UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




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


**FORM
      10-QSB**


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







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







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




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




FOR
      THE
      QUARTERLY PERIOD FROM _____ TO _________ .





Commission
      File # 000-51055




**RED
      MILE ENTERTAINMENT, INC.**


(Exact
      name of registrant as specified in its charter)




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




**4000
      Bridgeway, Suite 101**


**Sausalito,
      CA 94965**


(ADDRESS
      OF PRINCIPAL EXECUTIVE OFFICES)




**(415)
      339-4240**


(ISSUER
      TELEPHONE NUMBER)




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




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes [ X ] No o




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





Number
      of
      shares of the registrant's common stock outstanding as of November 13, 2007
      is:
      15,952,005.





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








1
  **Table
          of Contents**
  Page**PART
                    I**
                FINANCIAL
                    INFORMATIONITEM
                    1.
                FINANCIAL
                    STATEMENTS
                3ITEM
                    2.
                MANAGEMENT’S
                    DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
                17ITEM
                    3.
                CONTROLS
                    AND PROCEDURES
                23**PART
                    II**
                OTHER
                    INFORMATIONITEM
                    1A.
                RISK
                    FACTORS
                24ITEM
                    2.
                UNREGISTERED
                    SALES OF EQUITY SECURITIES
                29ITEM
                    4.
                SUBMISSION
                    OF MATTERS TO A VOTE OF DEBENTURE HOLDERS
                30ITEM
                    6.
                EXHIBITS
                31SIGNATURE
                    PAGE
                32






















2








Part
      I. FINANCIAL INFORMATION






ITEM
      1.
      Financial Statements






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


**Condensed
                Consolidated Balance Sheets****September
                  30, 2007**
            
            
            **March
                  31, 2007****Assets**
            
            (Unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            2,471,724
            
            
            $
            1,912,992Accounts
                receivable, net of reserves of $553,072 and $265,765
            
            
            1,580,561
            
            
            
            245,843Inventory,
                net
            
            
            961,764
            
            
            
            77,232Prepaid
                expenses and other assets
            
            
            30,148
            
            
            
            302,431Current
                portion of issuance costs on senior secured convertible
                debentures
            
            
            -
            
            
            
            305,226Software
                development costs and advanced royalties
            
            
            5,309,749
            
            
            
            6,072,849Total
                current assets
            
            
            10,353,946
            
            
            
            8,916,573Property
                and equipment,
                net
            
            
            226,997
            
            
            
            241,171Long
              term portion of  issuance costs on senior secured convertible
              debentures, net
            
            
            -
            
            
            
            176,321Intangible
                assets, net
            
            
            92,719
            
            
            
            114,240Other
                assets
            
            
            427,055
            
            
            
            313,244Total
                assets
            
            $
            11,100,717
            
            
            $
            9,761,549**Liabilities,
                and stockholders’ deficit**Current
                liabilities:Accounts
                payable
            
            $
            1,318,175
            
            
            $
            994,675Accrued
                liabilities
              Deferred
                revenue
            
            
            1,233,094
              217,188
            
            
            
            1,124,398
              -Total
                current liabilities
            
            
            2,768,457
            
            
            
            2,119,073Senior
                secured convertible debentures
            
            
            -
            
            
            
            8,244,000Total
                liabilities
            
            
            2,768,457
            
            
            
            10,363,073Common
                stock, $0.01 par value, authorized 100,000,000 shares; 15,952,005
                and
                9,661,740 shares outstanding, respectively
            
            
            159,520
            
            
            
            96,617Additional
                paid-in capital
            
            
            36,242,170
            
            
            
            16,518,164Accumulated
                other comprehensive income
            
            
            3,016
            
            
            
            1,885Accumulated
                deficit
            
            
            (28,072,446
            )
            
            
            (17,218,190
            )Total
                stockholders’ equity (deficit)
            
            
            8,332,260
            
            
            
            (601,524
            )Total
                liabilities and stockholders’ equity (deficit)
            
            $
            11,100,717
            
            
            $
            9,761,549








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








3







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




***Condensed
      Consolidated Statements of Operations***


***(Unaudited)***




**Three
                    months ended September 30,****2007**
                
                
                **2006**Revenues,
                    net
                
                $
                3,158,893
                
                
                $
                284,903Cost
                    of
                    sales
                
                
                4,774,734
                
                
                
                575,795Gross
                    margin
                
                
                (1,615,841
                )
                
                
                (290,892
                )Operating expensesResearch  and
                    development costs
                
                
                442,066
                
                
                
                104,990General
                    and administrative costs
                
                
                773,628
                
                
                
                635,576Sales,
                    marketing and business development costs
                
                
                1,686,863
                
                
                
                347,541Total
                    operating expenses
                
                
                2,902,557
                
                
                
                1,088,107Net
                    loss before other income (expense) and provision for income
                    taxes
                
                
                (4,518,398
                )
                
                
                (1,378,999
                )Debt
                    conversion inducement costs
                
                
                4,318,286
                
                
                
                -Beneficial
                    debt conversion costs
                
                
                662,902
                
                
                
                -Interest
                    income (expense), net
                
                
                22,174
                
                
                
                3,974Net
                    loss before income tax expense
                
                
                (9,477,412
                )
                
                
                (1,375,025
                )Income
                    tax expense
                
                
                -
                
                
                
                -Net
                    loss
                
                
                (9,477,412
                )
                
                
                (1,375,025
                )Accretion
                    on redeemable convertible preferred stock
                
                
                -
                
                
                
                (38,586
                )Net
                    loss attributable to common shareholders
                
                $
                (9,477,412
                )
                
                $
                (1,413,611
                )Net
                    loss per common share, basic and diluted
                
                $
                (0.65
                )
                
                $
                (0.17
                )Shares
                    used in computing basic and diluted loss per share
                
                
                14,510,238
                
                
                
                8,378,608


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









4




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




***Condensed
        Consolidated Statements of Operations***
  ***(Unaudited)***
  **Six
                  months ended September 30,****2007**
              
              
              **2006**Revenues,
                  net
              
              $
              3,433,315
              
              
              $
              326,751Cost
                  of
                  sales
              
              
              5,027,243
              
              
              
              613,255Gross
                  margin
              
              
              (1,593,928
              )
              
              
              (286,504
              )Operating
                  expensesResearch  and
                  development costs
              
              
              596,093
              
              
              
              190,820General
                  and administrative costs
              
              
              1,671,693
              
              
              
              1,318,661Sales,
                  marketing and business development costs
              
              
              1,922,294
              
              
              
              579,485Total
                  operating expenses
              
              
              4,190,080
              
              
              
              2,088,966Net
                  loss before other income (expense) and provision for income
                  taxes
              
              
              (5,784,008
              )
              
              
              (2,375,470
              )Debt
                  conversion inducement costs
              
              
              4,318,286
              
              
              
              -Beneficial
                  debt conversion costs
              
              
              662,902
              
              
              
              -Interest
                  income (expense), net
              
              
              (89,060
              )
              
              
              9,520Net
                  loss before income tax expense
              
              
              (10,854,256
              )
              
              
              (2,365,950
              )Income
                  tax expense
              
              
              -
              
              
              
              -Net
                  loss
              
              
              (10,854,256
              )
              
              
              (2,365,950
              )Accretion
                  on redeemable convertible preferred stock
              
              
              -
              
              
              
              (69,474
              )Net
                  loss attributable to common shareholders
              
              $
              (10,854,256
              )
              
              $
              (2,435,424
              )Net
                  loss per common share, basic and diluted
              
              $
              (0.90
              )
              
              $
              (0.33
              )Shares
                  used in computing basic and diluted loss per share
              
              
              12,099,236
              
              
              
              7,470,341





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






5






**RED
      MILE
      ENTERTAINMENT INC. AND SUBSIDIARIES**




***Condensed
        Consolidated Statements of Cash Flows***
  ***(Unaudited)***
  **Six
                  months ended September 30,****2007**
              
              
              **2006**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (10,854,256
              )
              
              $
              (2,365,950
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activitiesDepreciation
                  .........................................
              
