10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.   20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

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

For the transition period from _____________ to ___________

Commission file number   333-124829

ZOO ENTERTAINMENT, INC.

(Exact name of Registrant as Specified in Its Charter)

Delaware	71-1033391
(State or other jurisdiction of incorporation or organization )	(I.R.S. Employer Identification No.)

2121 Avenue of the Stars, Suite 2550, Los Angeles, CA	90067
(Address of Principal Executive Offices)	(Zip Code)
(310) 601-2500
(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

As of May 14, 2009, there were 38,243,937 shares of the Registrant’s common stock, par value $0.001 per share, issued and outstanding.

ZOO ENTERTAINMENT, INC.

Table of Contents

PART I - FINANCIAL INFORMATION

		Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December 31, 2008	F-1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2009 and 2008	F-2
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2009 and 2008	F-3
	Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2009	F-4
	Notes to Condensed Consolidated Financial Statements	F-5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	9
Item 4T.	Controls and Procedures	9

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	10
Item 4.	Submission of Matters to a Vote of Security Holders	10
Item 5.	Other Information	11
Item 6.	Exhibits	11
Signatures		12

Zoo Entertainment, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in $000s except share and per share amounts)

	March 31, 2009			December 31, 2008 *
	(unaudited)
ASSETS
Current Assets
Cash	$	468		$	849
Accounts receivable, net of allowances for returns and discounts of $915 and $1,160		1,296			1,832
Inventory		2,144			3,120
Prepaid expenses and other current assets		2,290			2,124
Product development costs, net		5,709			5,338
Deferred tax asset		581			688
Total Current Assets		12,488			13,951
Fixed assets, net		194			214
Goodwill		14,704			14,704
Intangible assets, net		14,335			14,747
Total Assets	$	41,721		$	43,616
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	6,435		$	5,709
Financing arrangements		-			849
Accrued expenses and other current liabilities		4,170			5,167
Notes payable, net of discount of $94 and $145 - current portion		1,738			1,803
Convertible notes payable, net of discount of $878 and $1,576		10,272			9,574
Total Current Liabilities		22,615			23,102
Notes payable, net of discount of $797 and $885 - non current portion		1,852			1,772
Deferred tax liability		581			688
Other long-term liabilities		620			620
Total Liabilities		25,668			26,182
Commitments and Contingencies
Stockholders' Equity
Preferred Stock, par value $0.001, 5,000,000 shares authorized, none issued and outstanding		-			-
Common Stock, par value $0.001, 75,000,000 shares authorized, 38,243,937 issued and outstanding		38			38
Additional Paid-in-capital		52,714			52,692
Accumulated deficit		(33,343	)		(31,940	)
Treasury Stock, at cost 2,237,376 shares		(3,356	)		(3,356	)
Total Stockholders' Equity		16,053			17,434
Total Liabilities and Stockholders' Equity	$	41,721		$	43,616

*  Derived from audited financials

See accompanying notes to condensed consolidated financial statements

F-1

Zoo Entertainment, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

For the Three Months Ended March 31, 2009 and 2008

(in $000s except per share amounts)

	Three Months Ended March 31,
	2009			2008
Revenue	$	13,884		$	9,029
Cost of goods sold		11,483			8,807
Gross profit		2,401			222
Operating expenses:
General and administrative expenses		1,394			1,119
Selling and marketing expenses		863			864
Research and development expenses		80			894
Depreciation and amortization		434			448
Total Operating expenses		2,771			3,325
Loss from operations		(370	)		(3,103	)
Interest expense, net		(1,033	)		(387	)
Loss from continuing operations before income tax benefit		(1,403	)		(3,490	)
Income tax benefit		-			-
Loss from continuing operations		(1,403	)		(3,490	)
Loss from discontinued operations		-			(687	)
Net loss	$	(1,403	)	$	(4,177	)
Loss per share - basic and diluted:
Continuing operations	$	(0.04	)	$	(0.21	)
Discontinued operations		-			(0.04	)
Net loss	$	(0.04	)	$	(0.26	)
Weighted average shares outstanding - basic and diluted		38,243,937			16,314,950

See accompanying notes to condensed consolidated financial statements

F-2

Zoo Entertainment, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flow

For the Three Months Ended March 31, 2009 and March 31, 2008

(in $000s)

	Three Months Ended March 31,
	2009			2008
Operating Activities:
Net loss	$	(1,403	)	$	(4,177	)
Loss from discontinued operations		-			(687	)
Net loss from continuing operations		(1,403	)		(3,490	)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization		434			448
Amortization of deferred debt discount		858			304
Stock-based compensation		22			140
Other changes in assets and liabilities, net		559			(2,032	)
Net cash provided by (used in) continuing operations		470			(4,630	)
Net cash used in discontinued operations		-			(28	)
Net cash provided by (used in) operating activities		470			(4,658	)
Investing activities:
Purchases of fixed assets		(2	)		(39	)
Financing activities:
Proceeds from sale of equity securities		-			4,635
Net (repayments) borrowings in connection with financing facilities		(849	)		69
Net cash (used in) provided by financing activities		(849	)		4,704
(Decrease) increase in cash		(381	)		7
Cash at beginning of period		849			137
Cash at end of period	$	468		$	144

See accompanying notes to condensed consolidated financial statements

F-3

Zoo Entertainment, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statement of Stockholders' Equity

For the Three Months Ended March 31, 2009

(in 000s)

	Preferred Stock				Common Stock				Additional					Treasury Stock
	Shares		Par value		Shares		Par Value		Paid-in- Capital		Accumulated Deficit			Shares		Cost			Total
Balance December 31, 2008		-		-		38,244		38		52,692		(31,940	)		2,237		(3,356	)		17,434
Stock-based compensation						-		-		22										22
Net loss												(1,403	)							(1,403	)
Balance March 31, 2009		-	$	-		38,244	$	38	$	52,714	$	(33,343	)		2,237	$	(3,356	)	$	16,053

See accompanying notes to condensed consolidated financial statements

F-4

ZOO ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF ORGANIZATION AND REVERSE MERGER

Zoo Entertainment, Inc., (“Zoo” or the “Company”) was incorporated under the laws of the State of Nevada on February 13, 2003 under the name Driftwood Ventures, Inc.  On December 20, 2007, the Company reincorporated in Delaware and increased its authorized capital stock from 75,000,000 shares to 80,000,000 shares, consisting of 75,000,000 shares of common stock, par value $0.001, per share, and 5,000,000 shares of preferred stock, par value $0.001, per share. No terms have been established for the preferred stock. The Company was engaged in acquiring and exploring mineral properties until September 30, 2007 when this activity was abandoned.  The Company had been inactive until July 7, 2008 when the Company entered into an Agreement and Plan of Merger, as subsequently amended on September 12. 2008 with DFTW Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), Zoo Games, Inc. (“Zoo Games”) (formerly known as Green Screen Interactive Software, Inc.) and a stockholder representative, pursuant to which Merger Sub would merge with and into Zoo Games, with Zoo Games as the surviving corporation through an exchange of common stock of Zoo Games for common stock of the Company (the “Merger”). On December 3, 2008, Driftwood Ventures, Inc. changed its name to Zoo Entertainment, Inc.

On September 12, 2008, upon the completion of the Merger, each outstanding share of Zoo Games common stock, $0.001 par value per share (the “Zoo Games Common Stock”) on a fully-converted basis, converted automatically into and became exchangeable for shares of the Company’s common stock, $0.001 par value per share based on an exchange ratio equal to 7.023274. In addition, by virtue of the Merger, each of the 334,983 options to purchase shares of Zoo Games Common Stock (the “Zoo Games Options”) outstanding under Zoo Games’ 2008 Long-Term Incentive Plan were assumed by the Company, subject to the same terms and conditions as were applicable under such plan immediately prior to the Merger, and converted into 243,040 options to purchase shares of the Company’s common stock at an exercise price of $2.58 per share, 421,396 options to purchase shares of the Company’s common stock at an exercise price of $2.25 per share and 1,688,240 options to purchase shares of the Company’s common stock at an exercise price of $1.52 per share. The 246,243 warrants to purchase shares of Zoo Games Common Stock outstanding at the time of the Merger (the “Zoo Games Warrants”) were assumed by the Company and converted into 1,411,186 warrants to acquire shares of the Company’s common stock at an exercise price of $2.84 and 318,246 warrants to acquire shares of the Company’s common stock at an exercise price of $2.13 per share. The merger consideration consisted of (i) 26,098,303 shares of the Company’s common stock, (ii) the reservation of 2,352,677 shares of the Company’s common stock that are required for the assumption of the Zoo Games Options and (iii) the reservation of 1,729,432 shares of the Company’s common stock that are required for the assumption of the Zoo Games Warrants.

Zoo Games is treated as the acquirer for accounting purposes in this reverse merger and the financial statements of the Company for all periods presented represent the historical activity of Zoo Games and include the activity of Zoo beginning on September 12, 2008, the date of the reverse merger. As a result of the reverse merger, the equity transactions for the period from March 23, 2007 to September 12, 2008 have been adjusted to reflect this recapitalization.

F-5

Zoo Games, a Delaware corporation, is a New York City-based developer, publisher and distributor of interactive entertainment software for use on all major platforms including Nintendo’s Wii and DS, Sony’s PSP and PlayStation 3, Microsoft’s Xbox 360, and personal computers (PCs). Zoo Games sells primarily to major retail chains and video game distributors. Zoo Games began business in March 2007, acquired the assets of Supervillain Studios, Inc. (“SVS”) on June 13, 2007, acquired the stock of Zoo Publishing, Inc. (“Zoo Publishing”) on December 18, 2007 and acquired the stock of Zoo Digital Publishing Limited (“Zoo Digital”) on April 4, 2008. The consolidated financial statements include the results of their operations from their respective acquisition dates. We also acquired an interest in Cyoob, Inc., also known as Repliqa (“Repliqa”), on June 28, 2007. During January 2008, Zoo Games’ board of directors made a determination to discontinue its involvement with the operations of Repliqa. During September 2008, Zoo Games sold SVS back to its original owners.  In November 2008, Zoo Games sold Zoo Digital back to its original owners.  Repliqa, SVS and Zoo Digital have been reflected as discontinued operations for all periods presented.

Currently, the Company has determined that it operates in one business segment in North America, as described above, which includes the operations of Zoo Publishing.

On May 16, 2008, Zoo Games converted from a limited liability company to a C-corporation and changed its name to Green Screen Interactive Software, Inc. from Green Screen Interactive Software, LLC. In August 2008, it changed its name to Zoo Games, Inc.

2. GOING CONCERN

These consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred losses since inception, resulting in an accumulated deficit of approximately $33.3 million and a working capital deficiency of approximately $10.1 million at March 31, 2009. For the three months ended March 31, 2009 the Company generated $470,000 of cash flow from operations, but for the year ended December 31, 2008, the Company generated negative cash flows from operations of approximately $12.1 million. Further losses are anticipated in the development of its business raising substantial doubt about the Company's ability to continue as a going concern. In addition, the Company has various notes maturing between July and September 2009 with a total face value of approximately $12.3 million.  The Company has been in discussions with the debt holders to either convert a portion or the entirety of the debt to equity or extend or amend the terms of the debt.   Its ability to continue as a going concern is dependent upon the ability of the Company to generate cash flow from operations sufficient to maintain its daily business activities as well as acquiring financing from outside sources through the sale of equity or debt instruments as well as restructuring its maturing note obligations. While management has plans to seek financing through additional sales of such instruments, there is no assurance that such financing can be obtained. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary as a result of this uncertainty.

3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Interim Financial Information

The accompanying unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and the interim financial statement rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, these statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Condensed Consolidated Financial Statements.  The financial statements should be read in conjunction with the financial statements of the Company together with the Company’s management discussion and analysis in the Company’s Form 10-K Annual Report for the year ended December 31, 2008 filed with the Securities and Exchange Commission on April 15, 2009.  The results for the three months ended March 31, 2009 might not be indicative of the results for the full year or any future period.

F-6

The condensed consolidated financial statements of the Company include the accounts of Zoo Games and its wholly and majority owned subsidiaries, Supervillain Studios LLC, Zoo Publishing, Zoo Digital Publishing Limited and Repliqa during the periods that each subsidiary was directly or indirectly owned by Zoo Games. All intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The estimates affecting the consolidated financial statements that are particularly significant include the recoverability of product development costs, lives of intangibles, realization of goodwill and intangibles, allocation of purchase price, valuation of inventories and the adequacy of allowances for returns, price concessions and doubtful accounts. Actual amounts could differ from these estimates.

Concentration of Credit Risk

We maintain cash balances at what we believe are several high quality financial institutions. While we attempt to limit credit exposure with any single institution, balances often exceed FDIC insurable amounts.

If the financial condition and operations of our customers deteriorate, our risk of collection could increase substantially. A majority of our trade receivables are derived from sales to major retailers and distributors. In October 2008, we entered into an agreement with Atari, Inc. where sales from October 24, 2008 through March 31, 2009 for all customers that Atari deemed acceptable would be through Atari and Atari would prepay us for the cost of goods and they would bear the credit risk from the ultimate customer.  This agreement was subsequently amended twice to include sales through May 31, 2009. As of March 31, 2009, Atari had prepaid us approximately $727,000 which is included in customer advances in the accrued expenses and other current liabilities in the condensed consolidated balance sheet and the receivable due from Atari was approximately $1.3 million, before allowances, which is included in accounts receivable in the condensed consolidated balance sheet.  Our five largest ultimate customers for the three months ended March 31, 2009 accounted for approximately 85% of the gross revenue for the period.  We believe that the receivable balances from Atari and our ultimate customers do not represent a significant credit risk based on past collection experience. There were no receivables from our factor included in our gross accounts receivable as of March 31, 2009 and December 31, 2008. We regularly review our outstanding receivables for potential bad debts and have had no history of significant write-offs due to bad debts.

