**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




-----------------------------------------


**FORM
      10-QSB**


-----------------------------------------







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







FOR
                THE QUARTERLY PERIOD ENDED **June 30,
                2007**




o 
                    TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934




FOR
      THE
      QUARTERLY PERIOD FROM _____ TO _________ .





Commission
      File # 000-51055




**RED
      MILE ENTERTAINMENT, INC.**


(Exact
      name of registrant as specified in its charter)




Delaware
            20-4441647(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer Identification Number)




**4000
      Bridgeway, Suite 101**


**Sausalito,
      CA 94965**


(ADDRESS
      OF PRINCIPAL EXECUTIVE OFFICES)




**(415)
      339-4240**


(ISSUER
      TELEPHONE NUMBER)




Securities
      registered pursuant to Section 12(b) of the Act: None




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 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 check mark whether the registrant is a shell company as defined in Rule
      12b-2
      of the Exchange Act. Yes o No
      [ X
      ]





Number
      of
      shares of the registrant's common stock outstanding as of August 10, 2007 is:
      15,854,123.





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








1























Table
                of Contents
            
            Page**PART
                I**
            FINANCIAL
                INFORMATIONITEM
                1.
            FINANCIAL
                STATEMENTS
            3ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
            17ITEM
                3.
            CONTROLS AND PROCEDURES
            22**PART
                II**
            OTHER
                INFORMATIONITEM
                1A.
            RISK
                FACTORS
            23ITEM
                2.
            CREATION
                  OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE
                  SHEET ARRANGEMENT OF REGISTRANT
            28ITEM
                6.
            EXHIBITS
            29SIGNATURE
                PAGE
            30














2












Part
      I. FINANCIAL INFORMATION






ITEM
      1.
      Financial Statements






**RED
      MILE ENTERTAINMENT, INC. AND SUBSIDIARIES**


**Condensed
                Consolidated Balance Sheets****June
                  30,****2007**
            
            
            **March
                  31, 2007****Assets**
            
            (Unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            2,245,906
            
            
            $
            1,912,992Accounts
                receivable, net of reserves of $238,168 and $265,765
            
            
            413,034
            
            
            
            245,843Inventory,
                net
            
            
            50,003
            
            
            
            77,232Prepaid
                expenses and other assets
            
            
            300,177
            
            
            
            302,431Current
                portion of issuance costs on senior secured convertible debentures
                and
                convertible promissory notes
            
            
            528,240
            
            
            
            305,226Software
                development costs and advanced royalties
            
            
            7,213,805
            
            
            
            6,072,849Total
                current assets
            
            
            10,751,165
            
            
            
            8,916,573Property
                and equipment, net
            
            
            197,275
            
            
            
            241,171Long
                term portion of  issuance costs on senior secured convertible
                debentures, net
              Intangible assets, net
            
            
            -
              103,479
            
            
            
            176,321
              114,240Other
                assets
            
            
            360,610
            
            
            
            313,244Total
                assets
            
            $
            11,412,529
            
            
            $
            9,761,549**Liabilities,
                and stockholders’ deficit**Current
                liabilities:Accounts
                payable:
            
            $
            903,617
            
            
            $
            994,675Accrued
                liabilities
              Convertible
                promissory notes
            
            
            1,476,782
              2,400,000
            
            
            
            1,124,398
              -Deferred
                revenue
            
            
            248,018
            
            
            
            -Total
                current liabilities
            
            
            5,028,417
            
            
            
            2,119,073Senior
                secured convertible debentures
            
            
            8,244,000
            
            
            
            8,244,000Total
                liabilities
            
            
            13,272,417
            
            
            
            10,363,073Common
                stock, $0.01 par value, authorized 100,000,000 shares; 9,661,740
                and
                9,661,740 shares outstanding, respectively
            
            
            96,617
            
            
            
            96,617Additional
                paid-in capital
            
            
            16,635,915
            
            
            
            16,518,164Accumulated
                other comprehensive income
            
            
            2,614
            
            
            
            1,885Accumulated
                deficit
            
            
            (18,595,034
            )
            
            
            (17,218,190
            )Total
                stockholders’ deficit
            
            
            (1,859,888
            )
            
            
            (601,524
            )Total
                liabilities, and stockholders’ deficit
            
            $
            11,412,529
            
            
            $
            9,761,549






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








3













**RED
      MILE ENTERTAINMENT, INC. AND SUBSIDIARIES**




***Condensed
      Consolidated statements of operations***


***(Unaudited)***




**Three
                  months ended June 30,****2007**
              
              
              **2006**Revenues,
                  net
              
              $
              274,422
              
              
              $
              41,848Cost
                  of sales
              
              
              252,508
              
              
              
              37,460Gross
                  margin
              
              
              21,914
              
              
              
              4,388Operating expensesResearch  and
                  development costs
              
              
              154,027
              
              
              
              85,830General
                  and administrative costs
              
              
              898,066
              
              
              
              683,084Sales,
                  marketing and business development costs
              
              
              235,431
              
              
              
              231,944Total
                  operating expenses
              
              
              1,287,524
              
              
              
              1,000,858Net
                  loss before interest and provision for income taxes
              
              
              (1,265,610
              )
              
              
              (996,470
              )Interest
                  income (expense), net
              
              
              (111,234
              )
              
              
              5,545Net
                  loss before income tax expense
              
              
              (1,376,844
              
              
              
              (990,925
              )Income
                  tax expense
              
              
              -
              
              
              
              -Net
                  loss
              
              
              (1,376,844
              )
              
              
              (990,925
              )Accretion
                  on redeemable convertible preferred stock
              
              
              -
              
              
              
              (30,888
              )Net
                  loss attributable to common shareholders
              
              $
              (1,376,844
              )
              
              $
              (1,021,813
              )Net
                  loss per common share, basic and diluted
              
              $
              (0.14
              )
              
              $
              (0.16
              )Shares
                  used in computing basic and diluted loss per share
              
              
              9,661,740
              
              
              
              6,552,092







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














4










**RED
      MILE
      ENTERTAINMENT INC. AND SUBSIDIARIES**




***Condensed
      Consolidated Statements of Cash Flows***


***(Unaudited)***




**Three
                months ended June 30,****2007**
            
            
            **2006**Cash
                flows from operating activities:Net
                loss
            
            $
            (1,376,844
            )
            
            $
            (990,925
            )Adjustments
                to reconcile net loss to net cash used in operating
                activitiesDepreciation
            
            
            46,200
            
            
            
            18,704Amortization
                of software development costs
            
            
            74,017
            
            
            
            32,998Amortization
                of senior secured convertible debenture issuance costs
            
            
            76,307
            
            
            
            -Amortization
                of intangibles`
            
            
            10,761
            
            
            
            -Loss
                on disposal of asset
            
            
            1,970
            
            
            
            -Impairment
                of inventory
            
            
            12,836
            
            
            
            -Impairment
                of software development and licensing costs
            
            
            14,772
            
            
            
            37,575Stock
                based compensation
            
            
            117,751
            
            
            
            69,107Reserve
                for price protection and bad debt expense
            
            
            (27,597
            )
            
            
            -Changes
                in current assets and liabilitiesAccounts
                receivable
            
            
            (139,594
            )
            
            
            92,044Inventory
            
            
            14,393
            
            
            
            -Prepaid
                expenses and other current assets
            
            
            (120,746
            )
            
            
            (29,320
            )Software
                development costs
            
            
            (1,229,743
            )
            
            
            (803,225
            )Other
                assets
            
            
            -
            
            
            
            (41,727
            )Accounts
                payable
            
            
            (91,058
            )
            
            
            (298,185
            )Accrued
                liabilities
            
            
            352,384
            
            
            
            (141,721
            )Deferred
                revenue
            
            
            248,018
            
            
            
            62,500Net
                cash used in operating activities
            
            
            (2,016,173
            )
            
            
            (1,992,175
            )


5














Cash
                flows from investing activities:Sales
                of marketable securities
            
            
            -
            
            
            
            10,313Acquisition
                of property and equipment
            
            
            (4,182
            )
            
            
            (85,679
            )Cash
                paid for other investment
            
            
            (47,366
            )
            
            
            -Net
                Cash flows used in investing activities
            
            
            (51,548
            )
            
            
            (75,366
            )Cash
                flows from financing activities:Proceeds
                from sales of preferred stock  and warrants
            
            
            -
            
            
            
            2,645,000Cost
                of redeemable convertible preferred stock issuances
            
            
            -
            
            
            
            (165,624
            )Proceeds
                from issuance of convertible promissory notes
            
            
            2,400,000
            
            
            
            -Net
                cash provided by financing activities
            
            
            2,400,000
            
            
            
            2,479,376Effect
                of exchange rate changes on cash
            
            
            635
            
            
            
            (977
            )Net
                increase in cash
            
            
            332,914
            
            
            
            410,858Cash
                and cash equivalents, beginning of period
            
            
            1,912,992
            
            
            
            769,926Cash
                and cash equivalents, ending of period
            
            $
            2,245,906
            
            
            $
            1,180,784Supplemental
                Disclosure of Non-Cash Financing TransactionsAgent
                commissions accrued on issuance of convertible promissory
                notes
            
            $
            123,000
            
            
            
            -Accretion
                of redeemable convertible preferred stock
            
            
            -
            
            
            $
            30,888Relative
                fair value of warrants issued for preferred stock
            
            
            -
            
            
            $
            423,788Conversion
                of Series A Redeemable Convertible Preferred Stock, net of offering
                costs
            
            
            -
            
            
            $
            10,344,446




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


6












**RED
      MILE ENTERTAINMENT, INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**(Unaudited)**




**NOTE
      1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**




**Business**—
      Red Mile Entertainment, Inc. (“Red Mile” or “the Company”) was incorporated in
      Delaware in August of 2004. The Company is a developer and publisher of
      interactive entertainment software across multiple hardware platforms, with
      a
      focus on creating or licensing intellectual properties.  The Company
      sells its games directly to distributors and retailers in North America. In
      Europe and Australia, the Company either sells its games directly to
      distributors or licenses its games with major international game co-publishers
      in exchange for payment to the Company of either development fees or guaranteed
      minimum payments. The guaranteed minimum payments are recoupable by the partner
      against amounts owed computed under the various agreements. Once the partner
      recoups the guaranteed minimum payments, the Company is entitled to additional
      payments as computed under the agreements. The Company operates in one business
      segment, interactive software publishing.





**Going
      Concern**— The accompanying financial statements have been prepared in
      conformity with accounting principles generally accepted in the United States
      of
      America, which contemplates continuation of the Company as a going concern.
      However, the Company has sustained substantial operating losses since inception
      of $18,595,034 at June 30, 2007, and has incurred negative cash flows from
      operations.




The
      Company shipped its first products in August and September of 2005 generating
      its initial revenue. The Company expects that sales growth from existing as
      well
      as new products will continue. The continuation of the Company as a going
      concern is dependent upon the continued financial support of current
      shareholders, current debenture holders, and new investors, of which management
      cannot make any assurances.




The
      accompanying financial statements do not include any adjustments relating to
      the
      recoverability and classification of recorded asset amounts or the amounts
      and
      classifications of liabilities or any other adjustment that might result from
      these uncertainties.





**Basis
      of Presentation**— The unaudited condensed consolidated financial
      statements of the Company have been prepared in accordance with the instructions
      for Form 10-QSB and Article 10 of Regulation SX. Accordingly, the financial
      statements do not include all the information and disclosures necessary for
      a
      presentation of the Company’s financial position, results of operations and cash
      flows in conformity with generally accepted accounting principals in the United
      States of America. In the opinion of management, the financial statements
      reflect all adjustments (consisting only of normal recurring accruals) necessary
      for a fair statement of the Company’s financial position, results of operations
      and cash flows. The results of operations for an interim period are not
      necessarily indicative of the results for the full year. The financial
      statements should be read in conjunction with the audited financial statements
      and notes thereto contained in the Company’s Annual Report on Form 10-KSB for
      the fiscal year ended March 31, 2007.





