Other than these changes, there have been no changes in our internal control
over financial reporting that occurred during the quarter ended June 30, 2004,
that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting. Based on these changes, our Chief
Executive Officer and Principal Financial and Accounting Officer concluded as of
the Evaluation Date that our disclosure controls and procedures will become
effective.

                                       12
<PAGE>


PART II - OTHER INFORMATION

ITEM  1. LEGAL PROCEEDINGS

See note 6 and note 7 to the financial statements under Item 1, "Financial
Statements" of Part I, "Financial Information."

ITEM  2. CHANGES IN SECURITIES

Senior A Units Offering - Closing of First Tranche
--------------------------------------------------

Pursuant to a Placement Agency Agreement, dated as of April 7, 2004, Middlebury
Capital, LLC ("Middlebury Capital") agreed to act as the placement agent for the
offer and sale of a minimum of $8,000,000, and up to a maximum of $15,000,000,
of the Company's Series A Senior Units ("Senior A Units") (the "Senior A Units
Offering"). The Senior A Units were comprised of shares of the Company's Series
A Senior Convertible Preferred Stock (the "Senior A Preferred Stock") and
five-year warrants to purchase shares of Common Stock at an exercise price of
$3.83 (the "Senior A Preferred Warrants").

The holders of the Senior A Preferred Stock, valued by agreement in connection
with the Senior A Units Offering at $3.06 per share, have the right to convert
the Senior A Preferred Stock into Common Stock at any time, and may be required
to convert into Common Stock by the Company upon the occurrence of certain
events. In the event that any of the shares of Common Stock that are held by the
Proctor Group are reinstated into the Company's capitalization (the "Triggering
Event"), the holders of the outstanding Senior A Preferred Stock will
automatically have the right to cast a number of votes, in the aggregate, equal
to not less than 51% of the votes that can be cast by all outstanding securities
of the Company that are entitled to vote, on an as-converted basis. However, in
the event of a Triggering Event, the holders of the Common Stock do not have any
additional protective rights and may be subject to substantial dilution. The
Senior A Preferred Stock accrues a dividend of 8% paid semi-annually.
Additionally, for each four shares of Senior A Preferred Stock, the holder will
receive one Senior A Preferred Warrant, exercisable for one share of Common
Stock at an exercise price of $3.83 per share. The Senior A Preferred Warrants
contain customary anti-dilution provisions for stock dividends, stock splits and
the like.

On June 14, 2004, the Company closed on approximately $8,722,605 in funding of
Senior A Units with certain institutional investors. That amount includes
approximately $2,100,000 received under a bridge financing and approximately
$539,000 principal amount of the Company's secured convertible notes, bearing
10% interest per annum with a maturity of 10 years (the "Convertible Notes"),
following the conversion of the Convertible Notes into shares of Senior
Preferred Stock in connection with the Senior A Units Offering. (See Part I,
Financial Information, Item 1, Financial Statements, note 5 to the financial
statements.) In connection therewith, the Company issued 3,137,997 shares of
Senior A Preferred Stock to certain institutional investors. The shares were
valued at $3.06 per share. The Company also issued Senior A Preferred Warrants
to purchase 1,071,973 shares of Common Stock. The closing market price of the
Common Stock on June 14, 2004 was $5.75. The Company relied on Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"), and Regulation D
promulgated thereunder, as the basis for an exemption from registering the sale
of these shares of Senior A Preferred Stock and Senior A Preferred Warrants
under the Securities Act.

Subsequent to June 30, 2004, the Company closed on the second and final tranche
and completed the Senior A Units Offering, consisting of approximately
$1,788,048 in funding from sales of additional Senior A Units to certain
institutional investors. In connection therewith, the Company issued a total of
584,329 shares of Senior A Preferred Stock. The shares were valued at $3.06 per
share. The Company also issued Senior A Preferred Warrants to purchase 146,082
shares of Common Stock. The closing market price of the Common Stock on August
12, 2004, the day prior to the transaction, was $3.55. The Company 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 Senior A
Preferred Stock and Senior A Preferred Warrants under the Securities Act.

In connection with the Senior A Units Offering, Middlebury Capital was granted
five-year warrants exercisable for $2.29 per share to purchase up to 68,559
shares of the Common Stock (the "Common Placement Agent Warrants") and five-year
warrants exercisable at $3.06 per share to purchase up to 264,775 shares of
Senior A Preferred Stock (the "Preferred Placement Agent Warrants"). As of June
30, 2004, all of the Common Placement Agent Warrants had been granted, and
205,347 of the Preferred Placement Agent Warrants had been granted. Subsequent
to June 30, 2004, additional funding under the Senor A Units Offering was
received, the Senor A Units Offering was terminated, and additional warrants
were granted to Middlebury Capital. The Company 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 the Common Placement Agent Warrants and
the Preferred Placement Agent Warrants under the Securities Act.

Rescission Offer
----------------

Contemporaneous with the commencement of the Senior A Units Offering, the
Company conducted a rescission offer that it made to

                                       13
<PAGE>


certain of its existing
stockholders who had originally acquired their shares of Common Stock in
connection with a private placement conducted from June 2002 through July 2003
by PowerHouse Studios (and after May 19, 2003, by the Company) (the "Rescission
Offer"). Pursuant to the Rescission Offer, these stockholders were given the
opportunity to rescind the purchase of such shares for either the cash
consideration paid for the shares, with interest, or Series A Junior Units, each
Junior A Preferred Unit consisting of four shares of the Company's Series A
Junior Convertible Preferred Stock, convertible into Common Stock upon demand
(the "Junior A Preferred Stock"), and a five-year warrants to purchase one share
of Common Stock at an exercise price of $3.83 (the "Junior A Preferred
Warrants").