F-7

Inventory

Inventory, primarily consisting of finished goods, is stated at the lower of actual cost or market. We periodically evaluate the carrying value of our inventory and make adjustments as necessary. Estimated product returns are included in the inventory balances and also recorded at the lower of actual cost or market. 

Product Development Costs

We utilized both internal development teams and third party product developers to develop the titles we publish.  

We capitalized internal product development costs (including stock-based compensation, specifically identifiable employee payroll expense and incentive compensation costs related to the completion and release of titles), third party production and other content costs, subsequent to establishing technological feasibility of a title. Technological feasibility of a product includes the completion of both technical design documentation and game design documentation. Amortization of such capitalized costs is recorded on a title-by-title basis in cost of goods sold using the proportion of current year revenues to the total revenues expected to be recorded over the life of the title.  With the sale of SVS in September 2008, we no longer have any internal development studios.  

We frequently enter into agreements with third party developers that require us to make advance payments for game development and production services. In exchange for our advance payments, we receive the exclusive publishing and distribution rights to the finished game title as well as, in some cases, the underlying intellectual property rights. Such agreements allow us to fully recover the advance payments to the developers at an agreed royalty rate earned on the subsequent retail sales of such product, net of any agreed costs. We capitalize all advance payments to developers as product development costs. On a product-by-product basis, we reduce product development costs and record a corresponding amount of research and development expense for any costs incurred by third party developers prior to establishing technological feasibility of a product as these advances are expended. We typically enter into agreements with third party developers after completing the technical design documentation for our products and therefore record the design costs leading up to a signed development contract as research and development expense. We also generally contract with third party developers that have proven technology and experience in the genre of the video game being developed, which often allows for the establishment of technological feasibility early in the development cycle. In instances where the documentation of the design and technology are not in place prior to an executed contract, we monitor the product development process and require our third party developers to adhere to the same technological feasibility standards that apply to our internally developed products.

We also capitalize advance payments as product development costs when advances are made subsequent to establishing technological feasibility of a video game title and amortize them, on a title-by-title basis, as product development costs in cost of goods sold. Royalty amortization is recorded using the proportion of current year unit sales and revenues to the total unit sales and revenues expected to be recorded over the life of the title.

At each balance sheet date, or earlier if an indicator of impairment exists, we evaluate the recoverability of capitalized development costs, advance development payments and any other unrecognized minimum commitments that have not been paid, using an undiscounted future cash flow analysis, and charge any amounts that are deemed unrecoverable to cost of goods sold if the product has already been released. If the product is discontinued prior to completion, any prepaid unrecoverable advances are charged to research and development expense. We use various measures to estimate future revenues for our product titles, including past performance of similar titles and orders for titles prior to their release. For sequels, the performance of predecessor titles is also taken into consideration.

F-8

Prior to establishing technological feasibility, we expense research and development costs as incurred. During the three months ended March 31, 2009 and 2008, we wrote-off $80,000 and $894,000, respectively, of expense relating to costs incurred for the development of games that were abandoned during those periods.  Those costs are included in the Statement of Operations under research and development expenses.  

Licenses and Royalties

Licenses consist of payments and guarantees made to holders of intellectual property rights for use of their trademarks, copyrights, technology or other intellectual property rights in the development of our products. Agreements with rights holders generally provide for guaranteed minimum royalty payments for use of their intellectual property.  When significant performance remains to be completed by the licensor, we record payments when actually paid.

Certain licenses extend over multi-year periods and encompass multiple game titles. In addition to guaranteed minimum payments, these licenses frequently contain provisions that could require us to pay royalties to the license holder, based on pre-agreed unit sales thresholds.

Licensing fees are capitalized on the balance sheet in prepaid expenses and are amortized as royalties in cost of goods sold on a title-by-title basis at a ratio of current period revenues to the total revenues expected to be recorded over the remaining life of the title. Similar to product development costs, we review our sales projections quarterly to determine the likely recoverability of our capitalized licenses as well as any unpaid minimum obligations. When management determines that the value of a license is unlikely to be recovered by product sales, capitalized licenses are charged to cost of goods sold, based on current and expected revenues, in the period in which such determination is made. Criteria used to evaluate expected product performance and to estimate future sales for a title include: historical performance of comparable titles; orders for titles prior to release; and the estimated performance of a sequel title based on the performance of the title on which the sequel is based.

Goodwill and Intangible Assets

Goodwill is the excess of purchase price paid over identified intangible and tangible net assets of acquired companies. Intangible assets consist of trademarks, customer relationships, content and product development. Certain intangible assets acquired in a business combination are recognized as assets apart from goodwill. Identified intangibles other than goodwill are generally amortized using the straight-line method over the period of expected benefit ranging from one to ten years, except for intellectual property, which are usage-based intangible assets that are amortized using the shorter of the useful life or expected revenue stream.

The Company accounts for its goodwill in accordance with Statement of Financial Accounting Standards 142, “Goodwill and Other Intangibles.”  Under this standard, the Company is required to perform a goodwill impairment test at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from estimated future cash flows.  We will perform tests of impairment in the fourth quarter of each fiscal year or earlier if indicators of impairment exist.  We determine the fair value of each reporting unit using a discounted cash flow analysis and compare such values to the respective reporting unit's carrying amount.

F-9

Impairment of Long-Lived Assets, Including Definitive Life Intangible Assets

We review all long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, including assets to be disposed of by sale, whether previously held and used or newly acquired. We compare the carrying amount of the asset to the estimated undiscounted future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, we record an impairment charge for the difference between the carrying amount of the asset and its fair value. The estimated fair value is generally measured by discounting expected future cash flows at our incremental borrowing rate or fair value, if available.

Revenue Recognition

We earn our revenue from the sale of internally developed interactive software titles and from the sale of titles developed by and/or licensed from third party developers ("Publishing Revenue").

We recognize Publishing Revenue upon the transfer of title and risk of loss to our customers. We apply the provisions of Statement of Position 97-2, "Software Revenue Recognition", in conjunction with the applicable provisions of Staff Accounting Bulletin No. 104, "Revenue Recognition." Accordingly, we recognize revenue for software titles when there is (1) persuasive evidence that an arrangement with the customer exists, which is generally a customer purchase order, (2) the product is delivered, (3) the selling price is fixed or determinable and (4) collection of the customer receivable is deemed probable. Our payment arrangements with customers typically provide net 30 and 60-day terms. Advances received from customers are reported on the consolidated balance sheet as customer advances, included in current liabilities until we meet our performance obligations, at which point we recognize the revenue.

Revenue is recognized after deducting estimated reserves for returns, price concessions and other allowances. In circumstances when we do not have a reliable basis to estimate returns and price concessions or are unable to determine that collection of a receivable is probable, we defer the revenue until such time as we can reliably estimate any related returns and allowances and determine that collection of the receivable is probable.

Allowances for Returns, Price Concessions and Other Allowances

We may accept returns and grant price concessions in connection with our publishing arrangements. Following reductions in the price of our products, we grant price concessions that permit customers to take credits for unsold merchandise against amounts they owe us. Our customers must satisfy certain conditions to allow them to return products or receive price concessions, including compliance with applicable payment terms and confirmation of field inventory levels.

Although our distribution arrangements with customers do not give them the right to return titles or to cancel firm orders, we sometimes accept returns from our distribution customers for stock balancing and make accommodations to customers, which include credits and returns, when demand for specific titles fall below expectations.

We make estimates of future product returns and price concessions related to current period product revenue based upon, among other factors, historical experience and performance of the titles in similar genres, historical performance of a hardware platform, customer inventory levels, analysis of sell-through rates, sales force and retail customer feedback, industry pricing, market conditions and changes in demand and acceptance of our products by consumers.

F-10

Significant management judgments and estimates must be made and used in connection with establishing the allowance for returns and price concessions in any accounting period. We believe we can make reliable estimates of returns and price concessions. However, actual results may differ from initial estimates as a result of changes in circumstances, market conditions and assumptions. Adjustments to estimates are recorded in the period in which they become known.

Consideration Given to Customers and Received from Vendors

We have various marketing arrangements with retailers and distributors of our products that provide for cooperative advertising and market development funds, among others, which are generally based on single exchange transactions. Such amounts are accrued as a reduction to revenue when revenue is recognized, except for cooperative advertising which is included in selling and marketing expense if there is a separate identifiable benefit and the benefit's fair value can be established.

We receive various incentives from our manufacturers, including up-front cash payments as well as rebates based on a cumulative level of purchases. Such amounts are generally accounted for as a reduction in the price of the manufacturer's product and included as a reduction of inventory or cost of goods sold, based on (1) a ratio of current period revenue to the total revenue expected to be recorded over the remaining life of the product or (2) an agreed upon per unit rebate, based on actual units manufactured during the period.

Equity-based Compensation

We issued options to purchase shares of common stock of the Company to certain management and employees during 2009 and 2008. In accordance with SFAS 123(R), Share-Based Payment, we record compensation expense over the requisite service period based on their relative fair values.

The fair value of our equity-based compensation is estimated using the Black-Scholes option-pricing model. This model requires the input of assumptions regarding a number of complex and subjective variables that will usually have a significant impact on the fair value estimate. These variables include, but are not limited to, the volatility of our stock price and estimated exercise behavior. The assumptions and variables used for the current period grants were developed based on SFAS 123(R) and SEC guidance contained in Staff Accounting Bulletin (SAB) No. 107, "Share-Based Payment." The following table summarizes the assumptions and variables used by us to compute the weighted average fair value of stock option grants:

	For the Three Months
	Ended March 31,
	2009			2008
Risk-free interest rate		1.36	%		3.45	%
Expected stock price volatility		70.0	%		45.0	%
Expected term until exercise (years)		5			5
Dividends	None			None

F-11

For the three months ended March 31, 2009 and 2008, we estimated the implied volatility for publicly traded options on our common shares as the expected volatility assumption required in the Black-Scholes option-pricing model.  The selection of the implied volatility approach was based upon the historical volatility of companies with similar businesses and capitalization and our assessment that implied volatility is more representative of future stock price trends than historical volatility.

Earnings (Loss) per Share

Basic earnings (loss) per share ("EPS") is computed by dividing the net loss applicable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the same period. Diluted EPS is computed by dividing the net income applicable to common stockholders for the period by the weighted average number of shares of common stock outstanding and common stock equivalents, which includes warrants and options outstanding during the same period. Since the inclusion of the 6,502,159 warrants and 3,086,552 options outstanding as of March 31, 2009 and the 1,414,316 warrants and 243,040 options outstanding as of March 31, 2008 are anti-dilutive because of losses, the dilutive loss per share is the same as the basic loss per share.

Income Taxes

Zoo Games was a limited liability company from inception until May 16, 2008, when we converted to a corporation. As a limited liability company, we were not required to provide for any corporate tax. The loss from the Company’s operations was passed to the unit holders via Form K-1 and the unit holders are responsible for any resulting taxes. One of our subsidiaries, Zoo Publishing, was not a limited liability company and we therefore were required to record a corporate tax provision upon the acquisition of Zoo Publishing.

As a corporation, we recognize deferred taxes under the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at currently enacted statutory tax rates for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when we determine that it is more likely than not that such deferred tax assets will not be realized.

Fair Market Value of Financial Instruments

The carrying value of cash, accounts receivable, inventory, prepaid expenses, accounts payable, accrued expenses, due to factor, and advances from customers are reasonable estimates of the fair values because of their short-term maturity.  Notes payable are recorded net of the discount which is computed as the difference between the market interest rate that the Company would pay for financing at the time the note is issued and the stated interest rate on the note.  The convertible notes that were issued with warrants are recorded net of the unamortized discount applied to the warrants.

F-12

Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”), which is an amendment of Accounting Research Bulletin No. 51. This statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement changes the way the consolidated income statement is presented, thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest. This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of SFAS No. 160 did not have a significant impact on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). This statement replaces FASB Statement No. 141, “Business Combinations.” This statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS No. 141R has not had a significant impact on our results of operations or financial position.

In February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 15” (“FSP FAS 157-2”). FSP FAS 157-2 delays the effective date of SFAS No. 157, “ Fair Value Measurements ”, for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. FSP FAS 157-2 defers the effective date of certain provisions of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for items within the scope of this FSP. The adoption of FSP FAS 157-2 did not have a significant impact on our results of operations or financial position.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets”. This guidance for determining the useful life of a recognized intangible asset applies prospectively to intangible assets acquired individually or with a group of other assets in either an asset acquisition or business combination. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008, and early adoption is prohibited. The adoption of FSP FAS 142-3 did not have a significant impact on our results of operations and financial position.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles ” (“FAS 162”). FAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. FAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”  We do not expect the adoption of this statement to have a significant impact on our results of operations or financial position.

F-13

On May 9, 2008, the FASB issued Staff Position ("FSP") APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlements)” (“FSP APB 14-1”), which clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. The FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The adoption of FSP APB 14-l did not have a significant impact on our results of operations or financial position.

Effective January 1, 2009, the Company adopted EITF Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF Issue No. 07-05”). EITF Issue No. 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS No. 133. The adoption of EITF Issue No. 07-05 did not have a significant impact on our results of operations or financial position.