On
      January 30, 2007 the company amended its Certificate of Incorporation to affect
      a 1 for 3 reverse stock split of the company’s common stock. The unaudited
      condensed consolidated financial statements for the current and prior periods
      have been adjusted to reflect the change in the number of shares.




**Principals
      of Consolidation**— The consolidated financial statements of Red Mile
      include the accounts of the Company, and its wholly-owned subsidiaries, 2WG
      Media, Inc., Roveractive, Ltd. and Red Mile Australia Pty Ltd.  All
      intercompany accounts and transactions have been eliminated in
      consolidation.




**Use
      of Estimates**– The preparation of financial
      statements in conformity with accounting principles generally accepted in the
      United States of America requires management to make estimates and assumptions
      that affect the reported amounts of assets and liabilities and disclosures
      of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Such
      estimates include sales returns and allowances, price protection estimates,
      provisions for doubtful accounts, accrued liabilities, estimates regarding
      the
      recoverability of prepaid royalties, inventories, software development costs,
      long lived assets, and deferred tax assets. These estimates generally involve
      complex issues and require us to make judgments, involve analysis of historical
      and future trends, can require extended periods of time to resolve, and or
      subject to change from period to period. Actual results could differ materially
      from our estimates.




**Concentration
      of Credit
      Risk**— Financial
      instruments which potentially subject us to concentration of credit risk consist
      of temporary cash investments and accounts receivable. During the periods ended
      June 30, 2007 and March 31, 2007, we had deposits in excess of the Federal
      Deposit Insurance Corporation (“FDIC”) limit at one U.S. based financial
      institution. At June 30, 2007 and March 31, 2007, Red Mile had uninsured bank
      balances and certificates of deposit totaling approximately $2,159,000 and
      $1,731,000, respectively.




7









**Receivable
      Allowances**– Receivables are stated net of allowances for price
      protection, returns, discounts and doubtful accounts.




We
      grant
      price protection to, and sometimes allow product returns from our customers
      under certain conditions.  Therefore, we record an allowance for price
      protection and returns at each balance sheet date.  The provision
      related to this allowance is reported in net revenues.  Price
      protection means credits relating to retail price markdowns on our products
      previously sold by us to customers.  We base these allowances on
      expected trends and estimates of potential future price protection and product
      returns related to current period product revenue.  Actual price
      protection and product returns may materially differ from our estimates as
      our
      products are subject to changes in consumer preferences, technological
      obsolescence due to new platforms or competing products.  Changes in
      these factors could change our judgments and estimates and result in variances
      in the amount of allowance required.  If customers request price
      protection in amounts exceeding the rate expected and if management agrees
      to
      grant it, then we may incur additional charges against our net
      revenues.




**Intangible
      Assets**— Intangible assets primarily consist of a website and customer
      list in conjunction with the acquisition of the assets of Rover
      Interactive.  These intangible assets are being amortized by the
      straight-line method over their useful lives, ranging from 12 to 120
      months.  Amortization of these intangible assets totaled $10,760 and
      $0 for the three months ended June 30, 2007 and 2006, respectively.





**Other
      Assets –**Other assets consist primarily of our 18% equity investment in
      the outstanding shares of IR Gurus Pty Ltd, a developer of interactive video
      games headquartered in Melbourne, Australia.





**Inventories**—
      Inventories consist of materials (including manufacturing royalties paid to
      console manufacturers), labor charges from third parties, and freight-in.
      Inventories are stated at the lower of cost or market, using the first-in,
      first-out method.  The Company performs periodic assessments to
      determine the existence of obsolete, slow moving and non-saleable inventories,
      and records necessary provisions to reduce such inventories to net realizable
      value.  We recognize all inventory reserves as a component of cost of
      goods sold.  All inventories are produced by third party
      manufacturers, and substantially all inventories are located at third party
      warehouses on consignment.




**Software
      Development Costs and Prepaid Royalties**— Software development costs
      include milestone payments to independent software developers and other third
      parties under development contracts and direct labor costs.  Software
      development costs also include license payments made to licensors of
      intellectual property we license.




Software
      development costs are accounted for in accordance with Statement of Financial
      Standards No. 86, “Accounting for the Costs of Computer Software to be Sold,
      Leased or Otherwise Marketed”.




Software
      development costs are capitalized once technological feasibility of a product
      is
      established and such costs are determined to be recoverable. For products where
      proven technology exists, thismay occur very early in the
      development cycle. Technological feasibility is evaluated on a
      product-by-product basis. Capitalized costs for those products that are
      cancelled or abandoned are charged immediately to cost of sales. The
      recoverability of capitalized software development costs is evaluated based
      on
      the expected performance of the specific products for which the costs
      relate.




Commencing
      upon product release, capitalized software development costs are amortized
      to
      cost of sales using the greater of the ratio of actual cumulative revenues
      to
      the total of actual cumulative revenues plus projected future revenues for
      each
      game or straight-line over the estimated life of the product.  For
      products that have been released in prior periods, we evaluate the future
      recoverability of capitalized amounts on a quarterly basis or when events or
      circumstances indicate the capitalized costs may not be recoverable. The primary
      evaluation criterion is actual title performance.




Significant
      management judgments and estimates are utilized in the assessment of when
      technological feasibility is established, as well as in the ongoing assessment
      of the recoverability of capitalized costs.  In evaluating the
      recoverability of capitalized software development costs, the assessment of
      expected product performance utilizes forecasted sales amounts and estimates
      of
      additional costs to be incurred.  If revised forecasted or actual
      product sales are less than and/or revised forecasted or actual costs are
      greater than the original forecasted amounts utilized in the initial
      recoverability analysis, the net realizable value may be lower than originally
      estimated in any given quarter, which could result in an impairment charge
      to
      cost of sales.





**Revenue
      Recognition**— **** The Company’s revenue
      recognition policies are in accordance with the American Institute Of Certified
      Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2 “Software
      Revenue Recognition” as amended by SOP 98-9 “Modification of SOP 97-2, Software
      Revenue Recognition, With Respect to Certain Transactions” and SOP 81-1
“Accounting for Performance of Construction Type and Certain Production-Type
      Contracts”, and Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition
      in Financial Statements”, as revised by SAB No. 104, “Revenue Recognition”. We
      evaluate revenue recognition using the following basic criteria and recognize
      revenue when all four criteria are met:





(i)
      Evidence of an arrangement: Evidence of an arrangement with the customer that
      reflects the terms and conditions to deliver products must be present in order
      to recognize revenue.








8









(ii)
      Delivery: Delivery is considered to occur when the products are shipped and
      the
      risk of loss and reward has been transferred to the customer. At times for
      us,
      this means when the product has shipped to the retailer from the distributor
      that we sold to.





(iii)
      Fixed or determinable fee: If a portion of the arrangement fee is not fixed
      or
      determinable, we recognize that amount as revenue when the amount becomes fixed
      or determinable.





(iv)
      Collection is deemed probable: We conduct a credit review of each customer
      involved in a significant transaction to determine the creditworthiness of
      the
      customer. Collection is deemed probable if we expect the customer to be able
      to
      pay amounts under the arrangement as those amounts become due. If we determine
      that collection is not probable, we recognize revenue when collection becomes
      probable (generally upon cash collection).





Product
      revenue, including sales to distributors, retailers, and co-publishers is
      recognized when the above criteria are met. We reduce product revenue for
      estimated future returns and price protection, which may occur with our
      distributors, retailers, and co-publishers. In the future, we may decide to
      issue price protection credits for either our PC or console products. When
      evaluating the adequacy of sales returns and price protection allowances, we
      analyze our historical returns, current sell-through of distributor and retailer
      inventory, historical returns on similar products, current trends in the video
      game market and the overall economy, changes in customer demand and acceptance
      of our products, and other factors.




In
      many cases, Red Mile receives minimum guaranteed royalties from the co-publisher
      or distributor prior to delivery of the products. Pursuant to SOP 81-1, the
      completed contract method of accounting is used as these minimum guarantee
      royalties usually do not become non-refundable until the co-publisher or
      distributor accepts the completed product. These receipts are credited to
      deferred revenue when received. Revenues are recognized as the product is
      shipped and actual royalties are earned. Periodically, we review the deferred
      revenue and, when the product is no longer being actively sold by the
      co-publisher or distributor or when our forecasts show that a portion of the
      revenue will not be earned out, this excess is taken into revenue. For the
      three
      month ended June 30, 2007, no unearned fees were included in revenue.




Our
      co-publishers will reserve a portion of their estimated sales for returns.
      Red
      Mile’s royalty revenue bears a direct relationship to the revenue of our
      co-publishers and our co-publishers have extensive history on which to estimate
      future returns. Therefore, Red Mile will often book its returns and price
      protection reserves using the same reserve factors as its co-publisher in
      determining net royalty revenues.  Our returns and price protection
      reserves for the three months ended June 30, 2007 and June 30, 2006 was $144,244
      and $0, respectively.





**Reclassification**– Certain prior period items have been reclassified to conform to the
      current period’s presentation.




**Foreign
      Currency Translation**— The functional currency of our foreign subsidiary
      is its local currency. All assets and liabilities of our foreign subsidiary
      are
      translated into U.S. dollars at the exchange rate in effect at the end of the
      period, and revenue and expenses are translated at weighted average exchange
      rates during the period. The resulting translation adjustments are reflected
      as
      a component of accumulated other comprehensive income (loss) in shareholders’
equity. The functional currency of the Company’s assets and liabilities
      denominated in foreign currencies is the US dollar.





**Stock-Based
      Compensation Plans**— On April 1, 2006, we adopted the provisions of
      Statement of Financial Accounting Standards (“SFAS”) 123(revised 2004),
*“Share-Based Payment”* (the “Statement or “SFAS 123(R)”), requiring us
      to recognize expense related to the fair value of our stock-based compensation
      awards. Prior to April 1, 2006, the Company used the minimum value method in
      estimating the value of employee option grants as allowed by SFAS 123, amended
      by SFAS 148 “ *Accounting for stock based compensation - transition and
      disclosure*”. Accordingly, we have elected to use the prospective transition
      method as permitted by SFAS 123(R) and therefore have not restated our financial
      results for prior periods. Under this transition method, stock-based
      compensation expense for the three months ended June 30, 2007 includes
      compensation expense for all stock option awards granted subsequent to March
      31,
      2006 based on the grant date fair value estimated in accordance with the
      provisions of SFAS 123(R). We recognize compensation expense for stock option
      awards on a straight-line basis over the requisite service period of the
      award.




In
      March
      2005, the SEC issued SAB No. 107, which offers guidance on SFAS 123(R). SAB
      107
      was issued to assist preparers by simplifying some of the implementation
      challenges of SFAS 123(R) while enhancing the information that investors
      receive. SAB 107 creates a framework that is premised on two overarching themes:
      (a) considerable judgment will be required by preparers to successfully
      implement SFAS 123(R), specifically when valuing employee stock options; and
      (b)
      reasonable individuals, acting in good faith, may conclude differently on the
      fair value of employee stock options. Key topics covered by SAB 107 include
      valuation models, expected volatility and expected term. The Company is applying
      the principles of SAB 107 in conjunction with its adoption of SFAS
      123(R).





Prior
      to
      the adoption of SFAS 123(R), we applied SFAS 123, amended by SFAS 148,
“Accounting*for Stock-Based Compensation, Transition and Disclosure*”
(“SFAS 148”), which allowed companies to apply the existing accounting rules
      under Accounting Principles Board No. 25, “ *Accounting for Stock Issued to
      Employees* ,” (APB 25) and related Interpretations. In general, as the
      exercise price of options granted under these plans was equal to the market
      price of the underlying common stock on the grant date, no stock-based employee
      compensation cost was recognized in our statements of operations for periods
      prior to the adoption of SFAS 123(R).