              
              99,179
              
              
              
              44,603Amortization
                  of software development costs
              
              
              2,199,540
              
              
              
              166,175Amortization
                  of senior secured convertible debenture issuance costs
              
              
              76,307
              
              
              
              -Amortization
                  of intangibles `
              
              
              21,521
              
              
              
              -Loss
                  on disposal of assets.................................
              
              
              1,970
              
              
              
              -Impairment
                  of inventory
              
              
              13,083
              
              
              
              6,550Impairment
                  of software development and licensing costs
              
              
              1,608,542
              
              
              
              437,027Stock
                  based compensation
              
              
              238,875
              
              
              
              80,463Reserve
                  for price protection and bad debt expense
              
              
              287,307
              
              
              
              84,011Beneficial
                  debt conversion costs
              
              
              662,902
              
              
              
              -Debt
                  conversion inducement costs
              
              
              4,318,286
              
              
              
              -Changes
                  in current assets and liabilitiesAccounts
                  receivable
              
              
              (1,621,214
              )
              
              
              (140,673
              )Inventory
              
              
              (897,615
              )
              
              
              (121,335
              )Prepaid
                  expenses and other current assets
              
              
              271,474
              
              
              
              (17,538
              )Software
                  development costs
              
              
              (3,044,982
              )
              
              
              (2,484,857
              )Other
                  assets
              
              
              -
              
              
              
              (46,371
              )Accounts
                  payable
              
              
              323,500
              
              
              
              726,440Accrued
                  liabilities
              
              
              263,977
              
              
              
              (47,642
              )Deferred
                  revenue
              
              
              217,188
              
              
              
              62,500Net
                cash used in operating activities
              
              
              (5,814,416
              )
              
              
              (3,616,597
              )






6






Cash
                  flows from investing activities:Sales
                  of marketable securities
              
              
              -
              
              
              
              10,313Acquisition
                  of property and equipment
              
              
              (86,859
              )
              
              
              (90,397
              )Cash
                  paid for other investment
              
              
              (113,812
              )
              
              
              -Net
                  Cash flows used in investing activities
              
              
              (200,671
              )
              
              
              (80,084
              )Cash
                  flows from financing activities:Convertible
                  debenture issuance costs
              
              
              
              
              
              
              (11,779
              )Proceeds
                  from sales of preferred stock  and warrants
              
              
              -
              
              
              
              3,369,500Cost
                  of redeemable convertible preferred stock issuances
              
              
              -
              
              
              
              (165,624
              )Proceeds
                  from sales of stock, net of costs
              
              
              4,295,807
              
              
              
              -Proceeds
                  from issuance of convertible promissory notes, net of
                  costs
              
              
              2,277,000
              
              
              
              -Net
                  cash provided by financing activities
              
              
              6,572,807
              
              
              
              3,192,097Effect
                  of exchange rate changes on cash
              
              
              1,012
              
              
              
              703Net
                  increase (decrease) in cash
              
              
              558,732
              
              
              
              (503,881
              )Cash
                  and cash equivalents, beginning of period
              
              
              1,912,992
              
              
              
              769,926Cash
                  and cash equivalents, ending of period
              
              $
              2,471,724
              
              
              $
              266,045Supplemental
                  Disclosure of Non-Cash Financing TransactionsConversion of senior secured convertible debentures
              
              $
              8,244,000
              
              
              
              -Accrued
                  interest on senior secured convertible debentures
              
              $
              155,821
              
              
              
              -Debt
                  issuance costs related to the issuance of the senior secured convertible
                  debentures
              
              $
              528,240
              
              
              
              -Conversion
                  of convertible promissory notes
              
              $
              2,400,000
              
              
              
              -Relative
                  fair value of warrants issued for conversion of promissory
                  notes
              
              $
              662,902
              
              
              
              -Accretion
                  of redeemable convertible preferred stock
              
              
              -
              
              
              $
              69,474Relative
                  fair value of warrants issued for preferred stock
              
              
              -
              
              
              $
              423,788Conversion
                  of Series A Redeemable Convertible Preferred Stock, net of offering
                  costs
              
              
              -
              
              
              $
              10,344,446




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


7




**RED
      MILE ENTERTAINMENT, INC.**


**Notes
      to Condensed Consolidated Financial Statements**


**(Unaudited)**




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




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





**Going
      Concern**— The accompanying financial statements have been prepared in
      conformity with accounting principles generally accepted in the United States
      of
      America, which contemplates continuation of the Company as a going concern.
      However, the Company has an accumulated deficit of $28,072,446 at September
      30,
      2007, and has incurred negative cash flows from operations since
      inception.




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




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





**Basis
      of Presentation**— The unaudited condensed consolidated financial
      statements of the Company have been prepared in accordance with the instructions
      for Form 10-QSB and Article 10 of Regulation SX. The 3/31/07 balance sheet
      was
      derived from audited financial statements filed with our 10-KSB as of 3/31/07
      and therefore may not include all the information and disclosures necessary
      for
      a presentation of the Company’s financial position, results of operations and
      cash flows in conformity with generally accepted accounting principals in the
      United States of America. In the opinion of management, the financial statements
      reflect all adjustments (consisting only of normal recurring accruals) necessary
      for a fair statement of the Company’s financial position, results of operations
      and cash flows. The results of operations for an interim period are not
      necessarily indicative of the results for the full year. The financial
      statements should be read in conjunction with the audited financial statements
      and notes thereto contained in the Company’s Annual Report on Form 10-KSB for
      the fiscal year ended March 31, 2007.





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




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




**Use
      of Estimates**– The preparation of financial
      statements in conformity with accounting principles generally accepted in the
      United States of America requires management to make estimates and assumptions
      that affect the reported amounts of assets and liabilities and disclosures
      of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Such
      estimates include sales returns and allowances, price protection estimates,
      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.




**Concentration
      of Credit
      Risk**— Financial
      instruments which potentially subject us to concentration of credit risk consist
      of temporary cash investments and accounts receivable. During the periods ended
      September 30, 2007 and March 31, 2007, we had deposits in excess of the Federal
      Deposit Insurance Corporation (“FDIC”) limit at one U.S. based financial
      institution. At September 30, 2007 and March 31, 2007, Red Mile had uninsured
      bank balances and certificates of deposit totaling approximately $2,265,000
      and
      $1,731,000, respectively.