4. DISCONTINUED OPERATIONS

The loss from discontinued operations for the three months ended March 31, 2008 is summarized as follows:

	(amounts in $000s)
Supervillain	$	(419	)
Repliqa		(194	)
On-line concept		(74	)
Loss from discontinued operations	$	(687	)

The revenues from the discontinued operations were $203,000 for the three months ended March 31, 2008.

5. INVENTORY

Inventory consisted of:

	(amounts in $000s)
	March 31,		December 31,
	2009		2008
Finished products	$	2,011	$	2,939
Parts and supplies		133		181
Inventory	$	2,144	$	3,120

F-14

Estimated product returns included in Inventory at March 31, 2009 and December 31, 2008 were $304,000 and $337,000, respectively.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expense and other current assets consisted of:

	(amounts in $000s)
	March 31, 2009		December 31, 2008
Vendor advances for inventory	$	814	$	555
Prepaid royalties		1,158		1,072
Income taxes receivable		55		55
Other prepaid expenses		263		442
Prepaid expenses and other current assets	$	2,290	$	2,124

7. PRODUCT DEVELOPMENT COSTS

Details of our capitalized product development costs were as follows:

	(amounts in $000s)
	March 31, 2009		December 31, 2008
Product development costs, internally
developed, net of amortization	$	102	$	170
Product development costs, externally
developed, net of amortization		5,607		5,168
Product development costs	$	5,709	$	5,338

F-15

8. INTANGIBLE ASSETS, NET

The following table sets forth the components of the intangible assets subject to amortization.

		(amounts in $000s)
		March 31, 2009						December 31, 2008
	Estimated
	Useful	Gross
	Lives	Carrying		Accumulated		Net Book		Net Book
	(Years)	Amount		Amortization		Value		Value
Content	10	$	12,202	$	1,576	$	10,626	$	10,931
Trademarks	10		1,510		195		1,315		1,353
Customer relationships	10		2,749		355		2,394		2,463
Total Intangible Assets		$	16,461	$	2,126	$	14,335	$	14,747

Amortization expense related to intangible assets for the three months ended March 31, 2009 and 2008 was $412,000 for both periods.

The following table presents the estimated amortization of intangible assets, based on our present intangible assets, for the next five years as follows:

	(amounts in $000s)
Year ending Dec. 31,
Balance of 2009	$	1,234
2010		1,646
2011		1,646
2012		1,646
2013		1,646
Thereafter		6,517
Total	$	14,335

F-16

9. CREDIT AND FINANCING ARRANGEMENTS AND ATARI AGREEMENT

In connection with the Zoo Publishing acquisition, the Company entered into the following credit and finance arrangements:

The Company and Zoo Publishing entered into a purchase order financing agreement with Transcap Trade Finance, LLC (“Transcap”) on December 19, 2007. This agreement made the Company a party to a Master Purchase Order Assignment Agreement dated August 20, 2001 pursuant to which Transcap agreed to provide purchase order financing to or for the benefit of Zoo Publishing. Total advances under the factoring arrangement include letters of credit for purchase order financing and is limited to $10.0 million. The amounts outstanding as of March 31, 2009 and December 31, 2008 were $0 and $855,000, respectively. The interest rate is prime plus 4.0% on outstanding advances. As of March 31, 2009 and December 31, 2008, the effective interest rates were 7.25%.  The charges and interest expense on the advances are included in the cost of goods sold in the accompanying condensed consolidated statement of operations. 

On April 6, 2009, we entered into an amended and restated purchase order financing arrangement with Wells Fargo Bank, National Association (“Wells Fargo”) pursuant to an amended and restated master purchase order assignment agreement (the “Assignment Agreement”).  The Assignment Agreement amended and restated in its entirety the master purchase order assignment agreement between Transcap and Zoo Publishing, dated as of August 20, 2001, as amended.

Pursuant to the Assignment Agreement, the Company will assign purchase orders received from customers to Wells Fargo, and request that Wells Fargo purchase the required materials to fulfill such purchase orders.  Wells Fargo, which may accept or decline the assignment of specific purchase orders, will retain us to manufacture, process and ship ordered goods, and will pay us for our services upon Wells Fargo’s receipt of payment from the customers for such ordered goods.  Upon payment in full of the purchase order invoice by the applicable customer to Wells Fargo, Wells Fargo will re-assign the applicable purchase order to us.  We will pay to Wells Fargo a commitment fee in the aggregate amount of $337,500, on the earlier of the twelve month anniversary of the date of the Assignment Agreement, or the date of termination of the Assignment Agreement.  Wells Fargo is not obligated to provide purchase order financing under the Assignment Agreement if the aggregate outstanding funding exceeds $5,000,000.  The Assignment Agreement is for an initial term of twelve months, and shall continue thereafter for successive twelve month renewal terms unless either party terminates the Assignment Agreement by written notice to the other no later than 30 days prior to the end of the initial term or any renewal term.  If the term of the Assignment Agreement is renewed for one or more twelve month terms, for each such twelve month term, we will pay to Wells Fargo a commitment fee in the sum of $337,500, paid on the earlier of the twelve month anniversary of such renewal date or the date of termination of the Assignment Agreement.  The initial and renewal commitment fees are subject to waiver if certain product volume requirements are met.

In connection with the Assignment Agreement, on April 6, 2009 we also entered into an amended and restated security agreement and financing statement (the “Security Agreement”) with Wells Fargo.  The Security Agreement amends and restates in its entirety that certain security agreement and financing statement, by and between Transcap and Zoo Publishing, dated as of August 20, 2001.  Pursuant to the Security Agreement, we granted to Wells Fargo a first priority security interest in certain of our assets as set forth in the Security Agreement, as well as a subordinate security interest in certain other of our assets (the “Common Collateral”), which security interest is subordinate to the security interests in the Common Collateral held by certain of our senior lenders, as set forth in the Security Agreement.

F-17

Also in connection with the Assignment Agreement, on April 6, 2009, Mark Seremet, President and Chief Executive Officer of Zoo Games and a director of Zoo Entertainment, and David Rosenbaum, the President of Operations of Zoo Publishing, entered into a Guaranty with Wells Fargo, pursuant to which Messrs. Seremet and Rosenbaum agreed to guaranty the full and prompt payment and performance of the obligations under the Assignment Agreement and the Security Agreement.

Zoo Publishing uses a factor to approve credit and to collect the proceeds from a substantial portion of its sales.  In August 2008, Zoo Publishing entered into a new factoring agreement with Working Capital Solutions, Inc., which utilizes existing accounts receivable in order to provide working capital to fund all aspects of our continuing business operations. Under the terms of our factoring and security agreement, we sell our receivables to the factor, with recourse. The factor, in its sole discretion, determines whether or not it will accept each receivable based upon the credit risk factor of each individual receivable or account. Once a receivable is accepted by the factor, the factor provides funding subject to the terms and conditions of the factoring and security agreement. The amount remitted to us by the factor equals the invoice amount of the receivable adjusted for any discounts or allowances provided to the account, less 20% which is deposited into a reserve account established pursuant to the agreement, less allowances and fees. In the event of default, valid payment dispute, breach of warranty, insolvency or bankruptcy on the part of the receivable account, the factor can require the receivable to be repurchased by us in accordance with the agreement. The amounts to be paid by us to the factor for any accepted receivable include a factoring fee of 0.6% for each ten (10) day period the account is open.  Since the factor acquires the receivables with recourse, we record the gross receivables including amounts due from our customers to the factor and we record a liability to the factor for funds advanced to us from the factor. At March 31, 2009 and December 31, 2008, accounts receivable did not include any amounts due from our customers to the factor and the factor did not have any advance outstanding to the Company. This facility is guaranteed by the Company’s President.

As a result of a fire in October 2008 that destroyed our inventory and impacted our cash flow from operations, we entered into an agreement with Atari, Inc. (“Atari”). This agreement became effective on October 24, 2008 and provided for Zoo Publishing to sell its products to Atari without recourse and Atari will resell the products to wholesalers and retailers that are acceptable to Atari in North America. The agreement initially expired on March 31, 2009, but was amended twice to extend the term until May 31, 2009.  This agreement provided for Atari to prepay to the Company for the cost of goods and pay the balance due within 15 days of shipping the product.  Atari’s fees approximate 10% of our standard selling price and they have been recorded as a reduction in revenue.  During the three months ended March 31, 2009, we recorded approximately $15.7 million of net sales to Atari.  Atari takes a reserve from the initial payment for potential customer sales allowances, returns and price protection that is analyzed and reviewed within a sixty day period to be liquidated no later than July 31, 2009.  As of March 31, 2009 and December 31, 2008, Atari had prepaid the Company $727,000 and approximately $1.8 million, respectively, for goods not yet shipped which is recorded as customer advances in accrued expenses and other current liabilities.  Also, as of March 31, 2009 and December 31, 2008, Atari owed the Company approximately $1.3 million and $1.8 million, respectively, before allowances, for goods already shipped which is recorded in accounts receivable.

10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of:

F-18

	(amounts in $000s)
	March 31, 2009		December 31, 2008
Customer advances ($727 in 2009 and $1,828 in 2008 is from Atari)	$	898	$	1,828
Due to customers		269		710
Obligation arising from Zoo Publishing acquisition		213		254
Obligations relating to Cyoob acquisition		100		100
Obligations to compensate current and former employees		710		720
Royalty		119		252
Operating expenses		1,366		982
Interest		495		321
Total	$	4,170	$	5,167

11. NOTES PAYABLE

Outstanding notes payable, net of unamortized discounts, are as follows:

	(amounts in $000’s)
	March 31, 2009		December 31, 2008
Note Description
Zoo Entertainment convertible notes, net of discounts attributable to the warrant value of $878 and $1,576	$	10,272	$	9,574
3.9% Zoo Publishing notes, net of discount of $891 and $1,030		2,676		2,536
2.95% note due June 2012 assumed from Zoo Publishing acquisition		340		370
8.25% Wachovia demand note assumed from Zoo Publishing acquisition		-		45
Note assumed from Zoo Publishing acquisition, 12% interest		-		25
Employee loans, payable on demand		331		331
Zoo Publishing employee loans at 4% interest		243		268
Total		13,862		13,149
Current portion		12,010		11,377
Non-current portion	$	1,852	$	1,772

F-19

The face amounts of the notes payable as of March 31, 2009 are due as follows:

	(amounts in $000s)
Year Ending December	Amount Due
Balance of 2009	$	12,952
2010		2,232
2011		436
2012		10
Total	$	15,630

Zoo Entertainment Notes

On July 7, 2008, as amended on July 15, 2008 and July 31, 2008, the Company entered into a note purchase agreement under which the purchasers agreed to provide loans to the Company in the aggregate principal amount of $9.0 million, in consideration for the issuance and delivery of senior secured convertible promissory notes.  In connection with the issuance of such notes, the Company issued to the noteholders warrants to purchase 8,181,818 shares of common stock of the Company. The notes bear an interest rate of five percent (5%) for the one year term of the note commencing from issuance, unless extended. Upon the occurrence of an investor sale, as defined in the notes, the entire outstanding principal amount of the notes and any accrued interest thereon will be automatically converted into shares of common stock of the Company determined by dividing the note balance by the lesser of (i) an amount equal to the price per share of investor stock paid by the purchasers of such shares in connection with the investor sale, or (ii) $2.00; provided, that in the event that the investor sale is for less than $1.00 per share, then the notes will only be automatically convertible with the consent of the Company.   In connection with the note purchase agreement, the Company satisfied a management fee obligation by issuing additional senior secured convertible promissory notes in the principal amount of $750,000 and warrants to purchase 681,818 shares of common stock of the Company. All of the warrants have a five year term and an exercise price of $0.01 per share. Pursuant to a security agreement, by and among the Company and the purchasers, dated as of July 7, 2008, as amended on August 12, 2008, the Company granted a security interest in all of its assets to each of the purchasers to secure the Company’s obligations under the notes.

On September 26, 2008, the Company entered into a note purchase agreement pursuant to which the purchasers agreed to provide a loan to the Company in the aggregate principal amount of $1.4 million, in consideration for the issuance and delivery of senior secured convertible promissory notes. In connection with the issuance of such notes, the Company also issued warrants to purchase 1,272,726 shares of common stock of the Company to the note holders.  The notes bear an interest rate of five percent (5%) for the time period beginning on September 26, 2008 and ending on September 26, 2009, unless extended. Upon the occurrence of an investor sale, as defined in the notes, the entire outstanding principal amount of the notes and any accrued interest thereon will be automatically converted into shares of common stock of the Company determined by dividing the note balance by the lesser of (i) an amount equal to the price per share of investor stock paid by the purchasers of such shares in connection with the investor sale, or (ii) $2.00; provided, that in the event that the investor sale is for less than $1.00 per share, then the notes will only be automatically convertible with the consent of the Company. The warrants have a five year term and an exercise price of $0.01 per share. Pursuant to a security agreement, by and among the Company and the purchasers, dated September 26, 2008, the Company granted a security interest in all of its assets to each of the purchasers to secure the Company’s obligations under the notes.

