UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the Quarterly Period Ended June 30, 2009




OR




 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the Transition Period From
      __________              
To       ______________________




Commission
File Number: 000-51055




RED
MILE ENTERTAINMENT, INC.


(Exact
name of registrant as specified in its charter)




Delaware
                20-4441647(State
      or other jurisdiction ofincorporation
      or organization)
                (I.R.S.
      EmployerIdentification
      No.)223
      San Anselmo Way #3
                94043San
      Anselmo, CA 94960
                (Zip
      Code)




415-339-4240


(Registrant’s
telephone number, including area code)




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   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o





Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company.  See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-3 of the Exchange Act.  (Check
one):





Large
      accelerated filer
             ̈
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈
            Smaller
      reporting company
            x(Do
      not check if a smaller reporting company)





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





Indicate the number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.




Class
            Shares
      outstanding on August 13, 2009Common
      Stock, $0.01 par value per share
            16,233,021
      shares




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











Table
      of Contents
                
                PagePART I
                FINANCIAL
      INFORMATIONITEM
      1.
                FINANCIAL
      STATEMENTS
                1ITEM 2.
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
      OPERATIONS
                16ITEM 3.
                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                24ITEM
      4T.
                CONTROLS
      AND PROCEDURES
                24PART
      II
                OTHER
      INFORMATIONITEM
      1.
                LEGAL
      PROCEEDINGS
                25ITEM
      1A.
                RISK
      FACTORS
                25ITEM
      2.
                UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                25ITEM
      3.
                DEFAULTS
      UPON SENIOR SECURITIES
                25ITEM
      4.
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                25ITEM 5.
                OTHER
      INFORMATION
                25ITEM
      6.
                EXHIBITS
                26SIGNATURE
      PAGE
                27







Part I.
FINANCIAL INFORMATION




ITEM
1. Financial Statements




RED
MILE ENTERTAINMENT, INC. AND SUBSIDIARIES
 Condensed
      Consolidated Balance SheetsJune
      30,2009
                    
                    
                    March
      31, 2009Assets
                    
                    (Unaudited)Current
      assets:Cash
      and cash equivalents
                    
                    $
                    8,688
                    
                    
                    $
                    72,286Accounts
      receivable, net of reserves of $99,839 and $125,370
                    
                    
                    17,929
                    
                    
                    
                    77,933Inventory,
      net
                    
                    
                    11,223
                    
                    
                    
                    21,723Prepaid
      expenses and other assets
                    
                    
                    159,931
                    
                    
                    
                    62,439Software
      development costs and advanced royalties
                    
                    
                    -
                    
                    
                    
                    -Total
      current assets
                    
                    
                    197,771
                    
                    
                    
                    234,381Property
      and equipment,
      net
                    
                    
                    15,890
                    
                    
                    
                    31,024Other
      assets
                    
                    
                    5,699
                    
                    
                    
                    5,699Total
      assets
                    
                    $
                    219,360
                    
                    
                    $
                    271,104Liabilities,
      and stockholders’ deficitCurrent liabilities:Accounts
      payable
                    
                    $
                    548,208
                    
                    
                    $
                    907,311Revolving
      line of credit
                    
                    
                    510,000
                    
                    
                    
                    500,000Secured
      credit loan
                    
                    
                    -
                    
                    
                    
                    188,165Accrued
      liabilities
                    
                    
                    962,001
                    
                    
                    
                    1,249,095Deferred
      revenue
                    
                    
                    -
                    
                    
                    
                    4,750,000Total
      current liabilities
                    
                    
                    2,020,209
                    
                    
                    
                    7,594,571Stockholders’
      Equity:Common
      stock, $0.01 par value, authorized 100,000,000 shares; 16,233,021 and
      16,233,021 shares outstanding, respectively
                    
                    
                    162,330
                    
                    
                    
                    162,330Additional
      paid-in capital
                    
                    
                    35,604,466
                    
                    
                    
                    36,242,427Accumulated
      other comprehensive income
                    
                    
                    2,086
                    
                    
                    
                    2,086Accumulated deficit
                    
                    
                    (37,569,731
                    )
                    
                    
                    (43,730,310
                    )Total
      stockholders’ equity
                    
                    
                    (1,800,849
                    )
                    
                    
                    (7,323,467
                    )Total
      liabilities and stockholders’ equity
                    
                    $
                    219,360
                    
                    
                    $
                    271,104


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




1





RED
MILE ENTERTAINMENT, INC. AND SUBSIDIARIES




Condensed
Consolidated Statements of Operations


(Unaudited)




Three
      months ended June 30,2009
                
                
                2008Revenues,
      net
                
                $
                3,239
                
                
                $
                37,087Cost of sales
                
                
                11,623
                
                
                
                49,362Gross
      margin
                
                
                (8,384
                )
                
                
                (12,275
                )Operating
      expensesResearch
      and development costs
                
                
                43,864
                
                
                
                268,721General
      and administrative costs
                
                
                319,443
                
                
                
                643,294Sales,
      marketing and business development costs
                
                
                22,314
                
                
                
                51,753Total
      operating expenses
                
                
                385,621
                
                
                
                963,768Operating loss
                
                
                (394,005
                )
                
                
                (976,043
                )Interest
      income (expense), net
                
                
                (12,500
                )
                
                
                (27,138
                )Other
      income (expense), net
                
                
                5,904,184
                
                
                
                (5,630
                )Net
      Profit (loss) before income tax expense
                
                
                5,497,679
                
                
                
                (1,008,811
                )Income
      tax expense
                
                
                -
                
                
                
                (800
                )Net
      Income (loss)
                
                $
                5,497,679
                
                
                $
                (1,009,611
                )Operating
      loss per share, basic and diluted
                
                $
                (0.02
                )
                
                $
                (0.06
                )Net
      income (loss) per share, basic and diluted
                
                $
                0.34
                
                
                $
                (0.06
                )Shares
      used in computing basic and diluted income (loss) per
      share
                
                
                16,233,021
                
                
                
                15,977,941




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




2




RED MILE
ENTERTAINMENT INC. AND SUBSIDIARIES




Condensed
Consolidated Statements of Cash Flows


(Unaudited)




Three
      months ended June 30,2009
                
                
                2008Cash
      flows from operating activities:Net
      income (loss)
                
                $
                5,497,679
                
                
                $
                (1,009,611
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                
                
                15,134
                
                
                
                39,623Amortization of software development costs
                
                
                -
                
                
                
                36,373Amortization
      of debt costs
                
                
                -
                
                
                
                4,056Impairment of inventory
                
                
                10,348
                
                
                
                2,630Impairment of software development and licensing
    costs
                
                
                -
                
                
                
                4,752Stock based compensation
                
                
                24,939
                
                
                
                53,233Revaluation
      of liquidated damage charges
                
                
                -
                
                
                
                9,600Foreign
      currency transaction loss(gain)
                
                
                29,630
                
                
                
                (3,970
                )Recovery
      of bad debt expense
                
                
                (25,533
                )
                
                
                (5,616
                )Write-off
      of uncollectable accounts receivable
                
                
                20,222
                
                
                
                -Changes
      in current assets and liabilitiesAccounts receivable
                
                
                65,313
                
                
                
                (35,392
                )Inventory
                
                
                152
                
                
                
                5,687Prepaid expenses and other current assets
                
                
                (97,492
                )
                
                
                (6,492
                )Software development costs and advanced royalties
                
                
                -
                
                
                
                (1,701,992
                )Accounts payable
                
                
                (359,103
                )
                
                
                910,757Accrued liabilities
                
                
                (287,094
                )
                
                
                25,171Deferred
      revenue
                
                
                (4,750,000
                )
                
                
                2,229,554Net
      cash provided by (used in) operating activities
                
                
                144,195
                
                
                
                558,363





Cash
      flows from investing activities:Acquisition
      of property and equipment
                
                
                -
                
                
                
                (3,257
                )Net
      Cash flows used in investing activities
                
                
                -
                
                
                
                (3,257
                )Cash
      flows from financing activities:Proceeds from issuance of debt
                
                
                10,000
                
                
                
                746,410Payments
      on Secured credit loan
                
                
                (217,795
                )
                
                
                -Net
      cash provided by financing activities
                
                
                (207,795
                )
                
                
                746,410Effect of exchange rate changes on cash
                
                
                -
                
                
                
                (582
                )Net increase (decrease) in cash
                
                
                (63,600
                )
                
                
                1,300,934Cash and cash equivalents, beginning of period
                
                
                72,286
                
                
                
                335,147Cash and cash equivalents, ending of period
                
                $
                8,688
                
                
                $
                1,636,081




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




3





RED
MILE ENTERTAINMENT, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)




NOTE
1 — BASIS OF PRESENTATION





The
accompanying condensed consolidated financial statements are unaudited and have
been prepared in accordance with generally accepted accounting principles for
interim financial information. They should be read in conjunction with the
financial statements and related notes to the financial statements of Red Mile
Entertainment, Inc. (“Red Mile” or the “Company”) for the years ended March 31,
2009 and 2008 appearing in the Company’s Form 10-K. The June 30, 2009 unaudited
interim consolidated financial statements on Form 10-Q have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Certain information and note disclosures normally included in the
annual financial statements on Form 10-K have been condensed or omitted pursuant
to those rules and regulations, although the Company’s management believes the
disclosures made are adequate to make the information presented not misleading.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair statement of the result of operations for the
interim periods presented have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the entire year.





NOTE
2 — 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 has been 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 and may also
co-publish its games. Historically, in Europe and Australia, the Company
licenses its games with major international game distributors or co-publishers
in exchange for payment to the Company of either development fees or guaranteed
minimum royalties. The guaranteed minimum royalties are recoupable by the
partner against royalties computed under the various agreements. Once the
partner recoups the guaranteed minimum royalties, the Company is entitled to
additional royalties as computed under the agreements. The Company operates in
one business segment, interactive software publishing. As of June 30, 2009 the
Company had no games under development.  The Company is talking to a
number of third parties about potential merger or acquisition in order to obtain
new games.




