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 June 30, 2009

¨ 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¨	Accelerated filer ¨
Non-accelerated filer ¨ (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 August 14, 2009, there were 38,243,937 shares of the Registrant’s common stock, par value $0.001 per share, issued and 30,442,611 shares outstanding.

ZOO ENTERTAINMENT, INC.

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008	F-1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2009 and 2008	F- 2
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2009 and 2008	F- 3
	Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2009	F- 4
	Notes to Condensed Consolidated Financial Statements	F- 5 - F-23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	11
Item 4T.	Controls and Procedures	11
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Submission of Matters to a Vote of Security Holders	14
Item 5.	Other Information	14
Item 6.	Exhibits	14
Signatures		15

Zoo Entertainment, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands Except Share and Per Share Amounts)

	June 30, 2009		December 31, 2008 *
	(Unaudited)
ASSETS
Current assets:
Cash	$	484	$	849
Accounts receivable, net of allowances for returns and discounts of $576 and $1,160		530		1,832
Inventory		1,689		3,120
Prepaid expenses and other current assets		1,604		2,124
Product development costs, net		5,272		5,338
Deferred tax asset		659		688
Total current assets		10,238		13,951
Fixed assets, net		226		214
Goodwill		14,704		14,704
Intangible assets, net		16,686		14,747
Total assets	$	41,854	$	43,616
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,425	$	5,709
Financing arrangements		142		849
Accrued expenses and other current liabilities		5,465		5,167
Notes payable, net of discount of $0 and $145 - current portion		120		1,803
Convertible notes payable, net of discount of $180 and $1,576		10,970		9,574
Total current liabilities		23,122		23,102
Notes payable, net of discount of $0 and $885 - non current portion		190		1,772
Deferred tax liability		659		688
Other long-term liabilities		2,920		620
Total liabilities		26,891		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 30,442,611 outstanding June 30, 2009 and 38,243,937 issued and 36,006,561 outstanding December 31, 2008		38		38
Additional paid-in-capital		52,736		52,692
Accumulated deficit		(33,341)		(31,940	)
Treasury stock, at cost , 7,801,326 shares June 30, 2009 and 2,237,376 shares December 31, 2008		(4,469)		(3,356	)
Other comprehensive loss		(1)		—
Total stockholders' equity		14,963		17,434
Total liabilities and stockholders' equity	$	41,854	$	43,616

* Derived from audited financials

See accompanying notes to condensed consolidated financial statements

F-1

Zoo Entertainment, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

 (In Thousands Except Share and Per Share Amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Revenue	$	7,669		$	5,470		$	21,553		$	14,499
Cost of goods sold		7,742			4,406			19,225			13,213
Gross profit (loss)		(73	)		1,064			2,328			1,286
Operating expenses:
General and administrative expenses		1,866			2,280			3,260			3,399
Selling and marketing expenses		662			1,053			1,525			1,917
Research and development expenses		290			585			370			1,479
Depreciation and amortization		435			443			869			891
Total operating expenses		3,253			4,361			6,024			7,686
Loss from operations		(3,326	)		(3,297	)		(3,696	)		(6,400	)
Interest expense, net		(1,000	)		(592	)		(2,033	)		(979	)
Gain on legal settlement		4,328			—			4,328			—
Income (loss) from continuing operations before income tax benefit		2			(3,889	)		(1,401	)		(7,379	)
Income tax benefit		—			1,058			—			1,058
Income (loss) from continuing operations		2			(2,831	)		(1,401	)		(6,321	)
Loss from discontinued operations		—			(1,861	)		—			(2,548	))
Net income (loss)	$	2		$	(4,692	)	$	(1,401	)	$	(8,869	)
Earnings (loss) per share – basic and diluted:
Continuing operations	$	0.00		$	(0.15	)	$	(0.04	)	$	(0.35	)
Discontinued operations		—			(0.10	)		—			(0.14	)
Net income (loss)	$	0.00		$	(0.24	)	$	(0.04	)	$	(0.49	)
Weighted average shares outstanding:
Basic and diluted		35,211,711			19,388,544			35,606,940			17,995,055

See accompanying notes to condensed consolidated financial statements

F-2

Zoo Entertainment, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flow (Unaudited)

(In Thousands)

	Six Months Ended June 30,
	2009			2008
Operating Activities:
Net loss	$	(1,401	)	$	(8,869	)
Loss from discontinued operations		—			(2,548	)
Net loss from continuing operations		(1,401	)		(6,321	)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:
Gain on legal settlement		(4,328	)		—
Depreciation and amortization		869			891
Amortization of deferred debt discount		1,690			799
Deferred income taxes		—			(892	)
Stock based compensation		244			354
Other changes in assets and liabilities, net		3,488			391
Net cash provided by (used in) continuing operations		562			(4,778	)
Net cash used in discontinued operations		—			(2,729	)
Net cash provided by (used in) operating activities		562			(7,507	)
Investing activities:
Purchases of fixed assets		(58	)		(75	)
Purchases of intangible assets		(162	)		—
Net cash used in investing activities		(220	)		(75	)
Financing activities:
Proceeds from sale of equity securities		—			6,118
Net (repayments) borrowings in connection with financing facilities		(707	)		2,000
Net cash (used in) provided by financing activities		(707	)		8,118
(Decrease) increase in cash		(365	)		536
Cash at beginning of period		849			138
Cash at end of period	$	484		$	674

See accompanying notes to condensed consolidated financial statements

F-3

Zoo Entertainment, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders' Equity (Unaudited)