8






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




We
      grant
      price protection to, and sometimes allow product returns from our customers
      under certain conditions.  Therefore, we record an allowance for price
      protection and returns at each balance sheet date.  The provision
      related to this allowance is reported in net revenues.  Price
      protection means credits relating to retail price markdowns on our products
      previously sold by us to customers.  We base these allowances on
      expected trends and estimates of 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.  Changes in these factors could change our judgments and
      estimates and result in variances in the amount of allowance
      required.  If customers request price protection in amounts exceeding
      the rate expected and if management agrees to grant it, then we may incur
      additional charges against our net revenues.




**Intangible
      Assets**— Intangible assets primarily consist of a website and customer
      list in conjunction with the acquisition of the assets of Rover
      Interactive.  These intangible assets are being amortized by the
      straight-line method over their useful lives, ranging from 12 to 120
      months.  Amortization of these intangible assets totaled $10,760 and
      $21,521 for the three and six months ended September 30, 2007 and $0 and $0
      for
      the three and six months ended September 30, 2006, respectively.





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





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




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




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




Software
      development costs are capitalized once technological
      feasibility of a product is established and such costs are determined to be
      recoverable. For products where proven technology exists, 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 is
      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 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
      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
      royalties.  In evaluating the recoverability of capitalized software
      development costs and advanced royalties, the assessment of expected product
      performance utilizes forecasted sales amounts and estimates of additional costs
      to be incurred.  If revised forecasted or actual product sales are
      less than and/or revised forecasted or actual costs are greater than the
      original forecasted amounts utilized in the initial recoverability analysis,
      the
      net realizable value may be lower than originally estimated in any given
      quarter, which could result in an impairment charge to cost of
      sales.





**Revenue
      Recognition**— **** The Company’s revenue
      recognition policies are in accordance with the American Institute Of Certified
      Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2 “Software
      Revenue Recognition” as amended by SOP 98-9 “Modification of SOP 97-2, Software
      Revenue Recognition, With Respect to Certain Transactions”.  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”.  EITF 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.







9








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, and co-publishers is
      recognized when the above criteria are met. We reduce product revenue for
      estimated future returns and price protection, which may occur with our
      distributors, retailers, and co-publishers. In the future, we may decide to
      issue price protection credits for either our PC or console products. When
      evaluating the adequacy of sales returns and price protection allowances, we
      analyze our historical returns, current sell-through of distributor and retailer
      inventory, historical returns on similar products, current trends in the video
      game market and the overall economy, changes in customer demand and acceptance
      of our products, and other factors.  At September 30, 2007 and March
      31, 2007, our returns and price protection reserves was $459,148 and $171,841,
      respectively.





In
      North
      America, we primarily sell our games through distributors to retailers that
      both
      our internal and outsourced sales force and the 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 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. Periodically, we review the deferred revenue and, when the product
      is no longer being actively sold by the co-publisher or distributor or when
      our
      forecasts show that a portion of the revenue will not be earned out, this excess
      is taken into revenue. For the three and six months ended September 30, 2007,
      no
      unearned fees were included in revenue.





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




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





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




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









10




Prior
      to
      the adoption of SFAS 123(R), we applied SFAS 123, amended by SFAS 148,
“Accounting*for Stock-Based Compensation, Transition and Disclosure*”
(“SFAS 148”), which allowed companies to apply the existing accounting rules
      under Accounting Principles Board No. 25, “ *Accounting for Stock Issued to
      Employees* ,” (APB 25) and related Interpretations. In general, as the
      exercise price of options granted under these plans was equal to the market
      price of the underlying common stock on the grant date, no stock-based employee
      compensation cost was recognized in our statements of operations for periods
      prior to the adoption of SFAS 123(R). As required by SFAS 148, prior to the
      adoption of SFAS 123(R), we disclosed reported net loss which included
      stock-based compensation expense of $0, calculated in accordance with APB 25,
      and then pro forma net loss as if the fair-value-based compensation expense
      calculated in accordance with SFAS 123 using the minimum value method had been
      recorded in the financial statements.




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




The
      following table summarizes the weighted average shares outstanding for the
      six
      months ending September 30, 2007 and 2006:




**Six
                Months Ended September 30,****2007**
            
            
            **2006**Basic
                weighted average shares outstanding
            
            
            12,099,236
            
            
            
            7,470,341Total
                stock options outstanding
            
            
            1,791,009
            
            
            
            1,037,633Less:
                anti-dilutive stock options due to loss
            
            
            (1,791,009
            )
            
            
            (1,037,633
            )Total
                redeemable convertible preferred stock outstanding
            
            
            -
            
            
            
            1,278,287Less:
                anti-dilutive redeemable convertible preferred stock due to
                loss
            
            
            -
            
            
            
            (1,278,287
            )Total
                warrants outstanding
            
            
            4,056,104
            
            
            
            3,475,953Less:
                anti-dilutive warrants due to loss
            
            
            (4,056,104
            )
            
            
            (3,475,953
            )Diluted
                weighted average shares outstanding
            
            
            12,099,236
            
            
            
            7,470,341





The
      following table summarizes the weighted average shares outstanding for the
      three
      months ending September 30, 2007 and 2006:




**Three
                Months Ended September 30,****2007**
            
            
            **2006**Basic
                weighted average shares outstanding
            
            
            14,510,238
            
            
            
            8,378,608Total
                stock options outstanding
            
            
            1,791,009
            
            
            
            1,037,633Less:
                anti-dilutive stock options due to loss
            
            
            (1,791,009
            )
            
            
            (1,037,633
            )Total
                redeemable convertible preferred stock outstanding
            
            
            -
            
            
            
            1,278,287Less:
                anti-dilutive redeemable convertible preferred stock due to
                loss
            
            
            -
            
            
            
            (1,278,287
            )Total
                warrants outstanding
            
            
            4,056,104
            
            
            
            3,475,953Less:
                anti-dilutive warrants due to loss
            
            
            (4,056,104
            )
            
            
            (3,475,953
            )Diluted
                weighted average shares outstanding
            
            
            14,510,238
            
            
            
            8,378,608




**NOTE
      2 — ACCRUED
      LIABILITIES**




**September
                30, 2007**
            
            
            **March
                31, 2007**Accrued
                professional fees
            
            $
            156,453
            
            
            $
            217,370Accrued
                royalties payable
            
            
            44,917
            
            
            
            50,676Accrued
                bonuses
            
            
            87,823
            
            
            
            87,314Accrued
                milestone payments to developers
            
            
            146,085
            
            
            
            420,000Accrued
                paid time off
            
            
            55,698
            
            
            
            38,741Other
                miscellaneous
            
            
            11,505
            
            
            
            93,203Accrued
                marketing costs
            
            
            571,500
            
            
            
            175,000Accrued
                commissions
            
            
            159,113
            
            
            