9













As
      required by SFAS 148, prior to the adoption of SFAS 123(R), we disclosed
      reported net loss which included stock-based compensation expense of $0,
      calculated in accordance with APB 25, and then pro forma net loss as if the
      fair-value-based compensation expense calculated in accordance with SFAS 123
      using the minimum value method had been recorded in the financial
      statements.




**Loss
      Per Share**—
We computed basic and diluted loss per share amounts pursuant to the
      Statement
      of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share.” Basic
      loss per share are computed using the weighted average number of common shares
      outstanding during the period. Diluted loss per share are computed using the
      weighted average number of common and potentially dilutive securities
      outstanding during the period. Potentially dilutive securities consist of the
      incremental common shares issuable upon on exercise of stock options, warrants,
      and senior secured convertible debentures (using the treasury stock method).
      Potentially dilutive securities are excluded from the computation if their
      effect is anti-dilutive.




The
      following table summarizes the weighted average shares outstanding:




**Three
                Months Ended June 30,****2007**
            
            
            **2006**Basic
                weighted average shares outstanding
            
            
            9,661,740
            
            
            
            6,552,092Total
                stock options outstanding
            
            
            1,988,745
            
            
            
            1,037,633Less:
                anti-dilutive stock options due to loss
            
            
            (1,988,745
            )
            
            
            (1,037,633
            )Total
                redeemable convertible preferred stock outstanding
            
            
            -
            
            
            
            1,278,287Less:
                anti-dilutive redeemable convertible preferred stock due to
                loss
            
            
            -
            
            
            
            (1,278,287
            )Total
                senior secured convertible debenture
            
            
            1,570,286
            
            
            
            -Less:
                anti-dilutive seniot secured convertible debenture due to
                loss
            
            
            (1,570,286
            )
            
            
            -Total
                warrants outstanding
            
            
            2,794,176
            
            
            
            4,099,620Less:
                anti-dilutive warrants due to loss
            
            
            (2,794,176
            )
            
            
            (4,099,620
            )Total
                convertible promissory notes outstanding
            
            
            960,000
            
            
            
            -Less:
                anti-dilutive convertible promissory notes due to loss
            
            
            (960,000
            )
            
            
            -Diluted
                weighted average shares outstanding
            
            
            9,661,740
            
            
            
            6,552,092




**NOTE
      2 — ACCRUED
      LIABILITIES**




**June
                30, 2007**
            
            
            **March
                31, 2007**Accrued
                professional fees
            
            $
            159,771
            
            
            $
            217,370Accrued
                royalties payable
            
            
            55,851
            
            
            
            50,676Accrued
                bonuses
            
            
            127,530
            
            
            
            87,314Accrued
                interest on senior secured convertible debentures
            
            
            137,194
            
            
            
            —Accrued
                milestone payments to developers
            
            
            510,000
            
            
            
            420,000Accrued
                paid time off
            
            
            54,017
            
            
            
            38,741Other
                miscellaneous
            
            
            26,208
            
            
            
            93,203Accrued
                marketing costs
            
            
            235,000
            
            
            
            175,000Accrued
                commissions
            
            
            171,211
            
            
            
            42,094Total
            
            $
            1,476,782
            
            
            $
            1,124,398




**NOTE
      3 — DEFERRED REVENUE**





**June
                30, 2007**
            
            
            **March
                31, 2007**Lucinda
                Green’s Equestrian Challenge
            
            $
            248,018
            
            
            $
            —Total
            
            $
            248,018
            
            
            $
            —





10









**NOTE
      4 — COMMITMENTS**





In
      the
      normal course of business, we enter into contractual arrangements with
      third-parties for the development of products, as well as for the rights to
      intellectual property. Under these agreements, we commit to provide specified
      payments to a developer, or intellectual property holder, based upon contractual
      arrangements. Typically, the payments to third-party developers are conditioned
      upon the achievement by the developers of contractually specified development
      milestones. These payments to third-party developers and intellectual property
      holders may be deemed to be advances and are recoupable against future royalties
      earned by the developer or intellectual property holder based on the sale of
      the
      related game. Assuming all contractual provisions are met, the total future
      minimum contract commitments for development contracts and intellectual property
      holders in place as of June 30, 2007 are approximately $14,734,929. which is
      scheduled to be paid as follows:




**Year
                ended March 31,**2008
            
            $
            8,717,7962009
            
            
            6,017,134Total
            
            
            $
            14,734,929


*Lease
      Commitments*




Operating
      Leases — Red Mile leases its office space under a twelve month operating lease
      expiring March 2008 with a monthly base rental of $6,240 per month. Rent expense
      for the three months ended June 30, 2007 and 2006 was $18,720 and $24,150,
      respectively.




The
      minimum future lease payments for the above lease as of June 30, 2007 is $49,920
      for the fiscal year ended March 31, 2008. No payments are due in future fiscal
      years beyond 2008.





**NOTE
      5 —
DEBT**





**Convertible
      Promissory Notes**





On
      June
      25 through June 27, 2007, the Company issued an aggregate of $2,050,000 of
      Convertible Promissory Notes (the “Notes”) to a total of 19 note holders with
      J.F. Mackie & Company, Ltd. acting as the placement agent (the “Agent”). All
      the note holders are residents of Canada. The Notes mature on the earlier to
      occur of a Sale Event, as defined below, or the one year anniversary of the
      date
      of issuance.  A Sale Event constitutes a bona fide, negotiated
      transaction or integrated series of transaction pursuant to which either: (i)
      the Company merges or consolidates with any other non-affiliated entity or
      sells, exchanges, or otherwise disposes of all or substantially all of its
      assets to a non-affiliated third party; or (ii) in which more than 50% of the
      Company’s voting power is transferred in a private placement to one
      person.





In
      addition, on June 25, 2007, the Company, without the assistance of the Agent,
      issued a $350,000 Convertible Promissory Note to one note holder. This note
      holder is also a resident of Canada. This note matures on the same terms as
      the
      Notes (the Notes and this additional note, the “Combined Notes”).





The
      Combined Notes will automatically convert concurrent with the consummation
      of a
      Next Financing prior to the Maturity Date. In the case of such a conversion,
      the
      Combined Notes will convert into the form of equity issued by the Company in
      that equity financing at a price per share equal to the lowest price in that
      financing. Immediately upon such conversion, the Note Holder will also receive
      one half of one warrant for every share received upon conversion of the note
      held by such Note Holder, exercisable at $2.75 per share for a period of 2
      years
      from the closing date of such equity financing.




The
      Combined Notes bear interest at the rate of 10% per annum, non-compounded,
      and
      the interest is payable in cash by the Company on the maturity date. The
      Agent is to be paid a commission equal to 6% of the principal amount of the
      Notes.





The
      Company issued the Agent and its nominees broker’s warrants entitling it to
      purchase up to 215,408 shares of the Common Stock at $3.00 until July 18,
      2009.





The
      Combined Notes are subordinated obligations of the Company secured against
      all
      present and after acquired assets of the Company.





The
      Combined Notes were issued in private placement transactions to investors who
      are not "U.S. persons" pursuant to the exemption from registration provided
      by
      Rules 901 and 903 of Regulation S under the Securities Act of 1933, as
      amended.





On
      July
      18, 2007, the convertible promissory notes automatically converted upon the
      completion of a private placement financing as described in
      our
      subsequent events note (Note 10) into 960,000 shares of the Company’s common
      stock and 192,000 warrants.  One whole warrant entitles the holder to
      acquire, for no additional consideration, one common share of the Company in
      the
      event that the Company does not complete a liquidity transaction by March 18,
      2008.  The warrants will automatically be cancelled if the Company
      completes such a liquidity transaction by March 18, 2008.





11









In
      addition, the Company issued to the note holders warrants to purchase 480,000
      shares of the Common Stock at $2.75 per share until July 18, 2009.





**Senior
      Secured Convertible Debentures**





On
      October 19, 2006, the Company issued $5,824,000 of Senior Secured Convertible
      Debentures.  Pursuant to the terms of the Agency Agreement, the Agent
      facilitated the purchase of 5,824 convertible debentures to 74 Debenture Holders
      for an aggregate principal face amount of $5,824,000. The Debentures mature
      on
      October 19, 2008 and are convertible into shares of the Common Stock of the
      Company at a ratio of $5.25 per Common Share (the “Conversion
      Price).





On
      November 20, 2006, the Company, issued $2,420,000 of Senior Secured Convertible
      Debentures.  Pursuant to the terms of the Agency Agreement, the Agent
      facilitated the purchase of 2,420 convertible debentures to 7 Debenture Holders
      for an aggregate principal face amount of $2,420,000. These Debentures mature
      on
      November 20, 2008 and are convertible into shares of the Common Stock of the
      Company at a ratio of $5.25 per Common Share (the “Conversion
      Price).





The
      conversions on the above mentioned Debentures may be exercised at the election
      of the holders of the Debentures at any time after a minimum non-conversion
      period of 12 months from the issue date. The conversions can also be exercised
      by the Company after a minimum non-conversion period of 12 months from the
      issue
      date so long as the Company’s Common Shares have begun trading on a recognized
      exchange and have traded at a minimum volume weighted average price of
      $9.00/share for 20 consecutive trading days, subject to certain
      limitations.





On
      the
      maturity dates of the two sets of Debentures, the Company retains the right
      to redeem the Debentures in cash, in kind, or in cash and in kind with Common
      Shares of the Company. The Company also has the right to redeem the Debentures
      at a redemption price equal to 115% of the principal face value at any time
      after a period of 12 months so long as the Company’s Common Shares have begun
      trading on a recognized exchange and have traded at a minimum volume weighted
      average price of $9.00/share for 20 consecutive trading days, subject to certain
      limitations.





The
      total
      capitalized fees were $610,453, with the $494,640 in agent’s commissions
      comprising the majority of the capitalized fees. The remaining $115,813 in
      fees
      was primarily legal fees.




The
      Debentures carry a coupon rate of 5.5% per annum, non-compounded, and the
      interest is payable semi-annually on March 15 and September 15 in cash, or
      in
      kind.  The accrued interest at June 30, 2007 is $132,920. This is included
      within the Accrued Liabilities account.  For the three month ended
      June 30, 2007, interest expense was $113,044, of which $16,347 was capitalized
      to software development costs, in accordance with SFAS 34, “Capitalization of
      Interest Cost.”  .





The
      Debentures are secured direct senior obligations of the Company secured against
      all present and after acquired property of the Company except for accounts
      receivable in which case the Debenture holders rank less senior to other
      creditors for the security interest in accounts receivable. The Debentures
      have
      full rights to piggyback registration after a period of 12 months.





On
      July
      18, 2007, holders of more than 66 2/3% of the $8,244,000 principal amount of
      senior secured convertible debentures and the accrued interest on the
      debentures, after a proposal brought forth by the Company, voted by way of
      extraordinary resolution to cancel such debentures and convert the principal
      and
      accrued interest amounts of their debentures into shares of the Company’s stock
      at $2.50 per share, thereby resulting in the conversion of the full principal
      and interest amounts associated with such debentures into 3,359,713 shares
      of
      the Company’s common stock (see Note 10).





**NOTE
      6 — STOCK OPTIONS AND STOCK COMPENSATION**





The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option pricing model with the following assumptions:





**Period
                Ended June 30, 2007**Expected
                life (in years)
            
            4.2
                – 6.5Risk
                free rate of return
            
            4.5%
                - 5.13%Volatility
            
            50%
                - 80%Dividend
                yield
            
            -Forfeiture
                rate
            
            9%
                - 15%





12











The
      following table sets forth the total stock-based compensation expense for the
      three months ended June 30, 2007 and June 30, 2006.  All research and
      development costs, and sales, marketing, and business development costs in
      this
      table are related to employees. General and administrative costs are broken
      out
      between those related to consultants and those related to
      employees.