For the Six Months Ended June 30, 2009

(In Thousands)

																			Accumulated Other
	Preferred Stock				Common Stock				Additional		Accumulated			Treasury Stock					Comprehensive
	Shares		Par Value		Shares Issued		Par Value		Paid-in- Capital		Deficit			Shares		Cost			Loss			Total
Balance December 31, 2008		—	$	—		38,244	$	38	$	52,692	$	(31,940	)		2,237	$	(3,356	)	$	-		$	17,434
Stock-based compensation						—		—		44													44
Value of shares returned to treasury from settlement of litigation															5,564		(1,113	)					(1,113	)
Net loss												(1,401	)										(1,401	)
Adjustment for foreign currency translation																				(1	)		(1	)
Balance June 30, 2009		—	$	—		38,244	$	38	$	52,736	$	(33,341	)		7,801	$	(4,469	)	$	(1	)	$	14,963

See accompanying notes to condensed consolidated financial statements

F-4

ZOO ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 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 was 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.

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.   In May 2009, we entered into a license agreement with New World IP (“Licensor”) pursuant to which the Licensor granted to Zoo Publishing all of the Licensor’s rights to substantially all the intellectual property of Empire Interactive Europe, Ltd. for a minimum royalty of $2.6 million.  In June 2009, we formed a new company called Zoo Entertainment Europe Ltd., a wholly-owned subsidiary of Zoo Games, Inc. based in the United Kingdom for the purpose of sales and distribution of our products in Europe.

F-5

Currently, the Company has determined that it operates in one segment and will focus on developing, publishing and distributing interactive entertainment software under the Zoo brand both in North American and international markets.

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.

NOTE 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 $12.9 million at June 30, 2009. For the six months ended June 30, 2009 the Company generated $562,000 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. Although the Company’s business plan anticipates the generation of positive cash flow, there is no assurance that it will succeed in doing so.  An inability to meet its business goals would raise substantial doubt as to the Company's ability to continue as a going concern. In addition, the Company has various promissory notes maturing in August 2009 and September 2009 with an aggregate face value of approximately $11.2 million.  On June 26, 2009, the Company entered into an agreement with its Senior Secured Convertible Note holders whereby they agreed to convert their notes into equity on or before August 31, 2009, contingent on the Company raising at least $4 million in new capital and the effectiveness of the filing of an amendment to the Company’s Certificate of Incorporation authorizing a sufficient number of shares of the Company’s common stock to permit the conversion of the notes.

The Company’s ability to continue as a going concern is dependent on among other factors, the following major short term actions:  (i) its ability to generate cash flow from operations sufficient to maintain its daily business activities (ii) its ability to raise capital from outside sources through the sale of equity or debt instruments primarily to fund the ongoing development and acquisition of new games and (iii) the restructuring of its maturing note obligations. Management’s active efforts in this regard include the retaining of a registered broker dealer to raise up to $7 million in an unregistered private placement, trade arrangements for advance payments secured by future sales, an agreement with its note holders as detailed above, as well as operational steps to increase cash flow through an increase in both the quantity and quality of its product releases.  There can be no assurance that all or any of these actions will meet with success.

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.

NOTE 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 and six months ended June 30, 2009 might not be indicative of the results for the full year or any future period.

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.

F-6

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 to include sales to certain customers through March 31, 2010. As of June 30, 2009, Atari had prepaid us approximately $787,000 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 $1.0 million, before allowances, which is included in accounts receivable in the condensed consolidated balance sheet.  Our five largest ultimate customers for the six months ended June 30, 2009 accounted for approximately 79% 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 June 30, 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.

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) as well as 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 or related costs.  

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.

F-7

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.

Prior to establishing technological feasibility, we expense research and development costs as incurred. During the three months ended June 30, 2009 and 2008, we wrote-off $290,000 and $585,000, respectively and during the six months ended June 30, 2009 and 2008, we wrote-off $370,000 and $1.5 million, respectively, of expense relating to costs incurred for the development of games that were abandoned during those periods. Those costs are included in our 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-8

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.

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.

F-9

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 Securities and Exchange Commission (“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 Six Months
	Ended June 30,
	2009			2008
Risk-free interest rate		3.52	%		3.45	%
Expected stock price volatility		70.0	%		45.0	%
Expected term until exercise (years)		5			5
Dividends	None			None

For the six months ended June 30, 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 2,589,811 options outstanding as of June 30, 2009 and the 1,588,967 warrants and 2,139,324 options outstanding as of June 30, 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.

F-10

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, 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.

Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS No. 160”), which is an amendment of Accounting Research Bulletin No. 51. This statement clarifies that a non-controlling 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 non-controlling 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 non-controlling 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-11

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.

On May 28, 2009, the FASB issued Statement No. 165, “Subsequent Events” ("SFAS No. 165"). Although SFAS No. 165 does not significantly change current practice surrounding the disclosure of subsequent events, it provides guidance on management's assessment of subsequent events and the requirement to disclose the date through which subsequent events have been evaluated. SFAS No. 165 became effective for the quarter ended June 30, 2009. The Company has evaluated subsequent events through August 14, 2009 for this quarterly report on Form 10-Q for the quarter ended June 30, 2009. The adoption of SFAS No. 165 did not have any impact on the Company's consolidated financial position or results of operations.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (FAS 168).  FAS 168 stipulates the FASB Accounting Standards Codification is the single source of authoritative GAAP for all non-governmental entities, with the exception of the SEC and its staff.  FAS 168 changes the referencing and organization of accounting guidance and is effective for interim and annual periods ending after September 15, 2009.  Since it is not intended to change or alter existing GAAP, the Codification is not expected to have any impact on the Company’s financial condition or results of operations.