F-20

The total principal amount of all of the notes described above is approximately $11.2 million, $9.8 million of which was incurred prior to the date of the reverse merger. The warrants issued with all the notes were valued at approximately $5.9 million by the Company and an independent valuation firm. We used the income and market valuation approaches to derive the Company’s business enterprise value and then used the Black-Scholes option-pricing model, applying discounts for illiquidity and dilution, to calculate the value of the warrants.  The total deferred debt discount of $5.9 million is amortized over the one year life of the notes. Prior to September 12, 2008, 4,545,455 warrants were exercised and the interest expense related to the discount of these warrants was accelerated. As of September 12, 2008, the deferred debt discount of the existing notes was approximately $2.4 million and the net value of the notes recorded as of September 12, 2008 was approximately $7.8 million. On September 26, 2008, we issued $1.0 million of the notes and 909,090 of the warrants which were valued at $527,000 using consistent valuation methodologies as those used for all the previously issued notes. As of March 31, 2009, the net deferred debt discount of all the notes is $878,000 and the net value of the notes recorded as of March 31, 2009 is approximately $10.3 million.

Zoo Publishing Notes

In connection with the acquisition of Zoo Publishing, the Company issued various promissory notes (“Zoo Publishing Note”) in an aggregate of approximately $6.8 million. Approximately $1.8 million of principal was payable at the earlier of the Company’s completion of another round of financing or by December 2008 with the $5.0 million balance to be paid in two installments pursuant to the “Zoo Publishing Note”. The first installment of $2.5 million of principal together with accrued interest at the rate of 3.9% per annum would be due on the earlier of June 18, 2009 and the date on which the Company consummates a round of equity financing of $40.0 million or more. The balance of the Zoo Publishing Note (including accrued interest) would be payable December 18, 2010. In connection with the aforementioned note, the Company recorded a debt discount of approximately $2.3 million. For the three months ended March 31, 2009, amortization of deferred debt discount and interest expense were $35,000 and $160,000, respectively. For the three months ended March 31, 2008, amortization of deferred debt discount and interest expense were $66,000 and $304,000, respectively.  In July 2008, the $6.8 million of notes were restructured and approximately $3.2 million of this debt was converted to common stock of the Company based on fair value and of the remaining $3.6 million, approximately $1.1 million is due September 18, 2009, $113,000 is due September 18, 2010, $2.0 million is due December 18, 2010 and approximately $316,000 is due July 31, 2011.

In connection with the acquisition of Zoo Publishing, the Company also assumed a liability of $1.2 million as part of the Zoo Publishing purchase price. Other notes payable assumed from the Zoo Publishing acquisition included:

· $200,000 demand note with 12.0% percent interest per annum, callable in 6 months, minimum guaranteed interest per renewal is $ 12,000. The note is guaranteed by the Zoo Publishing President.  The note was totally paid off by March 31, 2009.

· Zoo Publishing purchased treasury stock from a former employee in December 2006 for the amount of $650,000. The balance on the note as of March 31, 2009 was $340,000; $120,000 is classified as current and $220,000 is classified as long-term. The payments are due monthly and the amount of the payment is $10,000 per month.

F-21

12. INCOME TAXES

Through May 15, 2008, the Company and certain of its consolidated subsidiaries were taxed as a partnership under the provisions of the Internal Revenue Code.  Accordingly, the losses incurred by the Company and those subsidiaries through May 15, 2008 will be allocated to the respective members and reported on their individual tax returns.  Effective May 16, 2008, the Company changed its tax status from a partnership to a corporation and, as a result, began filing consolidated corporate tax returns with its domestic subsidiaries.  The provision for income taxes is based on income recognized for financial statement purposes and includes the effects of temporary differences between such income and that recognized for tax return purposes as well as the deferred tax assets and liabilities recognized for existing timing items relating to the Company's change in tax status.

The components of income tax benefit for the three months ended March 31, 2009 are as follows (in $000s):

Current:
Federal	$	-
State		77
Total Current		77
Deferred:
Federal		-
State		(77	)
Total Deferred		(77	)
Total	$	-

No income taxes were paid during the three months ended March 31, 2009.

The reconciliation of income tax benefit computed at the U.S. statutory tax rates to income tax benefit for the three months ended March 31, 2009 is:

F-22

Tax at U.S. federal income tax rates	(34.0	)%
State taxes, net of federal income tax benefit	(12.1	)
Valuation allowance	34.4
Nondeductible expenses and other	11.7
	0.0	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of March 31, 2009 are as follows (in $000's):

Deferred tax assets:	Current			Long-term
Net operating loss carryforwards	$	-		$	6,200
Capital loss carryforwards		-			515
Allowance for doubtful accounts		451			-
Bonus and other accruals		708			111
Interest on convertible notes		-			136
Non-qualified options		-			401
Gross deferred tax assets		1,159			7,363
Valuation allowance		(330	)		(2,095	)
Net deferred tax assets		829			5,268
Deferred tax liabilities:
Property and equipment		-			(23	)
Intangibles		-			(5,668	)
Discount on notes		(248	)		(158	)
Total deferred tax liabilities		(248	)		(5,849	)
Net deferred tax asset (liability)	$	581		$	(581	)

F-23

The Company has approximately $1.2 million of available capital loss carryforwards which expire in 2013.  A valuation allowance of approximately $515,000 has been recognized to offset the deferred tax assets related to these carryforwards.  The Company currently does not have any capital gains to utilize against this capital loss.  If realized, the tax benefit of this item will be applied to reduce future capital gains of the Company.  Additionally, a valuation allowance of approximately $1.9 million has been recognized to offset the net remaining deferred tax assets in excess of deferred tax liabilities because we cannot reasonably project if and when we will generate enough taxable income to utilize any of the deferred tax asset.

As of March 31, 2009, the Company has U.S. federal net operating loss (NOL) carryforwards of approximately $13.4 million which will be available to offset taxable U.S. income during the carryforward period and are expected to be fully realized. The federal NOL will begin to expire in 2023. The Company has various state net operating loss carryforwards of approximately $15.3 million which will be available to offset taxable state income during the carryforward period. The state NOL will also begin to expire in 2023.  The tax benefit of these items is reflected in the above table of deferred tax assets and liabilities.

13. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION ARRANGEMENTS

Common Stock

The Company has authorized 75,000,000 shares of common stock, par value $0.001, and 5,000,000 preferred shares, par value $0.001. As of March 31, 2009, there were 38,243,937 shares of common stock issued.

Options

As of December 31, 2008, the Company’s 2007 Employee, Director and Consultant Stock Plan allowed for an aggregate of 1,000,000 shares of common stock with respect to which stock rights may be granted and a 250,000 maximum number of shares of common stock with respect to which stock rights may be granted to any participant in any fiscal year.  As of December 31, 2008, an aggregate of 975,000 shares of restricted common stock of the Company are outstanding under the Company’s 2007 Employee, Director and Consultant Stock Plan, and 25,000 shares of Common Stock were reserved for future issuance under this plan.

On January 14, 2009, the Company’s Board of Directors approved and adopted an amendment to the 2007 Employee, Director and Consultant Stock Plan, which increased the number of shares of common stock that may be issued under the plan from 1,000,000 shares to 4,000,000 shares, and increased the maximum number of shares of common stock with respect to which stock rights may be granted to any participant in any fiscal year from 250,000 shares to 750,000 shares. All other terms of the plan remain in full force and effect.

On January 14, 2009, the Company granted Mr. Seremet an option to purchase 750,000 shares of the Company’s common stock at an exercise price of $0.30 per share, pursuant to the Company’s 2007 Plan, as amended. There were no other options issued during the three months ended March 31, 2009.

F-24

As of March 31, 2009, there was approximately $230,000 of unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.5 - 2.8 years.

The intrinsic value of options outstanding at March 31, 2009 is $0.

Warrants

As of March 31, 2009, there were 6,502,159 warrants outstanding. All are currently exercisable and have a five-year life.

There were no warrants issued in the three months ended March 31, 2009.  

14. INTEREST, NET

	(amounts in $000s)
	Three Months Ended  March 31,
	2009		2008
Interest arising from amortization of debt discount	$	858	$	304
Interest on various notes		175		87
Less: Interest income		-		(4	)
Interest expense, net	$	1,033	$	387

F-25

15. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information for the three months ended March 31, 2009 and 2008 is as follows:

	(amounts in $000s)
	Three Months Ended March 31,
	2009			2008
Changes in other assets and liabilities
Accounts receivable	$	536			(1,335	)
Inventory		976			(963	)
Prepaid expenses and other current assets		(166)	)		244
Product development costs		(371	)		967
Accounts payable		726			1,018
Accrued expenses and other current liabilities		(1,142	)		(1,963	)
Net changes in other assets and liabilities	$	559			(2,032	)
Cash paid during the period for interest	$	-		$	-
Cash paid during the period for taxes	$	-			-
Non Cash Investing and Financing Activities:	$	-		$	-

16. LITIGATION

On February 19, 2009, Susan Kain Jurgensen, Steven Newton, Mercy Gonzalez, Bruce Kain, Wesley Kain, Raymond Piece and Christie Walsh filed a compliant against Zoo Publishing, Zoo Games and Zoo in the Supreme Court of the State of New York, New York County, index number 09 / 102381 alleging claims for breach of certain loan agreements and employment agreements, intentional interference and fraudulent transfer.  The complaint seeks compensatory damages, punitive damages and preliminary and permanent injunctive relief, among other remedies.  An answer is due on May 25, 2009.  We believe we have meritorious defenses and intend to vigorously defend the matter.

In connection with an action brought by Revolution Partners, LLC against Zoo Games, Inc., pending in the Boston, Massachusetts office of JAMS Alternative Dispute Resolution, the claimant Revolution Partners, LLC is seeking money damages for a claimed investment banking or finder’s fee purportedly earned in connection with a reverse merger transaction and related financing that we entered into in the third quarter of 2008. We have denied all material allegations and are vigorously defending the matter.  At this time, discovery is ongoing.  The matter is scheduled for trial before an arbitrator in July 2009.

We are also involved in various other legal proceedings and claims incident to the normal conduct of our business. Although it is impossible to predict the outcome of any legal proceeding and there can be no assurances, we believe that our legal proceedings and claims, individually and in the aggregate, are not likely to have a material adverse effect on our financial condition, results of operations or cash flows.

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17.  RELATED PARTY TRANSACTIONS

We leased office space in New York from 575 Broadway Associates, LLC, a company owned principally by one of our principal investors, from April 2007 to October 2008. We paid rent expense of $0 and $69,000 during the three months ended March 31, 2009 and 2008, respectively, to this related party.

Certain Zoo Publishing employees loaned the Company an aggregate of up to $765,000 in 2008 on a short-tem basis. The employees are paid interest at 4% per annum and all amounts are expected to be repaid in full. (See Note 11.)

18. SUBSEQUENT EVENTS

On May 1, 2009, Zoo Publishing entered into Amendment Number Two to the sales agreement with Atari, dated as of October 24, 2008, extending the term of the agreement through May 31, 2009.  

Also on May 1, 2009, Zoo Publishing, the Company and New World IP, LLC (“Licensor”) entered into a License Agreement (the “License Agreement”), pursuant to which the Licensor granted to Zoo Publishing all of the Licensor’s rights in and to certain of its computer video games (the “Games”) as set forth in the License Agreement.  In consideration thereof, Zoo Publishing agreed to pay to Licensor a minimum royalty of $2.6 million, paid $75,000 quarterly for the first two years and the unpaid balance due May 1, 2011.  The minimum royalty is offset at a royalty rate of 3.75% of gross cash received by us for the exploitation of the Games, in accordance with the License Agreement, which payments are due within 45 days of the end of each calendar quarter during which such royalties are received.  The Company agreed to guarantee Zoo Publishing’s prompt payment to Licensor of such royalties and any other amounts due under the License Agreement.  At any time prior to April 1, 2011, Zoo Publishing has the option to purchase all rights in and to the Games.  At any time after April 1, 2011, Licensor has the right to sell all rights in and to the Games to Zoo Publishing. Within one month of the date of the License Agreement, Zoo Publishing shall reimburse Licensor in the amount of $42,398 for certain fees and expenses incurred by Licensor on behalf of Zoo Publishing.  Additionally, Zoo Publishing agreed to pay or reimburse, as the case may be, Licensor for all fees, costs, expenses, claims and indemnification obligations incurred by Licensor in connection with Licensor’s acquisition of the Games.  The License Agreement may be terminated by either party in the event that the other party is in breach of its obligations thereunder and such breach is not cured within the specified period, becomes insolvent or bankrupt or subject to a petition for bankruptcy, or makes an assignment of all or substantially all of its assets for the benefit of creditors.  Either party may terminate the License Agreement with respect to any particular Game in the event Licensor loses the right to exploit such Game.   

On April 3, 2009, David Rosenbaum, the Senior Vice President of Sales of Zoo Publishing, was appointed as President of Zoo Publishing.

On May 1, 2009, Robert S. Ellin resigned as Chief Executive Officer and President of the Company, in order for the Company to appoint Mark Seremet as Chief Executive Officer and President of the Company.  Mr. Ellin will continue to serve as a director of the Company.  On May 1, 2009, the Company’s board of directors appointed Mark Seremet as Chief Executive Officer and President of the Company.

On May 1, 2009, Charles Bentz resigned as Chief Financial Officer of the Company, in order for the Company to appoint David Fremed as Chief Financial Officer of the Company.  On May 1, 2009, the Company’s board of directors appointed David Fremed as Chief Financial Officer of the Company.