**Three
                  Months Ended June 30, 2007**
              
              
              **June
                  30, 2006**Research
                  and development costs
              
              $
              5,597
              
              
              $
              $ 1,736Sales,
                  marketing, and business development costs
              
              
              7,284
              
              
              
              4,850General
                  and administrative costs—consultants
              
              
              -
              
              
              
              62,521General
                  and administrative costs—employees
              
              
              104,870
              
              
              
              -Stock-based
                  compensation before income taxes
              
              
              117,751
              
              
              
              69,107Income
                  tax benefit
              
              
              -
              
              
              
              -Total
                  stock-based employee compensation expense after income
                  taxes
              
              $
              117,751
              
              
              $
              $69,107




The
      following table sets forth the total stock-based compensation expense for the
      three months ended June 30, 2007 and 2006:




**Three
                  Months Ended June 30, 2007**
              
              
              **June
                  30, 2006**Stock-based
                  employee compensation expense before income taxes
              
              $
              117,751
              
              
              $
              6,586Stock-based
                  consultant compensation expense before income taxes
              
              
              -
              
              
              
              62,521Stock-based
                  compensation before income taxes
              
              
              117,751
              
              
              
              69,107Income
                  tax benefit
              
              
              -
              
              
              
              -Total
                  stock-based employee compensation expense after income
                  taxes
              
              $
              117,751
              
              
              $
              69,107




During
      the three months ended June 30, 2007, no common stock options were granted
      to
      non-employees.





On
      April
      8, 2005, the Board of Directors approved the Red Mile Entertainment 2005 Stock
      Option Plan which permits the Board of Directors to grant to officers,
      directors, employees and third parties incentive stock options (“ISOs”),
      non-qualified stock options, restricted stock and stock appreciation rights
      (“SARs”). At March 15, 2007, the Board of Directors and stockholders holding a
      majority of voting power voted to authorize the board of directors, at its
      discretion, to amend the 2005 Stock Option Plan. This amendment would take
      effect no sooner than May 14, 2007. Under the Amended Plan, options for
      2,500,000 shares of common stock are reserved for issuance.  At June
      30, 2007, 511,255 options are available for grant.  Options have been
      issued with exercise prices of between $0.66 and $4.00 per share as
      follows:





**Options
                Outstanding**
            
            
            **Options
                Exercisable****Number**
            
            
            **Weighted
                Avg.**
            
            
            **Weighted
                Avg.**
            
            
            **Number**
            
            
            **Weighted
                Avg.****Range
                of Exercise Prices**
            
            
            **Outstanding**
            
            
            **Remaining
                Life**
            
            
            **Exercise
                Price**
            
            
            **Exercisable**
            
            
            **Exercise
                Price**$
            0.66
                - $1.49
            
            
            
            902,910
            
            
            
            8.50
            
            
            
            0.71
            
            
            
            562,854
            
            
            
            0.74$
            1.50
                - $2.37
            
            
            
            96,667
            
            
            
            8.65
            
            
            
            2.89
            
            
            
            63,333
            
            
            
            1.91$
            2.38
                - $4.00
            
            
            
            989,168
            
            
            
            9.72
            
            
            
            4.03
            
            
            
            18,542
            
            
            
            3.301,988,745
            
            
            
            
            
            
            $
            3.02
            
            
            
            644,729
            
            
            $
            0.83










13













Option
      activity under the Amended Plan is as follows:




**Options**
            
            **Shares**
            
            **Weighted
                Average Exercise Price**
            
            **Weighted
                Average Remaining Contractual Term**
            
            **Aggregate
                Intrinsic Value**Outstanding
                at March 31, 2006
            
            
            940,966
            
            $
            0.75Exercisable at March 31, 2006
            
            
            177,620
            
            $
            0.90Granted
            
            
            1,124,167
            
            
            3.75Forfeited or expired
            
            
            (76,388)
            
            
            2.73Outstanding at March 31, 2007
            
            
            1,988,745
            
            $
            2.28Exercisable at March 31, 2007
            
            
            607,000
            
            $
            0.83Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Forfeited
                or expired
            
            
            -
            
            $
            -Outstanding
                at June 30, 2007
            
            
            1,988,745
            
            $
            2.28
            
            
            9.45
            
            $
            2,425,794Exercisable
                at June 30, 2007
            
            
            644,729
            
            $
            0.85
            
            
            8.41
            
            $
            1,706,565







In
      the
      case where shares have been granted to third parties, the fair value of such
      shares is recognized as an expense in the period issued using the Black-Scholes
      option pricing model,.  There were no grants made to third parties
      during the three months ended June 30, 2007.





In
      the
      case of shares granted to employees, the fair value of such shares is recognized
      as an expense over the service period. There were no option grants issued to
      employees during the three months ended June 30, 2007.  As of June 30,
      2007, the fair value of options issued by the Company was $1,837,618. Expense
      recognized for the three months ended June 30, 2007 was $117,751.  The
      unamortized cost remaining at June 30, 2007 was $1,352,988 with a weighted
      average expected term for recognition of 4.49 years. At the time of grant,
      the
      estimated fair values per option were from $0.33 to $2.94.





**NOTE
      7 — WARRANTS**





The
      following table lists the total number of warrants outstanding as of June 30,
      2007.




**Expiring**
              
              **Strike**
                **Price**
              
              **Number
                  of**
                **Common
                  shares**December
                  31, 2007
              
              4.50
              
              681,778May
                  1, 2008
              
              4.50
              
              585,287May
                  2, 2008
              
              4.50
              
              845,333December
                  31, 2008
              
              5.25
              
              681,778Total
              
              
              
              2,794,176




During
      the three months ended June 30, 2007, there were no warrants exercised, and
      no
      warrants that expired.





**NOTE
      8 — CONCENTRATIONS**




***Customer
      base***




Our
      customer base includes distributors, co-publishers, and retailers of video
      games
      in the United States, Europe, and Australia. We review the credit worthiness
      of
      our customers on an ongoing basis, and believe that we need an allowance for
      potential credit losses at June 30, 2007 of $93,924. Also netted against
      accounts receivable are returns and price protection reserves on existing
      receivables of $144,244.  Account balances are charged off against the
      allowance when the Company believes it is probable that accounts receivable
      will
      not be recovered. As of June 30, 2007, we had two customers who accounted for
      63.6% and 32.0% of gross accounts receivable. These customers were Navarre
      Corporation and GameStop, respectively. Navarre Corporation, Funtastic, Ltd.
      and
      GameStop accounted for 42.4%, 32.7% and 15.1%, respectively, of consolidated
      revenue during the three months ended June 30, 2007. As of March 31, 2007,
      we
      had two customers who accounted for 49.1% and 28.1% of gross accounts
      receivable.






14









***Operations
      by Geographic Area***




Our
      products are sold in North America, Europe, and Australia through third-party
      licensing arrangements, through distributors, and through
      retailers.





The
      following table displays consolidated net revenue by location:





**Location**
            
            **Revenue**United
                States
            
            $
            161,960Australia
            
            
            112,462$
            274,422





***Location
      of assets***




The
      Company’s tangible assets excluding inventory are located at its corporate
      offices in Northern California and on loan to a third party developer in
      Melbourne, Australia, for which the Company owns an 18% interest in. Inventory
      is located at several third party warehouse facilities, primarily in
      Minnesota.




**NOTE
      9 — NEW ACCOUNTING PRONOUNCEMENT**




**EITF
      06-03**




In
      June
      2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
      No. 06-03 (“EITF 06-03”), “How Taxes Collected from Customers and Remitted to
      Governmental Authorities Should Be Presented in the Income Statement (That
      Is,
      Gross versus Net Presentation).” EITF 06-03 provides that the presentation of
      taxes assessed by a governmental authority that is directly imposed on a
      revenue-producing transaction between a seller and a customer on either a gross
      basis (included in revenues and costs) or on a net basis (excluded from
      revenues) is an accounting policy decision that should be disclosed. The
      provisions of EITF 06-03 became effective as of December 31, 2006. Our adoption
      of ETIF 06-03 has not and is not expected to have a material effect on our
      consolidated financial position or results of operations.




**SFAS
      157**




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*(SFAS 157), which provides guidance on how to measure assets and
      liabilities that use fair value.  SFAS 157 will apply whenever another
      US GAAP standard requires (or permits) assets or liabilities to be measured
      at
      fair value but does not expand the use of fair value to any new
      circumstances.  This standard also will require additional disclosures
      in both annual and quarterly reports.  SFAS 157 will be effective for
      fiscal 2009. We are currently evaluating the potential impact this standard
      may
      have on its financial position and results of operations.




**SFAS
      159**




On
      February 15, 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities* (SFAS No. 159). Under this
      Standard, we may elect to report financial instruments and certain other items
      at fair value on a contract-by-contract basis with changes in value reported
      in
      earnings. This election is irrevocable. SFAS No. 159 provides an opportunity
      to
      mitigate volatility in reported earnings that is caused by measuring hedged
      assets and liabilities that were previously required to use a different
      accounting method than the related hedging contracts when the complex provisions
      of SFAS No. 133 hedge accounting are not met. SFAS No. 159 is effective for
      years beginning after November 15, 2007. Early adoption within 120 days of
      the
      beginning of the company’s 2008 fiscal year is permissible, provided the company
      has not yet issued interim financial statement for 2008 and has adopted SFAS
      No.
      157. Management is currently evaluating the potential impact of adopting this
      Standard.




**FIN
      48**




Effective
      April 1, 2007, we adopted the provisions of FASB Interpretation
      No. 48, *Accounting for Uncertainty in Income Taxes — An Interpretation
      of FASB Statement No. 109*, or FIN 48. FIN 48 provides
      detailed guidance for the financial statement recognition, measurement and
      disclosure of uncertain income tax positions recognized in the financial
      statements in accordance with SFAS No. 109. Income tax positions must meet
      a “more-likely-than-not” recognition threshold at the effective date to be
      recognized upon the adoption of FIN 48 and in subsequent
      periods.




Upon
      review and analysis by the Company, we have concluded that no FIN 48 effects
      are
      present as of June 30, 2007 and our tax position has not materially changed
      since March 31, 2007.  For the three months ended June 30, 2007, we
      did not identify and record any liabilities related to unrecognized income
      tax
      benefits.  Therefore the adoption of FIN 48 does not impact our
      financial statements for the three months ended June 30, 2007.






15















We
      recognize interest and penalties related to uncertain income tax positions
      in
      income tax expense. No interest and penalties related to uncertain income tax
      positions were accrued at June 30, 2007.  Income tax returns for
      the fiscal tax year ended June 30, 2004 to the present are subject to
      examination by major tax jurisdictions.





**NOTE
      10 — SUBSEQUENT EVENTS**





On
      July
      18, 2007, Red Mile Entertainment, Inc., a Delaware corporation (the
“Registrant”), issued 1,872,600 units (the “Units”) at $2.50 per Unit with each
      Unit consisting of one share of the Registrant’s common stock, par value $.01
      (the “Common Stock”), and 0.2 of one warrant, pursuant to an agency agreement
      with J.F. Mackie & Company, Ltd. (the “Agent”).




Pursuant
      to the terms of the agency agreement, the Agent facilitated the purchase of
      the
      Units to a total of 69 accredited investors for an aggregate amount of
      $4,681,500. Of the 69 investors, 67 are residents of Canada, one is a resident
      of the Bahamas and one is a resident of Argentina.




Each
      whole warrant entitles the holder of the warrant to acquire, for no additional
      consideration, one share of the Common Stock in the event that the Registrant
      does not complete by March 18, 2008 a liquidity transaction, as defined in
      the
      agency agreement with the Agent. The warrants will automatically be cancelled
      if
      the Registrant completes a liquidity transaction by March 18,
      2008.  It is Management’s best estimation that a liquidity transaction
      is highly probable to be completed by March 18, 2008 with the warrants thereto
      being cancelled.