NOTE 4.   DISCONTINUED OPERATIONS

The loss from discontinued operations for the three and six months ended June 30, 2008 is summarized as follows:

	(Amounts in Thousands)
	Three Months Ended June 30, 2008		Six Months Ended June 30, 2008
Supervillain	$	1,111	$	1,530
Zoo Digital		677		677
Repliqa		25		219
On-line concept		48		122
Loss from discontinued operations	$	1,861	$	2,548

The revenues from the discontinued operations for the three and six months ended June 30, 2008 were 785,000 and $988,000, respectively.

NOTE 5.   INVENTORY

Inventory consisted of:

	(Amounts in Thousands)
	June 30,		December 31,
	2009		2008
Finished products	$	1,577	$	2,939
Parts and supplies		112		181
Total	$	1,689	$	3,120

F-12

Estimated product returns included in inventory at June 30, 2009 and December 31, 2008 were $182,000 and $337,000, respectively.

NOTE 6.   PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expense and other current assets consisted of:

	(Amounts in Thousands)
	June 30, 2009		December 31, 2008
Vendor advances for inventory	$	180	$	555
Prepaid royalties		1,148		1,072
Income taxes receivable		-		55
Other prepaid expenses		276		442
Total	$	1,604	$	2,124

NOTE 7.   PRODUCT DEVELOPMENT COSTS

Details of our capitalized product development costs were as follows:

	(Amounts in Thousands)
	June30,2009		December31,2008
Product development costs, internally developed, net of amortization	$	80	$	170
Product development costs, externally developed, net of amortization	$	5,192		5,168
Total	$	5,272	$	5,338

NOTE 8.   INTANGIBLE ASSETS, NET

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

		(Amounts in Thousands)
			June30,2009				December31,2008
	Estimated
	Useful		Gross
	Lives		Carrying		Accumulated		Net Book		Net Book
	(Years)		Amount		Amortization		Value		Value
Content	10		$	14,965	$	1,881	$	13,084	$	10,931
Trademarks	10			1,510		233		1,277		1,353
Customer relationships	10			2,749		424		2,325		2,463
Total			$	19,224	$	2,538	$	16,686	$	14,747

Amortization expense related to intangible assets was $412,000 for the three months ended June 30, 2009 and 2008 and was $823,000 for the six months ended June 30, 2009 and 2008.

In May 2009, we entered into a license agreement with New World IP, LLC (“Licensor”) pursuant to which the Licensor granted to Zoo Publishing all of the Licensor’s rights to substantially all the intellectual property of Empire Interactive Europe, LLC for a minimum royalty of $2.6 million to be paid within two years.  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.  The $2.6 million of costs related to this agreement have been capitalized and are included in Intangible Assets and will be amortized over ten years, while $2.3 million of the liability is recorded in other long-term liabilities and $300,000 is recorded in accrued expenses in the balance sheet.

F-13

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 Thousands)
Year ending December 31,
Balance of 2009	$	550
2010		1,922
2011		1,922
2012		1,922
2013		1,922
Thereafter		8,448
Total	$	16,686

NOTE 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 June 30, 2009 and December 31, 2008 were $142,000 and $855,000, respectively. The interest rate is prime plus 4.0% on outstanding advances. As of June 30, 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 fee upon their funding of each purchase order and we commit to pay a total fee for twelve months in the aggregate amount of $337,500.  If the fees earned during the twelve month period do not exceed $337,500, we are required to pay the difference between the $337,500 and the amounts already paid 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, to be offset against actual fees paid by us upon their payment of each purchase order, to be 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.

F-14

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.

Also in connection with the Assignment Agreement, on April 6, 2009, Mark Seremet, President, Chief Executive Officer and a director of Zoo Entertainment and Zoo Games, 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.

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.

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.  The Company estimated the value of the arrangements to be approximately $200,000 as of June 30, 2009 and is included as compensation in the three and six months ended June 30, 2009, and has been included in accrued expenses.  Once the options are issued, we will adjust the expense accordingly.

Zoo Publishing uses a factor to approve credit and to collect the proceeds from a 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 June 30, 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.

F-15

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 to extend the term for certain customers until March 31, 2010.  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 and six months ended June 30, 2009, we recorded approximately $7.3 million and $21.0 million, respectively, 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, 2010.  As of June 30, 2009 and December 31, 2008, Atari had prepaid the Company $787,000 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 June 30, 2009 and December 31, 2008, Atari owed the Company approximately $1.0 million and $1.8 million, respectively, before allowances, for goods already shipped which are recorded in accounts receivable.

NOTE 10.   ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of:

	(Amounts in Thousands)
	June 30, 2009		December 31, 2008
Customer advances ($787 in 2009 and $1,828 in 2008 is from Atari)	$	828	$	1,828
Due to customers		2,183		710
Obligation arising from Zoo Publishing acquisition		153		254
Obligations relating to Cyoob acquisition		100		100
Obligations to compensate current and former employees		684		720
Royalty		600		252
Operating expenses		472		982
Interest		445		321
Totals	$	5,465	$	5,167

NOTE 11.   NOTES PAYABLE

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

	(Amounts in Thousands)
Note Description	June 30, 2009		December 31, 2008
Zoo Entertainment convertible notes, net of discounts attributable to the warrant value of $180 and $1,576	$	10,970	$	9,574
3.9% Zoo Publishing notes, net of discount of $0 and $1,030		-		2,536
2.95% note due June 2012 assumed from Zoo Publishing acquisition		310		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
Zoo Publishing employee loans at 4% interest		-		268
Totals		11,280		13,149
Current portion		11,090		11,377
Non-current portion	$	190	$	1,772

The face amounts of the notes payable as of June 30, 2009 are due as follows:

	(Amounts in Thousands)
Year Ending December	Amount Due
Balance of 2009	$	11,210
2010		120
2011		120
2012		10
Total	$	11,460

F-16

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 note holders 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.