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
approximately $37,569,000 at June 30, 2009, and has incurred negative cash flows
from operations. The continuation of the Company as a going concern is dependent
upon the continued financial support of current shareholders, new investors or a
merger, none of which management can make any assurances will
happen.




The
Company has undertaken a restructuring program to reduce its operating costs
while it examines its strategic options. These include an acquisition of, or
merger with, a company or companies active in the game development and
publishing business. The Company is in discussions with prospective partners,
but management cannot make any assurances that it will be successful in
achieving these objectives.





The
Company has renegotiated several of its liabilities and plans to continue to
renegotiate both the amount and timing for payment of many of its current
payables and accrued obligations.




Principals of Consolidation —
The consolidated financial statements of Red Mile Entertainment, Inc. include
the accounts of the Company, and its wholly-owned subsidiaries, 2WG Media, Inc.,
Roveractive Ltd., and Red Mile Australia Pty Ltd. All inter-company accounts and
transactions have been eliminated in consolidation.  All shares of the
company’s wholly owned subsidiaries are pledged as collateral for the revolving
line of credit agreement with Tiger Paw Capital Corporation.  The
accompanying condensed consolidated financial statements do not include any
adjustments that might result from the failure to raise additional capital or
consummate a merger.





Use of Estimates – The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) 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, retail sell through estimates,
provisions for doubtful accounts, accrued liabilities, estimates regarding the
recoverability of advanced royalties, inventories, software development costs,
long lived assets, estimates of when a game in development has reached
technological feasibility, 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 are subject to change from period to period. Actual results could differ
materially from our estimates.





4





Concentration of Credit Risk —
Financial instruments which potentially subject us to concentration of credit
risk consist of temporary cash investments and accounts receivable. At June 30,
2009 and at March 31, 2009, the Company had no uninsured cash
investments.




Receivable Allowances –
Receivables are stated net of allowances for doubtful accounts. We include in
accounts payable, an estimate of allowances for product returns and allowances
for value-added services by retailers.





We may
grant price protection to, and sometimes allow product returns from our
customers and customers of our distributors under certain
conditions.  Therefore, we record a reserve for potential 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 or customers of our
distributors.  We base these allowances on expected trends and
estimates of future retail sell through of our games.  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.  At June 30,
2009 and March 31, 2009, Red Mile had price protection and returns reserves of
$140,000 and $142,000, respectively. These reserves are included in accounts
payable. Changes in these factors could change our judgments and estimates and
result in variances in the amount of reserve 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, but we are not required to grant price protection to retailers who
purchase our products from distributors and the decision to grant price
protection is discretionary. At June 30, 2009 and March 31, 2009, Red Mile had
allowance reserves for doubtful accounts of $99,839 and $125,370, respectively.
All receivables are pledged as collateral for our revolving line of credit
agreement with Tiger Paw Capital Corporation.





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.   All inventories are produced by third party
manufacturers, and substantially all inventories are located at third party
warehouses on consignment. All inventories are pledged as collateral for our
revolving line of credit agreement with Tiger Paw Capital
Corporation.




Software Development Costs and
Advanced Royalties — Software development costs and advanced royalties to
developers include milestone payments or advances on milestone payments made to
software developers and other third parties and direct labor
costs.  Advanced royalties also include license payments made to
licensors of intellectual property we license.




Software
development costs and advanced royalty payments made to developers 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 and advanced royalty payments to developers are capitalized
once technological feasibility of a product is established and such costs are
determined to be recoverable. For products where proven technology exists, this
may occur very early in the development cycle. Factors we consider in
determining when technological feasibility has been established include (i)
whether a proven technology exists; (ii) the quality and experience levels of
the development studio developing the game; (iii) whether the game is a sequel
to an already completed game which has used the same or similar technology; and
(iv) whether the game is being developed with a proven underlying game engine.
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 and advanced royalty payments to developers are evaluated
based on the expected performance of the specific products for which the costs
relate.




Commencing
upon a product’s release, capitalized software development costs and advanced
royalty payments to developers are amortized to cost of sales using the greater
of the ratio of actual cumulative revenues during the quarter to the total of
actual cumulative revenues during the quarter plus projected future revenues for
each game or straight-line over the remaining 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 development costs and advanced royalty
payments to developers.  In evaluating the recoverability of
capitalized software development costs and advanced royalty payments to
developers, the assessment of expected product performance utilizes forecasted
sales quantities and prices and estimates of additional costs to be incurred or
expensed.




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 a
larger charge to cost of sales in future quarters or an impairment charge to
cost of sales.




5





Advanced
royalty payments made to licensors of intellectual property are capitalized and
evaluated for recoverability based on the expected performance of the underlying
games for which the intellectual property was licensed. Any royalty payments
made to licensors of intellectual property determined to be unrecoverable
through future sales of the underlying games are charged to cost of
sales.





Property and Equipment —
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the respective assets
ranging from one to three years. Salvage values of these assets are not
considered material. Repairs and maintenance costs that do not increase the
useful lives and/or enhance the value of the assets are charged to operations as
incurred. All property and equipment are pledged as collateral for our revolving
line of credit agreement with Tiger Paw Capital Corporation.




Revenue Recognition
— Our 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”.  SOP 81-1
“Accounting for Performance of Construction Type and Certain Production-Type
Contracts”.  Staff Accounting Bulletin (“SAB”) No. 101, “Revenue
Recognition in Financial Statements”, as revised by SAB No. 104, “Revenue
Recognition”.  Emerging Issues Task Force (EITF) Issue #01-09
“Accounting for  Consideration Given by a Vendor to a Customer”, and
FASB Interpretation No. 39 “Offsetting of amounts related to certain contracts
an interpretation of APB No. 10 and FASB Statement No. 105, and  EITF
06-03, “How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement”.





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.





(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 on consignment.





(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, co-publishers, and video
rental companies 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, retailers of our distributors, 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 reserve
allowances, we analyze our historical returns on similar products, current
sell-through of distributor and retailer inventory, current trends in the video
game market and the overall economy, changes in customer demand, acceptance of
our products, and other factors.





In North
America, we primarily sell our games to distributors who in turn sell to
retailers that both our internal sales force, our outsourced independent sales
group, and distributors’ sales force generate orders from.  These
distributors will charge us a distribution fee based on a percentage of the
prevailing wholesale price of the product. We record revenues net of these
distribution fees.





Red Mile
may receive minimum guaranteed amounts or other upfront cash amounts from a
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 amounts 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 amounts are earned. In the case of distributors who hold our
inventory on consignment, revenues are recognized once the product leaves the
distributor warehouse. In the quarter ended June 30, 2009, we sold the rights to
Heroes Over Europe to a larger publisher and as a result recorded other income
of $5,150,000.





Periodically,
we review the deferred revenue balances 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.





Red Mile
may be required to levy European Value Added Tax (“VAT”) and Australian Goods
and Services Tax (“GST”) on shipments of our products within the EU member
countries, and Australia, respectively. Pursuant to EITF Issue #06-03, “How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement”, Red Mile has included the taxes assessed
by a governmental authority that is directly imposed on a revenue-producing
transaction on a gross basis (included in revenues and costs).





6





Our
revenues are subject to material seasonal fluctuations. In particular, revenues
in our third fiscal quarter will ordinarily be significantly higher than other
fiscal quarters. Revenues recorded in our first fiscal quarter are not
necessarily indicative of what our reported revenues will be for an entire
fiscal year.




Distribution Costs —
Distribution costs, including shipping and handling costs of video games sold to
customers, are included in cost of sales.




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
— We account for stock-based compensation in accordance with Statement of
Financial Accounting Standards (“SFAS”) 123 (revised 2004),“Share-Based
Payment”  ( “SFAS 123(R)”), which requires  the
measurement and recognition of compensation expense for all share-based awards
made to employees and directors, including employee non-qualified and incentive
stock options based on estimated fair values. In March 2005, The Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No 107 (SAB 107)
providing supplemental guidance for SFAS 123(R).  We have applied the
provisions of SAB 107 in our adoption of SFAS 123(R).





SFAS
123(R) requires companies to estimate the fair value of share-based awards on
the date of grant using an option pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense over the
requisite service periods in our consolidated statements of income. Our
consolidated financial statements, as of and for the three months ended June 30,
2009 and June 30, 2008, reflect the impact of SFAS 123(R).





SFAS
123(R) requires that we recognize expense for awards ultimately expected to
vest; therefore we are required to develop an estimate of the number of awards
expected to cancel prior to vesting (forfeiture rate). The forfeiture rate is
estimated based on historical pre-vest cancellation experience and is applied to
all share-based awards. SFA 123(R) requires the forfeiture rate to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.





Upon
adoption of SFAS 123 (R), we selected the Black-Scholes option pricing model as
the most appropriate method for determining the estimated fair value of stock
options. The Black-Scholes model requires the use of highly subjective and
complex assumptions which determine the fair value of share-based awards,
including the option’s expected term and the price volatility of the underlying
stock.




Income (Loss)Per Share — We computed basic
and diluted income (loss) per share amounts pursuant to the Statement of
Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share.” Basic
income (loss) per share is computed using the weighted average number of common
shares outstanding during the period. Diluted income (loss) per share is
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.





In the
quarters ended June 30 2009 and 2008, the Company had operating losses and
therefore all stock options and warrants are considered anti-dilutive. In the
quarter ended June 30, 2009, the company had net income.  As all stock
options and warrants carry an exercise price in excess of the value of the
Company’s shares, they are anti-dilutive.  In the quarter ended June
30, 2008, the company had a net loss and all stock options and warrants are
considered anti-dilutive.