Additionally,
      upon the closing of the purchase of the Units, the convertible promissory notes
      issued by the Registrant on June 25 through June 27, 2007 with an aggregate
      principal amount of $2,400,000 automatically converted into 960,000 Units.
      In
      addition, the Registrant issued to the  former note holders warrants
      to purchase 480,000 shares of the Common Stock at $2.75 per share until July
      18,
      2009.  Using the Black-Scholes option pricing model, the fair value of
      such warrants issued was $662,902, which will be recorded as a beneficial
      conversion feature.




The
      Agent
      is an independent equity investment firm located in Calgary, Canada. Upon the
      closing of the transaction, the Registrant paid the Agent commissions of
      $403,890 and issued the Agent and its nominees broker’s warrants entitling it to
      purchase up to 215,408 shares of the Common Stock at $3.00 until July 18,
      2009.




The
      Registrant intends to use the proceeds of the offering for development and
      marketing of its interactive game franchises and ongoing working capital
      requirements.




Separately,
      holders of more than 66 2/3% of the $8,244,000 principal amount of senior
      secured convertible debentures and $155,281 in accrued interest on the
      debentures issued by Red Mile in October and November 2006 voted, pursuant
      to
      the Company’s offer, by way of extraordinary resolution to cancel such
      debentures and to convert the principal and accrued interest amounts of their
      debentures into shares of the Common Stock at $2.50 per share, thereby resulting
      in the conversion of the full principal and interest amounts associated with
      all
      such debentures into 3,359,713 shares of the Common Stock.  With the
      conversion, the Company will record a non-cash debt inducement conversion charge
      of $4,318,286.




All
      of the securities were issued in
      private placement transactions outside the United States to investors who are
      not “U.S. persons” pursuant to the exemption from registration provided by
      Regulation S under the Securities Act of 1933.****







16
















**RED
      MILE ENTERTAINMENT, INC.**




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATIONS**




This
      report on Form 10-QSB includes forward-looking statements, within the meaning
      of
      Section 21E of the Securities Exchange Act of 1934, that reflect Red Mile
      Entertainment, Inc.’s current expectations about its future results,
      performance, prospects and opportunities, including statements regarding the
      development and publishing of interactive entertainment software for console
      video game systems, personal computers and other interactive entertainment
      platforms.  Where possible, we have tried to identify these
      forward-looking statements by using words such as "anticipates," "believes,"
      "intends," or similar expressions. We cannot assure you that we will be able
      to
      successfully develop or publish any of these products. All forward-looking
      statements made in this report are made as of the date hereof, and we assume
      no
      obligation to update the forward-looking statements whether as a result of
      new
      information, future events, or otherwise, other than as required by law. The
      forward-looking statements are subject to risks and uncertainties that could
      cause actual results to differ materially, including risks that our proposed
      games will not be popular with consumers, that we may lose one or more of our
      key customers and other risks detailed in our SEC reports, including our Form
      10-KSB. Copies of these filings are available at
www.sec.gov.





*Liquidity
      and Capital resources*




During
      the quarter ended June 30, 2007, we raised $2.4 million before agent’s
      commissions in cash through private offerings.  On July 18, 2007, we
      raised an additional $4,681,500 before agent’s commissions through private
      offerings.  We plan to use the proceeds from the offerings for
      development and marketing of our interactive game franchises and ongoing working
      capital requirements.





We
      anticipate needing an additional $15,000,000 to finance our planned expansion
      OVER the next 12 months. We will be unable to complete development of new games
      or publish additional games other than those currently under development, or
      consummate any acquisitions, if we are unable to raise THIS additional
      financing. We believe our current cash on hand of approximately $4.8 million
      as
      of July 27, 2007, in addition to anticipated cash flow from operations, will
      enable the company to continue operating into our third fiscal quarter of
      2008.




In
      addition to money needed to develop new games, we will also need money to fund
      the expansion of our staff. It is currently anticipated we will hire an
      additional two employees in the next six months to support our expansion
      plans.




*Recent
      Developments*





On
      May
      18, 2007, the Company entered into a multi-year world-wide license agreement
      with Frank Miller, Inc., a New York Corporation (“FMI”).  The license
      grants the Company the exclusive rights for the development, manufacturing,
      and
      publishing of games on multi-platforms based on all current and future Sin
      City
      comic books and collections, graphic novels, and other books owned or controlled
      by FMI, including all storylines of those comic books and graphic
      novels.








17











**RED
      MILE ENTERTAINMENT, INC.**





*Results
      of Operations*




The
      unaudited results of operations for the three months ending June 30, 2007 and
      June 30, 2006 are as follows:






Summary
      of Unaudited Statements
      of Operations


Three
      Months Ended June 30, 2007 and 2006


**Summary
      of Statements of Operations**




**2007**
              
              
              **2006**
              
              
              **%
                  change**Revenue
              
              $
              274,422
              
              
              $
              41,848
              
              
              
              555.8
              %Cost
                  of sales
              
              
              252,508
              
              
              
              37,460
              
              
              
              574.1
              %Gross
                  margin
              
              
              21,914
              
              
              
              4,388Operating
                  expenses
              
              
              1,287,524
              
              
              
              1,000,858
              
              
              
              28.6
              %Net
                  loss before interest and provision for income taxes
              
              
              (1,265,610
              )
              
              
              (996,470
              )Interest
                  income (expense), net
              
              
              (111,234
              )
              
              
              5,545Income
                  tax expense
              
              
              ---
              
              
              
              ---Net
                  loss
              
              
              (1,376,844
              )
              
              
              (990,925
              )
              
              
              38
              %Accretion
                  on redeemable convertible preferred stock
              
              
              (---
              )
              
              
              30,888Net
                  loss attributable to common shareholders
              
              $
              (1,376,844
              )
              
              $
              (1,021,813
              )Net
                  loss per common share
                  - Basic and
                  diluted
              
              $
              (.14
              )
              
              $
              (.16
              )Shares
                  used in computing basic and diluted net loss per share (in
                  000’s)
              
              
              9,662
              
              
              
              6,552




*Revenues*




Revenues
      were approximately $274,000 during the three months ended June 30, 2007 as
      compared to approximately $42,000 during the three months ended June 30, 2006,
      an increase of approximately $232,000 or 556%.  The increase is
      primarily due to sales of Crusty Demons in Australia and sales of Aircraft
      Power
      Pack in North America.  During this period, our revenues consisted of
      sales from three new PC games (10 Talismans, Ouba, and Pantheon) licensed under
      our Roveractive, ltd. casual games division.





We
      have
      three games under development which we anticipate will be ready for shipment
      in
      fiscal years 2008 through 2010. We expect Jackass: The Game (for console and
      handheld platforms) to be ready for shipment in September 2007 for Sony
      platforms and in November 2008 for Nintendo platforms. We are also developing
      a
      sequel to Heroes of the Pacific that is set in the European theatre (next
      generation console and PC) that we expect to ship in fiscal 2009.  We
      have also commenced pre-production oF Sin City: The Game and expect development
      to commence in September 2007.





For
      the
      quarter ended June 30, 2006, our revenue consisted of royalties from three
      products (Crusty Demons, GripShift, and Disney’s Aladin Chess
      Adventure).





At
      June
      30, 2007, Navarre Corporation and GameStop accounted for approximately 95%
      of
      the gross consolidated accounts receivable and represented approximately 58%
      of
      our consolidated revenues for the three months ended June 30,
      2007.  As a result, we were materially dependent upon these customers
      for our revenues.  The loss of any single significant customer,
      especially Navarre Corporation and GameStop, would have a material adverse
      effect on our results.




In
      fiscal
      2008, we expect to self-publish our video games under development for release
      in
      North America, Europe, and Australia through third party distributors. Video
      games are significantly more capital intensive to self-publish due to the high
      cost of goods, which includes the hardware manufacturer royalties and the
      extensive marketing which is necessary to generate high consumer
      awareness.  Self publishing in North America would enable us to retain
      a greater portion of the wholesale revenue from these games. We would also
      take
      responsibility for consumer and trade advertising for these games under the
      self
      publishing model.







18









*Cost
      of sales*





Cost
      of
      goods sold were approximately $253,000 during the three months ended June 30,
      2007 as compared to approximately $37,000 during the three months ended June
      30,
      2006, an increase of approximately $215,000 or 574%.  The increase in
      cost of goods sold during the three months ended June 30, 2007 as compared
      to
      the prior year is primarily the result of the increase in sales as described
      in
      the above section.




For
      the
      three months ended June 30, 2007, cost of sales includes the amortization of
      software development costs for  Equestrian Challenge. Cost of sales
      also includes the amortization of prepaid royalties paid to the licensors
      of  10 Talismans, Ouba, and Pantheon. In addition, cost of sales
      includes the cost of manufacturing all of our products sold in the period as
      well as actual royalties paid to the developers of  Power Pack. Also
      included in cost of sales for the three months ended June 30, 2007 is a $29,766
      charge for the impairment of development costs and inventory for several games
      for which we now do not project we will be able to realize the carrying
      value.





Cost
      of
      sales for the three months ended June 30, 2007 consisted of:





Amortization
                of capitalized software development costs and manufacturing and
                distribution costs
            
            $
            193,476Royalties
                to third party game developers
            
            
            29,267Write
                down of inventory costs to net realizable value
              Write
                down of software development costs and advanced royalties to net
                realizable value
            
            
            12,836
              16,929Total
            
            $
            252,508





**Operating
      Expenses**




Operating
      expenses for the quarters ended June 30, 2007 and 2006, respectively, were
      as
      follows:




**Quarter
                ended**
              **June
                30, 2007**
            
            
            **Percent**
              **of
                total**
            
            
            **Quarter
                ended**
              **June
                30, 2006**
            
            
            **Percent**
              **Of
                total**
            
            
            **Percent**
              **Increase**Research
                and development costs
            
            $
            154,027
            
            
            
            12.0%
            
            
            $
            85,830
            
            
            
            8.6%
            
            
            
            79.5%General
                and administrative costs
            
            
            898,066
            
            
            
            70.0%
            
            
            
            683,084
            
            
            
            68.2%
            
            
            
            31.5%Marketing,
                sales and business development costs
            
            
            235,431
            
            
            
            18.0%
            
            
            
            231,944
            
            
            
            23.2%
            
            
            
            1.5%Total
                operating expenses
            
            $
            1,287,524
            
            
            
            100.0%
            
            
            $
            1,000,858
            
            
            
            100.0%
            
            
            
            28.6%





Research
      and Development Costs





Our
      research and development (R&D) expenses consist of the costs incurred in our
      internal development group which are not capitalized into our games under
      development as well as costs incurred prior to a game reaching technological
      feasibility as described in FAS 86. All direct game development during the
      year
      was performed by third party developers under fixed fee contracts. These
      external costs are capitalized upon the company determining that the game has
      passed the technological feasibility standard of FAS 86 and Commencing upon
      product release, capitalized software development costs are amortized to cost
      of
      sales using the greater of the ratio of actual cumulative revenues to the total
      of actual cumulative revenues plus projected future revenues for each game
      or
      straight-line over the estimated life of the product.  Certain
      internal costs are capitalized as part of the development costs of a game.
      During the three months ended June 30, 2007 approximately $118,000 of internal
      costs were capitalized and approximately $145,000 of external costs were
      expensed as incurred as costs prior to the related game reaching technological
      feasibility.





Research
      and development expenses were approximately $154,000 during the three months
      ended June 30, 2007 as compared to approximately $86,000 during the three months
      ended June 30, 2006, an increase of approximately $68,000 or
      80%.  Virtually all of the costs for R&D during the three months
      ended June 30, 2007 related to costs incurred in development prior to the
      related game reaching technological feasibility.





In
      general, a product goes through multiple levels of design, production, approvals
      and authorizations before it may be shipped. These approvals and authorizations
      include concept approvals from the platform licensors of the game concept and
      product content, approvals from the licensor of the intellectual property of
      the
      game design and game play, and approvals from the platform licensors that the
      game is free of all material bugs and defects. In addition, all games are
      required to be rated by the Entertainment Software Rating Board (ESRB) for
      their
      content.