            42,094Total
            
            $
            1,233,094
            
            
            $
            1,124,398




11





**NOTE
      3 — DEFERRED REVENUE**







**September
                30, 2007**
            
            
            **March
                31, 2007**Lucinda
                Green’s Equestrian Challenge
            
            $
            217,188
            
            
            $
            —Total
            
            $
            217,188
            
            
            $
            —




**NOTE
      4 — COMMITMENTS**





In
      the
      normal course of business, we enter into contractual arrangements with
      third-parties for the development of products, as well as for the license rights
      to intellectual property. Under these agreements, we commit to provide specified
      payments to a developer, or intellectual property holder, based upon contractual
      arrangements. Typically, the payments to third-party developers are conditioned
      upon the achievement by the developers of contractually specified development
      milestones. These payments to third-party developers and intellectual property
      holders may be deemed to be advances and are recoupable against future royalties
      earned by the developer or intellectual property holder based on the sale of
      the
      related game. Assuming all contractual provisions are met, the total future
      minimum contract commitments for development contracts and intellectual property
      holders in place as of September 30, 2007 are approximately $18,430,925, which
      is scheduled to be paid as follows:




**Year
                  ended March 31,**2008
              
              $
              5,687,6812009
              
              
              6,017,1342010
              
              
              6,726,110Total
              
              $
              18,430,925






*Lease
      Commitments*




Operating
      Leases — Red Mile leases its office
      space under a twelve month operating lease expiring March 2008 with a monthly
      base rental of $6,240 per month. Rent expense for the six months ended September
      30, 2007 was $37,440.




The
      minimum future lease payment for the above lease as of September 30, 2007 is
      $31,200 for the fiscal year ended March 31, 2008. No payments are due in future
      fiscal years beyond 2008.





**NOTE
      5 — 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**
                **September
                  30, 2007**Expected
                  life (in years)
              
              4.2
                  – 6.5Risk
                  free rate of return
              
              4.0%
                    - 5.13%Volatility
              
              50%
                  - 80%Dividend
                  yield
              
              -Forfeiture
                  rate
              
              9%
                  - 15%


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





12





**Three
                  Months**
                **Ended**
                **September
                  30, 2007**
              
              
              **Three
                  Months**
                **Ended**
                **September
                  30, 2006**Research
                  and development costs
              
              $
              5,659
              
              
              $
              5,648Sales,
                  marketing, and business development costs
              
              
              7,284
              
              
              
              5,707General
                  and administrative costs—consultants
              
              
              1,439
              
              
              
              -General
                  and administrative costs—employees
              
              
              106,742
              
              
              
              -Stock-based
                  compensation before income taxes
              
              
              121,124
              
              
              
              11,355Income
                  tax benefit
              
              
              -
              
              
              
              -Total
                  stock-based employee compensation expense after income
                  taxes
              
              $
              121,124
              
              
              $
              11,355





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




**Six
                  Months**
                **Ended**
                **September
                  30, 2007**
              
              
              **Six
                  Months**
                **Ended**
                **September
                  30, 2006**Research
                  and development costs
              
              $
              11,256
              
              
              $
              7,384Sales,
                  marketing, and business development costs
              
              
              14,568
              
              
              
              10,557General
                  and administrative costs—consultants
              
              
              1,439
              
              
              
              62,522General
                  and administrative costs—employees
              
              
              211,612
              
              
              
              -Stock-based
                  compensation before income taxes
              
              
              238,875
              
              
              
              80,463Income
                  tax benefit
              
              
              -
              
              
              
              -Total
                  stock-based employee compensation expense after income
                  taxes
              
              $
              238,875
              
              
              $
              80,463




During
      the six and three months ended September 30, 2007, the Company granted employee
      stock options for 15,000 common shares and non-employee stock options for 30,000
      common shares exercisable at $2.35 per share expiring in 10 years and vesting
      over 3 years.  The options were valued at $71,301 or $1.58 per option
      using a Black-Scholes option pricing method that uses the assumptions noted
      above.





On
      April
      8, 2005, the Board of Directors approved the Red Mile Entertainment 2005 Stock
      Option Plan which permits the Board of Directors to grant to officers,
      directors, employees and third parties incentive stock options (“ISOs”),
      non-qualified stock options, restricted stock and stock appreciation rights
      (“SARs”). At March 15, 2007, the Board of Directors and stockholders holding a
      majority of voting power voted to authorize the board of directors, at its
      discretion, to amend the 2005 Stock Option Plan.  Under the Amended
      Plan, options for 2,500,000 shares of common stock are reserved for
      issuance.  At September 30, 2007, 466,255 options are available for
      grant.  Options have been issued with exercise prices of between $0.66
      and $4.00 per share as follows:





**Options
                Outstanding**
            
            
            **Options
                Exercisable****Number**
            
            
            **Weighted
                Avg.**
            
            
            **Weighted
                Avg.**
            
            
            **Number**
            
            
            **Weighted
                Avg.****Range
                of Exercise Prices**
            
            
            **Outstanding**
            
            
            **Remaining
                Life**
            
            
            **Exercise
                Price**
            
            
            **Exercisable**
            
            
            **Exercise
                Price**$
            0.66
                - $1.49
            
            
            
            660,174
            
            
            
            8.29
            
            
            
            0.71
            
            
            
            503,954
            
            
            
            0.73$
            1.50
                - $2.37
            
            
            
            141,667
            
            
            
            8.88
            
            
            
            2.16
            
            
            
            78,333
            
            
            
            2.00$
            2.38
                - $4.00
            
            
            
            989,168
            
            
            
            9.46
            
            
            
            3.90
            
            
            
            74,931
            
            
            
            3.771,791,009
            
            
            
            
            
            
            $
            2.59
            
            
            
            657,218
            
            
            $
            1.23







13




Option
      activity under the Amended Plan is as follows:




**Options**
              
              **Shares**
              
              
              **Weighted
                  Average Exercise Price**
              
              **Weighted
                  Average Remaining Contractual Term**
              **Aggregate
                  Intrinsic Value**Outstanding
                  at March 31, 2006
              
              
              940,966
              
              
              $
              0.75Exercisable at March 31, 2006
              
              
              177,620
              
              
              $
              0.90Granted
              
              
              1,124,167
              
              
              
              3.75Forfeited or expired
              
              
              (76,388
              )
              
              
              2.73Outstanding at March 31, 2007
              
              
              1,988,745
              
              
              $
              2.28Exercisable at March 31, 2007
              
              
              607,000
              
              
              $
              0.83Granted
              
              
              45,000
              
              
              
              2.35Exercised
              
              
              (143,067
              )
              
              
              .66Forfeited
                  or expired
              
              
              (99,669
              )
              
              $
              .71Outstanding
                  at September 30, 2007
              
              
              1,791,009
              
              
              $
              2.59
              
              8.98
              $750,431Exercisable
                  at September 30, 2007
              
              
              657,218
              
              
              $
              1.23
              
              8.31
              $638,630




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 September 30, 2007, the
      fair value of options issued by the Company was $1,861,385. Expense recognized
      for the six and three months ending September 30, 2007 and 2006 was $238,875
      and
      $121,124, and $17,941 and $11,355, respectively.  The unamortized cost
      remaining at September 30, 2007 was $1,255,631 with a weighted average expected
      term for recognition of 4.47 years. At the time of grant, the estimated fair
      values per option were from $0.33 to $2.94.