The
following table summarizes the weighted average shares outstanding for the three
months ending June 30, 2009 and 2008:




Three
      Months Ended June 30,2009
                  
                  
                  2008Basic
      weighted average shares outstanding
                  
                  
                  16,233,021
                  
                  
                  
                  15,977,941Total
      stock options outstanding
                  
                  
                  529,400
                  
                  
                  
                  1,264,340Less:
      anti-dilutive stock options
                  
                  
                  (529,400
                  )
                  
                  
                  (1,264,340
                  )Total
      warrants outstanding
                  
                  
                  695,408
                  
                  
                  
                  1,934,707Less:
      anti-dilutive warrants
                  
                  
                  (695,408
                  )
                  
                  
                  (1,934,707
                  )Diluted
      weighted average shares outstanding
                  
                  
                  16,233,021
                  
                  
                  
                  15,977,941





7





NOTE
3 — ACCRUED LIABILITIES





June
      30, 2009
                
                March
      31, 2009Accrued royalties payable
                
                $
                45,943
                
                
                $
                363,445Accrued salaries
                
                
                17,646
                
                
                
                —Accrued milestone payments
      to developers or other development costs
                
                
                600,000
                
                
                
                600,000Accrued paid time off
                
                
                20,760
                
                
                
                33,553Accrued professional fees
                
                
                127,500
                
                
                
                105,000Accrued commissions
                
                
                73,109
                
                
                
                73,109Accrued
      interest
                
                
                63,611
                
                
                
                51,111Other
                
                
                13,432
                
                
                
                22,877Total
                
                $
                962,001
                
                
                $
                1,249,095




NOTE
4 — DEFERRED REVENUE





June
      30, 2009
                
                March
      31, 2009Heroes
      Over Europe
                
                $
                —
                
                
                $
                4,750,000Total
                
                $
                —
                
                
                $
                4,750,000




NOTE
5 — CONTRACTUAL OBLIGATIONS




Lease
Commitments




In March
2008, we moved our corporate offices from Sausalito to San Anselmo, California.
Our corporate offices are in leased space in San Anselmo, California of
approximately 1,300 square feet at $2.03 per square foot per month. We believe
that if we lost this lease, we could promptly relocate within ten miles on
similar terms. Rent expense for the three months ended June 30, 2009 and 2008
was $7,925 and $5,284, respectively.





Approximate
future minimum lease payments under non-cancelable office and equipment lease
agreements are as follows:




Year
      ended March 312010
                  
                  $
                  24,7062011
                  
                  
                  33,588Total
                  
                  $
                  58,294




NOTE
6 – REVOLVING LINE OF CREDIT




On
February 11, 2008, we entered into an uncommitted revolving line of credit
agreement with Tiger Paw Capital Corporation, a corporation owned and operated
by Mr. Kenny Cheung, then a member of the Company’s Board of Directors in the
amount of $1,000,000 ("The Line"). The Line is available for working capital
requirements. Any amounts drawn on the Line are payable on demand but in no
event later than 90 days from the date each respective draw is made. The Line is
an uncommitted obligation where Lender may decline to make advances under the
Line, or terminate the Line, at any time and for any reason without prior notice
to the Company.  The Line bears interest at the rate of 10% per annum
and is payable to Lender on demand. Advances under the Line may be pre-paid
without penalty. The line has a subordinated security interest to all
present and future assets of the Company and carries no financial or operating
covenants. As of June 30, 2009, we have drawn $510,000 on the Line and owe
$63,611 in accrued interest.




NOTE
7 – SECURED CREDIT LOAN





On May 7,
2008, we entered into a secured credit agreement with SilverBirch Inc, a
Canadian publicly traded corporation in the amount of $750,000 Canadian Dollars
($746,410 USD equivalent) (the “Facility”). The Facility was available for
development and production of our “Heroes Over Europe” video game and general
and administrative purposes. On May 7, 2008, we borrowed CAD $302,000 ($302,000
USD equivalent) against the Facility in respect of a development payment due to
the developer of the “Heroes Over Europe” video game.  On May 12,
2008, we borrowed CAD $448,000 ($444,410 USD equivalent) against the facility.
The Facility bears interest at the rate of 10% per annum and is payable to
SilverBirch, Inc. quarterly in arrears. Advances under the Facility may be
pre-paid without penalty. The Facility carries a first priority security
interest in all our present and future assets in addition to the securities in
the capital of our three wholly owned subsidiaries. The Facility contains
customary terms and conditions for credit facilities of this type, including
restrictions on the Company’s ability to incur or guaranty additional
indebtedness, create liens, make loans or investments, sell assets, pay
dividends or make distributions on, or repurchase, its stock.





8





In
October 2008, we amended the secured credit agreement whereby SilverBirch, Inc.
agreed not to exercise any demand or enforcement rights under such agreement
until the closing of our merger into their subsidiary.





On
December 3, 2008, we terminated the Merger Agreement with SilverBirch based on a
material breach by SilverBirch of the Merger Agreement. The terms of the
Facility call for repayment of all amounts advanced under the Facility within
fifteen days after termination of the Merger Agreement. We received a demand
from SilverBirch Inc. on December 3, 2008 for repayment of the advances under
the Facility, with interest, by December 18, 2008.





On
December 30, 2008, we entered into a Standstill Agreement (the “Standstill
Agreement”) with SilverBirch whereby both parties agreed to forbear and stand
still from exercising their respective rights and remedies against each other
during the Standstill Period. The Standstill Period commenced on December 30,
2008 and ends on the “Standstill Termination Date”, the date which is the
earlier of: (i) the date of the payment of the Final Settlement Payment (as such
term is defined below); (ii) July 31, 2009; or (iii) the date that SilverBirch
gives written notice to us of SilverBirch’s election to terminate the Standstill
Period in the event we breach or fail to comply with any of the terms of the
Standstill Agreement “Early Termination”.





Under the
Standstill Agreement, we agreed to pay SilverBirch the following amounts in
Canadian Dollars in connection with the secured credit loan on the following
dates:





(1)
            $50,000
      upon execution of the Standstill Agreement;(2)
            $225,000
      on the earlier of: (i) our  achieving certain development
      milestones in connection with development of our “Heroes Over Europe” game
      and receiving the next co-publishing installment payment from our
      co-publishing partner; and (ii) February 6,
  2009;





(3)
            $250,000
      on the earlier of: (i) our achieving the next succeeding milestone
      following the aforementioned milestone and receiving applicable
      co-publishing installment payment from our co-publishing partner; and (ii)
      March 20, 2009; and(4)
            $75,000
      on the earlier of: (i) our signing a publishing agreement in connection
      with our licensed Sin City Video game; and (ii) July 31,
    2009.





In fiscal
2009, we recognized a foreign exchange gain of $138,673 related to the
devaluation of the Canadian dollar denominated loan.





Each of
the above-referenced payments is referred to as “Settlement Payment
Installments” and collectively, the four Settlement Payment Installments are
referred to as the “Final Settlement Payment.” Payments one and two were made on
a timely basis.





On March
19, 2009, the parties entered into an Amendment to the Standstill Agreement
whereby in lieu of payments 3 and 4 above, we would pay $90,000 Canadian on
March 20, 2009 and $235,000 Canadian on the earlier of signing a publishing
agreement or April 30, 2009. The $90,000 Canadian was paid on a timely basis.
and the final payment of $235,000 Canadian ($188,000 US) was made in June 2009
and the security on Red Mile assets has been released.




Each
party has agreed to fully release the other party and its officers, directors,
shareholders, agents, employees, representatives, successors and assigns from
all claims, liabilities and causes of action including those arising out of the
documents related to the secured loan and the merger agreement.




NOTE
8 — COMMON STOCK




In
January 2009, the Company issued 255,080 shares in exchange for a like number of
warrants.  These warrants had an exercise price of $0.00 per
share.





NOTE
9 — 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, 2009Expected
      life (in years)
                4.2
      – 6.5Risk
      free rate of return
                4.0%
      - 5.13%Volatility
                50%
      - 80%Dividend
      yield
                -Forfeiture
      rate
                9%
      - 15%






9





The
following table sets forth the total stock-based compensation expense for the
three months ended June 30, 2009 and June 30, 2008, resulting from options
awarded to employees and consultants.




Three
      Months Ended June 30,2009
                    
                    
                    2008General
      and administrative costs—consultants
                    
                    $
                    -
                    
                    
                    $
                    3,355General
      and administrative costs—employees
                    
                    
                    24,939
                    
                    
                    
                    49,878Stock-based
      compensation before income taxes
                    
                    
                    24,939
                    
                    
                    
                    53,233Income
      tax benefit
                    
                    
                    -
                    
                    
                    
                    -Total
      stock-based compensation expense after income taxes
                    
                    $
                    24,939
                    
                    
                    $
                    53,233




During
the year three months ended June 30, 2009, no options were granted.





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”). As of 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, 2009, 1,969,599 options are available for grant.  Options have
been issued with exercise prices of between $0.66 and $4.00 per share as
follows:




Option
activity under the Amended Plan is as follows:




Options
              
              Shares
              
              Weighted
      Average Exercise Price
              Weighted
      Average Remaining Contractual Term
              
              Aggregate
      Intrinsic ValueOutstanding
      at March 31, 2007
              
              
              607,000
              
              
              $
              2.28
              
              -
              
              $
              -Granted
              
              
              45,000
              
              
              $
              0.83
              
              -
              
              
              -Exercised
              
              
              (143,068
              
              
              $
              2.35
              
              -
              
              
              -Forfeited or expired
              
              
              (114,670
              )
              
              $
              0.71
              
              
              -
              
              
              -Outstanding at March 31, 2008
              
              
              1,776,007
              
              
              $
              0.88
              
              
              -
              
              
              -Exercisable at March 31, 2008
              
              
              676,007
              
              
              $
              2.59
              
              
              -
              
              
              -Granted
              
              
              -
              
              
              $
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              $
              -
              
              
              -
              
              
              -Forfeited
      or expired
              
              
              (1,179,940
              )
              
              $
              2.90
              
              
              -
              
              
              -Outstanding
      at March 31, 2009
              
              
              596,067
              
              
              $
              1.98
              
              
              7.23
              
              $
              -Granted
              
              
              -
              
              
              $
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              $
              -
              
              
              -
              
              
              -Forfeited
      or expired
              
              
              (66,667
              )
              
              $
              .05
              
              
              -
              
              
              -Outstanding
      at June 30, 2009
              
              
              529,400
              
              
              $
              2.12
              
              
              7.16
              
              $
              -Exercisable
      at June 30, 2009
              
              
              383,289
              
              
              $
              1.50
              
              
              6.92
              
              $
              -






10




June
      30, 2009Options
      Outstanding
                    
                    Options
      ExercisableNumber
                    
                    Weighted
      Avg.
                    