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 June 30, 2009, the net deferred debt discount of all the notes is $180,000 and the net value of the notes recorded as of June 30, 2009 is approximately $11.0 million.

F-17

On June 26, 2009, the Company entered into Amendment No. 2 to Senior Secured Convertible Note (“Amendment No. 2”), with the requisite holders (the “Holders”) of the Company’s senior secured convertible notes issued in the aggregate principal amount of $11.15 million.  Pursuant to Amendment No. 2, the parties agreed to extend the maturity date of the notes that were originally scheduled to mature during July 2009 to August 31, 2009, or, if the Company receives comments from the SEC with respect to the Information Statement Pursuant to Section 14(c) (the “Information Statement”) that the Company filed on July 7, 2009 in connection with an amendment to the Company’s Certificate of Incorporation authorizing a sufficient number of shares of the Company’s common stock to permit the conversion of the notes (“Certificate of Amendment”), September 15, 2009.  The Company did not receive comments from the SEC with respect to the Information Statement and, as such, the maturity date of such notes shall be August 31, 2009.  Amendment No. 2 also provides that the notes shall automatically convert into shares of the Company’s common stock effective immediately on the date by which the following two events have occurred, regardless of the order in which they occur: (a) the effectiveness of the filing the Certificate of Amendment, and (b) the consummation of a financing by the Company for which such sale results in aggregate gross proceeds to the Company of at least $4.0 million. Notwithstanding, if the notes do not convert on or prior to the revised maturity date, Amendment No. 2 provides that the provisions of Amendment No. 2 with respect to automatic conversion shall become null and void and shall be of no further effect.  In consideration of the Holders’ execution and delivery of Amendment No. 2, the Company entered into a letter agreement, dated as of June 26, 2009, pursuant to which the Company granted to the Holders registration rights which require the Company to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon conversion of the notes, within 30 calendar days after receipt of approval of the Company’s stockholders of the Certificate of Amendment or 60 calendar days following the closing of a financing by the Company for which such sale results in aggregate gross proceeds to the Company of at least $4.0 million, whichever is later.

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 and six months ended June 30, 2009, amortization of deferred debt discount and interest expense were $134,000, $294,000, $29,000 and $64,000, respectively. For the three and six months ended June 30, 2008, amortization of deferred debt discount and interest expense were $304,000, $608,000, $66,000 and $132,000, 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 became due September 18, 2009, $113,000 became due September 18, 2010, $2.0 million became due December 18, 2010 and approximately $316,000 became due July 31, 2011.

In connection with the Settlement Agreement dated June 18, 2009, all the Zoo Publishing Notes were cancelled and no cash payments were required to be made for either the principal amounts of the notes or the interest accrued.  The net amount of the obligation relieved for the Zoo Publishing Notes was approximately $3.0 million and is included in the gain on legal settlement on the statement of operations (see Note 14).

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 six 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; and

· 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 June 30, 2009 was $310,000; $120,000 is classified as current and $190,000 is classified as long-term. The payments are due monthly and the amount of the payment is $10,000 per month.

NOTE 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 were 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.

F-18

The components of income tax benefit for the six months ended June 30, 2009 are as follows (in thousands):

Current:
Federal	$	—
State		—
Total Current		—
Deferred:
Federal		—
State		—
Total Deferred		—
Total	$	—

No income taxes were paid during the six months ended June 30, 2009.

The reconciliation of income tax benefit computed at the U.S. statutory tax rates to income tax benefit for the six months ended June 30, 2009 is:

Tax at U.S. federal income tax rates	(34.0	)%
State taxes, net of federal income tax benefit	(2.5	)%
Valuation allowance	2.4	%
Nondeductible expenses and other	34.1	%
	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 June 30, 2009 are as follows (in thousands):

Deferred tax assets:	Current		Long Term
Net operating loss carried forward	$	-	$	5,474
Capital loss carried forward		-		515
Allowance for doubtful accounts		317		-
Bonus and other accruals		578		-
Interest on convertible notes		-		198
Non-qualified options		-		421
Gross deferred tax assets		895		6,608
Valuation allowance		(236)		(1,739	)
Net deferred tax assets		659	$	4,869
Deferred tax liabilities:
Property and equipment		-		(23	)
Intangibles		-		(5,505	)
Discount on notes		-		-
Total deferred tax liabilities		-		(5,528	)
Net deferred tax asset (liability)	$	659	$	(659	)

The Company has approximately $1.2 million of available capital loss carried forward which expire in 2013. A valuation allowance of approximately $515,000 has been recognized to offset the deferred tax assets related to these carried forward. 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 assets.

As of June 30, 2009, the Company has U.S. federal net operating loss (NOL) carried forward of approximately $13.0 million which will be available to offset taxable U.S. income during the carried forward 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 carried forward of approximately $12.9 million which will be available to offset taxable state income during the carried forward 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.

F-19

NOTE 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 June 30, 2009, there were 38,243,937 shares of common stock issued and 30,442,611 shares of common stock outstanding.