During
      the six months ended September 30, 2007, 112,243 options with a $0.66 strike
      price and 30,825 options with a $0.90 strike price were exercised pursuant
      to a
      cashless provision.  The Company issued 97,952 common shares for the
      options exercised.





During
      the six months ended September 30, 2007, 98,331 options with a $0.66 strike
      price and 1,338 options with a $0.90 strike price expired.




**NOTE
      6 — COMMON STOCK**





On
      July
      18, 2007, the Company issued 1,872,600 of its common stock to a total of 69
      accredited investors for an aggregate amount of $4,681,500.  The
      shares were issued pursuant to an agency agreement with J.F. Mackie &
Company, Ltd. (the “Agent”).  The Agent is an independent equity
      investment firm located in Calgary, Canada.  Upon the closing of the
      transaction, the Company paid the Agent commissions of $320,890 and $64,803
      for
      related legal fees.





On
      July
      18, 2007, holders of more than 66 2/3% of the $8,244,000 principal amount of
      senior secured convertible debentures and $155,281 in accrued interest on the
      debentures, after a proposal brought forth by the Company, voted by way of
      extraordinary resolution to cancel such debentures and convert the principal
      and
      accrued interest amounts of their debentures into shares of the Company’s stock
      at $2.50 per share, thereby resulting in the conversion of the full principal
      and interest amounts associated with such debentures into 3,359,713 shares
      of
      the Company’s common stock.  With the conversion, the Company recorded
      a non-cash debt inducement conversion charge of $4,318,286.





On
      July
      18, 2007, convertible promissory notes with an aggregate principal amount of
      $2,400,000 automatically converted into 960,000 of the Company’s common stock
      concurrent with the closing of the purchase of 1,872,600 of the Company’s common
      stock.





On
      September 30, 2007, the Company issued 97,952 of its common stock in connection
      with the exercise of cashless options.





**NOTE
      7 — WARRANTS**





On
      July
      18, 2007, the Company issued 374,520 warrants to 69 accredited investors as
      part
      of unregistered sales of equity securities.  Each whole warrant
      entitles the holder of the warrant to acquire, for no additional consideration,
      one share of common stock in the event that the Company does not complete by
      March 18, 2008, a liquidity transaction, as defined in the agency agreement
      with
      the Agent.  The warrants will automatically be cancelled if the
      Company completes a liquidity transaction by March 18, 2008.  At this
      time, it is Management’s best estimation that a liquidity transaction is highly
      probable to be completed by March 18, 2008 with the warrants thereto being
      cancelled.








14






On
      July
      18, 2007, concurrent with the conversion of $2,400,000 convertible promissory
      notes, the Company issued 480,000 warrants.  Each whole warrant
      entitles the former note holders to acquire one share of common stock at $2.75
      per share until July 18, 2009.  Using the Black-Scholes option pricing
      model, the fair value of such warrants issued was $662,902.  This
      value has been recorded as a non-cash beneficial conversion inducement charge
      in
      other expense.





In
      addition, concurrent with the conversion of $2,400,000 convertible promissory
      notes, the Company issued 0.2 of one warrant to the former note
      holders.  Each whole warrant entitles the holder of the warrant to
      acquire, for no additional consideration, one share of common stock in the
      event
      that the Company does not complete by March 18, 2008, a liquidity transaction,
      as defined in the agency agreement with the Agent.  The warrants will
      automatically be cancelled if the Company completes a liquidity transaction
      by
      March 18, 2008.  At this time, it is Management’s best estimation that
      a liquidity transaction is highly probable to be completed by March 18, 2008
      with the warrants thereto being cancelled.





On
      July
      18, 2007, upon the closing of the unregistered sales of equity securities as
      described above, the Company issued the Agent and its nominees broker’s warrants
      entitling it to purchase up to 215,408 shares of the Company’s common stock at
      $3.00 per share until July 18, 2009.





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




**Expiring**
              
              **Strike**
                **Price**
              
              **Number
                  of**
                **Common
                  shares**December
                  31, 2007
              
              4.50
              
              681,778May
                  1, 2008
              
              4.50
              
              585,287May
                  2, 2008
              
              4.50
              
              845,333December
                  31, 2008
                January
                  18, 2009 (a)
                July
                  17, 2009
                July
                  18, 2009
              
              5.25
                (a)
                2.75
                3.00
              
              681,778
                566,520
                480,000
                215,408Total
              
              
              
              4,056,104




(a)
      The
      warrants expire the earlier of a liquidity transaction or January 18,
      2009.  The warrants entitle the holder to acquire common stock
      for       no consideration.





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





**NOTE
      8 — CONCENTRATIONS**




***Customer
      base***




Our
      customer base includes distributors, co-publishers, and retailers of video
      games
      in the United States, Europe, and Australia. We review the credit worthiness
      of
      our customers on an ongoing basis, and believe that we need an allowance for
      potential credit losses at September 30, 2007 of $93,924. Also netted against
      accounts receivable are returns and price protection reserves on existing
      receivables of $459,148.  Account balances are charged off against the
      allowance when the Company believes it is probable that accounts receivable
      will
      not be recovered. As of September 30, 2007, we had two customers who accounted
      for 64.8% and 20.9% of gross accounts receivable. These customers were Navarre
      Corporation and Hollywood Entertainment, respectively. Navarre Corporation,
      Hollywood Entertainment and Funtastic Corporation accounted for 75.0%, 10.3%
      and
      5.4%, respectively, of consolidated revenue during the six months ended
      September 30, 2007. As of March 31, 2007, we had two customers who accounted
      for
      49.1% and 28.1% of gross accounts receivable.




***Operations
      by Geographic Area***




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





The
      following table displays consolidated net revenue by location during the six
      months ended September 30, 2007:




**Location**
              
              **Revenue**United
                  States
              
              $
              3,030,276Australia
              
              
              213,714Europe
              
              
              189,325$
              3,433,315






15




***Location
      of assets***




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




**NOTE
      9 — NEW ACCOUNTING PRONOUNCEMENT**




**EITF
      06-03**




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




**SFAS
      157**




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




**SFAS
      159**




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




**FIN
      48**




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




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




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




**NOTE
      10 — SUBSEQUENT EVENTS**





None




16




**RED
      MILE ENTERTAINMENT, INC.**




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




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





*Liquidity
      and Capital resources*




During
      the six months ended September 30, 2007, we raised $7,081,500 million before
      agent’s commissions in cash through private offerings.  We have used
      the proceeds from the offerings for development and marketing of our interactive
      game franchises and ongoing working capital requirements.





We
      anticipate needing an additional $15,000,000 to $20,000,000 to finance our
      planned operations over the next 12 months. We will be unable to complete
      development of our existing games or develop and publish additional games,
      or
      consummate any acquisitions, if we are unable to raise this capital. We believe
      our current cash on hand of approximately $1.8 million as of November 5, 2007,
      in addition to anticipated cash flow from operations, will enable the company
      to
      continue operating until the end of Calendar 2007.




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




*Projections*





We
      are
      projecting our consolidated revenues will be in the range of $6 million to
      $8
      million for fiscal 2008, in the range of $25 million to $28 million for fiscal
      2009, and in the range of $40 million to $44 million for fiscal
      2010.