                    Weighted
      Avg.
                    
                    Number
                    
                    Weighted
      Avg.Range
      of Exercise Prices
                    
                    Outstanding
                    
                    Remaining
      Life
                    
                    Exercise
      Price
                    
                    Exercisable
                    
                    Exercise
      Price$0.66
      - $1.49
                    
                    281,067
                    
                    6.61
                    
                    $0.68
                    
                    281,067
                    
                    $
      0.68$2.35
                    
                    30,000
                    
                    8.15
                    
                    $2.35
                    
                    10,000
                    
                    $
      2.35$2.38
      - $4.00
                    
                    218,333
                    
                    7.74
                    
                    $3.94
                    
                    92,222
                    
                    $ 3.91529,400
                    
                    
                    
                    $2.12
                    
                    383,289
                    
                    $ 1.50




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.





In the
case of shares granted to employees, the fair value of such shares is recognized
as an expense over the service period. As of June 30, 2009, the fair value of
options issued by the Company was $2,626,385 of which $1,389,891 has been
forfeited. No options were issued during the three months ended June 30, 2009.
Expense recognized for the three months ending June 30, 2009 was
$24,939.  The unamortized cost remaining at June 30, 2009 was $236,262
with a weighted average expected term for recognition of 2.57 years. At the time
of grant, the estimated fair values per option were from $0.63 to
$2.94.





NOTE
10 — WARRANTS





The
following table lists the total number of warrants outstanding as of June 30,
2009.





Expiring
                    
                    Strike
                      Price
                    
                    
                    Number
      of
                      common
      shares07/17/2009
                    
                    $
                    2.75
                    
                    
                    
                    480,00007/18/2009
                    
                    $
                    3.00
                    
                    
                    
                    215,408Total
                    
                    $
                    2.83
                    
                    
                    
                    695,408


Emerging
Issues Task Force Issue No. 07-5, “Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5) became
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Therefore, the adoption of this EITF by the Company was
effective April 1, 2009. The adoption of this EITF’s requirements can affect the
accounting for warrants and many convertible instruments containing provisions
that protect holders from a decline in the stock price (or “down round”
provisions). We evaluated whether our warrants contain provisions that protect
holders from declines in our stock price or otherwise could result in
modification of the exercise price and/or shares to be issued under the
respective warrant agreements based on a variable that is not an input to the
fair value of a “fixed-for-fixed” option. The Company determined that the
outstanding warrants at June 30, 2009 to purchase 695,408 shares of common stock
previously treated as equity were no longer afforded equity treatment and would
have to be reclassified to a liability.  Under SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities” (SFAS 133), the fair value of
this liability would be re-measured at the end of each reporting period
with the change in value reported in the consolidated statement of operations.
Based on the Company’s evaluation of the fair value of these warrants from issue
date through June 30, 2009, the Company determined that the original fair value
amounts were $662,900, while the value at April 1, 2009 and June 30, 2009 was
zero.  Accordingly the cumulative effect catch-up adjustment resulting in a
reclassification of $662,900 from additional paid in capital to accumulated
deficit.





NOTE
11 - 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, 2009 of $99,839 compared to $125,370 at
March 31, 2009. We also maintain a reserve for potential returns and price
protection $140,000 at June 30, 2009 and $142,000 at March 31, 2009. These
reserves are included in accounts payable. The receivables recorded from our
customers are net of their reserves for uncollectible accounts. Account balances
are charged off against the allowance when the Company believes it is probable
that accounts receivable will not be recovered.




At June
30, 2009 and 2008 consolidated net revenue was
immaterial.




11





Operations
by Geographic Area




Our
products are sold in North America, Europe, Australia, and Asia through
third-party licensing arrangements, through distributors, and through retailers.
The following table displays consolidated net revenue by location for the three
months ended June 30, 2009:





Location
                      
                      RevenueNorth
      America
                      
                      $
                      3,239Europe
                      
                      
                      -$
                      3,239





Location
of assets




Our
tangible assets, excluding inventory, are located at its corporate offices in
Northern California and on loan to a third party developer in Melbourne,
Australia. Inventory is located at several third party warehouse facilities,
primarily in Minnesota.





NOTE
12 — OTHER INCOME





·
            Heroes
      Over Europe.   In connection with our publishing
      agreement with Atari for Heroes Over Europe titles, on April 30, 2009 we
      entered into a Settlement Agreement (the “Settlement Agreement”) with Atari
      Interactive, Inc. (“Atari”) and IR Gurus
      Pty Ltd., dba Transmission Games (“Transmission”) to
      settle certain claims among the parties and to facilitate the transfer of
      rights in the interactive game with the working title “Heroes over Europe”
      (the “Title”) to
      a third-party publisher (the “New Publisher”). Under
      the Settlement Agreement, Atari had the irrevocable right to enter into a
      rights buyout agreement (the “Rights Buyout Agreement”) with the New
      Publisher to transfer to the New Publisher all rights that were granted or
      were purported to have been granted to Atari under the Publishing
      Agreement (the “Transferred Rights”). In the Settlement Agreement,
      Transmission granted to Atari a fully paid, irrevocable, worldwide license
      to the Transferred Rights and Red Mile acknowledged and affirmed the
      rights granted by Transmission. Red Mile also expressly waived and
      released all rights in the Transferred Rights. Upon the effectiveness of
      the Settlement Agreement, the Development Agreement, the Publishing
      Agreement, and the Buyout Agreement were terminated and of no further
      force or effect. Each party released the other parties from all known
      claims, including those arising under the Publishing Agreement,
      Development Agreement, or Buyout Agreement. Each party also made customary
      representations and warranties in the Settlement Agreement and agreed to
      indemnify, defend and hold the other parties harmless from all third-party
      claims in connection with any breach or alleged breach of their respective
      representations and warranties in the Settlement Agreement.  In
      exchange for the grant of rights and the release in the Settlement
      Agreement, Atari agreed to pay Red Mile $400,000 within fourteen days
      after the mutual execution of the Rights Buyout Agreement with the New
      Publisher. On April 30, 2009, Red Mile and Transmission entered into a
      letter agreement pertaining to certain sequel rights in the Title (the
      “Sequel Side Letter”). Under the Sequel Side Letter, if Transmission and
      the New Publisher determine that the New Publisher will not publish the
      first sequel, then Red Mile will have the right to bid on the sequel. Red
      Mile’s right to bid on the first sequel will expire on March 3, 2016.
      Similarly, if Red Mile submits a bid for the first sequel, Red Mile will
      have the same right to bid on the second sequel. Each party made customary
      representations and warranties in the Sequel Side Letter and each party
      agreed to indemnify, defend and hold the other harmless from claims
      arising out of such party’s breach of the Sequel Side Letter. The mutual
      execution of the Rights Buyout Agreement between Atari and the New
      Publisher was a condition precedent to the effectiveness of the Settlement
      Agreement and the Sequel Side Letter. We received the $400,000 payment in
      June 2009. As a result of these transactions. We recorded other income of
      $5,150,000 in the quarter ended June 30,
2009.








·
            Jackass
      game.  In connection with our license agreement with MTVN
      relating to the Jackass intellectual property, we entered into a
      settlement agreement with MTVN pursuant to which MTVN agreed to pay us
      approximately $131,000 and forgive any monies due to it from the sale of
      the Jackass games. In exchange we agreed to return any MTVN documents and
      turn over our license right and transfer all of
      our  rights  to MTVN. As a result of this we recorded
      other income of $754,000 in the quarter ended June 30,
    2009.




Note
13 —  NEW ACCOUNTING PRONOUNCEMENTS




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.




12




In
December 2007, the FASB issued proposed FASB Staff Position ("FSP") 157-b,
"Effective Date of FASB Statement No. 157," that would permit a one-year
deferral in applying the measurement provisions of Statement No. 157 to
non-financial assets and non-financial liabilities (non-financial items) that
are not recognized or disclosed at fair value in an entity's financial
statements on a recurring basis (at least annually). Therefore, if the change in
fair value of a non-financial item is not required to be recognized or disclosed
in the financial statements on an annual basis or more frequently, the effective
date of application of Statement 157 to that item is deferred until fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years.
This deferral did not apply, however, to an entity that applies Statement 157 in
interim or annual financial statements before  FSP 157-b was
finalized. Implementing the standard had  no impact on Red Mile’s
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 and it has not had a material impact on our consolidated
financial statements.




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
were present as of June 30, 2009 or March 31, 2009 and our tax position has not
materially changed.  For the three months ended June 30, , we did not
identify and record any liabilities related to unrecognized income tax
benefits.  The adoption of FIN 48 did not have a material impact our
financial statements.




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 have been accrued.  Income tax returns for the fiscal tax
year ended March 31, 2005 to the present are subject to examination by major tax
jurisdictions.