On June 26, 2009, our Board of Directors and stockholders holding approximately 63.6% of our outstanding common stock approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 shares to 250,000,000 shares (the “Share Increase”).  The consents we received constitute the only stockholder approval required for the Share Increase under the Delaware General Corporation Law (the “DGCL”) and our existing Certificate of Incorporation and Bylaws. Pursuant to Rule 14c-2 of the Securities Exchange Act of 1934, as amended, stockholder approval of these amendments will become effective on or after such date that is approximately 20 calendar days following the date we first mailed the Information Statement to our stockholders.  After such date, the board of directors may implement the Share Increase at any time, at its discretion, by filing a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware.  The Information Statement was first sent to our stockholders on July 31, 2009.  The board of directors intends to effectuate the Share Increase as soon as practicable following August 20, 2009.

In conjunction with the settlement of the litigation with the sellers of Zoo Publishing on June 18, 2009 (see Notes 14 and 17), the sellers returned 5,563,950 shares of common stock to the Company.  These shares were valued at $0.20 and recorded as treasury shares.

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 six months ended June 30, 2009.

On May 12, 2009, the Company entered into a letter agreement with each of Mark Seremet and David Rosenbaum, pursuant to which, in consideration for Messrs. Seremet and Rosenbaum entering into a 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”) (see Note 18), 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 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.

F-20

As of June 30, 2009, there was approximately $171,000 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 2.2 - 2.5 years.

The intrinsic value of options outstanding at June 30, 2009 is $0.

Warrants

As of June 30, 2009, there were 6,502,159 warrants outstanding. All are currently exercisable and have a five-year term.

There were no warrants issued in the six months ended June 30, 2009.  

NOTE 14.  GAIN ON LEGAL SETTLEMENT

On June 18, 2009, we settled a lawsuit brought by the former sellers of Zoo Publishing, resulting in a net gain on legal settlement of approximately $4.3 million.

The settlement eliminated the following Company’s obligations totaling $3,925,000:

· outstanding notes with a face value of $3,565,900, discounted as of June 18, 2009 for $736,000 and interest accrued of $219,000

· employee loans totaling $574,000

· other obligations for an aggregate amount of $302,000

In conjunction with the settlement of the litigation with the sellers of Zoo Publishing, the sellers returned 5,563,950 shares of common stock to the Company.  These treasury shares were valued at $0.20 and included as part of the gain on legal settlement for approximately $1.1 million.

The Company’s remaining cash obligations and litigation expense amounted to approximately $710,000, resulting in a net gain on settlement of approximately $4.3 million.

NOTE 15.   INTEREST, NET

	(Amounts in Thousands)
	Three Months Ended June 30,					Six Months Ended June 30,
	2009		2008			2009		2008
Interest arising form amortization of debt discount	$	832	$	304		$	1,690	$	608
Interest on various notes		168		289			343		376
Less interest income		-		(1	)		-		(5	)
Interest expense, net	$	1,000	$	592		$	2,033	$	979

NOTE 16.   SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information for the six months ended June 30, 2009 and 2008 is as follows:

	(Amounts in Thousands)
	2009			2008
Changes in other assets and liabilities:
Accounts receivable	$	1,302		$	(907	)
Inventory		1,431			214
Prepaid expenses and other current assets		520			1,823
Product development costs		66			(2,293	)
Accounts payable		716			2,497
Accrued expenses and other current liabilities		(547	)		(943	)
Net changes in other assets and liabilities	$	3,488		$	391
Cash paid during the period of interest	$	—		$	25
Cash paid during the period of taxes	$	—		$	6
Non-cash investing and financing activities:
Receipt of 5,563,950 shares for partial settlement of litigation	$	1,113		$	—
Notes and obligations relieved for partial settlement of litigation	$	3,925		$	—
Acquisition of Intangible for long-term obligation	$	2,600		$	—
Issuance of 1,580,237 shares for partial payment of Zoo Digital	$	—		$	4,086
Exchange of debt for equity at original face value	$	—		$	550

F-21

NOTE 17.   LITIGATION

On February 19, 2009, Susan Kain Jurgensen, Steven Newton, Mercy Gonzalez, Bruce Kain, Wesley Kain, Raymond Pierce and Cristie Walsh filed a complaint 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 sought compensatory damages, punitive damages and preliminary and permanent injunctive relief, among other remedies.  On June 18, 2009, we reached a settlement whereby we agreed to pay to the plaintiffs an aggregate of $560,000 (the “Settlement Amount”) in full satisfaction of the disputed claims, without any admission of any liability of wrongdoing as follows: (a) $300,000 on June 26, 2009; (b) $60,000 on or before the earlier of (i) the date that is 90 days from June 18, 2009 or (ii) the date the Company obtains new and available financing, including any amounts currently held in escrow that will be released from escrow after June 18, 2009, in any form and from any source, in an amount totaling at least $2,000,000; (c) $100,000 on or before December 18, 2009; and (d) $100,000 on or before June 18, 2010.  To date, $300,000 of the Settlement Amount has been paid to the plaintiffs.  The Zoo Publishing Notes and all other notes, employment,  agreements, loan agreements, options, warrants and other agreements  relating to the plaintiffs (except with respect to that certain Employment Agreement between Zoo Publishing and Cristie Walsh) were terminated and all outstanding obligations of the Company related to these agreements were cancelled.  In addition, the plaintiffs returned to us an aggregate of 5,563,950 shares of our common stock owned by them prior to such date.