*Recent
      Developments*





*License
      Agreement*


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





*Definitive
      Agreement .*





On
      August
      24, 2007, we entered into a definitive agreement with IR Gurus Pty Ltd. (the
      “Company”), a corporation formed under the laws of Australia, and Nathan Eric
      Murphy, Michael Thomas Fegan, Andrew Geoffrey Niere, Craig Philip Laughton,
      Ben
      Byron Palmer, Ian George Cunliffe and Votraint No. 651 Pty Ltd, stockholders
      of
      the Company (each a “Seller” and collectively, the “Sellers”), providing for the
      acquisition of the remaining outstanding shares of the Company not owned by
      us
      subject to certain closing conditions. This acquisition has not yet been
      consummated.











17





**RED
      MILE ENTERTAINMENT, INC.**





*Results
      of Operations*




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




Summary
      of Unaudited Statements
      of Operations


Six
      Months Ended September 30, 2007 and 2006


**Summary
      of Statements of Operations**




**2007**
              
              
              **2006**
              
              
              **%
                  change**Revenue
              
              $
              3,433,315
              
              
              $
              326,751
              
              
              
              951
              %Cost
                  of sales
              
              
              5,027,243
              
              
              
              613,255
              
              
              
              720
              %Gross
                  margin
              
              
              (1,593,928
              )
              
              
              (286,504
              )Operating
                  expenses
              
              
              4,190,080
              
              
              
              2,088,966
              
              
              
              101
              %Net
                  loss before interest and provision for income taxes
              
              
              (5,784,008
              )
              
              
              (2,375,470
              )Debt
                  conversion inducement costs
              
              
              (4,318,286
              )Beneficial
                  debt conversion costs
              
              
              (662,902
              )
              
              
              ---Interest
                  income (expense), net
              
              
              89,060
              
              
              
              9,520Income
                  tax expense
              
              
              ---
              
              
              
              ---Net
                  loss
              
              
              (10,854,256
              )
              
              
              (2,365,950
              )
              
              
              359
              %Accretion
                  on redeemable convertible preferred stock
              
              
              ---
              
              
              
              (69,474
              )Net
                  loss attributable to common shareholders
              
              $
              (10,854,256
              )
              
              $
              (2,435,424
              )Net
                  loss per common share
                  - Basic and
                  diluted
              
              $
              (.90
              )
              
              $
              (.33
              )Shares
                  used in computing basic and diluted net loss per share (in
                  000’s)
              
              
              12,099
              
              
              
              7,470




Summary
      of Unaudited Statements of Operations


Three
      Months Ended September 30, 2007 and 2006


**Summary
      of Statements of Operations**




**2007**
              
              
              **2006**
              
              
              **%
                  change**Revenue
              
              $
              3,158,893
              
              
              $
              284,903
              
              
              
              1009
              %Cost
                  of sales
              
              
              4,774,734
              
              
              
              575,795
              
              
              
              729
              %Gross
                  margin
              
              
              (1,615,841
              )
              
              
              (290,892
              )Operating
                  expenses
              
              
              2,902,557
              
              
              
              1,088,107
              
              
              
              167
              %Net
                  loss before interest and provision for income taxes
              
              
              (4,518,398
              )
              
              
              (1,378,999
              )Debt
                  conversion inducement costs
              
              
              4,318,286
              
              
              
              ---Beneficial
                  debt conversion costs
              
              
              662,902
              
              
              
              -Interest
                  income (expense), net
              
              
              22,174
              
              
              
              3,974Income
                  tax expense
              
              
              ---
              
              
              
              ---Net
                  loss
              
              
              (9,477,412
              )
              
              
              (1,375,025
              )
              
              
              589
              %Accretion
                  on redeemable convertible preferred stock
              
              
              (---
              )
              
              
              (38,586
              )Net
                  loss attributable to common shareholders
              
              $
              (9,477,412
              )
              
              $
              (1,413,611
              )Net
                  loss per common share
                  - Basic and
                  diluted
              
              $
              (.65
              )
              
              $
              (.17
              )Shares
                  used in computing basic and diluted net loss per share (in
                  000’s)
              
              
              14,510
              
              
              
              8,379






18





*Revenues*




Revenues
      were approximately $3,159,000 and $3,433,000 during the three and six months
      ended September 30, 2007 as compared to approximately $285,000 and $327,000
      during the comparable periods from 2006.  The increase is primarily
      due to sales of Jackass: The Game in North America.  During the three
      months ended September 30, 2007, substantially all of our revenues came from
      Jackass: The Game and Lucinda Green’s Equestrian Challenge.  During
      this period we released Jackass: The Game in North America and Lucinda Green’s
      Equestrian Challenge in Europe.





We
      currently have three games under development which we anticipate will be ready
      for shipment in fiscal years 2008 through 2010. We are developing Jackass:
      The
      Game playable on the Nintendo DS console which we expect will ship January
      2008.
      We are developing a sequel to Heroes of the Pacific that is set in the European
      theatre (next generation console and PC) that we expect to ship in fiscal
      2009.  We have also commenced development of Sin City: The Game and
      expect to ship this game in September 2009.





For
      the
      six months ended September 30, 2006, our revenue consisted of royalties from
      five products (Crusty Demons, GripShift, Disney’s Aladin Chess Adventure, El
      Matador, and Dual Sudoku).





At
      September 30, 2007, Navarre Corporation and Hollywood Entertainment accounted
      for approximately 86% of the gross consolidated accounts receivable and
      represented approximately 85% of our consolidated revenues for the six months
      ended September 30, 2007.  As a result, we were materially dependent
      upon these customers for our revenues.  The loss of any single
      significant customer, especially Navarre Corporation, would have a material
      adverse effect on our results.  We record revenues net of Navarre’s
      distribution fees.





We
      are
      projecting our consolidated revenues will be in the range of $6 million to
      $8
      million for fiscal 2008, in the range of $25 million to $28 million for fiscal
      2009, and in the range of $40 million to $ 44 million for fiscal
      2010.





*Cost
      of sales*





Cost
      of
      goods sold were approximately $4,774,000 and $5,027,000 during the three and
      six
      months ended September 30, 2007 as compared to approximately $575,795 and
      $613,255 during the comparable periods from 2006.  The increase in
      cost of goods sold as compared to the prior year is primarily the result of
      the
      sales of Jackass: The Game, as described in the Revenues section above, and
      the
      write-down of software development costs as described below.




For
      the
      six months ended September 30, 2007, cost of sales include the following: (i)
      the amortization of software development costs for  Jackass: The Game
      and Lucinda Green’s Equestrian Challenge; and (ii) manufacturing costs of
      Jackass: The Game.  Cost of sales also includes the amortization of
      prepaid royalties paid to the licensors of 10 Talismans, Ouba, and Pantheon.
      In
      addition, cost of sales includes actual royalties paid to the developers of
      Power Pack. Also included in cost of sales for the six months ended September
      30, 2007 is a $1,623,782 charge for the impairment of development costs and
      inventory for several games for which we now do not expect to
      recover.