19











Once
      the
      aforementioned approvals have been satisfied, the game can be placed into
      manufacturing at a manufacturer that must also be approved by the platform
      licensor. Once a product is manufactured and inspected, it is ready to be
      shipped.




One
      multi-platform product, Lucinda Green’s Equestrian Challenge, shipped in late
      November 2006 for the PS2 in North America, and shipped in early January 2007
      for the PC. This product shipped in July 2007 in Europe and is expected to
      ship
      in August 2007 in Australia.





Jackass:
      The Game, currently in the late stages of development, is expected to be
      available for shipment worldwide in September 2007 for the PSP and PS2 platforms
      and in the third fiscal quarter of 2008 for the DS Platform.  In
      August of 2006, we also began the production stage of a sequel of Heroes of
      the
      Pacific set in the European theatre on the next generation console and PC.
      It is
      targeted for shipment in fiscal 2009. This game moved in August of 2006 from
      the
      pre-production phase to the production phase.





On
      May
      18, 2007 we entered into a multi-year world-wide license agreement with Frank
      Miller, Inc., a New York Corporation (“FMI”). This license grants us the
      exclusive rights for the development, manufacturing, and publishing of games
      on
      multi-platforms based on all current and future Sin City comic books and
      collections, graphic novels, and other books owned or controlled by FMI,
      including all storylines of those comic books and graphic novels.  We
      have currently commenced pre production on this game and expect development
      to
      begin in September 2007.




The
      funds
      required to develop a new game depend on several factors, including: the target
      release platform, the scope and genre of the game design, the cost of any
      underlying intellectual property licenses, the length of the development
      schedule, the size of the development team, the complexity of the game, the
      skill and experience of the development team, the location of the development
      studio, and any specialized software or hardware necessary to develop a
      game.





General
      and Administrative Costs





General
      and administrative costs were approximately $898,000 during the three months
      ended June 30, 2007 as compared to approximately $683,000 during the three
      months ended June 30, 2006, an increase of $215,000 or 32%.  General
      and administrative (G&A) costs are comprised primarily of the costs of stock
      options issued to employees and consultants, employee salaries and benefits,
      professional fees (legal, accounting, investor relations, and consulting),
      facilities expenses, amortization and depreciation expenses, and insurance
      costs.  The majority of the increase relates to employee salaries and
      related costs and amortization on the convertible
      debentures.  Employee salaries and related costs had a year over year
      increase of approximately $107,000 or 41%.  The increase is due to the
      recognition of expense related to the fair value of employee option
      grants.  Amortization expense had a year over year increase of
      approximately $77,000.  The increase is primarily due to agent’s
      commission, associated with the issuance of  senior secured
      convertible debentures during the third quarter of fiscal 2007.





We
      expect
      that G&A cost will increase substantially throughout the remainder of fiscal
      2008 with our eventual implementation of Sarbanes-Oxley Section 404 and our
      expectation to become a reporting issuer in Canada as well as expanding the
      scope of our operations.





Sales,
      Marketing and Business Development Costs





Sales,
      marketing and business development costs were approximately $235,000 during
      the
      three months ended June 30, 2007 as compared to approximately $232,000 during
      the three months ended June 30, 2006, an increase of $3,000 or
      2%.  Sales, marketing, and business development costs consist
      primarily of employee salaries, stock option expenses, and employee benefits,
      consulting costs, public relations costs, marketing research, and sales support
      materials costs.  Sales costs year over year increased approximately
      $89,000 mainly due to the hiring of two full time employees.  We did
      not incur any sales related costs during the three months ended June 30,
      2006.  Business development costs year over year decreased
      approximately $73,000 mainly due to the refocus only on franchise
      products.  Overal marketing costs year over year decreased
      approximately $12,000 mainly due to the loss of one full time
      employee.  The net decrease in overall marketing costs was offset by
      an approximately $48,000 increase in public relations/promotional costs
      primarily due to the upcoming release of Jackass:  The
      Game.  In addition, a net decrease of $27,000 in marketing costs were
      realized from trade show costs that were incurred in the three months ended
      June
      30, 2006 but not incurred during the three months ended June 30,
      2007.





With
      the
      expected release of Jackass: The Game in September 2007, we expect marketing
      costs during fiscal 2008 to increase substantially.  We plan a major
      television and print advertising campaign behind this new game.





**Critical
      Accounting Policies and Estimates**




Red
      Mile's financial statements and related public financial information are based
      on the application of accounting principles generally accepted in the United
      States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments
      and
      subjective interpretations of accounting principles that have an impact on
      the
      assets, liabilities, revenue and expense amounts reported. These estimates
      can
      also affect supplemental information contained in our external disclosures
      including information regarding contingencies, risk and financial condition.











20











We
      believe our use of estimates and underlying accounting assumptions adhere to
      GAAP and are consistently applied. We base our estimates on historical
      experience and on various other assumptions that we believe to be reasonable
      under the circumstances. Actual results may differ materially from these
      estimates under different assumptions or conditions. We continue to monitor
      significant estimates made during the preparation of our financial
      statements.




Our
      significant accounting policies are
      summarized in Note 1 of our consolidated financial statements. While all these
      significant accounting policies impact its financial condition andresults of operations,
      Red Mile views
      certain of these policies as critical. Policies determined to be critical are
      those policies that have the most significant impact on Red Mile's consolidated
      financial statements and require management to use a greater degree of judgment
      and estimates. Actual results may differ from those estimates. Our management
      believes that given current facts and circumstances, it is unlikely that
      applying any other reasonable judgments or estimate methodologies would cause
      a
      material effect on our consolidated results of operations, financial position
      or
      liquidity for the periods presented in this report.





**Revenue
      recognition**




Red
      Mile’s revenue recognition policies are in accordance with the American
      Institute Of Certified Public Accountants (“AICPA”) Statement of Position
      (“SOP”) 97-2 “Software Revenue Recognition” as amended by SOP 98-9 ”Modification
      of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions”
and SOP 81-1 “Accounting for Performance of Construction Type and Certain
      Production-Type Contracts”.




In
      most
      cases, Red Mile ships finished products to major third party game distributors
      who will then sell these products to retailers. In North America, shipments
      made
      to an exclusive distributor are sold under consignment, and accordingly we
      do
      not record any revenue on these shipments until the distributor ships the games
      to its customers.  Revenue is recorded at the net amount the
      distributor is obligated to pay us.





Red
      Mile
      may receive minimum guaranteed royalties or development advances from its
      co-publisher(s) or distributor(s) prior to and upon final delivery and
      acceptance of a completed game. Under these agreements, such payments do not
      become non-refundable until such time as the game is completed and accepted
      by
      the co-publisher(s). Pursuant to SOP 81-1, the completed contract method of
      accounting is used and these cash receipts are credited to deferred revenue
      when
      received.




In
      cases
      where the contract with the co-publisher(s) is a development contract, revenue
      is recognized once the product is completed and accepted by the co-publisher(s).
      This acceptance by the co-publisher(s) is typically concurrent with approval
      from the third party hardware manufacturer for those products where approval
      is
      required from the third party hardware manufacturer.




In
      cases
      where the agreement with the co-publisher(s) or distributor(s) calls for these
      payments to be recouped from royalties earned by Red Mile from sales of the
      games, we do not recognize revenue from these payments until the game begins
      selling. Accordingly, we recognize revenue as the games are sold by the
      co-publisher(s) or distributor(s) using the stated royalty rates and definitions
      in the respective contract(s). Periodically, we review our deferred revenue
      balances and if the product is no longer being sold or when our current
      forecasts show that a portion of the revenue will not be earned out through
      forecasted sales of the games, the excess balance in deferred revenue is
      recognized as revenue.




Determining
      when and the amount of
      revenue to be recognized often involves assumptions and judgments that can
      have
      a significant impact on the timing and amount of revenue we report. For example,
      in recognizing royalty revenue, we must make assumptions as to the total number
      of units a product will sell, the average selling price of these units,
      potential returns and potential price protection of the product which could
      result incredits to
      retailers for their unsold inventory. Changes in any of these assumptions or
      judgments could cause a material increase or decrease in the amount of net
      revenue we report in a particular period.




**Software
      Development Costs**




Software
      development costs include the costs of milestone payments made to software
      developers and other third parties under development contracts. Such costs
      are
      accounted for in accordance with Statement of Financial Standards No. 86
“Accounting For The Costs Of Computer Software To Be Sold, Leased or Otherwise
      Marketed”.




Software
      development costs are capitalized once technological feasibility is established
      and such costs are determined to be recoverable from future sales of the game.
      Forproducts where
      proven technology exists, this may occur very early in the development cycle.
      Technological feasibility is determined on a game by game basis.





Capitalized
      costs for such games that are cancelled or abandoned are charged immediately
      to
      cost of sales. Recoverability of capitalized software is evaluated on the
      expected performance of the specific games for which the costs relate. Once
      the
      product is completed and released,  capitalized software development
      costs are amortized to cost of sales using the greater of the ratio of actual
      cumulative revenues to the total of actual cumulative revenues plus projected
      future revenues for each game or straight-line over the estimated life of the
      product.








21









For
      products released in prior periods, we evaluate the future recoverability of
      capitalized amounts on a quarterly basis or when events or circumstances
      indicate the capitalized costs may mot be recoverable.





Determining
      the amount to be expensed in a period and the ultimate recoverability requires
      judgments and assumptions that can have a significant impact on the timing
      and
      amount of the cost of sales that we report. For example, because the computation
      of cost of sales requires us to periodically forecast the worldwide lifetime
      unit shipments of a game, an increase or decrease in this assumption of total
      lifetime shipments could cause a material increase or decrease in the amount
      of
      cost of sales we report in a particular period.




**Receivable
      Allowances**




Receivables
      are stated net of allowances for price protection, returns, discounts and
      doubtful accounts.




We
      grant
      price protection or discounts to, and sometimes allow product returns from,
      our
      customers under certain conditions.  Therefore, we record an allowance
      for price protection, returns and discounts at each balance sheet
      date.  The provision related to this allowance is reported in net
      revenues.  Price protection means credits relating to retail price
      markdowns on our products previously sold by us to customers.  We base
      these allowances on expected trends and estimates of potential future price
      protection, product returns and discounts related to current period product
      revenue.  Actual price protection, product returns and discounts may
      materially differ from our estimates as our products are subject to changes
      in
      consumer preferences, technological obsolescence due to new platforms or
      competing products.  Changes in these factors could change our
      judgments and estimates and result in variances in the amount of allowance
      required.  If customers request price protection in amounts exceeding
      the rate expected and if management agrees to grant it, then we may incur
      additional charges.





**Inventories**





Inventories
      consist of materials (including manufacturing royalties paid to console
      manufacturers), labor charges from third parties, and freight-in. Inventories
      are stated at the lower of cost or market, using the first-in, first-out
      method.  The Company performs periodic assessments to determine the
      existence of obsolete, slow moving and non-saleable inventories, and records
      necessary provisions to reduce such inventories to net realizable
      value.  We recognize all inventory reserves as a component of cost of
      goods sold.  All inventories are produced by third party
      manufacturers, and substantially all inventories are located at third party
      warehouses on consignment.





**ITEM
      3. CONTROLS AND PROCEDURES**




The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s reports under the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the Commission’s rules and forms and that such information
      is accumulated and communicated to the Company’s management, including its chief
      executive officer and its chief financial officer, to allow for timely decisions
      regarding required disclosure.




As
      required by Commission Rule 13a-15(b), the Company carried out an evaluation,
      under the supervision and with the participation of the Company’s management,
      including the Company’s chief executive officer and chief financial officer, of
      the effectiveness of the design and operation of the Company’s disclosure
      controls and procedures as of the end of the quarter covered by this report.
      Based on the foregoing evaluation, the Company’s chief executive officer and
      chief financial officer concluded that these disclosure controls and procedures
      were effective as of June 30, 2007.