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On May 12, 2009, the Company entered into a letter agreement with each of Mark Seremet and David Rosenbaum (the “Fee Letters”), pursuant to which, in consideration for Messrs. Seremet and Rosenbaum entering into in April 2009 a guaranty with Wells Fargo, Bank, National Association for the full and prompt payment and performance by the Company and its subsidiaries of the obligations in connection with a purchase order financing (the “Guaranty” and “Loan”, respectively), the Company agreed to compensate Mr. Seremet in the amount of $10,000 per month, and Mr. Rosenbaum in the amount of $7,000 per month, for so long as the executive remains employed while the Guaranty and Loan remain in full force and effect.  If the Guaranty is not released by the end of the month following termination of employment the monthly fee shall be doubled for each month thereafter until the Guaranty is removed.

Additionally, pursuant to the Fee Letters, the Company agreed to grant under the Company’s 2007 Employee, Director and Consultant Stock Plan, as amended to each of Messrs. Seremet and Rosenbaum, on such date that is the earlier of the conversion of at least 25% of all currently existing convertible debt of the Company into equity, or November 8, 2009 (the earlier of such date, the “Grant Date”), an option to purchase that number of shares of the Company’s common stock equal to 6% and 3% respectively, of the then issued and outstanding shares of common stock, based on a fully diluted current basis assuming those options and warrants that have an exercise price below $0.40 per share are exercised on that date but not counting the potential conversion to equity of any outstanding convertible notes that have not yet been converted and, inclusive of any options or other equity securities or securities convertible into equity securities of the Company that each may own on the Grant Date.  The options shall be issued at an exercise price equal to the fair market value of the Company’s common stock on the Grant Date and pursuant to the Company’s standard form of nonqualified stock option agreement; provided however that in the event the Guaranty has not been released by Wells Fargo Bank as of the date of the termination of the option due to termination of service, the option termination date shall be extended until the earlier of the date of the release of the Guaranty or the expiration of the ten year term of the option.  In addition any options owned by Messrs. Seremet and Rosenbaum as of the Grant Date with an exercise price that is higher than the exercise price of the new options shall be cancelled as of the Grant Date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In this section, references to “we,” “us,” “our,” “ours,” and “the Company” refer to Zoo Entertainment, Inc. (formerly known as Driftwood Ventures, Inc.) and its operating and wholly-owned subsidiary, Zoo Games, Inc. (formerly known as Green Screen Interactive Software, Inc.) and its operating and wholly owned subsidiary, Zoo Publishing, Inc. (formerly known as Destination Software, Inc.).

The following discussion should be read in conjunction with, and is qualified in its entirety by, the financial statements and the notes thereto included in this report. This discussion contains certain forward-looking statements that involve substantial risks and uncertainties. When used in this report, the words "anticipate," "believe," "estimate," "expect” and similar expressions as they relate to our management or us are intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period.

We are a developer, publisher and distributor of video game software for use on major platforms including Nintendo’s Wii, DS, GBA, Sony’s PSP and PlayStation 2.   In addition, we intend to publish packaged entertainment software titles for use on a variety of other gaming platforms, including Sony’s PlayStation 3 and Microsoft’s Xbox 360. We will also seek to create and sell downloadable games for Microsoft’s Xbox Live Arcade, Sony’s PlayStation 3 Network, Nintendo’s Virtual Console, iPhone and for use on personal computers (PCs).  Our current video game titles are targeted at various demographics, primarily at a lower-priced “value” title. In some instances, these titles are based on licenses of well known properties and, in other cases based on original properties. We collaborate and enter into agreements with content providers and video game development studios for the creation of our video games.

Zoo Entertainment, Inc. was originally incorporated in the State of Nevada on February 13, 2003 under the name Driftwood Ventures, Inc.  On December 20, 2007, through a merger, the Company reincorporated in the State of Delaware as a public shell company with no operations.

On July 7, 2008, the Company entered into an Agreement and Plan of Merger, as subsequently amended on September 12, 2008 (the “Merger Agreement”) with DFTW Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), Zoo Games and a stockholder representative, pursuant to which Merger Sub would merge with and into Zoo Games, with Zoo Games as the surviving corporation through an exchange of common stock of Zoo Games for common stock of the Company (the “Merger”).

On September 12, 2008, the Company, Merger Sub, Zoo Games and the stockholder representative completed the Merger and each outstanding share of Zoo Games common stock, $0.001 par value per share (the “Zoo Games Common Stock”), on a fully-converted basis, converted automatically into and became exchangeable for shares of the Company’s common stock, $0.001 par value per share, based on an exchange ratio equal to 7.023274. In addition, each of the 334,983 options to purchase shares of Zoo Games Common Stock (the “Zoo Games Options”) outstanding under Zoo Games’ 2008 Long-Term Incentive Plan were assumed by the Company, subject to the same terms and conditions as were applicable under such plan immediately prior to the Merger, and converted into 243,040 options to purchase shares of the Company’s common stock at an exercise price of $2.58 per share, 421,396 options to purchase shares of the Company’s common stock at an exercise price of $2.25 per share and 1,688,240 options to purchase shares of the Company’s common stock at an exercise price of $1.52 per share. The 246,243 warrants to purchase shares of Zoo Games Common Stock outstanding at the time of the Merger (the “Zoo Games Warrants”) were assumed by the Company and converted into 1,411,186 warrants to acquire shares of the Company’s common stock at an exercise price of $2.84 and 318,246 warrants to acquire shares of the Company’s common stock at an exercise price of $2.13 per share. The merger consideration consisted (i) 26,098,303 shares of the Company’s common stock, (ii) the reservation of 2,352,677 shares of the Company’s common stock that are required for the assumption of the Zoo Games Options and (iii) the reservation of 1,729,432 shares of the Company’s common stock that are required for the assumption of the Zoo Games Warrants.

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Upon the closing of the Merger, as the sole remedy for the Zoo Games stockholders’ indemnity obligations, on behalf of the Zoo Games stockholders pursuant to the Merger Agreement, the Company deposited 2,609,861 shares of the Company’s common stock, otherwise payable to such stockholders, into escrow to be held by the escrow agent in accordance with the terms and conditions of an escrow agreement.

Effective as of the closing of the Merger, Zoo Games became the Company’s wholly-owned subsidiary.  As a result thereof, the historical and current business operations of Zoo Games now comprise the Company’s principal business operations.

Zoo Games is treated as the acquirer for accounting purposes in this reverse merger and the financial statements of the Company represent the historical activity of Zoo Games and consolidate the activity of Zoo beginning on September 12, 2008, the date of the reverse merger.

Zoo Games commenced operations in March 2007 as Green Screen Interactive Software, LLC, a Delaware limited liability company, and in May 2008, converted to a Delaware corporation. On August 14, 2008, it changed its name to Zoo Games, Inc. Since its initial organization and financing, Zoo Games embarked on a strategy of partnering with and/or acquiring companies with compelling intellectual property, distribution capabilities, and/or management with demonstrated records of success.

In June 2007, Zoo Games acquired the assets of Supervillain Studios, Inc. which were held by the wholly-owned subsidiary of Zoo Games, Supervillain Studios, LLC.  The acquisition provided Zoo Games with access to proprietary high end casual gaming content, established video game designers, technical experts and producers capable of providing Zoo Games with high quality, original casual games. On July 22, 2008, Zoo Games released Order Up!, its first offering from Supervillain.   In our effort to refocus our cash on our core business, the Company sold the assets of Supervillain Studios LLC back to its original owners on September 16, 2008.

In December 2007, Zoo Games acquired the capital stock of Zoo Publishing.  The acquisition of Zoo Publishing provided Zoo Games with a profitable core business, North American distribution, and further enhanced its experienced management team. Zoo Publishing distributes software titles throughout North America and generated over $30 million in annual revenue in 2007. Zoo Publishing expects to exploit its development expertise, in combination with its sales, marketing and licensing expertise, to target the rapidly expanding market for casual games, particularly on Nintendo’s platforms, where Zoo Publishing has experienced considerable success. By nurturing and growing this business unit, Zoo Games believes it will be able to rapidly build a much larger distribution network, enabling it to place a significant number of software titles with major retailers.

In April 2008, Zoo Games acquired the capital stock of Zoo Digital, a business operated in the United Kingdom. This acquisition provided Zoo Games with a profitable core business in the United Kingdom, European distribution, and further enhanced its experienced management team. Zoo Digital distributes software titles throughout Europe and generated over $6.8 million in annual revenue in 2007.  In our effort to refocus our cash on our core business operations, the Company sold Zoo Digital back to its original owners on November 28, 2008.

The financial statements of Zoo Games include operations of each division from the date that they were acquired.  The results for Supervillain and Repliqa are included in discontinued operations for the three months ended March 31, 2008.

2

Results of Operations

For the three months ended March 31, 2009 as compared to the three months ended March 31, 2008

The following table sets forth, for the period indicated the amount and percentage of net revenue for significant line items in our statement of operations:

	(amounts in $000s except per share data)
	For The Three Months Ended March 31,
	2009					2008
Revenue	$	13,884		100	%	$	9,029		100	%
Cost of goods sold		11,483		83	%		8,807		98	%
Gross profit		2,401		17	%		222		2	%
Operating expenses:
General and administrative expenses		1,394		10	%		1,119		12	%
Selling and marketing expenses		863		6	%		864		10	%
Research and development expenses		80		1	%		894		10	%
Depreciation and amortization		434		3	%		448		5	%
Total Operating expenses		2,771		20	%		3,325		37	%
Loss from operations		(370	)	(3	)%		(3,103	)	(34	)%
Interest (expense) income, net		(1,033	)	(7	)%		(387	)	(4	)%
Loss from continuing operations before benefit for income taxes		(1,403	)	(10	)%		(3,490	)	(39	)%
Income tax benefit		-		-			-		-
Loss from continuing operations		(1,403	)	(10	)%		(3,490	)	(39	)%
Loss from discontinued operations		-		-			(687	)	(8	)%
Net loss	$	(1,403	)	(10	)%	$	(4,177	)	(46	)%
Loss per share from continuing operations	$	(0.04	)			$	(0.21	)

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Net Revenues. Net revenues for the three months ended March 31, 2009 were approximately $13.9 million, while the sales for the three months ended March 31, 2008 were approximately $9.0 million, all consisting of casual game sales in North America.  The breakdown of gross sales by platform is:

	Three Months Ended March 31,
	2009			2008
Nintendo Wii		64	%		22	%
Nintendo DS		32	%		72	%
Nintendo GBA		0	%		5	%
SONY PS2		2	%		0	%
SONY PSP		0	%		1	%
Microsoft Xbox		2	%		0	%

The biggest sellers during the 2009 period were (i) Deal or No Deal, (ii) M&M Kart Racing, and (iii) Calvin Tucker’s Redneck Jam, all on the Nintendo Wii platform. The biggest sellers during the 2008 period were (i) the compilation of Battle Ship, Connect 4, Sorry & Trouble on the Nintendo DS platform, (ii) the compilation of Clue, Perfection & Aggravation on the Nintendo DS platform, and (iii) Showtime Championship Boxing on the Nintendo Wii platform.  The 2009 period consisted of approximately 1.5 million units sold at an average gross price of $10.04, while the 2008 period consisted of approximately 1.1 million units sold at an average gross price of $9.21.

Gross Profit. Gross profit for the three months ended March 31, 2009 was approximately $2.4 million, or 17% of net revenue, while the gross profit for the three months ended March 31, 2008 was approximately $222,000, or 2% of net revenue. The costs included in the cost of goods sold consist of manufacturing and packaging costs, royalties due to licensors relating to the current period’s revenues and the amortization of product development costs relating to the current period’s revenues. The Atari sales agreement was in place during the entire 2009 period and Atari’s fees recorded as a reduction in revenue during this period were approximately $1.6 million.  The 2008 period had a significant amount of sales at very low margins, which along with royalty fees and amortization of product development costs resulted in a very low gross margin for the 2008 period.

General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2009 were approximately $1.4 million as compared to $1.1 million for the comparable period in 2008.  The increase in costs from the 2008 period to the 2009 period resulted primarily from additional professional fees incurred during the 2009 period, partially offset by a reduction in corporate salaries and related costs.

Selling and Marketing Expenses. Selling and marketing expenses for the three months ended March 31, 2009 and 2008 remained constant at approximately $863,000.  These expenses all relate to the sales of casual games in North America and consist primarily of the salaries, commissions and related costs for Zoo Publishing.

Research and Development Expenses. Research and development expenses for the three months ended March 31, 2009 were approximately $80,000 as compared to $894,000 for the three months ended March 31, 2008. The 2009 expense resulted from discontinuing one video game project during the period while the 2008 expense resulted from two video game projects being discontinued during the period.

Depreciation and Amortization Expenses. Depreciation and amortization costs for the three months ended March 31, 2009 were $434,000 as compared to $448,000 in the prior period. Both periods include $412,000 resulting from the amortization of intangibles acquired from the Zoo Publishing acquisition. The balance relates to depreciation of fixed assets during the period.   

Interest Expense.   Interest expense for the 2009 period was approximately $1.0 million as compared to $387,000 for the 2008 period. The 2009 period includes $698,000 of non-cash interest expense relating to the amortization on the Zoo Entertainment Notes, $135,000 of interest relating to the Zoo Entertainment Notes and approximately $195,000 of interest on the various promissory notes due to the sellers of Zoo Publishing of which $160,000 is non-cash interest imputed at the then market rate.  The 2008 period includes $370,000 of interest on the various promissory notes due to the sellers of Zoo Publishing of which $304,000 is non-cash interest imputed at the then market rate. 