In connection with an action brought by Revolution Partners, LLC against Zoo Games, Inc., the claimant Revolution Partners, LLC was 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 settled this claim in June 2009 for $140,000; $60,000 of which was paid as of June 30, 2009 and the balance is included in accounts payable as of June 30, 2009, to be paid in four monthly installments through October 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.

NOTE 18.   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 $139,000 during the six months ended June 30, 2009 and 2008, respectively, to this related party.

Certain Zoo Publishing employees loaned us an aggregate of up to $765,000 in 2008 on a short-term basis. The Company accrued interest at 4% per annum and all amounts were cancelled as part of the Settlement Agreement (see Note 11).

F-22

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”).  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, pursuant to which 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, we 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”), we 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, we 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 our 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 our equity securities that each may own on the Grant Date. The options shall be issued at an exercise price equal to the fair market value of our common stock on the Grant Date and pursuant to our 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.

NOTE 19.   SUBSEQUENT EVENTS

On July 31, 2009, we filed a Definitive Information Statement on Schedule 14C notifying our stockholders of the approval by certain of our stockholders holding a majority of our outstanding shares of common stock, by written consent, of an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 shares to 250,000,000 shares (the “Share Increase”).  The board of directors may implement the Share Increase at any time at its discretion following August 20, 2009, by filing a Certificate of Amendment to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware.

F-23

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 subsidiaries, Zoo Publishing, Inc. (formerly known as Destination Software, Inc.) and Zoo Entertainment Europe Ltd.

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.

Background and History

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.

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.

1

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 Publishing Limited (“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.

In June 2009, the Company formed a new company in the United Kingdom that is a wholly-owned subsidiary of Zoo Games called Zoo Entertainment Europe Ltd. (“Zoo Europe”) that will focus on the sales and distribution of our products in Europe.  Zoo Europe is currently incurring start-up costs and we expect that revenues will begin in the latter part of 2009.

The financial statements of Zoo Entertainment 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 and six months ended June 30, 2008.

2

Three Months Ended June 30, 2009 As Compared to the Three Months Ended June 30, 2008

Results of Operations

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 Thousands Except Per Share Data)
	For the Three Months Ended June 30
	2009			2008
Revenue	$	7,669		$	5,470
Cost of goods sold		7,742	101%		4,406	81%
Gross profit		(73)	(1)%		1,064	19%
Operating expenses:
General and administrative expenses		1,866	24%		2,280	42%
Selling and marketing expenses		662	9%		1,053	19%
Research and development expenses		290	4%		585	11%
Depreciation and amortization		435	6%		443	8%
Total operating expenses		3,253	42%		4,361	80%
Loss from operations		(3,326)	(43)%		(3,297)	(60)%
Interest expense, net		(1,000)	(13)%		(592)	(11)%
Gain on legal settlement		4,328	56%		-	0%
Profit (loss) from continuing operations before income tax benefit		2	(12)%		(3,889)	(71)%
Income tax benefit		-	0%		1,058	19%
Profit (loss) from continuing operations		2	(12)%		(2,831)	(52)%
Loss from discontinued operations		-	0%		(1,861)	(34)%
Net profit (loss)	$	2	(12)%	$	(4,692)	(86)%
Earnings (loss) per share from continuing operations	$	0.00		$	(0.15)

Net Revenues

Net revenues for the three months ended June 30, 2009 were approximately $7.7 million, an increase of approximately 40% over the sales for the three months ended June 30, 2008 which were approximately $5.5 million, all consisting of casual game sales in North America.  The sales in the 2009 period are recorded net of the $842,000 fee to Atari for the period; without this fee, the sales increase from 2008 to 2009 would be 56%.  The breakdown of gross sales by platform is:

	Three Months Ended June 30,
	2009			2008
Nintendo Wii		61	%		33	%
Nintendo DS		34	%		61	%
Nintendo GBA		1	%		1	%
SONY PS2		0	%		2	%
SONY PSP		0	%		3	%
Microsoft Xbox		4	%		0	%

The biggest sellers during the 2009 period were (i) M&M Beach Party on the Nintendo Wii platform, (ii) M&M Kart Racing on the Nintendo Wii platform, and (iii) M&M Kart Racing on the Nintendo DS platform. The biggest sellers during the 2008 period were (i) Chicken Shoot, (ii) M&M Kart Racing and (iii) Showtime Championship Boxing, all on the Nintendo Wii platform. The 2009 period consisted of approximately 1.1 million units sold at an average gross price of $8.96, while the 2008 period consisted of approximately 500,000 units sold at an average gross price of $10.64.

3

Gross Profit

Gross profit for the three months ended June 30, 2009 was a loss of $73,000, or (1%) of net revenue, while the gross profit for the three months ended June 30, 2008 was approximately $1.1 million, or 20% 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 the Atari’s fees that are recorded as a reduction in revenue during this period were approximately $842,000 as compared to $0 in the corresponding period in 2008.  As part of our business plan to focus on higher margin games and more cost effective product licenses, we opted to discontinue certain lower-margin products in the 2009 period through the accelerated sale of such products at lower than normal prices.  This resulted in a significant amount of sales at very low margins which along with royalty fees and amortization of product development costs resulted in a negative overall gross margin for the 2009 period.  There were no similar close-out initiatives during the comparable period in 2008.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30 2009 were approximately $1.9 million as compared to $2.3 million for the comparable period in 2008. The reduction in costs from the 2008 period to the 2009 period resulted primarily from a reduction in corporate salaries and related costs. During the three months ended June 30, 2009 the Company incurred approximately $120,000 in startup cost for its new European sales office.