Cost
      of
      sales for the six months ended September 30, 2007 consisted of:





Amortization
                of capitalized software development costs and manufacturing and
                distribution costs
            
            $
            3,342,375Royalties
                to third party game developers
            
            
            61,086Write
                down of inventory costs to net realizable value
              Write
                down of software development costs and advanced royalties to net
                realizable value
            
            
            13,083
              1,610,699Total
            
            $
            5,027,243








19




**Operating
      Expenses**




Operating
      expenses for the six months and three months ended September 30, 2007 and 2006,
      respectively, were as follows:




**Six
                  month ended**
                **September
                  30, 2007**
              
              
              **Percent**
                **of
                  total**
              
              
              **Six
                  month ended**
                **September 30,
                  2006**
              
              
              **Percent**
                **Of
                  total**
              
              
              **Percent**
                **Increase**Research
                  and development costs
              
              $
              596,093
              
              
              
              14.2
              %
              
              $
              190,820
              
              
              
              9.1
              %
              
              
              212
              %General
                  and administrative costs
              
              
              1,671,693
              
              
              
              39.9
              %
              
              
              1,318,661
              
              
              
              63.1
              %
              
              
              27
              %Marketing,
                  sales and business development costs
              
              
              1,922,294
              
              
              
              45.9
              %
              
              
              579,485
              
              
              
              27.8
              %
              
              
              232
              %Total
                  operating expenses
              
              $
              4,190,080
              
              
              
              100.0
              %
              
              $
              2,088,966
              
              
              
              100.0
              %
              
              
              101
              %




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 FAS 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 fixed fee development and royalty contracts. These
      external development costs are capitalized upon the company determining that
      the
      game has passed the technological feasibility standard of FAS 86 and commencing
      upon product release, capitalized software development costs are amortized
      to
      cost of sales using the greater of the ratio of actual cumulative revenues
      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
      life of the product.





Certain
      internal costs are capitalized as part of the development costs of a game.
      During the six months ended September 30, 2007 approximately $253,000 of
      internal costs were capitalized and approximately $579,000 of external costs
      were expensed as incurred as costs prior to the related game reaching
      technological feasibility.





Research
      and development expenses were approximately $442,000 and $596,000 during the
      three and six months ended September 30, 2007 as compared to approximately
      $105,000 and $191,000 during the three and six months ended September 30, 2006,
      an increase of approximately 321% and 212%, respectively.  Virtually
      all of the costs for R&D during the six months ended September 30, 2007
      related to costs incurred in the development of Sin City: the Game and Jackass
      DS prior to the related game reaching technological feasibility.





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





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




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





Jackass:
      The Game for the PSP and PS2 platforms shipped in North America in late
      September 2007 and is expected to ship in Europe and Australia in November
      2007.
      The Nintendo DS version of the game is expected to ship in January
      2008.





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





In
      August
      of 2006, we also began the production stage of a sequel of Heroes of the Pacific
      set in the European theatre on the next generation console and
      PC.  The game is expected to ship in our fiscal 2009
      year.





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






20






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





General
      and Administrative Costs





General
      and administrative costs were approximately $774,000 and $1,672,000 in the
      three
      and six months ended September 30, 2007 as compared to approximately $636,000
      and $1,319,000 in the three and six months ended September 30, 2006,
      respectively.  General and administrative (G&A) costs are
      comprised primarily of the costs of stock options issued to employees and
      consultants, employee salaries and benefits, professional fees (legal,
      accounting, investor relations, and consulting), facilities expenses,
      amortization and depreciation expenses, and insurance costs.  The
      majority of the increase relates to employee salaries and related costs and
      amortization on the convertible debentures.  Employee salaries and
      related costs had a year over year increase of approximately $200,000 or
      41%.  The increase is due to the recognition of expense related to the
      fair value of employee option grants.  Amortization expense had a year
      over year increase of approximately $78,000.  The increase is
      primarily due to agent’s commission, associated with the issuance of senior
      secured convertible debentures during the third quarter of fiscal
      2007.





We
      expect
      that G&A cost will remain relatively flat throughout the remainder of fiscal
      2008.





Sales,
      Marketing and Business Development Costs





Sales,
      marketing and business development costs were approximately $1,687,000 and
      $1,922,000 during the three and six months ended September 30, 2007 as compared
      to approximately $348,000 and $579,000 during the three and six months ended
      September 30, 2006, an increase of 385% and 232%,
      respectively.  Sales, marketing, and business development costs
      consist primarily of employee salaries, stock option expenses, and employee
      benefits, consulting costs, public relations costs, marketing research, and
      sales support materials costs.  Sales costs year over year increased
      approximately $295,000 mainly due to the hiring of two full time employees
      and
      sales commissions related to the shipment of Jackass: The Game.





We
      incurred approximately $26,000 sales related costs during the six months ended
      September 30, 2006.  Business development costs year over year
      decreased approximately $124,000 mainly due to the refocus only on franchise
      products.  Overall marketing costs year over year increased
      approximately $1,172,000 mainly due to advertising and promotion costs for
      Jackass: The Game.  Marketing costs for Jackass: The Game included
      approximately $246,000 on print media, $356,000 on online media, $405,000 on
      TV
      media, and $165,000 for public relation and trade promotions.





Other
      Expense





During
      the three months ended September 30, 2007, we took a non-cash debt inducement
      conversion charge of $4,318,286 related to converting $8,244,000 principal
      amount of senior secured convertible debentures and $155,281 in accrued interest
      on the debentures into shares of our common stock at a lower conversion price
      than the conversion price attached to the debentures.





In
      addition, we took a non-cash charge of $662,902 on the conversion of $2,400,000
      in principal amount of convertible promissory notes into shares of our common
      stock related to the beneficial value of warrants issued with the common stock
      at the time of conversion.





**Critical
      Accounting Policies and Estimates**




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





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 andresults 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.






21




**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 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.





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 incredits to retailers
      for their unsold
      inventory. Changes in any of these assumptions or judgments could cause a
      material increase or decrease in the amount of net revenue we report in a
      particular period.




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




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




Software
      development costs are capitalized once technological feasibility of a product
      is
      established and such costs are determined to be recoverable. For products where
      proven technology exists, 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 is 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 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
      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
      royalties.




22




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




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




We
      grant
      price protection to, and sometimes allow product returns from our customers
      under certain conditions.  Therefore, we record an allowance for price
      protection and returns at each balance sheet date.  The provision
      related to this allowance is reported in net revenues.  Price
      protection means credits relating to retail price markdowns on our products
      previously sold by us to customers.  We base these allowances on
      expected trends and estimates of 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.  Changes in these factors could change our judgments and
      estimates and result in variances in the amount of allowance
      required.  If customers request price protection in amounts exceeding
      the rate expected and if management agrees to grant it, then we may incur
      additional charges against our net revenues.