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Income Tax Benefit.  We did not record any income tax benefit for the three months ended March 31, 2009 or for the three months ended March 31, 2008. As of December 31, 2008, we had already maximized the allowable amount of deferred taxes, so no additional tax benefits could be recorded for the 2009 period.  During the three months ended March 31, 2008, we were operating as a limited liability company, so all tax benefits passed to the members and no tax benefits were recorded on the Company’s financial statements.

Loss from Discontinued Operations.  During the three months ended March 31, 2008, we incurred an aggregate of $687,000 in losses from three operating divisions that were subsequently discontinued, so the net losses relating to those operations are recorded separately as a loss from discontinued operations.  The loss relating to Supervillain was $419,000, the loss relating to Repliqa was $194,000 and the loss relating to the on-line concept was $74,000.

Loss Per Share from Continuing Operations.   The loss per share from continuing operations for the three months ended March 31, 2009 was $0.04, based on a weighted average shares outstanding for the period of 38.2 million, vs. a loss per share from continuing operations of $0.21, based on a weighted average shares outstanding of 16.3 million for the three months ended March 31, 2008.

Liquidity and Capital Resources

We incurred a loss from continuing operations of approximately $1.4 million for the three months ended March 31, 2009 and a net loss of approximately $3.5 million from continuing operations for the three months ended March 31, 2008. Our principal source of cash during the 2009 period was from the use of our purchase order financing and cash generated from operations. Net cash provided from operating activities for the three months ended March 31, 2009 was $470,000, while net cash used in operations for the three months ended March 31, 2008 was $4.6 million.  The specifics of the Atari sales agreement, which was in effect during the 2009 period, where Atari  prepays the Company for the cost of goods and pays the balance due within 15 days of shipping the product, resulted in significant improvements for our cash provided from operations in the 2009 period, as compared to the 2008 period.

Zoo Entertainment Notes

On July 7, 2008, as amended on July 15, 2008 and July 31, 2008, we entered into a note purchase agreement under which the purchasers agreed to provide loans to us in the aggregate principal amount of $9.0 million, in consideration for the issuance and delivery of senior secured convertible promissory notes. As partial inducement to purchase the notes, we issued to the purchasers warrants to purchase 8,181,818 shares of our common stock. The notes bear an interest rate of five percent (5%) for the one year term of the note commencing from issuance, unless extended. Upon the occurrence of an investor sale, as defined in the notes, the entire outstanding principal amount of the notes and any accrued interest thereon will be automatically converted into shares of our common stock determined by dividing the note balance by the lesser of (i) an amount equal to the price per share of investor stock paid by the purchasers of such shares in connection with the investor sale, or (ii) $2.00; provided, that in the event that the investor sale is for less than $1.00 per share, then the notes will only be automatically convertible with our consent.  All of the warrants have a five year term and an exercise price of $0.01 per share. Pursuant to a security agreement, by and among the Company and the purchasers, dated as of July 7, 2008, as amended on August 12, 2008, we granted a security interest in all of our assets to each of the purchasers to secure our obligations under the notes.

On September 26, 2008, we entered into a note purchase agreement with four investors, pursuant to which the purchasers agreed to provide a loan to us in the aggregate principal amount of $1.4 million, in consideration for the issuance and delivery of senior secured convertible promissory notes. As partial inducement to purchase the notes, we issued to the purchasers warrants to purchase 1,272,726 shares of our common stock.  The notes bear an interest rate of five percent (5%) for the time period beginning on September 26, 2008 and ending on September 26, 2009, unless extended. Upon the occurrence of an investor sale, as defined in the notes, the entire outstanding principal amount of the notes and any accrued interest thereon will be automatically converted into shares of our common stock determined by dividing the note balance by the lesser of (i) an amount equal to the price per share of investor stock paid by the purchasers of such shares in connection with the investor sale, or (ii) $2.00; provided, that in the event that the investor sale is for less than $1.00 per share, then the notes will only be automatically convertible with our consent. The warrants have a five year term and an exercise price of $0.01 per share. Pursuant to a security agreement, by and among the Company and the purchasers, dated as of September 26, 2008, we granted a security interest in all of our assets to each of the purchasers to secure our obligations under the notes.

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Zoo Publishing

In connection with Zoo Games’ acquisition of Zoo Publishing, there is an outstanding 3.9% promissory note for the benefit of the former shareholders of Zoo Publishing in the aggregate principal amount of $2,957,500. Of that amount, $1,137,500 of the principal plus accrued and unpaid interest must be paid on or before September 18, 2009 and the remaining $1,820,000 plus accrued and unpaid interest must be paid on or before December 18, 2010. As part of that acquisition transaction, Zoo Games also has a remaining obligation to two employees of Zoo Publishing in connection with that acquisition transaction. Zoo Games is required to pay one of those individuals $1,200,000. Of that amount, Zoo Games paid $327,000 in 2008, $253,000 is past due and $620,000 will be paid on July 31, 2011, in cash or our common stock based on the fair market value of our common stock as of July 31, 2011, at the election of Zoo Games. Zoo Games is required to pay the other individual an aggregate of $608,400. Of that amount, $292,500 is due on December 18, 2010 and $315,900 will be paid on July 31, 2011, in cash or our common stock based on the fair market value of our common stock as of July 31, 2011, at the election of Zoo Games.

Zoo Publishing has additional debt outstanding which debt existed prior to Zoo Games’ acquisition of that subsidiary.  As of March 31, 2009, Zoo Publishing owes an aggregate of approximately $912,000 to various individuals.  Of this amount, $340,000 is owed as a result of the repurchase of certain stock from a former stockholder.  This amount is being repaid by its terms in monthly increments of $10,000. 

Zoo Publishing also takes advances from our factor, Working Capital Solutions, Inc., which utilizes existing accounts receivable in order to provide working capital to fund all aspects of our continuing business operations. Under the terms of our factoring and security agreement, our receivables are sold to the factor, with recourse. The factor, in its sole discretion, determines whether or not it will accept each receivable based upon the credit risk factor of each individual receivable or account. Once a receivable is accepted by the factor, the factor provides funding, subject to the terms and conditions of the factoring and security agreement. The amount remitted to us by the factor equals the invoice amount of the receivable adjusted for any discounts or allowances provided to the account, less 20% which is deposited into a reserve account established pursuant to the agreement, less allowances and fees. In the event of default, valid payment dispute, breach of warranty, insolvency or bankruptcy on the part of the receivable account, the factor can require the receivable to be repurchased by us in accordance with the agreement. The amounts to be paid by us to the factor for any accepted receivable include a factoring fee of 0.6% for each ten (10) day period the account is open.   We have not used the factor since we entered into the Atari agreement in October 2008 (see below).

In addition to the receivable financing agreement with Working Capital Solutions, Inc., Zoo Publishing also utilizes purchase order financing with Transcap Trade Finance, LLC, to fund the manufacturing of video game products. Under the terms of our agreement, we assign purchase orders received to Transcap Trade Finance, LLC, which may accept or decline the assignment of specific purchase orders. The purchase order financing allows us to order manufactured video game product from the manufacturer. Upon receipt of a purchase order, Transcap Trade Finance, LLC opens a letter of credit to the video game product manufacturer. The letter of credit permits us to order the video game product to satisfy the purchase orders and projected purchase orders submitted by our accounts. The interest rate is prime plus 4.0% on outstanding advances.

On April 6, 2009, we entered into an amended and restated purchase order financing arrangement with Wells Fargo Bank, National Association (“Wells Fargo”) pursuant to an amended and restated master purchase order assignment agreement (the “Assignment Agreement”).  The Assignment Agreement amended and restated in its entirety the master purchase order assignment agreement between Transcap Trade Finance, LLC and Zoo Publishing, dated as of August 20, 2001, as amended.

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Pursuant to the Assignment Agreement, we will assign purchase orders received from customers to Wells Fargo, and request that Wells Fargo purchase the required materials to fulfill such purchase orders.  Wells Fargo, which may accept or decline the assignment of specific purchase orders, will retain us to manufacture, process and ship ordered goods, and will pay us for our services upon Wells Fargo’s receipt of payment from the customers for such ordered goods.  Upon payment in full of the purchase order invoice by the applicable customer to Wells Fargo, Wells Fargo will re-assign the applicable purchase order to us.  We will pay to Wells Fargo a commitment fee in the aggregate amount of $337,500, on the earlier of the twelve month anniversary of the date of the Assignment Agreement, or the date of termination of the Assignment Agreement.  Wells Fargo is not obligated to provide purchase order financing under the Assignment Agreement if the aggregate outstanding funding exceeds $5,000,000.  The Assignment Agreement is for an initial term of twelve months, and shall continue thereafter for successive twelve month renewal terms unless either party terminates the Assignment Agreement by written notice to the other no later than 30 days prior to the end of the initial term or any renewal term.  If the term of the Assignment Agreement is renewed for one or more twelve month terms, for each such twelve month term, we will pay to Wells Fargo a commitment fee in the sum of $337,500, paid on the earlier of the twelve month anniversary of such renewal date or the date of termination of the Assignment Agreement.  The initial and renewal commitment fees are subject to waiver if certain product volume requirements are met.

In connection with the Assignment Agreement, on April 6, 2009 we also entered into an amended and restated security agreement and financing statement (the “Security Agreement”) with Wells Fargo.  The Security Agreement amends and restates in its entirety that certain security agreement and financing statement, by and between Transcap Trade Finance, LLC and Zoo Publishing, dated as of August 20, 2001.  Pursuant to the Security Agreement, we granted to Wells Fargo a first priority security interest in certain of our assets as set forth in the Security Agreement, as well as a subordinate security interest in certain other of our assets (the “Common Collateral”), which security interest is subordinate to the security interests in the Common Collateral held by certain of our senior lenders, as set forth in the Security Agreement.

Also in connection with the Assignment Agreement, on April 6, 2009, Mark Seremet, President and Chief Executive Officer of Zoo Games and a director of Zoo Entertainment, and David Rosenbaum, the President of Zoo Publishing, entered into a Guaranty with Wells Fargo, pursuant to which Messrs. Seremet and Rosenbaum agreed to guaranty the full and prompt payment and performance of the obligations under the Assignment Agreement and the Security Agreement.

On May 12, 2009, the Company entered into a letter agreement with each of Mark Seremet and David Rosenbaum (the “Fee Letters”), pursuant to which, in consideration for Messrs. Seremet and Rosenbaum entering into the Guaranty with Wells Fargo for the full and prompt payment and performance by the Company and its subsidiaries of the obligations in connection with a purchase order financing (the “Loan”), the Company agreed to compensate Mr. Seremet in the amount of $10,000 per month, and Mr. Rosenbaum in the amount of $7,000 per month, for so long as the executive remains employed while the Guaranty and Loan remain in full force and effect.  If the Guaranty is not released by the end of the month following termination of employment the monthly fee shall be doubled for each month thereafter until the Guaranty is removed.

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Additionally, pursuant to the Fee Letters, the Company agreed to grant under the Company’s 2007 Employee, Director and Consultant Stock Plan, as amended to each of Messrs. Seremet and Rosenbaum, on such date that is the earlier of the conversion of at least 25% of all currently existing convertible debt of the Company into equity, or November 8, 2009 (the earlier of such date, the “Grant Date”), an option to purchase that number of shares of the Company’s common stock equal to 6% and 3% respectively, of the then issued and outstanding shares of common stock, based on a fully diluted current basis assuming those options and warrants that have an exercise price below $0.40 per share are exercised on that date but not counting the potential conversion to equity of any outstanding convertible notes that have not yet been converted and, inclusive of any options or other equity securities or securities convertible into equity securities of the Company that each may own on the Grant Date.  The options shall be issued at an exercise price equal to the fair market value of the Company’s common stock on the Grant Date and pursuant to the Company’s standard form of nonqualified stock option agreement; provided however that in the event the Guaranty has not been released by Wells Fargo Bank as of the date of the termination of the option due to termination of service, the option termination date shall be extended until the earlier of the date of the release of the Guaranty or the expiration of the ten year term of the option.  In addition any options owned by Messrs. Seremet and Rosenbaum as of the Grant Date with an exercise price that is higher than the exercise price of the new options shall be cancelled as of the Grant Date.

As a result of a fire in October 2008 that destroyed our inventory and impacted our cash flow from operations, we entered into an agreement with Atari, Inc. (“Atari”). This agreement became effective on October 24, 2008 and provided for Zoo Publishing to sell its products to Atari without recourse and Atari will resell the products to wholesalers and retailers that are acceptable to Atari in North America.  This agreement provides for Atari to prepay to the Company for the cost of goods and pay the balance due within 15 days of shipping the product.  Atari’s fees approximate 10% of our standard selling price.  Atari takes a reserve from the initial payment for potential customer sales allowances, returns and price protection that is analyzed and reviewed within a sixty day period to be liquidated no later than July 31, 2009.  The agreement initially expired on March 31, 2009, but was amended twice to extend the term until May 31, 2009.

We believe the existing cash and cash generated from operations will be sufficient to meet our immediate operating requirements along with our current financial arrangements. However, given our strategic plan, working capital requirements, debt obligations, planned capital expenditures and potential future acquisitions, we will need to raise additional capital within the short-term. We also need to either raise enough capital to force conversion of the $11.2 million of Zoo Entertainment Notes, at face value, that mature between July and September 2009 into equity or restructure the maturing note obligations.  We believe that we require at least an additional $5 million to $10 million in financing in order to fund our operating requirements and strategic plan for the following 12 months. However, there can be no assurances that we will be able to secure any such financing on favorable terms, if at all. If we do not secure such financing on a timely basis, it may have a material adverse effect on our financial condition.