There
      has
      been no change in the Company’s internal control over financial reporting during
      the Company’s most recent fiscal quarter that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





22














**PART
      II. OTHER INFORMATION**




ITEM
        1A.
        RISK FACTORS


Item
      1A
      (“Risk Factors”) of the Company’s Form 10-KSB for the year ended March 31, 2007
      sets forth information relating to important risks and uncertainties that could
      materially adversely affect the Company’s business, financial condition or
      operating results. Those risks factors continue to be relevant to an
      understanding of the Company’s business, financial condition and operating
      results. Certain of those risk factors have been revised below to provide
      updated information. References to “we,” “our” and “us” in these risks factors
      refer to the Company.




An
      investment in our securities is highly speculative and involves a high degree
      of
      risk. Therefore, in evaluating us and our business you should carefully consider
      the risks set forth below. You should be in a position to risk the loss of
      your
      entire investment.




***Risks
      Relating to Our Company***





***Because
      we have only recently commenced business operations, it is difficult to evaluate
      our prospects and we face a high risk of business
      failure.***




We
      were
      incorporated in August 2004 and shipped our first two games in our second fiscal
      quarter of 2006 and an additional six games in fiscal 2007. During the three
      months ended June 30, 2007, we shipped an additional three PC games from our
      Roveractive, Ltd. casual games division.  We therefore face the risks
      and problems associated with businesses in their early stages in a competitive
      environment and have a limited operating history on which an evaluation of
      our
      prospects can be made. Until we develop our business further by publishing
      and
      developing more games, it will be difficult for an investor to evaluate our
      chances for success. Our prospects should be considered in light of the risks,
      expenses and difficulties frequently encountered in the establishment of any
      business in a competitive environment.




***We
      have not yet generated any income and may never become
      profitable.***




During
      the years ended March 31, 2007 and 2006, and the three months ended June 30,
      2007, we incurred net losses of $8,038,894, $4,849,678, and $1,376,844
      respectively. Our ability to generate revenues and to become profitable depends
      on many factors, including the market acceptance of our products and services,
      our ability to control costs and our ability to implement our business strategy.
      There can be no assurance that we will become or remain profitable.





***If
      we are unable to raise additional financing, we will be unable to fund our
      planned expansion.***




We
      have
      never achieved positive cash flow from operations and there can be no assurance
      that we will do so in the future. We need additional financing to fund our
      product development costs and the operating losses we anticipate incurring
      over
      the next several quarters. Our current cash on hand with our expected cash
      flows
      from operating activities will enable us to continue operating until the end
      of
      our third fiscal quarter of 2008. We anticipate needing an additional
      $15,000,000 in addition to our cash flow from operations to bring our existing
      products under development to market and finance our day to day
      operations.





***Because
      we have significant accumulated deficit and negative cash flows from operations,
      our independent registered accounting firm has qualified its opinion regarding
      our ability to continue as a going concern.***




We
      have a
      significant accumulated deficit and have sustained negative cash flows from
      operations since our inception. The opinion of our independent registered
      accounting firm for the years ended March 31, 2007 and 2006 contained an
      explanatory paragraph regarding our ability to continue as a going concern.
      In
      fact, the opinion states that these factors raise substantial doubt as to our
      ability to continue as a going concern. In order for us to operate and not
      go
      out of business, we must generate and/or raise capital to stay operational.
      The
      continuity as a going concern is dependent upon the continued financial support
      of our current shareholders, current debenture holders and new investors. There
      can be no assurance that we will be able to generate income or raise additional
      capital.




***If
      we are unable to hire and retain key personnel, then we may not be able to
      implement our business plan.***




The
      success and growth of our business will depend on the contributions of our
      Chairman and Chief Executive Officer, Chester Aldridge and our President and
      Chief Operating Officer, Glenn Wong, as well as our ability to attract, motivate
      and retain other highly qualified personnel. Competition for such personnel
      in
      the publishing industry is intense. We do not have employment agreements with
      Mr. Aldridge, Mr. Wong or any of our other employees. The loss of the services
      of any of our key personnel, or our inability to hire or retain qualified
      personnel, could have a material adverse effect on our business.





***If
      our business plan fails, our company will dissolve and investors may not receive
      any portion of their investment back.***




If
      we are
      unable to realize profitable operations, or raise sufficient capital, we will
      be
      unable to implement our business strategy. If we cannot continue to self publish
      in North America, we will have to license our games to co-publishers, and our
      profit and operating margins will be lower, making it more difficult to achieve
      profitability, and our business will eventually fail.




23











In
      such
      circumstances, it is likely that we will dissolve and, depending on our
      remaining assets at the time of dissolution, we may not be able to return any
      funds back to investors.




***Our
      business depends on the availability and installed base of current and next
      generation video game platforms and will suffer if an insufficient quantity
      of
      these platforms is sold.***




Most
      of
      our anticipated revenues will be generated from the development and publishing
      of games for play on video game platforms produced by third parties. Our
      business will suffer if the third parties do not manufacture and sell an
      adequate number of platforms to meet consumer demand or if the installed base
      of
      the platforms is insufficient.




***If
      we do not continually develop and publish popular games, our business will
      suffer.***




The
      lifespan of any of our games is relatively short, in many cases less than one
      year. It is therefore important for us to be able to continually develop games
      that are popular with the consumers. During the last two fiscal years, we have
      sold four Console or Handheld games and six PC only games. We are currently
      involved in the development of three games, one of which is expected to ship
      during fiscal 2008. If we are unable to continually identify, develop and
      publish games that are popular with the consumers on a regular basis, our
      business will suffer. Our business will also suffer if we do not receive
      additional financing to be used for research and development of new
      games.




We
      have
      shipped the following Console or Handheld games: (i) Heroes of the Pacific
      for
      the PS2, Xbox and PC platforms which first began shipping in September, 2005;
      (ii) GripShift for the PSP platform which first began shipping in September
      2005; (iii) Crusty Demons for the PS2 and Xbox platforms which first began
      shipping in July 2006; (iv) Lucinda Green’s Equestrian Challenge for the PS2 and
      PC which first began shipping in November 2006.  On the PC, we have
      shipped: (i) Disney’s Aladdin Chess Adventures which first began shipping in
      February 2006; (ii) El Matador, which first began shipping in October 2006;
      (iii) Dual Sudoku, which first began shipping in September 2006; (iv) Timothy
      and Titus, which first began shipping in November 2006; (v) Aircraft Power
      Pack,
      which first began shipping in December 2006; and (vi)  Lucinda Green’s
      Equestrian Challenge, which we first began shipping in November 2006. We are
      currently involved in the development of two games: (i) Jackass for the PS2,
      PSP, and DS;  and (ii) a sequel to Heroes of the Pacific based in the
      European theatre for the Xbox 360, PS3, and PC.  We have commenced pre
      production of Sin city: The Game for the PS3 and Xbox 360 and expect to begin
      development in September 2007.





***The
      cyclical nature of video game platforms and the video game market may cause
      our
      operating results to suffer, and make them more difficult to predict. We may
      not
      be able to adapt our games to the next generation
      platforms.***




Video
      game platforms generally have a life cycle of approximately six to ten years,
      which has caused the market for video games to also be cyclical. Sony’s
      PlayStation 2 was introduced in 2000 and Microsoft’s Xbox and the Nintendo
      GameCube were introduced in 2001. Microsoft introduced the Xbox 360, Sony the
      PlayStation3 and Nintendo the Wii in 2006. These introductions have created
      a
      new cycle for the video game industry which will require us to make significant
      financial and time investments in order to adapt our current games and develop
      and publish new games for these new consoles. We cannot assure you that we
      will
      be able to accomplish this or that we will have the funds or personnel to do
      this. Furthermore, we expect development costs for each game on the new consoles
      to be significantly greater than in the past. If the increased costs we incur
      due to next generation consoles are not offset by greater sales, we will
      continue to incur losses.







***We
      depend on our platform licensors for the license to publish
      games for their platforms and to establish the royalty rates for the
      license.***




We
      are
      dependent on our platform licensors for the license to the specifications needed
      to develop software for their platforms. These platform licensors set the
      royalty rates that we must pay in order to publish games for their platforms.
      These royalty rates will vary based on the expected wholesale price point of
      the
      game. Certain of our platform licensors have retained the ability to change
      their royalty rates. It is possible that a platform licensor may terminate
      or
      not renew our license.  Our gross margins and operating margins will
      suffer if our platform licensors increase the royalty rates that we must pay,
      terminate their licenses with us, do not renew their licenses with us, or do
      not
      grant us a license to publish on the next generation consoles.








24









We
      have
      the following platform licenses:





**Platform**
            
            **Term**Microsoft
                Xbox 360
            
            Three
                years from first commercial release of platform. Then automatic renewal
                unless noticed 60 days prior to expiration of non-renewal. Royalty
                rates
                are fixed during the term.Microsoft
                Xbox
            
            Initial
                term expires on November 15, 2007. Then automatic renewal unless
                noticed
                60 days prior to expiration of non-renewal. Royalty may change on
                July 1st
                of any year.Sony
                PS2 and PSP
            
            Initial
                term expired on March 31, 2007. Then automatic renewal unless noticed
                60
                days prior to expiration of non-renewal. Royalty rates are subject
                to
                change with 60 days notice.





Sony
                PS3
            
            Initial
                term expired on March 31, 2012. Automatic renewal for one-year terms,
                unless noticed on or before January 31 of the year in which the term
                would
                renew. Royalty rates are subject to change with 60 days
                notice.





Nintendo
                Gamecube
            
            Expires
                on August 17, 2007. Royalty rates are subject to change with 60 days
                notice. Cost of manufacture is subject to change at any
                time.Nintendo
                Wii and DS
            
            Expires
                June 12, 2010PCs
            
            There
                are no platform licenses required for the
                PCs




In
      addition, each platform licensor has its own criteria for approving games for
      its hardware platform. In addition, each platform licensor has different
      criteria depending on the geographical territory of the game release. These
      criteria are highly subjective. Without such approval, we would not be able
      to
      publish our games nor have the games manufactured. Failure to obtain these
      approvals on the games we are currently developing and any games that we develop
      in the future will preclude any sales of such products and, as such, negatively
      affect our margins and profits.




***Our
      financial performance will suffer if we do not meet our game development
      schedules.***




We
      expect
      that many of our future games will be developed and published in connection
      with
      the releases of related movie titles and other significant marketing events,
      or
      more generally in connection with higher sales periods, including our third
      quarter ending December 31. As such, we will establish game development
      schedules tied to these periods. If we miss these schedules, we will incur
      the
      costs of procuring licenses without obtaining the revenue from sales of the
      related games.




***It
      may become more difficult or expensive for us to license intellectual property,
      thereby causing us to publish fewer games.***




Our
      ability to compete and operate successfully depends in part on our acquiring
      and
      controlling proprietary intellectual property. Our games embody trademarks,
      trade names, logos, or copyrights licensed from third parties. An example is
      MTVN’s JackassTM, which
      utilizes
      rights licensed from MTVN and Frank Miller’s, Sin City. If we cannot maintain
      the licenses that we currently have, or obtain additional licenses for the
      games
      that we plan to publish, we will produce fewer games and our business will
      suffer. Furthermore, some of our competitors have significantly greater
      resources than we do, and are therefore better positioned to secure intellectual
      property licenses. We cannot assure you that our licenses will be extended
      on
      reasonable terms or at all, or that we will be successful in acquiring or
      renewing licenses to property rights with significant commercial
      value.





***Infringement
      claims regarding our intellectual property may harm our
      business.***




Our
      business may be harmed by the costs involved in defending product infringement
      claims. We can give no assurances that infringement or invalidity claims (or
      claims for indemnification resulting from infringement claims) will not be
      asserted or prosecuted against us or that any such assertions or prosecutions
      will not materially adversely affect our business. The images and other content
      in our games may unintentionally infringe upon the intellectual property rights
      of others despite our best efforts to ensure that this does not occur.