EITF
07-01





In
December 2007, the EITF reached a consensus on EITF No. 07-01, Accounting for
Collaborative Arrangements Related to the Development and Commercialization of
Intellectual Property, or EITF 07-01. EITF 07-01 discusses the appropriate
income statement presentation and classification for the activities and payments
between the participants in arrangements related to the development and
commercialization of intellectual property. The sufficiency of disclosure
related to these arrangements is also specified. EITF 07-01 is effective for
fiscal years beginning after December 15, 2008. As a result, EITF 07-01 was
effective for us in the first quarter of fiscal 2010. Adoption of EITF 07-01 has
not had a material impact on either our financial position or results of
operations.




SFAS
141(R) and SFAS 160




In
December 2007, the Financial Accounting Standards Board  (“FASB”)
issued Statement No. 141(Revised 2007),Business Combinations
  (SFAS 141(R)) and Statement No. 160,Accounting and
Reporting of Non-controlling Interests in Consolidated Financial
Statements , an amendment of ARB No. 51 (SFAS 160). These statements
will significantly change the financial accounting and reporting of business
combination transactions and non-controlling (or minority) interests in
consolidated financial statements. SFAS 141(R) requires companies to: (i)
recognize, with certain exceptions, 100% of the fair values of assets acquired,
liabilities assumed, and non-controlling interests in acquisitions of less than
a 100% controlling interest when the acquisition constitutes a change in control
of the acquired entity; (ii) measure acquirer shares issued in
consideration for a business combination at fair value on the acquisition date;
(iii) recognize contingent consideration arrangements at their
acquisition-date fair values, with subsequent changes in fair value generally
reflected in earnings; (iv) with certain exceptions, recognize
pre-acquisition loss and gain contingencies at their acquisition-date fair
values; (v) capitalize in-process research and development (IPR&D) assets
acquired; (vi) expense, as incurred, acquisition-related transaction costs;
(vii) capitalize acquisition-related restructuring costs only if the
criteria in SFAS 146,Accounting for Costs Associated with Exit or Disposal
Activities , are met as of the acquisition date; and
(viii) recognize changes that result from a business combination
transaction in an acquirer’s existing income tax valuation allowances and tax
uncertainty accruals as adjustments to income tax expense. SFAS 141(R) is
required to be adopted concurrently with SFAS 160 and is effective for business
combination transactions for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008 (our fiscal 2009). Early adoption of these statements is
prohibited. We believe the adoption of these statements will have a material
impact on significant acquisitions completed after March 31, 2009.




13





SFAS
161




In March
2008, the FASB issued SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities -an amendment of SFAS
133  or SFAS 161. SFAS 161 seeks to improve financial reporting
for derivative instruments and hedging activities by requiring enhanced
disclosures regarding the impact on financial position, financial performance,
and cash flows. To achieve this increased transparency, SFAS 161 requires: (1)
the disclosure of the fair value of derivative instruments and gains and losses
in a tabular format; (2) the disclosure of derivative features that are credit
risk-related; and (3) cross-referencing within the footnotes. This standard is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The adoption of SFAS 161has not had a
material impact on our consolidated financial statements.




SFAS
162




In
May 2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 162, "The Hierarchy of Generally
Accepted Accounting Principles". This standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with US GAAP for non-governmental entities. SFAS No. 162
is effective 60 days following the SEC's approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, the meaning of "Present
Fairly in Conformity with GAAP". The Company is in the process of evaluating the
impact, if any, of SFAS 162 on its consolidated financial
statements.





FSP
APB 14-1





In May
2008, the FASB released FSP APB 14-1 Accounting For Convertible
Debt Instruments That May Be Settled in Cash Upon Conversion (Including
Partial Cash Settlement) (FSP APB 14-1) that alters the accounting treatment for
convertible debt instruments that allow for either mandatory or optional cash
settlements. FSP APB 14-1 specifies that issuers of such instruments should
separately account for the liability and equity components in a manner that will
reflect the entity's nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. Furthermore, it would require recognizing
interest expense in prior periods pursuant to retrospective accounting
treatment. This FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The adoption of FSP APB 14-1 has not
had a material impact on our consolidated results of operations and financial
condition.




EITF 07-5





In
June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an
Instrument (or an
Embedded Feature) Is Indexed to an Entity’s Own Stock, or EITF 07-5. EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The implementation of this standard did not have a
material impact on the Company’s consolidated financial position and results of
operations.





SFAS
165





Effective
June 30, 2009, the Company adopted SFAS No. 165, Subsequent Events (“FAS
165”).  FAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before the date
the financial statements are issued or available to be issued.  FAS
165 requires companies to reflect in their financial statements the effects of
subsequent events that provide additional evidence about conditions at the
balance-sheet date. Subsequent events that provide evidence about conditions
that arose after the balance-sheet date should be disclosed if the financial
statements would otherwise be misleading. Disclosures should include the nature
of the event and either an estimate of its financial effect or a statement that
an estimate cannot be made.







14




SFAS
168
 
 In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162 (the Codification), which will be
effective for financial statements issued for interim and annual reporting
periods ending after September 15, 2009.  The Codification is not
expected to change U.S. generally accepted accounting principles but combines
all nongovernmental authoritative standards into a comprehensive, topically
organized online database. All other accounting literature excluded from the
Codification will be considered nonauthoritative. The company will adopt the use
of the Codification for the quarter ending September 30, 2009.  The
company is currently evaluating the effect on its financial statement
disclosures since all future references to authoritative accounting literature
will be references in accordance with the Codification.




SFAS
107-1 and APB 28-1





In April
2009, the FASB issued SFAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (SFAS 107-1). SFAS 107-1 amends FASB No. 107, Disclosures about Fair
Value of Financial Instruments, Prior to the issuance of FSP FAS
No. 107-1 and APB Opinion No. 28-1, the fair values of those assets
and liabilities were disclosed only annually. With the issuance of FSP FAS
No. 107-1 and APB Opinion No. 28-1, the Company is now required to
disclose this information on a quarterly basis, providing quantitative and
qualitative information about fair value estimates for all financial instruments
not measured in the Condensed Consolidated Balance Sheets at fair value. The
adoption of FSP FAS No. 107-1 and APB Opinion No. 28-1 did not have a
material impact on the Company’s consolidated financial position, results of
operations and cash flows.










15





ITEM 2.  MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





FORWARD-LOOKING
STATEMENTS




Most of
the matters discussed within this Form 10-Q include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. In some cases you can identify
forward-looking statements by terminology such as "may," "should," "potential,"
"continue," "expects," "anticipates," "intends," "plans," "believes,"
"estimates," and similar expressions. These statements are based on our current
beliefs, expectations, and assumptions and are subject to a number of risks and
uncertainties, many of which are set forth in this Form 10-Q. Actual results and
events may vary significantly from those discussed in the forward-looking
statements.




These
forward-looking statements may include, among other things, statements relating
to the following matters:





O
            the
      likelihood that our management team will increase our profile in the
      industry and create new video games for us.O
            our
      ability to compete against companies with much greater resources than
      us.O
            our
      ability to obtain various intellectual property licenses as well as
      development and publishing licenses and approvals from the third party
      hardware manufacturers.




These
forward-looking statements are made as of the date of this Form 10-Q, and we
assume no obligation to explain the reason why actual results may differ. In
light of these assumptions, risks, and uncertainties, the forward-looking events
discussed in this Form 10-Q might not occur. Factors that could cause or
contribute to any differences are discussed in “Risk Factors” and elsewhere in
our Annual Report on Form 10-K for the period ended March 31, 2009. Except as
required by Form 10-Q.  The information contained in this Form 10-Q is
not a complete description of our business or the risks associated with an
investment in our securities. Each reader should carefully review and consider
the various disclosures made by us  in this Form 10-Qand in our other
filings with the Securities and Exchange Commission.





Overview





In the
past, we have developed and published interactive entertainment software games
that are playable by consumers on home video game consoles, personal computers,
and handheld video game players .  At the current time we are not
actively developing or publishing any titles and cannot acquire any new games
due to a lack of sufficient funds.





During
the quarter ended June 30, 2009: we were involved in the following events, which
have limited our ability to execute our business plan as
contemplated:





·
            Heroes
      Over Europe.   In connection with our publishing
      agreement with Atari for Heroes Over Europe titles, on April 30, 2009 we
      entered into a Settlement Agreement (the “Settlement Agreement”) with Atari
      Interactive, Inc. (“Atari”) and IR Gurus
      Pty Ltd., dba Transmission Games (“Transmission”) to
      settle certain claims among the parties and to facilitate the transfer of
      rights in the interactive game with the working title “Heroes over Europe”
      (the “Title”) to
      a third-party publisher (the “New Publisher”). Under
      the Settlement Agreement, Atari had the irrevocable right to enter into a
      rights buyout agreement (the “Rights Buyout Agreement”) with the New
      Publisher to transfer to the New Publisher all rights that were granted or
      were purported to have been granted to Atari under the Publishing
      Agreement (the “Transferred Rights”). In the Settlement Agreement,
      Transmission granted to Atari a fully paid, irrevocable, worldwide license
      to the Transferred Rights and Red Mile acknowledged and affirmed the
      rights granted by Transmission. Red Mile also expressly waived and
      released all rights in the Transferred Rights. Upon the effectiveness of
      the Settlement Agreement, the Development Agreement, the Publishing
      Agreement, and the Buyout Agreement were terminated and of no further
      force or effect. Each party released the other parties from all known
      claims, including those arising under the Publishing Agreement,
      Development Agreement, or Buyout Agreement. Each party also made customary
      representations and warranties in the Settlement Agreement and agreed to
      indemnify, defend and hold the other parties harmless from all third-party
      claims in connection with any breach or alleged breach of their respective
      representations and warranties in the Settlement Agreement.  In
      exchange for the grant of rights and the release in the Settlement
      Agreement, Atari agreed to pay Red Mile $400,000 within fourteen days
      after the mutual execution of the Rights Buyout Agreement with the New
      Publisher. On April 30, 2009, Red Mile and Transmission entered into a
      letter agreement pertaining to certain sequel rights in the Title (the
      “Sequel Side Letter”). Under the Sequel Side Letter, if Transmission and
      the New Publisher determine that the New Publisher will not publish the
      first sequel, then Red Mile will have the right to bid on the sequel. Red
      Mile’s right to bid on the first sequel will expire on March 3, 2016.
      Similarly, if Red Mile submits a bid for the first sequel, Red Mile will
      have the same right to bid on the second sequel. Each party made customary
      representations and warranties in the Sequel Side Letter and each party
      agreed to indemnify, defend and hold the other harmless from claims
      arising out of such party’s breach of the Sequel Side Letter. The mutual
      execution of the Rights Buyout Agreement between Atari and the New
      Publisher was a condition precedent to the effectiveness of the Settlement
      Agreement and the Sequel Side Letter. We received the $400,000 payment in
      June 2009. As a result of these transactions. We recorded other income of
      $5,150,000 in the quarter ended June 30,
2009.