In addition, we may raise additional capital to strengthen our cash position, facilitate expansion, pursue strategic investments or to take advantage of business opportunities as they arise.

The report of our independent auditors on our financial statements for the fiscal year ended December 31, 2008 includes an explanatory paragraph raising doubt about the Company’s ability to continue as a going concern.

Critical Accounting Policies and Estimates

There were no changes to our critical accounting policies and estimates since the year ended December 31, 2008.  A complete description of our critical accounting polices and estimates can be found in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on April 15, 2009 and also in Note 3 to the unaudited condensed consolidated financial statements included in this quarterly report for the period ended March 31, 2009.

Recently Issued Accounting Pronouncements

See Note 3 to the unaudited condensed consolidated financial statements included in this quarterly report for the period ended March 31, 2009.

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Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Fluctuations in Operating Results and Seasonality

We experience fluctuations in quarterly and annual operating results as a result of: the timing of the introduction of new titles; variations in sales of titles developed for particular platforms; market acceptance of our titles; development and promotional expenses relating to the introduction of new titles, sequels or enhancements of existing titles; projected and actual changes in platforms; the timing and success of title introductions by our competitors; product returns; changes in pricing policies by us and our competitors; the size and timing of acquisitions; the timing of orders from major customers; order cancellations; and delays in product shipment. Sales of our products are also seasonal, with peak shipments typically occurring in the fourth calendar quarter as a result of increased demand for titles during the holiday season. Quarterly and annual comparisons of operating results are not necessarily indicative of future operating results.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable as we are a smaller reporting company.

Item 4T. Controls and Procedures.

Evaluation of disclosure controls and procedures.

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report.  Based on the evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective at a reasonable assurance level.

Our management has determined that we have a material weakness in our internal control over financial reporting related to not having a sufficient number of personnel with the appropriate level of experience and technical expertise to appropriately resolve non-routine and complex accounting matters or to evaluate the impact of new and existing accounting pronouncements on our consolidated financial statements while completing the financial statements close process.

Until this deficiency in our internal control over financial reporting is remediated, there is a reasonable possibility that a material misstatement to our annual or interim consolidated financial statements could occur and not be prevented or detected by our internal controls in a timely manner.

We are committed to appropriately addressing this matter in 2009 and we will reassess our accounting and finance staffing levels to determine and seek the appropriate accounting resources to be added to the team to handle the existing workload.

Changes in controls and procedures.

There were no changes in our internal controls over financial reporting identified in connection with the evaluation of such internal control that occurred during the during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On February 19, 2009, Susan Kain Jurgensen, Steven Newton, Mercy Gonzalez, Bruce Kain, Wesley Kain, Raymond Piece and Christie Walsh filed a compliant against Zoo Publishing., Zoo Games and Zoo in the Supreme Court of the State of New York, New York County, index number 09 / 102381 alleging claims for breach of certain loan agreements and employment agreements, intentional interference and fraudulent transfer.  The complaint seeks compensatory damages, punitive damages and preliminary and permanent injunctive relief, among other remedies.  An answer is due on May 25, 2009.  We believe we have meritorious defenses and intend to vigorously defend the matter.

In connection with an action brought by Revolution Partners, LLC against Zoo Games, Inc., pending in the Boston, Massachusetts office of JAMS Alternative Dispute Resolution, the claimant Revolution Partners, LLC is seeking money damages for a claimed investment banking or finder’s fee purportedly earned in connection with a reverse merger transaction and related financing that we entered into in the third quarter of 2008. We have denied all material allegations and are vigorously defending the matter.  At this time, discovery is ongoing.  The matter is scheduled for trial before an arbitrator in July 2009.

We are also involved in various other legal proceedings and claims incident to the normal conduct of our business. Although it is impossible to predict the outcome of any legal proceeding and there can be no assurances, we believe that our legal proceedings and claims, individually and in the aggregate, are not likely to have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on April 15, 2009.

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

On January 14, 2009, the Company granted to Mark Seremet, a director, President and Chief Executive Officer of the Company, an option to purchase 750,000 shares of the Company’s common stock at an exercise price of $0.30 per share (the “Options”), pursuant to the Company’s 2007 Employee, Director and Consultant Stock Plan, as amended. The Options were granted in connection with Mr. Seremet entering into an employment agreement with Zoo Games, pursuant to which Mr. Seremet became Chief Executive Officer of Zoo Games.  The Options have a ten-year term and vest as follows: Options to purchase 250,000 shares will vest on January 14, 2010, Options to purchase 250,000 shares will vest on January 14, 2011 and Options to purchase the remaining 250,000 shares will vest on January 14, 2012. The Options were granted pursuant to the exemption from registration permitted under Rule 506 of Regulation D of the Securities Act of 1933, as amended.

Item 3.   Defaults Upon Senior Securities.

None.

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

None.

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Item 5. Other Information.

None.

Item 6. Exhibits.

10.1	License Agreement, by and among Zoo Entertainment, Inc., Zoo Publishing, Inc. and New World IP, LLC, dated as of May 1, 2009. †
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. †
31.2	Certification of Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. †
32.1	Certification of Trailer Bridge, Inc.’s Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002). †

† Filed herewith

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SIGNATURES

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

	Zoo Entertainment, Inc.
May 20, 2009	By:	/s/ Mark Seremet
		Mark Seremet President and Chief Executive Officer (Principal Executive Officer)

May 20, 2009	By:	/s/ David Fremed
		David Fremed Chief Financial Officer (Principal Financial Officer)

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EX-10.1

LICENSE AGREEMENT

This Agreement is dated as of May 1, 2009 (the “Effective Date”) and made among:

(1)New World IP, LLC a limited liability company organized under the laws of the State of Delaware and a direct subsidiary of Full Circle Partners, LP, whose principal offices are located at 800 Westchester Avenue, Suite S-620, Rye Brook, NY  10573 (“Licensor”);

and

(2) Zoo Publishing, Inc., a corporation organized under the laws of the State of New Jersey, whose principal offices are located at 3805 Edwards Road, Suite 605, Cincinnati, Ohio 45209 (“Publisher”).

and

 Zoo Entertainment Inc., a corporation organized under the laws of the State of Delaware,  whose principal offices are located at 2121 Avenue of the Stars, Suite 2250  Los Angeles, CA  90067 (“Parent”).

WHEREAS:

(a) Licensor acquired on the date hereof the computer video games listed on Schedule A (each a “Game”, collectively, the “Games”) pursuant to a certain Agreement for the sale and purchase of certain assets of Empire Interactive Europe Limited (In Administration) (“Purchase Agreement”) among Empire Interactive Europe Limited (In Administration), the Licensor and Ian James Cornfield and Jane Bronwen Moriarity.

(b) The Publisher desires to acquire all the rights of Licensor in the Games that Licensor acquired pursuant to the Purchase Agreement, and Licensor desires to grant such rights to the Publisher, with respect to the exploitation of the Games throughout the world.

NOW, THEREFORE, in consideration of covenants and agreements herein contained, the parties hereto hereby agree as follows:

1. GRANT OF RIGHTS

1.1   Licensor hereby grants the Publisher all of its rights to the exclusive, royalty-bearing, worldwide right to manufacture, use, sell, make, have made, import , reproduce, modify, further develop, distribute, rent, market and exploit, advertise and promote (including the right to sublicense), via all means now known or hereafter developed, (i) the Games, and (ii) the materials related thereto, including the right to exercise any and all rights which Licensor may have or hereafter obtain with respect to the Games or any element thereof, including without limitation the right to exercise options and the right to prosecute and defend any claims of infringement from Effective Date until the termination of this Agreement.

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1.2  Licensor hereby grants the Publisher all of its rights  to modify and prepare derivative works of any or all of the Games and/or related materials to designate Publisher as the publisher of the Games.

1.3  The grant of rights to the Publisher pursuant to this Agreement shall also include the right to sublicense and to appoint third parties to assist the Publisher in performing its obligations and to exercise its rights under this Agreement, for example but not limited to appointing sub-distributors, book publishers, marketing agencies, or manufacturers, in the Publisher’s sole discretion.  Licensor hereby grants to Publisher the right to subcontract the manufacture of the Games.  Publisher undertakes to inform any such subcontract manufacturers of Licensor’s rights and state in Publisher’s contract with the subcontractor that the subcontractor shall not sell or distribute the Games other than to fulfill orders from Publisher for the Games, as permitted by this Agreement.

1.4  Publisher acknowledges that rights in and to certain Games may have previously been granted by the prior owner of the Games, and the license granted to Publisher herein is subject to such prior grants.  Notwithstanding the forgoing, Licensor hereby irrevocably assigns any and all amounts which are due or become due to Licensor in connection with such agreements to Publisher and all such amounts shall be paid, if at all, by the relevant licensee directly to Publisher.  Such amounts shall be subject to the payment of Royalties as described herein.  Licensor shall execute all assignments reasonably requested by Publisher to direct all such licensees to remit all current and future payments with respect to any of the Games directly to Publisher. Licensor makes no representation or covenant as to the validity or collectability of such amounts or the validity or enforceability of any such third party agreements.

1.5   Licensor acknowledges that there is no assurance that the market opportunity for the Games presently believed by the parties to exist will, in Publisher’s sole determination, continue to exist at a commercially reasonable level.  Accordingly, Publisher will have no obligation to market the Games, and the determination whether or not to market or continue marketing the Games, for any reason whatsoever, will be made by Publisher in its sole discretion.

1.6   To the extent that Publisher develops and comes to own any right or interest, whether or not patentable, protected by copyright (including derivative works), trademark or other intellectual property rights in the Games or related material or any element thereof (“Improvements”), Publisher will grant to Licensor an irrevocable, royalty-free, exclusive license, with the right to assign and sublicense, to manufacturer, use, sell, make, have made, import, reproduce, modify, further develop, distribute, rent, market and exploit, advertise and promote the Games and related materials incorporating or embodying such Improvements.

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2. DELIVERY OF GAMES AND RELATED MATERIAL

Publisher has been given the opportunity to conduct due diligence as to the Games and the rights thereto and is fully satisfied that this Agreement is sufficient to convey all rights to the Games and related materials that the Licensor owns. Licensor makes no representation or warranty, including without limitation any warrant as to merchantability or fitness with respect to the Games and the rights thereto.

3. PUBLICATION

Licensor shall not object to Publisher operating as and being shown as the publisher of the Games . Publisher shall be responsible for the manufacturing of units of finished goods of the Games.  At Publisher’s discretion, Publisher logos or Publisher sub-brand logos may be included at various places on or in the Games and packaging, including on the front of the box, manuals, and all traditional places for logo placement.

4. MARKETING

For the avoidance of doubt, Licensor’s grant of the license to Publisher above includes a license to the Publisher to use the Games, related materials and their component parts in connection with the marketing and promotion of the Games.

5. USE AND OWNERSHIP OF TRADEMARK

5.1. Publisher shall use all licensed trademarks only in connection with the manufacture, sale and promotion of the Games and in the form and manner specified by Licensor from time to time; and in compliance with all applicable laws, including use of the ® and TM signs next to the trademark as appropriate.

5.2.           All of Publisher's use of the trademark shall be subject to Licensor's prior approval and Publisher will periodically provide Licensor with sample Games and related material for review and inspection.  Publisher shall manufacture and sell Games and related material consistent with their existing level of quality and consistent with the high level of quality characteristic of existing products sold by Publisher.

5.3.           Publisher acknowledges that Licensor owns the trademarks, related rights and all associated goodwill.  Nothing in this Agreement or otherwise implied by law shall grant Publisher any right, title, or interest in or to the trademarks other than as specified in this Agreement.  All uses of the trademarks shall inure solely to the benefit of Licensor. Publisher shall cooperate with Licensor in executing and filing with applicable government offices such documents as may be required to record the rights granted by this Agreement or to protect, maintain and enforce Licensor’s trademark rights.

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5.4.           Publisher shall not register or use any mark, name, domain name, word, designation, symbol or other trademark that: (i) consists of or contains Licensor’s trademark(s); (ii) is identical to or is or could be confused with Licensor’s trademark(s); (iii) may impair or lessen the distinctiveness of Licensor’s trademark(s); or (iv) may depreciate or otherwise adversely affect Licensor’s goodwill in the trademarks.

6. PAYMENT TERMS

6.1 Subject to the terms of this Section 5, Publisher agrees to pay Licensor royalties of 3.75% of gross cash received by Publisher for the exploitation of the Games (“Royalties”).  Royalties shall be payable within forty five (45) days of the end of each calendar quarter when such Royalties are achieved and shall be provided to Licensor together with an accompanying statement. Parent hereby guarantees the prompt payments of the Royalties and any other amounts due under this Agreement.

6.2  From the date hereof through May 1, 2011, Licensor shall be entitled to receive minimum Royalties from Publisher in accordance with the following table:

Royalty Period	Minimum Aggregate Royalty Amount (determined on a cumulative basis from the date of execution of this  Agreement)		Payment Date
From the date of this Agreement through July 31, 2009	$	75,000	August 1, 2009
August 1, 2009 through October 31, 2009	$	75,000	November 1, 2009
November 1, 2009 through January 31, 2010	$	75,000	February 1, 2010
February 1, 2010 through April 30, 2010	$	75,000	May 1, 2010
May 1, 2010 through July 31, 2010	$	75,000	August 1, 2010
August 1, 2010 through October 30, 2010	$	75,000	November 1, 2010
November 1, 2010 through January 31, 2011	$	75,000	February 1, 2011
February 1, 2011 through April 30, 2011	$	2,075,000	May 1, 2011

On each of the foregoing Payment Dates, Publisher shall pay to Licensor the difference between the applicable Minimum Aggregate Royalty Amount and the actual aggregate Royalties paid by Publisher to Licensor, in each case determined on a cumulative basis from the date of this Agreement.