The Rescission Offer was based on certain of the matters alleged by the Company
in the Proctor Litigation. (See Part I, Financial Information, Item 1, Financial
Statements, note 6 to the financial statements.) Stockholders who accepted the
Rescission Offer were required to give general waivers and releases with respect
to certain potential claims against the Company. The Junior A Preferred Stock
has certain preferences over the Common Stock, including an anti-dilution
provision in the event the Company is unsuccessful in its current litigation
with the Proctor Group. In the event of a Triggering Event, the holders of the
Junior A Preferred Stock will, through an automatic change in their conversion
price, maintain the same percentage interest in the Company as they held
immediately prior to the Triggering Event. However, in the event of a Triggering
Event, the holders of the Common Stock do not have any additional protective
rights and may be subject to substantial dilution. The Junior A Preferred
Warrants contain customary anti-dilution provisions for stock dividends, stock
splits and the like.

The Rescission Offer was completed on June 4, 2004, and holders of approximately
217,938 shares of Common Stock accepted the Rescission Offer in exchange for
Series A Junior Units and holders of approximately 46,500 shares of Common Stock
accepted the Rescission Offer for cash consideration. Holders of approximately
119,665 shares of Common Stock retained their ownership of Common Stock as
originally purchased. As a result, the Company issued 1,082,026 shares of Junior
A Preferred Stock to certain investors in connection with its Rescission Offer
and Junior A Units Offering. The Company also issued Junior Preferred Warrants
to purchase 270,507 shares of Common Stock. The closing market price of the
Common Stock on June 3, 2004, the day prior to the transaction, was $4.25. The
Company 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 Junior A Preferred Stock and Junior A Preferred Warrants
under the Securities Act.

Merger with First Person Software, Inc.
---------------------------------------

On May 28, 2004, the Company entered into a Merger Agreement (the "FPS Merger
Agreement") with First Person and its stockholders (either directly as
signatories to the FPS Merger Agreement or as parties in interest to the FPS
Merger Agreement, represented by a duly authorized representative) to acquire
approximately 51% of the shares of outstanding common stock of First Person in
consideration of cash and shares of Common Stock of the Company, at an aggregate
of $2,500,000. The consideration included a certain amount of cash that was held
in escrow by an authorized agent and was released, subsequent to June 30, 2004,
upon the satisfactory review by the Company of First Person's financial
statements, and further includes a certain number of shares of Common Stock that
are currently being held in escrow by the same agent and that will only be
released upon the satisfactory achievement by the Company of certain performance
milestones within the applicable periods specified in the FPS Merger Agreement.
Immediately prior to the FPS Merger, the Company owned approximately 49% of the
outstanding shares of First Person stock, which shares were originally purchased
by the Company in November 2002.

The FPS Merger closed on June 18, 2004 and in connection therewith, the Company
issued 217,938 shares of Common Stock to former stockholders of First Person.
The shares were valued at $4.59 per share. The closing market price of the
Common Stock on June 17, 2004, the day prior to the transaction, was $5.25. The
Company 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 under the Securities Act.

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 AND REPORTS ON FORM 8-K.

                                       14
<PAGE>


(a)   Exhibit 2. Agreement and Plan of Merger, dated as of May 28, 2004, by and
      among the Company, PowerHouse Acquisition, First Person, Christopher
      Neumann, David Brett Levine and Karl Jacob, acting solely as shareholder
      representative, hereby incorporated by reference from the Company's
      Current Report on Form 8-K filed on July 6, 2004.

      Exhibit 4.1 Certificate of Designations, Preferences and Rights of Series
      A Senior Convertible Preferred Stock.

      Exhibit 4.2 Certificate of Designations, Preferences and Rights of Series
      A Junior Convertible Preferred Stock.

      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 did not file any reports on Form 8-K during the quarter ended
      June 30, 2004.

                                       15
<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: September 13, 2004       By:   /s/ Jay Elliot
                                   ------------------------------------------
                                    Jay Elliot
                                    Chairman of the Board and Chief Executive
                                    Officer
                                    (Principal Executive Officer)


Date: September 13, 2004      By:   /s/ David R. Wells
                                  -------------------------------------------
                                    David R. Wells
                                    Vice President Finance Operations
                                    (Principal Financial and Accounting Officer)

                                       16
<PAGE>


Exhibit Index:


Exhibit    Description Number

1          Agreement and Plan of Merger, dated as of May 28, 2004, by and among
           the Company, PowerHouse Acquisition, First Person, Christopher
           Neumann, David Brett Levine and Karl Jacob, acting solely as
           shareholder representative, hereby incorporated by reference from the
           Company's Current Report on Form 8-K filed on July 6, 2004.

4.1        Certificate of Designations, Preferences and Rights of Series A
           Senior Convertible Preferred Stock.

4.2        Certificate of Designations, Preferences and Rights of Series A
           Junior Convertible Preferred Stock.

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.


                                       17