Selling and Marketing Expenses

Selling and marketing expenses for the three months ended June 30, 2009 and 2008 were $662,000 and $1.1 million, respectively. 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.  Due to the Atari sales agreement in 2009, we incurred a lower percentage of distribution costs in the 2009 period vs. the 2008 period.

Research and Development Expenses

Research and development expenses for the three months ended June 30, 2009 were approximately $290,000 as compared to $585,000 for the three months ended June 30, 2008. These expenses are a direct result of our decision to discontinue the development of certain games during these periods. The Company has modified its business model to focus on casual products which carry significantly lower development risks and costs.

Depreciation and Amortization Expenses

Depreciation and amortization costs for the three months ended June 30, 2009 were $435,000 as compared to $443,000 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 $592,000 for the 2008 period. The 2009 period includes $698,000 of non-cash interest expense relating to the amortization on the Zoo Entertainment Notes, $139,000 of interest relating to the Zoo Entertainment Notes and approximately $163,000 of interest on the various promissory notes due to the sellers of Zoo Publishing of which $133,000 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.

Gain on Legal Settlement

During the 2009 period, we settled a lawsuit brought by the former sellers of Zoo Publishing, resulting in a net gain on settlement of approximately $4.3 million.  The settlement eliminated the Company’s obligations for certain outstanding notes, employee loans and other obligations for an aggregate amount of approximately $3.9 million.  The settlement returned approximately 5.6 million shares to treasury valued at approximately $1.1 million.  The Company’s remaining cash obligations and litigation expense amounted to approximately $710,000, resulting in a net gain on settlement of approximately $4.3 million.

4

Income Tax Benefit

We did not record any income tax benefit for the three months ended June 30, 2009 as compared to $1.1 million for the three months ended June 30, 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. 

Loss from Discontinued Operations

During the three months ended June 30, 2008, we generated a loss of approximately $1.9 million from four operating divisions which 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 approximately $1.1 million, the loss relating to Zoo Digital was $677,000, the loss relating to Repliqa was $25,000 and the loss relating to the on-line concept was $48,000.

Earnings (loss) per Share from Continuing Operations

The earnings per share from continuing operations for the three months ended June 30, 2009 was $0.00, based on a weighted average shares outstanding for the period of 35.2 million, vs. a loss per share from continuing operations of $0.15, based on a weighted average shares outstanding of 19.4 million for the three months ended June 30, 2008.

Six Months Ended June 30, 2009 As Compared to the Six Months Ended June 30, 2008

Results of Operations

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 Thousands Except Per Share Data)
	For the Six Months Ended June 30
	2009			2008
Revenue	$	21,553		$	14,499
Cost of goods sold		19,225	89%		13,213	91%
Gross profit		2,328	11%		1,286	9%
Operating expenses:
General and administrative expenses		3,260	15%		3,399	23%
Selling and marketing expenses		1,525	7%		1,917	13%
Research and development expenses		370	2%		1,479	10%
Depreciation and amortization		869	4%		891	6%
Total operating expenses		6,024	28%		7,686	53%
Loss from operations		(3,696)	(17)%		(6,400)	(44)%
Interest expense, net		(2,033)	(9)%		(979)	(7)%
Gain on settlement		4,328	20%		-	0%
Loss from continuing operations before income tax benefit		(1,401)	(7)%		(7,379)	(51)%
Income tax benefit		-	0%		1,058	7%
Loss from continuing operations		(1,401)	(7)%		(6,321)	(44)%
Loss from discontinued operations		-	0%		(2,548)	(18)%
Net loss	$	(1,401)	(7)%	$	(8,869)	(61)%
Loss per share from continuing operations	$	(0.04)		$	(0.35)

Net Revenues

Net revenues for the six months ended June 30, 2009 were approximately $21.6 million, an increase of approximately 49% over the sales for the six months ended June 30, 2008 of approximately $14.5 million, all consisting of casual game sales in North America. The sales in the 2009 period are recorded net of the $2.4 million fee to Atari for the period; without this fee, the sales increase from 2008 to 2009 would be 65%.  The breakdown of gross sales by platform is:

	Six Months Ended June 30,
	2009			2008
Nintendo Wii		62	%		26	%
Nintendo DS		33	%		68	%
Nintendo GBA		0	%		3	%
SONY PS2		2	%		1	%
SONY PSP		0	%		2	%
Microsoft Xbox		3	%		0	%

5

The biggest sellers during the 2009 period were (i) M&M Kart Racing, (ii) M&M Beach Party, and (iii) Deal or No Deal, 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) M&M Kart Racing on the Nintendo Wii platform. The 2009 period consisted of approximately 2.5 million units sold compared to approximately 1.6 million units sold for the same period in 2008.

Gross Profit

Gross profit for the six months ended June 30, 2009 was approximately $2.3 million, or 11% of net revenue, while the gross profit for the six months ended June 30, 2008 was approximately $1.3 million, or 9% 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 $2.4 million as compared to $0 in the corresponding period in 2008.  As part of our business plan to focus on higher margin games and more cost effective product licenses, we opted to discontinue certain lower-margin products in the 2009 period through the accelerated sale of such products at lower than normal prices.  This resulted in a significant amount of sales at very low margins, which along with royalty fees and amortization of product development costs resulted in a low overall gross margin for the 2009 period.  The 2008 period included a close-out initiative for a license that terminated during that period resulting in similar low overall margins for the 2008 period.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30 2009 were approximately $3.3 million as compared to $3.4 million for the comparable period in 2008. The decrease in costs from the 2008 period to the 2009 period resulted primarily from a reduction in corporate salaries and related costs. During the six months ended June 30, 2009 the Company incurred approximately $120,000 in startup cost for its new European sales office.