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In the event that the Publisher is required by tax authorities to withhold any payments due to Licensor hereunder, it shall be entitled to do so.

6.3  At any time prior to April 1, 2011,  Publisher shall have the option, in its sole discretion, to purchase all rights in and to the Games from Licensor for a purchase price equal to  that indicated in the table below,  paid to Licensor under this Agreement.

Option Period	Purchase Price		Plus Minimum Royalty Payment of
From the date of this Agreement through July 31, 2009	$	2,000,000	$75,000
August 1, 2009 through October 31, 2009	$	2,000,000	$75,000(plus previously unpaid amounts)
November 1, 2009 through January 31, 2010	$	2,000,000	$75,000 (plus previously unpaid amounts)
February 1, 2010 through April 30, 2010	$	2,000,000	$75,000 (plus previously unpaid amounts)
May 1, 2010 through July 31, 2010	$	2,000,000	$75,000 (plus previously unpaid amounts)
August 1, 2010 through October 30, 2010	$	2,000,000	$75,000 (plus previously unpaid amounts)
November 1, 2010 through January 31, 2011	$	2,000,000	$75,000 (plus previously unpaid amounts)
February 1, 2011 through April 30, 2011	$	2,000,000	$75,000 (plus previously unpaid amounts)

6.4  At any time after April 1, 2011, Licensor shall have the right to sell all rights in and to the Games to Publisher for an amount equal to $2,600,000 dollars less all amounts paid to Licensor under this Agreement, including royalties and minimum guaranties, but in no event less than $1.

6.5  Within one (1) month of the Effective Date of this Agreement, Licensor at its sole discretion may demand that Publisher use commercially reasonable efforts to record with the various government entities Licensor’s and/or Publisher’s ownership interest in all of the intellectual property rights licensed herein.  Publisher will be responsible for maintaining for the benefit of Licensor  all worldwide rights in the licensed intellectual property, including all pending and registered trademarks, designs and copyrights, and pending and issued patents, and Publisher agrees that it will pay and incur all costs and fees payable to any government entity or third party, including attorney’s fees, reasonably incurred to record Licensor’s interest in the licensed intellectual property or to protect, maintain, renew and enforce such licensed intellectual property.

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6.6           Within one (1) month of the Effective Date of this Agreement, Publisher shall pay to Licensor in immediately available funds the sum of $42, 398 in reimbursement of certain fees and expenses incurred by Licensor on behalf of Publisher.

6.7           Publisher hereby agrees to pay directly, or within two Business Days of demand by Licensor, reimburse Licensor for all fees, costs, expenses, claims, indemnification obligations and similar amounts incurred by Licensor pursuant to or as a result of the Purchase Agreement.

7. AUDIT

7.1 In conjunction with this Agreement, the Publisher agrees to keep and maintain books and records related to the sales of the Games for at least one year after such sales are made.

7.2 Upon thirty (30) business days prior written notice, Licensor and its authorized representative(s) shall have the right, not more than once  every twelve months, to review and/or audit the books and records of the Publisher described in Section 5.1, above, in order to verify amounts paid to Licensor.    Such examination shall be conducted on the premises of the Publisher, during normal business hours and in such a manner as to not unduly interfere with the business of the Publisher.  Licensor and its representative(s) shall not disclose to any other person, firm, or corporation, or use, any information acquired as a result of any such examination.

8.  THIRD PARTY AGREEMENTS

8.1   Licensor shall comply with all terms and conditions of all third party agreements relating to the Games and/or their component parts (“Third Party Agreements”) and shall keep all such Third Party Agreements in full force and effect until they expire pursuant to their terms.

8.2   Licensor shall not amend any Third Party Agreements without the consent of Publisher.

9. WARRANTIES AND INDEMNITY

9.1 Licensor represents and warrants to Publisher as follows:

9.1.1 Licensor has the full right, power, and authority to enter into this Agreement and to perform its obligations hereunder, and when executed and delivered, this Agreement will be the valid and binding obligation of Licensor enforceable against Licensor in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights, and as may be limited by general principles of equity that restrict the availability of equitable remedies.

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9.1.2 The execution and delivery of this Agreement by Licensor and the performance by Licensor of its obligations hereunder, do not and will not violate Licensor’s organizational documents and any agreement to which Licensor is a party or by which it is or will be otherwise bound.

9.1.3  Licensor has not transferred or encumbered the right, title, and interest in the Games, that Licensor acquired pursuant to the Purchase Agreement, and Licensor has not granted or licensed any such rights prior to the date hereof, except as provided in this Agreement.

9.1.4  Licensor’s grant of rights (as defined in Subsections 1.1-1.3) to Publisher herein is consistent with and limited by the rights that Licensor acquired pursuant to the Purchase Agreement, which may be adversely effected by existing agreements, restrictions and third party obligations, both known and unknown.  Publisher acknowledges that the intellectual property rights being licensed herein may be subject to restrictions or deficiencies that have not been disclosed to the Publisher and that it may not be capable of being licensed or otherwise transferred to the Publisher.  The Publisher shall not (unless it has obtained any necessary consent) use the intellectual property rights or otherwise infringe any rights of any person without first obtaining any necessary consents, licenses or regulations.  Licensor’s grant of rights to Publisher herein is subject to any such known or unknown agreements, restrictions and third party obligations, and such grant of rights to Publisher is on an as is basis, with any warranties or indemnities.

9.1.5  Licensor shall comply with all applicable laws, regulations, rules and statutes in connection with its performance of its obligations under this Agreement.

9.2 Publisher and Parent jointly and severally represent and warrant to Licensor that:

9.2.1 Publisher and Parent each has the full corporate right, power, and authority to enter into this Agreement and to perform its obligations hereunder, and when executed and delivered, this Agreement will be the valid and binding obligation of each of Publisher and Parent enforceable against Publisher and Parent in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights, and as may be limited by general principles of equity that restrict the availability of equitable remedies.

9.2.2 The execution and delivery of this Agreement by each of Publisher and Parent and the performance by each of Publisher and Parent of its obligations hereunder, do not and will not violate either of Publisher’s or Parent’s organizational documents and any agreement to which Publisher or Parent is a party or by which it is or will be otherwise bound, including any Third Party Agreement.

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9.3 Publisher agrees to defend, indemnify and hold Licensor and its employees and representatives (“Licensor Parties”) harmless from any and all claims (and liabilities, judgments, penalties, losses, costs, damages, and expenses resulting therefrom, including reasonable attorneys’ and experts’ fees and legal costs) made by third parties against the Licensor Parties or suffered or incurred by the Licensor Parties by reason of or in connection with any breach of this Agreement by the Publisher.

10. TERMINATION

10.1 Publisher shall have the right to terminate this Agreement, either in its entirety or on a Game by Game basis, in the event that Licensor is in breach of its obligations under this Agreement which (if capable of cure) is not cured within ten (10) days after receipt of notice from Publisher; and/or if Licensor becomes insolvent or bankrupt, is subject to a petition for bankruptcy, or makes an assignment of all or substantially of its assets for the benefit of creditors.  Licensor shall have the right to terminate this Agreement in the event that Publisher is in breach of its obligations under this Agreement which (if capable of cure) is not cured within thirty (30) days after receipt of written notice thereof from Licensor.  and/or if Publisher becomes insolvent or bankrupt, is subject to a petition for bankruptcy, or makes an assignment of all or substantially of its assets for the benefit of creditors.

10..2  Either party may terminate this Agreement with respect to any particular Game(s) in the event Licensor loses the right to exploit such Game(s).

10..3 The termination of this Agreement (however caused) shall be without prejudice to the rights or remedies of the parties which each may have under this Agreement, at law or otherwise.

11. CONFIDENTIALITY

11.1 Each party agrees to keep confidential any confidential information belonging to the other party. Neither party shall, without the other party’s prior written approval, make any press release or other public announcement, or give any interviews, concerning the transactions contemplated by this Agreement and the specific terms hereof, except as and to the extent that such party shall be so obligated by law or the rules of any stock exchange, in which case the other party shall be advised and such party shall use diligent efforts to cause a mutually agreeable release or announcement to be issued; provided, that the foregoing shall not preclude communications or disclosures necessary to implement the provisions of this Agreement or to comply with the accounting and, if any, U.S. Securities and Exchange Commission disclosure obligations.

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11.2 Notwithstanding the above provision, the parties shall be entitled to disclose such confidential information to its associated companies (being companies which are owned by a contracting party or its parent company or under common control with contracting party, or controls contracting party), and either party shall be entitled to disclose such confidential information to its professional advisers and potential investors provided always that, each party shall be responsible for ensuring the compliance with this clause by such associated companies and/or such professional advisers or investors, and as may be required by and laws and/or regulations of the U.S. Securities and Exchange Commission.

12. MISCELLANEOUS

12.1 This Agreement and all disputes arising from or related to this Agreement or its subject matter shall be governed, resolved, and remedied in accordance with the laws of the State of New York, applicable to agreements, acts, omissions, and behavior made, performed, and accomplished wholly in New York, without resort to conflict of law principles. In the event Licensor files suit against Publisher, it shall be brought exclusively in the state or federal courts located in New York County, New York.   Licensor and Publisher each hereby irrevocably submit to the jurisdiction and venue of any such court in any such action, suit or proceeding and agree not to assert, in any action, suit or proceeding by way of motion, as a defense or otherwise, any claim that Licensor or Publisher, as the case may be, is not personally subject to the jurisdiction of such court, or that such action, suit or proceeding is brought in an inconvenient forum, or that the venue is improper or that the subject matter hereof cannot be enforced in such court.

12.2 NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY OF ITS INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, OR THE BREACH OF ANY OF ITS PROVISIONS, WHETHER FOR BREACH OF WARRANTY OR ANY OBLIGATION ARISING THEREFROM OR OTHERWISE, WHETHER LIABILITY IS ASSERTED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE AND STRICT PRODUCT LIABILITY), AND IRRESPECTIVE OF WHETHER THE PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE OR ANY REMEDY SPECIFIED IN THIS AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE.  THE FOREGOING SHALL NOT LIMIT THE INDEMNIFICATION OBLIGATIONS OF EITHER PARTY FOR THIRD PARTY CLAIMS.

12.3 Licensor shall not assign the Agreement without the prior written consent of Publisher, which consent shall not be unreasonably withheld.  Any purported assignment without such permission shall be deemed null and void.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties. Notwithstanding the foregoing, the Licensor may freely assign this Agreement to an affiliate or a financing source.

12.4 Nothing contained in this Agreement shall be construed so as to make the parties partners or joint venturers or to create a franchisor/franchisee relationship between the parties or to permit either party to bind the other party to any agreement or purport to act on behalf of the party in any respect.

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12.5 No waiver or modification of any of the terms of this Agreement shall be valid unless in writing, signed by both parties. Failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of such rights, and a waiver by either party of a default in one or more instances shall not be construed as a continuing waiver or as a waiver in other instances.

12.6 If any term or provision of this Agreement is for any reason held to be invalid, such invalidity shall not affect any other term or provision, and this Agreement shall be interpreted as if such term or provision had never been contained in this Agreement.

12.7 All notices to be given under this Agreement shall be in writing, sent by certified mail or reputable overnight courier, given at the respective addresses of the parties as set forth on page 1, attention General Counsel, unless notification of a change of address is given in writing. The date of notice shall be deemed to be the date the notice is received.

12.8 This Agreement contains the entire understanding of the parties with respect to its subject matter. Any and all prior representations or agreements by any employee, agent or representative of either party to the contrary shall be of no effect.

12.9 This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto. This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or internet, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.  At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties.  No party to any such agreement or instrument shall raise the use of a facsimile machine or internet to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or the internet as a defense to the formation of a contract and each such Party forever waives any such defense.

[SIGNATURE PAGE FOLLOWS]

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THIS AGREEMENT SHALL NOT BE DEEMED AN OFFER AND SHALL NOT BECOME EFFECTIVE UNTIL FULLY EXECUTED BY BOTH PARTIES. Neither an unsigned draft nor any written, electronic or oral statement, representation or promise by any employee of either party regarding the subject matter hereof shall be binding unless and until set forth in an executed formal agreement.

ACCEPTED AND AGREED
ZOO PUBLISHING, INC.		NEW WORLD IP, LLC.
By:	/s/ Mark E. Seremet	By :	/s/ John E. Stuart
	Name:  Mark E. Seremet		Name: John E. Stuart
	Title: Chief Executive Officer		Title:  Manager
ZOO ENTERTAINMENT, INC.
By :	/s/ Mark E. Seremet
	Name:  Mark E. Seremet
	Title: Chief Executive Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Mark Seremet, Chief Executive Officer of Zoo Entertainment, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Zoo Entertainment, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure control and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affected, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 20, 2009	/s/ Mark Seremet
	Mark Seremet
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, David Fremed, Chief Financial Officer of Zoo Entertainment, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Zoo Entertainment, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	designed such disclosure controls and procedures, or caused such disclosure control and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affected, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 20, 2009	/s/ David Fremed
	David Fremed
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zoo Entertainment, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 20, 2009	/s/ Mark Seremet
	Mark Seremet
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 20, 2009	/s/ David Fremed
	David Fremed
	Chief Financial Officer
	(Principal Financial Officer)