**Inventories**





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





**ITEM
      3. CONTROLS AND PROCEDURES**




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







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





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








23




**PART
      II. OTHER INFORMATION**




ITEM
        1A.
        RISK FACTORS


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




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




***Risks
      Relating to Our Company***





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




We
      were
      incorporated in August 2004 and shipped our first two games in our second fiscal
      quarter of 2006 and an additional six games in fiscal 2007. During the six
      months ended September 30, 2007, we shipped Jackass: The Game for the PS2 and
      PSP platforms and an additional three PC games from our Roveractive, Ltd. casual
      games division.  We therefore face the risks and problems associated
      with businesses in their early stages in a competitive environment and have
      a
      limited operating history on which an evaluation of our prospects can be made.
      Until we develop our business further by publishing and developing more games,
      it will be difficult for an investor to evaluate our chances for success. Our
      prospects should be considered in light of the risks, expenses and difficulties
      frequently encountered in the establishment of any business in a competitive
      environment.




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




During
      the years ended March 31, 2007 and 2006, and the six months ended September
      30,
      2007, we incurred net losses of $8,038,894, $4,849,678, and $10,854,256
      respectively. Our ability to generate revenues and to become profitable depends
      on many factors, including the market acceptance of our products and services,
      our ability to control costs and our ability to implement our business strategy.
      There can be no assurance that we will become or remain profitable.





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




We
      have
      never achieved positive cash flow from operations and there can be no assurance
      that we will do so in the future. We need additional financing to fund our
      product development costs and the operating costs we anticipate incurring over
      the next several quarters. Our current cash on hand together with our expected
      cash flows from operating activities will enable us to continue operating until
      the end of our Calendar 2007. We anticipate needing an additional $15,000,000
      to
      $20,000,000 to bring our existing products under development and to market
      and
      finance our day to day operations.





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




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




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




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









24




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




If
      we are
      unable to realize profitable operations, or raise sufficient capital, we will
      be
      unable to implement our business strategy. If we cannot continue to self publish
      in, we will have to license our games to co-publihers, and our profit and
      operating margins will be




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




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




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




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




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




We
      have
      shipped the following Console or Handheld games: (i) Heroes of the Pacific
      for
      the PS2, Xbox and PC platforms which first began shipping in September, 2005;
      (ii) GripShift for the PSP platform which first began shipping in September
      2005; (iii) Crusty Demons for the PS2 and Xbox platforms which first began
      shipping in July 2006; (iv) Lucinda Green’s Equestrian Challenge for the PS2 and
      PC which first began shipping in November 2006; and (iiv) Jackass for the PS2,
      and PSP platforms which first began shipping in September 2007.  On
      the PC, we have shipped: (i) Disney’s Aladdin Chess Adventures which first began
      shipping in February 2006; (ii) El Matador, which first began shipping in
      October 2006; (iii) Dual Sudoku, which first began shipping in September 2006;
      (iv) Timothy and Titus, which first began shipping in November 2006; (v)
      Aircraft Power Pack, which first began shipping in December
      2006;  (vi)  Lucinda Green’s Equestrian Challenge, which we
      first began shipping in November 2006; and (vii) Ouba, Pantheon and 10 Talismans
      which first began shipping in May 2007. We are currently involved in the
      development of three games: (i) Jackass: the Game for the
      Nintendo  DS;   (ii) a sequel to Heroes of the Pacific
      based in the European theatre for the Xbox 360, PS3, and PC; and
      (iii)  Sin city: The Game for the PS3 and Xbox 360.





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




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







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




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




We
      are
      also dependent on the platform licensors for multiple approvals on each game
      in
      order to publish each game. There can be no assurance that such platform
      licensors will approve any of our games. Accordingly, we may never be able
      to
      ship  our games that have completed development if they are not
      approved by the platform manufacturers.







25






We
      have
      the following platform licenses:





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


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


Nintendo
                Wii and DS
            
            Expires
                June 12, 2010PCs
            
            There
                are no platform licenses required for the
                PCs




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




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




We
      expect
      that many of our future games will be developed and published in connection
      with
      the releases of related movie titles and other significant marketing events,
      or
      more generally in connection with higher sales periods, including our third
      quarter ending December 31. As such, we will establish game development
      schedules tied to these periods. If we miss these schedules, we will incur
      the
      costs of procuring licenses without obtaining the revenue from sales of the
      related games which will have an adverse effect on our revenues, margins, and
      cash flow. In addition, we are required to manufacture our games with the
      related console manufacturer. If we experience delays at the manufacturer,
      we
      could miss our anticipated ship dates which would have a material adverse effect
      on our operations.




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




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







26




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




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




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




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




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




In
      addition, each game is required to be rated by the Entertainment Software Rating
      Board (ESRB). If our games receive unfavorable ratings from the ESRB, this
      could
      limit which retailers would purchase our game and have an adverse effect on
      our
      business.





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




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





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




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





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




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




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




As
      of
      September 30, 2007, we had two customers who accounted for 64.8% (Navarre
      Corporation) and 20.9% (Hollywood Entertainment) of our consolidated accounts
      receivable and for the six month ended September 30, 2007, we had three
      customers who accounted for 75.0% (Navarre Corporation), 10.3% (Hollywood
      Entertainment.) and 5.4% (Funtastic Ltd.) of consolidated revenue. As of March
      31, 2007, we had two customers who accounted for 49.1% (Navarre Corporation)
      and
      28.1% (GameStop) of our consolidated accounts receivable and for the fiscal
      ended March 31, 2007 we had three customers who accounted for 48.1% (Navarre
      Corporation), 18.1% (GameStop) and 14.7% (Koch Media) of consolidated revenue.
      If Navarre Corporation were to decrease their purchase volume, discontinue
      advancing us cash for manufacturing or discontinue their relationship with
      us,
      our revenue would decrease significantly unless we were able to find new
      customers to replace the lost volume. There can be no assurance that such new
      customers could be found, or if found, that they would purchase the same
      quantity as the current customers.







27






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




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




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





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




***Effect
      of Recent Accounting Pronouncements***




**EITF
      06-03**




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




**SFAS
      157**




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




**SFAS
      159**




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




**FIN
      48**




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










28




Item
      2
      Unregistered Sales of Equity Securities.





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





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





Each
      whole warrant entitles the holder of the warrant to acquire, for no additional
      consideration, one share of our Common Stock in the event that we do not
      complete by March 18, 2008 a liquidity transaction, as defined in the agency
      agreement with the Agent. The warrants will automatically be cancelled if we
      complete a liquidity transaction by March 18, 2008.





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










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








On
      July
      18, 2007, holders of more than 66 2/3% of the $8,244,000 principal
      amount of senior secured convertible debentures and $155,281 in accrued interest
      on the debentures issued by us in October and November 2006 voted by way of
      extraordinary resolution to cancel such debentures and to convert the principal
      and accrued interest amounts of their debentures into shares of our Common
      Stock
      at $2.50 per share, thereby resulting in the conversion of the full principal
      and interest amounts associated with all such debentures into 3,359,713 shares
      of our Common Stock.



















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ITEM 6. EXHIBITS




(a)
          Exhibits:




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





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





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





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















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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:        November
                13, 2007
            
            By:
                /s/ Chester AldridgeChester
                AldridgeChief
                Executive Officer(Principal
                Executive Officer)Date:        November
                13, 2007
            
            By:
                /s/ Ben ZadikBen
                ZadikChief
                Financial Officer(Principal
                Financial Officer)








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