25









It
      is
      therefore possible that others will bring lawsuits against us claiming that
      we
      have infringed on their rights. Regardless of whether any such claims are valid
      or can be successfully asserted, defending against such lawsuits could be
      expensive and cause us to stop publishing certain games or require us to license
      the proprietary rights of third parties. Such licenses may not be available
      upon
      reasonable terms, or at all.




***The
      content of our games may become subject to increasing regulation and such
      regulation may limit the markets for our games.***




Legislation
      is periodically introduced at the local, state and federal levels in the United
      States and in foreign countries that is intended to restrict the content and
      distribution of games similar to the ones that we develop and produce, and
      could
      prohibit certain games similar to ours from being sold to minors. Additionally,
      many foreign countries have laws that permit governmental entities to censor
      the
      content and advertising of interactive entertainment software. We believe that
      similar legislation will be proposed in many countries that are significant
      markets for our games, including the United States. If any of this proposed
      legislation is passed, it could have the effect of limiting the market for
      our
      games and/or require us to modify our games at an additional cost to
      us.





***If
      we or others are not successful in combating the piracy of our games, our
      business could suffer.***




The
      games
      that we develop and publish are often the subject of unauthorized copying and
      distribution, which is referred to as pirating. The measures taken by the
      manufacturers of the platforms on which our games are played to limit the
      ability of others to pirate our games may not prove successful. Increased
      pirating of our games throughout the world negatively impacts the sales of
      our
      games.





***If
      any of our games are found to contain hidden, objectionable content, our
      business may be subject to fines or otherwise be
      harmed.***




Some
      game
      developers and publishers include hidden content in their games that are
      intended to improve the experience of customers that play their games.
      Additionally, some games contain hidden content introduced into the game without
      authorization by an employee or a non-employee developer. Some of this hidden
      content has in the past included graphic violence or sexually explicit material.
      In such instances, fines have been imposed on the publisher of the game and
      the
      games have been pulled off the shelves by retailers. The measures we have taken
      to reduce the possibility of hidden content in the games that we publish may
      not
      be effective, and if not effective our future income will be negatively impacted
      by increased costs associated with fines or decreased revenue resulting from
      decreased sales volume because of ownership of games that cannot be
      sold.





***Our
      business is subject to economic, political, and other risks associated with
      international operations.***




Because
      we have distribution agreements with entities located in foreign countries,
      our
      business is subject to risks associated with doing business internationally.
      Accordingly, our future results could be harmed by a variety of factors,
      including less effective protection of intellectual property, changes in foreign
      currency exchange rates, changes in political or economic conditions,
      trade-protection measures and import or export licensing requirements. Effective
      protection of intellectual property rights is unavailable or limited in certain
      foreign countries. There can be no assurance that the protection afforded our
      proprietary rights in the United States will be adequate in foreign countries.
      Furthermore, there can be no assurance that our business will not suffer from
      any of these other risks associated with doing business in a foreign
      country.




***We
      are currently dependent on a small number of customers, the loss of any of
      which
      could cause a significant decrease in our revenue.***




As
      of
      June 30, 2007, we had two customers who accounted for 63.6% (Navarre
      Corporation) and 32.0% (GameStop) of our consolidated accounts receivable and
      three customers who accounted for 42.4% (Navarre Corporation), 32.7% (Funtastic,
      Ltd.) and 15.1% (GameStop) of consolidated revenue. As of March 31, 2007, we
      had
      two customers who accounted for 49.1% (Navarre Corporation) and 28.1% (GameStop)
      of our consolidated accounts receivable and three customers who accounted for
      48.1% (Navarre Corporation), 18.1% (GameStop) and 14.7% (Koch Media) of
      consolidated revenue. If Navarre Corporation or GameStop were to decrease their
      purchase volume or discontinue their relationship with us, our revenue would
      decrease significantly unless we were able to find new customers to replace
      the
      lost volume. There can be no assurance that such new customers could be found,
      or if found, that they would purchase the same quantity as the current
      customers.





***Because
      we have not internally developed any of the games that we
      have sold, our business is dependent upon external sources over which we have
      very little control.***




We
      have not yet internally developed any games that we sell and our business has
      been derived from the sale of games developed by external development studios.
      If the external developers of our games were to discontinue their relationship
      with us, we may not be able to find a replacement. If our external developers
      were to increase the fees that we pay for development, our costs would increase,
      making it more difficult to achieve positive margins and profitability and
      we
      would be forced to find alternative developers. There can be no assurance that
      we would be able to find alternative developers, or even if such developers
      are
      available, that they will be available on terms acceptable to us.




26









***We
      will incur increased costs as a result of being a public company, which could
      adversely affect our operating results.***





As
      a
      public company, we will incur significant legal, accounting and other expenses
      that we did not incur as a private company. In addition, the Sarbanes-Oxley
      Act
      of 2002 and the new rules subsequently implemented by the Securities and
      Exchange Commissions, the National Association of Securities Dealers, Inc.,
      and
      the Public Company Accounting Oversight Board have imposed various new
      requirements on public companies, including requiring changes in corporate
      governance practices. We expect these rules and regulations to increase our
      legal and financial compliance costs and to make some activities more
      time-consuming and costly. We also expect these new rules will require us to
      incur substantial costs to obtain the same or similar insurance coverage. We
      also expect to become a reporting issuer in Canada over the next 2 fiscal
      quarters.  These additional costs will have a negative impact on our
      income and make it more difficult for us to achieve
      profitability.




***Effect
      of Recent Accounting Pronouncements***




**EITF
      06-03**




In
      June
      2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
      No. 06-03 (“EITF 06-03”), “How Taxes Collected from Customers and Remitted to
      Governmental Authorities Should Be Presented in the Income Statement (That
      Is,
      Gross versus Net Presentation).” EITF 06-03 provides that the presentation of
      taxes assessed by a governmental authority that is directly imposed on a
      revenue-producing transaction between a seller and a customer on either a gross
      basis (included in revenues and costs) or on a net basis (excluded from
      revenues) is an accounting policy decision that should be disclosed. The
      provisions of EITF 06-03 became effective as of December 31, 2006. Our adoption
      of ETIF 06-03 has not and is not expected to have a material effect on our
      consolidated financial position or results of operations.




**SFAS
      157**




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*(SFAS 157), which provides guidance on how to measure assets and
      liabilities that use fair value.  SFAS 157 will apply whenever another
      US GAAP standard requires (or permits) assets or liabilities to be measured
      at
      fair value but does not expand the use of fair value to any new
      circumstances.  This standard also will require additional disclosures
      in both annual and quarterly reports.  SFAS 157 will be effective for
      fiscal 2009. We are currently evaluating the potential impact this standard
      may
      have on its financial position and results of operations.




**SFAS
      159**




On
      February 15, 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities* (SFAS No. 159). Under this
      Standard, we may elect to report financial instruments and certain other items
      at fair value on a contract-by-contract basis with changes in value reported
      in
      earnings. This election is irrevocable. SFAS No. 159 provides an opportunity
      to
      mitigate volatility in reported earnings that is caused by measuring hedged
      assets and liabilities that were previously required to use a different
      accounting method than the related hedging contracts when the complex provisions
      of SFAS No. 133 hedge accounting are not met. SFAS No. 159 is effective for
      years beginning after November 15, 2007. Early adoption within 120 days of
      the
      beginning of the company’s 2008 fiscal year is permissible, provided the company
      has not yet issued interim financial statement for 2008 and has adopted SFAS
      No.
      157. Management is currently evaluating the potential impact of adopting this
      Standard.




**FIN
      48**




Effective
      April 1, 2007, we adopted the provisions of FASB Interpretation
      No. 48, *Accounting for Uncertainty in Income Taxes — An Interpretation
      of FASB Statement No. 109*, or FIN 48. FIN 48 provides
      detailed guidance for the financial statement recognition, measurement and
      disclosure of uncertain income tax positions recognized in the financial
      statements in accordance with SFAS No. 109. Income tax positions must meet
      a “more-likely-than-not” recognition threshold at the effective date to be
      recognized upon the adoption of FIN 48 and in subsequent
      periods.  For the three months ended June 30, 2007, we did not
      identify and record any  liabilities related to unrecognized income
      tax benefits.  Therefore the adoption of FIN 48 does not impact our
      financial statements for the three months ended June 30, 2007.




27














ITEM
      2.Creation of a Direct
      Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement
      of
      Registrant.





On
      June
      25 through June 27, 2007, the Company issued an aggregate of $2,050,000 of
      Convertible Promissory Notes (the “Notes”) to a total of 19 note holders with
      J.F. Mackie & Company, Ltd. acting as the placement agent (the “Agent”). All
      the note holders are residents of Canada. The Notes mature on the earlier to
      occur of a Sale Event, as defined below, or the one year anniversary of the
      date
      of issuance.  A Sale Event constitutes a bona fide, negotiated
      transaction or integrated series of transaction pursuant to which either: (i)
      the Company merges or consolidates with any other non-affiliated entity or
      sells, exchanges, or otherwise disposes of all or substantially all of its
      assets to a non-affiliated third party; or (ii) in which more than 50% of the
      Company’s voting power is transferred in a private placement to one
      person.





In
      addition, on June 25, 2007, the Company, without the assistance of the Agent,
      issued a $350,000 Convertible Promissory Note to one note holder. This note
      holder is also a resident of Canada. This note matures on the same terms as
      the
      Notes (the Notes and this additional note, the “Combined Notes”).





The
      Combined Notes will automatically convert if the Company completes prior to
      maturity an equity financing in an amount of approximately $10 million on
      certain terms.  In the case of such a conversion, the Combined Notes
      will convert into the form of equity issued by the Company in that equity
      financing at a price per share equal to the lowest price in that financing.
      Immediately upon such conversion, the Note Holder will also receive one half
      of
      one warrant for every share received upon conversion of the note held by such
      Note Holder, exercisable at $2.75 per share for a period of 2 years from the
      closing date of such equity financing.




The
      Combined Notes bear interest at the rate of 10% per annum, non-compounded,
      and
      the interest is payable in cash by the Company on the maturity date. The
      Agent is to be paid a commission equal to 6% of the principal amount of the
      Notes.





The
      Combined Notes are subordinated obligations of the Company secured against
      all
      present and after acquired assets of the Company.





The
      Combined Notes were issued in private placement transactions to investors who
      are not "U.S. persons" pursuant to the exemption from registration provided
      by
      Rules 901 and 903 of Regulation S under the Securities Act of 1933, as
      amended.




On
      July
      18, 2007, the convertible promissory notes automatically converted upon the
      completion of a private placement financing as described inour subsequent events
      note (Note 10) into 960,000 shares of the Company's common stock and 192,000
      warrants.  One whole warrant entitles the holder to acquire, for no
      additional consideration, one common share of the Company in the event that
      the
      Company does not complete a liquidity transaction by March 18, 2008.  The
      warrants will automatically be cancelled if the Company completes such a
      liquidity.








28



















**ITEM
      6. EXHIBITS**





(a)
          Exhibits:


31.1
            Certification
                of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002





31.2
            Certification
                of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002





32.1
            Certification
                of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





32.2
            Certification
                of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002
















29
















**SIGNATURES**




Pursuant
      to the requirements of the Securities and Exchange Act of 1934, the Registrant
      had duly caused this report to be signed on its behalf by the undersigned
      thereunto duly authorized.








**RED
                MILE ENTERTAINMENT, INC.**(Registrant)Date:        August
                10, 2007
            
            By:
                /s/ Chester AldridgeChester
                AldridgeChief
                Executive Officer(Principal
                Executive Officer)Date:        August
                10, 2007
            
            By:
                /s/ Ben ZadikBen
                ZadikChief
                Financial Officer(Principal
                Financial Officer)










30