16




·
            Jackass
      game.  In connection with our license agreement with MTVN
      relating to the Jackass intellectual property, we entered into a
      settlement agreement with MTVN pursuant to which MTVN agreed to pay us
      approximately $131,000 and forgive any monies due to it from the sale of
      the Jackass games. In exchange we agreed to return any MTVN documents and
      turn over our license right and transfer all of
      our  rights  to MTVN.  As a result of this we
      recorded other income of $754,000 in the Quarter endingJune 30, 2009.





·
            Sin
      City. On May 18, 2007, we entered into a multi-year license
      agreement with Frank Miller, Inc., a New York corporation (“FMI”),
      pursuant to which we were  granted the exclusive rights for the
      multi-platform development, manufacturing, and publishing of all current
      and future games under the title “Sin City” (the “Title”) and all comic
      books and collections, graphic novels, and other books owned or controlled
      by FMI related to the Title, including all storylines of those comic books
      and graphic novels. Pursuant to the licensing agreement, we agreed to make
      scheduled payments to FMI.  On May 12, 2009, we received from
      FMI a notice of breach with respect to the Licensing Agreement, claiming
      that we failed to make a payment under the Licensing Agreement in the
      amount of $125,000 and demanding payment by May 25, 2009.  We
      are currently in discussions with FMI regarding future participation in
      Sin City Games.





Liquidity
and Capital resources





On May 7,
2008, we entered into a secured credit agreement with Silverbirch Inc, a
Canadian publicly traded corporation in the amount of $750,000 Canadian Dollars
("The Facility"). The Facility was made available for development and production
of our “Heroes Over Europe” video game and general and administrative purposes.
Amounts drawn on the Facility were payable no later than November 7, 2008. 
The Facility required interest at the rate of 10% per annum and was payable to
Lender quarterly in arrears. Advances under the Facility could be pre-paid
without penalty. The Facility carried a first priority security interest in all
of our present and future assets in addition to the securities in the capital of
our three wholly owned subsidiaries. The Facility carried no financial or
operating covenants. The Facility contained customary terms and conditions for
credit facilities of this type, including restrictions on our  ability
to incur or guaranty additional indebtedness, create liens, make loans or
investments, sell assets, pay dividends or make distributions on, or repurchase,
its stock.





On
October 7, 2008, Red Mile Entertainment, Inc. (“Red Mile”) entered into an
Agreement and Plan of Merger (the “Merger Agreement”) with SilverBirch Inc., an
Ontario (Canada) corporation (“SilverBirch”), RME Merger Sub Corp., a Delaware
corporation and wholly owned subsidiary of SilverBirch (“Merger Sub”), and Kenny
Cheung, as stockholder representative (the
“Representative”).  Concurrently, we amended the secured credit
agreement whereby SilverBirch, Inc. agreed not to exercise any demand or
enforcement rights under such agreement until the closing of our merger into
their subsidiary.  On December 3, 2008, we terminated the Merger
Agreement with SilverBirch based on a material breach by SilverBirch Inc. of the
Merger Agreement.





On
December 30, 2008, we entered into a Standstill Agreement (the “Standstill
Agreement”) with SilverBirch whereby both parties agreed to forbear and
standstill from exercising their respective rights and remedies against each
other during the “Standstill Period”. Such period commenced on December 30, 2008
and ended on the “Standstill Termination Date”, the date which is the earlier
of: (i) the date of the payment of the Final Settlement Payment (as such term is
defined below); (ii) July 31, 2009; or (iii) the date that SilverBirch gave
written notice to us of SilverBirch’s election to terminate the Standstill
Period in the event we breached or failed to comply with any of the terms of the
Standstill Agreement “Early Termination”. Under the Standstill Agreement, we
agreed to repay SilverBirch $600,000 Canadian in four payments in connection
with the secured credit loan and SilverBirch agreed to forgive $150,000 Canadian
of such loan. The final payment on this loan was made in June 2009.





17





On
February 11, 2008, we entered into an uncommitted revolving line of credit
agreement with Tiger Paw Capital Corporation, a corporation owned and operated
by Mr. Kenny Cheung, at the time a member of our  Board of Directors
in the amount of $1,000,000 ("The Line"). The Line is available for working
capital requirements. Any amounts drawn on the Line are payable on demand but in
no event later than 90 days from the date each respective draw is made. The Line
is an uncommitted obligation where Lender may decline to make advances under the
Line, or terminate the Line, at any time and for any reason without prior notice
to us..  The Line bears interest at the rate of 10% per annum and is
payable to Lender on demand. Advances under the Line may be pre-paid without
penalty.  The line has a subordinated security interest, to the
secured credit agreement with Silverbirch, Inc. to all present and future
assets of the Company and carries no financial or operating covenants. As of
June 30, 2009, we have drawn $510,000 on the Line and owe $63,611in accrued
interest.





At June
30, 2009, we had a working capital deficit of $1,822,438 compared to $7,32,467
at March 31, 2009.   This decrease was primarily a result of
decrease of approximately $4.75 million in current liabilities from the Atari
settlement.   Our current cash on hand as of June 30, 2009
was  approximately $9,000, compared to $72,286 at March 31,
2009.  The decrease in cash is a result of _continuing operating
losses.  With our current cash and expected draws on the remaining
balance available under our Line, we will not be able to develop new games and
continue our business operations until the end of Fiscal 2010.  We
currently need to raise additional capital in order to continue operating our
business.





We
anticipate needing an additional $10,000,000 to $15,000,000 to finance our
planned operations over the next 24 months. We will be unable to publish any
other additional games if we are unable to receive co-publishing advances or
raise additional capital. 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 and we will ultimately cease our operations





RED
MILE ENTERTAINMENT, INC.


Results
of Operations




The
unaudited results of operations for the three months ending June 30, 2009
and June 30, 2008 are as follows:




Summary
of Unaudited Statements of Operations


Three
Months Ended June 30, 2009 and 2008


Summary
of Statements of Operations





2009
                    
                    
                    2008
                    
                    
                    %
      ChangeRevenue
                    
                    $
                    3,239
                    
                    
                    $
                    37,087
                    
                    
                    
                    (91
                    )%Cost
      of sales
                    
                    
                    11,623
                    
                    
                    
                    49,362
                    
                    
                    
                    (76
                    )%Gross
      margin
                    
                    
                    (8,384
                    )
                    
                    
                    (12,275
                    )Operating
      expenses
                    
                    
                    385,621
                    
                    
                    
                    963,768
                    
                    
                    
                    (60
                    )%Net
      loss before interest, other income and provision for income
      taxes
                    
                    
                    (394,005
                    )
                    
                    
                    (976,043
                    )
                    
                    
                    (60
                    )%Interest
      income (expense), net
                    
                    
                    (12,500
                    )
                    
                    
                    (27,138
                    )Other
      income (expense), net
                    
                    
                    5,904,184
                    
                    
                    
                    (5,630
                    )Net
      income (loss) before income taxes
                    
                    
                    5,497,679
                    
                    
                    
                    1,008,811Income
      tax expense
                    
                    
                    -
                    
                    
                    
                    (800
                    )Net
      income (loss)
                    
                    $
                    5,497,679
                    
                    
                    $
                    (1,009,611
                    )Net
      income (loss) per common share - Basic and diluted
                    
                    $
                    0.34
                    
                    
                    $
                    (0.06
                    )Shares
      used in computing basic and diluted net loss per share
                    
                    
                    16,233,021
                    
                    
                    
                    15,977,941





Revenues




Revenues
were $3,239 and $37,087 during the three months ended June 30, 2009 and 2008,
respectively, a decrease of 91%.  The decrease is primarily due to
decrease in sales of all of our games as they reached the end of their product
life cycles. No new products were introduced in either quarter.





Our
revenues are subject to material seasonal fluctuations. In particular, revenues
in our third fiscal quarter will ordinarily be significantly higher than other
fiscal quarters. Revenues recorded in our first fiscal quarter are not
necessarily indicative of what our reported revenues will be for an entire
fiscal year.





We
currently have no games under development.  We are seeking games to
publish, but unless we are successful raising additional capital, or merge with
a company with capital or games under development we do not expect significant
revenue in fiscal 2010.





We record
revenues net of distribution fees.




18




Red Mile
may be required to levy European Value Added Tax (“VAT”) and Australian Goods
and Services Tax (“GST”) on shipments of products within the EU member
countries, and Australia, respectively. Pursuant to EITF 06-03, “How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement”, Red Mile includes the taxes assessed by a
governmental authority that is directly imposed on a revenue-producing
transaction on a gross basis (included in revenues and costs). For the three
months ended June 30, 2009 and 2008, respectively, no taxes assessed by a
governmental authority were included revenue and cost of sales.





Cost
of sales





Cost of
sales were approximately $11,623 and $49,362 during the three months ended June
30, 2009 and 2008, respectively, a decrease of 76%  The decrease in
cost of sales as compared to the prior year is primarily the result of the
decrease in sales of our games as those games reached the end of their product
life cycles.




Cost of
sales for the three months ended June 30, 2009 consisted of:





Amortization
      of capitalized software development costs, cost of inventory
      sold,  manufacturing and distribution costs
                  
                  $
                  1,275Write down of inventory costs to net realizable value
                  
                  
                  10,348Total
                  
                  $
                  11,623




Operating
Expenses




Operating
expenses for three months ended June 30, 2009 and 2008, respectively, were as
follows:




Three
      months ended
                                      June
      30, 2009
                                    
                                    Percent
                                      of
      total
                                    
                                    Three
      months ended
                                      June
      30, 2008
                                    
                                    Percent
                                      Of
      total
                                    Percent
                                      DecreaseResearch
      and development costs
                                    
                                    $
                                    43,864
                                    
                                    11.4
                                    %
                                    $
                                    268,721
                                    
                                    27.9
                                    %
                                    (84
                                    %)General
      and administrative costs
                                    
                                    
                                    319,443
                                    
                                    82.8
                                    %
                                    
                                    643,294
                                    
                                    66.8
                                    %
                                    (50
                                    %)Marketing,
      sales and business development costs
                                    
                                    
                                    22,314
                                    
                                    5.8
                                    %
                                    
                                    51,753
                                    
                                    5.3
                                    %
                                    (57
                                    %)Total
      operating expenses
                                    
                                    $
                                    385,621
                                    
                                    100.0
                                    %
                                    $
                                    963,768
                                    
                                    100.0
                                    %




Research
and Development Costs





Our
research and development (R&D) expenses consist of the following: (i) costs
incurred at our third party developers for which the game has not yet reached
technological feasibility as described in SFAS 86; and (ii) costs incurred in
our internal development group which are not capitalized into our games under
development. All direct game development during the year was performed by third
party developers under development and royalty contracts. These external
development costs are capitalized upon the Company determining that the game has
passed the technological feasibility standard of SFAS 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 during the
quarter to the total of actual cumulative revenues during the quarter plus
projected future revenues for each game or straight-line over the estimated
remaining 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, 2009, we ceased development of our only
game under development and therefore none of our internal costs were
capitalized.





Research
and development expenses were approximately $43,864 and $268,721 during the
three months ended June 30, 2009 and 2008, respectively, a decrease of
approximately 84%.  Virtually all of the costs for R&D during the
three months ended June 30, 2009, related to costs incurred in the development
of Sin City: the Game.





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, whether an underlying game engine is being licensed, and any specialized
software or hardware necessary to develop a game.





We expect
research and development costs to be minimal unless and until we resolve our
working capital requirements.





General
and Administrative Costs





General
and administrative costs were approximately $319,443 and $643,294 in the three
months ended June 30, 2009 and 2008, respectively, a decrease of 50%. 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, insurance costs,
and travel. General and administrative costs primarily decreased due to a
reduction in the number of employees including the Chief Financial Officer and
by the Chairman and the CEO taking substantial salary reductions.




19




Sales,
Marketing and Business Development Costs





Sales,
marketing and business development costs were approximately $22,314 and $51,753
during the three months ended June 30, 2009 and 2008, respectively, a decrease
of 57%. Sales, marketing, and business development costs consist primarily of
employee salaries, employee benefits, consulting costs, public relations costs,
promotional costs, marketing research, sales commissions, and sales support
materials costs.  Sales, marketing, and business development costs
decreased year over year primarily due to the Company no longer incurring
marketing or promotional costs for any of its games and reduced headcount
costs.





Interest
Income (Expense), net





Interest
income (expense), net were approximately ($12,500) and ($27,138) for the three
months ended June 30, 2009 and 2008, respectively, a decrease of 54%. The
decrease primarily reflects lower interest charges due to paying off the secured
credit loan with Silverbirch Inc.





Other
Income





Other
expense for the three months ended June 30, 2009 relate primarily settlement of
the dispute with Atari and Transmission which resulted in us recognizing $4.75
million in previously deferred revenue as well as the $400,000 settlement
payment. In addition, we settled a dispute with MTV over the Jackass license and
as a result of the settlement recorded other income of $754,000 due to a
reduction in previously recorded royalties and marketing fees as well as an
amount due of approximately $131,000.




Off-Balance Sheet
Arrangements




At June
30, 2009, we did not have any transactions, obligations or relationships that
could be considered off-balance sheet arrangements.




Critical
Accounting Policies




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, revenues, expenses, and equity amounts
reported.





These
estimates can also affect supplemental information contained in our external
disclosures including information regarding contingencies, risk and financial
condition.





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 our
financial condition and results of operations, we view certain of these policies
as critical. Policies determined to be critical are those policies that have the
most significant impact on our 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




Our  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, we ship finished products to third party game distributors who will then
ship these products to retailers and charge us a distribution fee. Our internal
sales force, together with the distributors’ sales force and
an  outsourced independent sales group we use,  generate
orders from the retailers. In North America, shipments made to an exclusive
distributor (Navarre Corporation) are shipped under consignment, and accordingly
we do not record any revenue on these shipments until the distributor ships the
games to the retailers.  Revenue is recorded net of the distribution
fees levied by the distributor.  We also ship directly to a select few
specialty retailers and to video rental companies.




20




Red Mile
may receive minimum guaranteed amounts or development advances from its
distributors or co-publishers 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 distributors or co-publishers calls for these
payments to be recouped from revenue share or royalties earned by us 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
distributors or co-publishers using the stated revenue share or 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 revenue, we must make assumptions as to
the potential returns and potential price protection of the product which could
result in credits to distributors or 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.





Our
revenues are subject to material seasonal fluctuations.




In
particular, revenues in our third fiscal quarter will ordinarily be
significantly higher than other fiscal quarters. Revenues recorded in our third
fiscal quarter are not necessarily indicative of what our reported revenues will
be for an entire fiscal year.





We may be
required to levy European Value Added Tax (“VAT”) and Australian Goods and
Services Tax (“GST”) on shipments of products within the EU member
countries, and Australia, respectively. Pursuant to EITF 06-03, “How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement”, we include the taxes assessed by a
governmental authority that is directly imposed on a revenue-producing
transaction on a gross basis (included in revenues and costs).




Software
Development Costs and Advanced Royalties




Software
development costs and advanced royalties to developers include milestone
payments or advances on milestone payments made to software developers and other
third parties and direct labor costs.  Advanced royalties also include
license payments made to licensors of intellectual property we
license.




Software
development costs and advanced royalty payments made to developers 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 and advanced royalty payments to developers are capitalized
once technological feasibility of a product is established and such costs are
determined to be recoverable. For products where proven technology exists, this
may occur very early in the development cycle. Factors we consider in
determining when technological feasibility has been established include (i)
whether a proven technology exists; (ii) the quality and experience levels of
the development studio developing the game; (iii) whether the game is a sequel
to an already completed game which has used the same or similar technology; and
(iv) whether the game is being developed with a proven underlying game engine.
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 and advanced royalty payments to developers are evaluated
based on the expected performance of the specific products for which the costs
relate.




Commencing
upon a product’s release, capitalized software development costs and advanced
royalty payments to developers are amortized to cost of sales using the greater
of the ratio of actual cumulative revenues during the quarter to the total of
actual cumulative revenues during the quarter plus projected future revenues for
each game or straight-line over the remaining 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 development costs and advanced royalty
payments to developers.  In evaluating the recoverability of
capitalized software development costs and advanced royalty payments to
developers, the assessment of expected product performance utilizes forecasted
sales quantities and prices and estimates of additional costs to be incurred or
expensed.




21




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 a
larger charge to cost of sales in future quarters or an impairment charge to
cost of sales.




Advanced
royalty payments made to licensors of intellectual property are capitalized and
evaluated for recoverability based on the expected performance of the underlying
games for which the intellectual property was licensed. Any royalty payments
made to licensors of intellectual property determined to be unrecoverable
through future sales of the underlying games are charged to cost of
sales.





Effect
of Recent Accounting Pronouncements





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 and it is not expected to have a material impact on our
consolidated financial statements.




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 March 31, 2008 and our tax position has not materially changed
since March 31, 2008.  For the year ended March 31, 2008, we did not
identify and record any liabilities related to unrecognized income tax
benefits.  We do not expect the adoption of FIN 48 to have a material
impact our financial statements.




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 have been accrued.  Income tax returns for the fiscal tax
year ended March 31, 2005 to the present are subject to examination by major tax
jurisdictions.




EITF
07-03





In June
2007, the EITF reached a consensus on EITF No. 07-03, Accounting for
Nonrefundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities, or EITF 07-03. EITF 07-03 specifies the
timing of expense recognition for non-refundable advance payments for goods or
services that will be used or rendered for research and development activities.
EITF 07-03 was effective for fiscal years beginning after December 15, 2007, and
early adoption is not permitted. Adoption of EITF 07-has not  had a
material impact on either our financial position or results of
operations.





EITF
07-01





In
December 2007, the EITF reached a consensus on EITF No. 07-01, Accounting for
Collaborative Arrangements Related to the Development and Commercialization of
Intellectual Property, or EITF 07-01. EITF 07-01 discusses the appropriate
income statement presentation and classification for the activities and payments
between the participants in arrangements related to the development and
commercialization of intellectual property. The sufficiency of disclosure
related to these arrangements is also specified. EITF 07-01 is effective for
fiscal years beginning after December 15, 2008. As a result, EITF 07-01 is
effective for us in the first quarter of fiscal 2010. We do not expect the
adoption of EITF 07-01 to have a material impact on either our financial
position or results of operations.




22




SFAS
141(R) and SFAS 160




In
December 2007, the Financial Accounting Standards Board  (“FASB”)
issued Statement No. 141(Revised 2007),Business Combinations
  (SFAS 141(R)) and Statement No. 160,Accounting and
Reporting of Non-controlling Interests in Consolidated Financial
Statements , an amendment of ARB No. 51 (SFAS 160). These statements
will significantly change the financial accounting and reporting of business
combination transactions and non-controlling (or minority) interests in
consolidated financial statements. SFAS 141(R) requires companies to: (i)
recognize, with certain exceptions, 100% of the fair values of assets acquired,
liabilities assumed, and non-controlling interests in acquisitions of less than
a 100% controlling interest when the acquisition constitutes a change in control
of the acquired entity; (ii) measure acquirer shares issued in
consideration for a business combination at fair value on the acquisition date;
(iii) recognize contingent consideration arrangements at their
acquisition-date fair values, with subsequent changes in fair value generally
reflected in earnings; (iv) with certain exceptions, recognize
pre-acquisition loss and gain contingencies at their acquisition-date fair
values; (v) capitalize in-process research and development (IPR&D) assets
acquired; (vi) expense, as incurred, acquisition-related transaction costs;
(vii) capitalize acquisition-related restructuring costs only if the
criteria in SFAS 146,Accounting for Costs Associated with Exit or Disposal
Activities , are met as of the acquisition date; and
(viii) recognize changes that result from a business combination
transaction in an acquirer’s existing income tax valuation allowances and tax
uncertainty accruals as adjustments to income tax expense. SFAS 141(R) is
required to be adopted concurrently with SFAS 160 and is effective for business
combination transactions for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008 (our fiscal 2009). Early adoption of these statements is
prohibited. We believe the adoption of these statements will have a material
impact on significant acquisitions completed after March 31, 2009.




SFAS
161




In March
2008, the FASB issued SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities -an amendment of SFAS
133  or SFAS 161. SFAS 161 seeks to improve financial reporting
for derivative instruments and hedging activities by requiring enhanced
disclosures regarding the impact on financial position, financial performance,
and cash flows. To achieve this increased transparency, SFAS 161 requires: (1)
the disclosure of the fair value of derivative instruments and gains and losses
in a tabular format; (2) the disclosure of derivative features that are credit
risk-related; and (3) cross-referencing within the footnotes. This standard
shall be effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008 and early application is encouraged.
We are in the process of evaluating the new disclosure requirements under SFAS
161 and do not expect the adoption to have a material impact on our consolidated
financial statements.




SFAS
162




In
May 2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 162, "The Hierarchy of Generally
Accepted Accounting Principles". This standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with US GAAP for non-governmental entities. SFAS No. 162
is effective 60 days following the SEC's approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, the meaning of "Present
Fairly in Conformity with GAAP". We are in the process of evaluating the impact,
if any, of SFAS 162 on its consolidated financial statements.





FSP
APB 14-1





In May
2008, the FASB released FSP APB 14-1 Accounting For Convertible
Debt  Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1) that alters the accounting
treatment for convertible debt instruments that allow for either mandatory or
optional cash settlements. FSP APB 14-1 specifies that issuers of such
instruments should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. Furthermore, it would require
recognizing interest expense in prior periods pursuant to retrospective
accounting treatment. This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008. We are currently evaluating the
effect the adoption of FSP APB 14-1 will have on our consolidated results of
operations and financial condition.




EITF 07-5





In
June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an
Instrument (or an
Embedded Feature) Is Indexed to an Entity’s Own Stock, or EITF 07-5. EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The implementation of this standard did not have a
material impact on the Company’s consolidated financial position and results of
operations.





SFAS
165





Effective
June 30, 2009, the Company adopted SFAS No. 165, Subsequent Events (“FAS
165”).  FAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before the date
the financial statements are issued or available to be issued.  FAS
165 requires companies to reflect in their financial statements the effects of
subsequent events that provide additional evidence about conditions at the
balance-sheet date. Subsequent events that provide evidence about conditions
that arose after the balance-sheet date should be disclosed if the financial
statements would otherwise be misleading. Disclosures should include the nature
of the event and either an estimate of its financial effect or a statement that
an estimate cannot be made.





23





SFAS
168





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162 (the Codification), which will be
effective for financial statements issued for interim and annual reporting
periods ending after September 15, 2009.  The Codification is not
expected to change U.S. generally accepted accounting principles but combines
all nongovernmental authoritative standards into a comprehensive, topically
organized online database. All other accounting literature excluded from the
Codification will be considered nonauthoritative. The company will adopt the use
of the Codification for the quarter ending September 30, 2009.  The
company is currently evaluating the effect on its financial statement
disclosures since all future references to authoritative accounting literature
will be references in accordance with the Codification.




SFAS
107-1 and APB 28-1





In April
2009, the FASB issued SFAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (SFAS 107-1). SFAS 107-1 amends FASB No. 107, Disclosures about Fair
Value of Financial Instruments, Prior to the issuance of FSP FAS
No. 107-1 and APB Opinion No. 28-1, the fair values of those assets
and liabilities were disclosed only annually. With the issuance of FSP FAS
No. 107-1 and APB Opinion No. 28-1, the Company is now required to
disclose this information on a quarterly basis, providing quantitative and
qualitative information about fair value estimates for all financial instruments
not measured in the Condensed Consolidated Balance Sheets at fair value. The
adoption of FSP FAS No. 107-1 and APB Opinion No. 28-1 did not have a
material impact on the Company’s consolidated financial position, results of
operations and cash flows.




ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
Applicable.





ITEM
4T. CONTROLS AND PROCEDURES




Our Chief
Executive Officer who is our principal executive officer and principal financial
officer has evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end
of the period covered by this Quarterly Report  (the “Evaluation
Date”).





We do not
expect that our disclosure controls or internal controls over financial
reporting will prevent all errors or all instances of fraud.  A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system's objectives will be met.
 Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs.  Management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within our company have been detected.  These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
 Because of the inherent limitation of a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.  Additionally, controls can be circumvented by the
individual acts of  some  persons,  by collusion
of two or more people or by management override of a control. A design of a
control system is also based upon certain assumptions about potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be
detected.





The
Company does not have independent board members nor therefore an independent
audit committee. In addition, the lack of multiple employees results in the
Company’s inability to have a sufficient segregation of duties within its
accounting and financial activities. These absences constitute material
weaknesses in the Company’s internal controls over financial reporting and
corporate governance structure.





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. The company’s internal control system was designed to
provide reasonable assurance to the company’s management and board of directors
regarding the preparation and fair presentation of published financial
statements. The internal control system over financial reporting includes those
policies and procedures that:





•
            
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;•
            
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company
      are being made only in accordance with authorization of management and
      directors of the company; and•
            
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the financial
  statements.




24





All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.




Management
assessed the effectiveness of the company’s internal control over financial
reporting as of June 30, 2009, and this assessment identified the following
material weakness in the company’s internal control over financial
reporting.





In making
its assessment of internal control over financial reporting management used the
criteria issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) inInternal Control—Integrated Framework.   Because of
the material weakness described in the preceding paragraph, management believes
that, as of  March 31, 2009, the company’s internal control over
financial reporting was not effective based on those criteria.




(b) Changes in Internal Control Over
Financial Reporting





There
have been no material changes in our  internal controls over financial
reporting identified in connection with the evaluation of disclosure controls
and procedures discussed above that occurred during the quarter ended June 30,
2009 or subsequent to that date that have materially affected, or are reasonably
likely to materially affect, our  internal control over financial
reporting.




PART
II. OTHER INFORMATION




ITEM
1. LEGAL PROCEEDINGS




There are
no material pending legal proceeding involving the Company or its
property.




ITEM 1A.
RISK FACTORS





Not
Applicable.




Item
2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





None.





Item
3.   DEFAULTS UPON SENIOR SECURITIES





None.





Item
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None.





Item.
5. OTHER INFORMATION





None




25





Item
6.  EXHIBITS





Exhibit
    No.
            Exhibit
      Description





2.1
              Agreement
      and Plan of Merger among SilverBirch Inc., RME Merger Sub Corp., Red Mile
      Entertainment, Inc. and Kenny Cheung, as Representative, dated October 7,
      2008 (1)3.1
              Articles
      of Incorporation (2)3.2
              By-Laws
      (2)3.3
              Certificate
      of Amendment to Certificate of Incorporation (3)4.1
              Articles
      of Merger (4)4.2
              Certificate
      of Merger (4)4.3
              Certificate
      of Amendment to Certificate of Incorporation (5)4.4
              Fiscal
      2007 Employee Incentive Bonus Plan (6)


10.1
            Buyout
      Agreement between Atari, Inc. and Red Mile Entertainment,
      Inc.(9)10.2
            Settlement
      Agreement among Red Mile Entertainment, Inc., Atari Interactive, Inc. and
      IR Gurus Pty, LTD., dated  April 30, 2009(9)10.
      3
            Side
      Sequel Letter Agreement between Red Mile Entertainment, Inc., and IR Gurus
      Pty, LTD., dated April 30, 2000 (9)10.4
            Second
      Amendment to Revolving Line of Credit Agreement and Promissory Note dated
      June 19, 2009 (7)10.5
            Settlement
      Agreement and General Release (8)31.1
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002*32.1
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*


____


* Filed
Herewith


(1)___________________(2)
            Incorporated
      by reference to our Form 10-SB filed on December 1,
2004(3)
            Incorporated
      by reference to our Form 8-K filed on May 2, 2006(4)
            Incorporated
      by reference to our Form 8-K filed on May 10, 2006(5)
            Incorporated
      by reference to our Form 8-K filed on February 6, 2007(6)
            Incorporated
      by reference to our Form 8-K filed on October 30, 2006(7)
            Incorporated
      by reference to our Form 8-K filed on June 25, 2009(8)
            Incorporated
      by reference to our Form 8-K filed on July 9, 2009(9)
            Incorporated
      by reference to our Form 8-K filed on August 12,
  2009.





26







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
      18, 2009
            
            By:/s/Simon
    PriceSimon
      PriceChief
      Executive Officer(Principal
      Executive Officer and Principal Accounting
  Officer)