Selling and Marketing Expenses

Selling and marketing expenses for the six months ended June 30, 2009 and 2008 were approximately $1.5 million and $1.9 million, respectively.  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. Due to the Atari sales agreement in 2009, we incurred a lower percentage of distribution costs in the 2009 period compared to the 2008 period.

Research and Development Expenses

Research and development expenses for the six months ended June 30, 2009 were approximately $370,000 as compared to approximately $1.5 million for the six months ended June 30, 2008. These expenses are a direct result of our decision to discontinue the development of certain games during these periods.  The Company has modified its business model to focus on casual products which carry significantly lower development risks and costs.

Depreciation and Amortization Expenses

Depreciation and amortization costs for the six months ended June 30, 2009 were $869,000 as compared to $891,000 in the prior period. Both periods include $823,000 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 $2.0 million as compared to $979,000 for the 2008 period. The 2009 period includes approximately $1.4 million of non-cash interest expense relating to the amortization on the Zoo Entertainment Notes, $279,000 of interest relating to the Zoo Entertainment Notes and approximately $358,000 of interest on the various promissory notes due to the sellers of Zoo Publishing of which $293,000 is non-cash interest imputed at the then market rate.  The 2008 period includes $765,000 of interest on the various promissory notes due to the sellers of Zoo Publishing of which $608,000 is non-cash interest imputed at the then market rate.

6

Gain on Legal Settlement

During the 2009 period, we settled a lawsuit brought by the former sellers of Zoo Publishing, resulting in a net gain on settlement of approximately $4.3 million.  The settlement eliminated the Company’s obligations for certain outstanding notes, employee loans and other obligations for an aggregate amount of approximately $3.9 million.  The settlement returned approximately 5.6 million shares to treasury valued at approximately $1.1 million.  The Company’s remaining cash obligations and litigation expense amounted to approximately $710,000, resulting in a net gain on settlement of approximately $4.3 million.

Income Tax Benefit

We did not record any income tax benefit for the six months ended June 30, 2009. 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 six months ended June 30, 2008, we recorded a tax benefit of approximately $1.1 million.

Loss from Discontinued Operations

During the six months ended June 30, 2008, we incurred an aggregate of approximately $2.5 million in losses from four operating divisions which 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 approximately $1.5 million, the loss relating to Zoo Digital was $677,000, the loss relating to Repliqa was $219,000 and the loss relating to the on-line concept was $122,000.

Loss per Share from Continuing Operations

The loss per share from continuing operations for the six months ended June 30, 2009 was $0.04, based on a weighted average shares outstanding for the period of 35.6 million, vs. a loss per share from continuing operations of $0.35, based on a weighted average shares outstanding of 18.0 million for six months ended June 30, 2008.

Liquidity and Capital Resources

We incurred a loss from continuing operations of approximately $1.4 million for the six months ended June 30, 2009 and a net loss of approximately $6.3 million from continuing operations for the six months ended June 30, 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 six months ended June 30, 2009 was $562,000, while net cash used in continuing operations for the six months ended June 30, 2008 was $4.8 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.

7

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.

On June 26, 2009, the Company entered into Amendment No. 2 to Senior Secured Convertible Note (“Amendment No. 2”), with the requisite holders (the “Holders”) of the Company’s senior secured convertible notes issued in the aggregate principal amount of $11.15 million.   Pursuant to Amendment No. 2, the parties agreed to extend the maturity date of the notes that were originally scheduled to mature during July 2009 to August 31, 2009, or, if the Company receives comments from the SEC with respect to the Information Statement Pursuant to Section 14(c) (the “Information Statement”) that the Company filed on July 7, 2009 in connection with an amendment to the Company’s Certificate of Incorporation authorizing a sufficient number of shares of the Company’s common stock to permit the conversion of the notes (“Certificate of Amendment”), September 15, 2009.  The Company did not receive comments from the SEC with respect to the Information Statement and, as such, the maturity date of such notes shall be August 31, 2009.  Amendment No. 2 also provides that the notes shall automatically convert into shares of the Company’s common stock effective immediately on the date by which the following two events have occurred, regardless of the order in which they occur: (a) the effectiveness of the filing the Certificate of Amendment, and (b) the consummation of a financing by the Company for which such sale results in aggregate gross proceeds to the Company of at least $4.0 million. Notwithstanding, if the notes do not convert on or prior to the revised maturity date, Amendment No. 2 provides that the provisions of Amendment No. 2 with respect to automatic conversion shall become null and void and shall be of no further effect.  In consideration of the Holders’ execution and delivery of Amendment No. 2, the Company entered into a letter agreement, dated as of June 26, 2009, pursuant to which the Company granted to the Holders registration rights which require the Company to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon conversion of the notes, within 30 calendar days after receipt of approval of the Company’s stockholders of the Certificate of Amendment or 60 calendar days following the closing of a financing by the Company for which such sale results in aggregate gross proceeds to the Company of at least $4.0 million, whichever is later.

Zoo Publishing Notes

In connection with Zoo Games’ acquisition of Zoo Publishing, there was 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 was scheduled to be paid on or before September 18, 2009 and the remaining $1,820,000 plus accrued and unpaid interest was scheduled to be paid on or before December 18, 2010.  Also in connection with the acquisition of Zoo Publishing, Zoo Games was required to pay an individual an aggregate of $608,400. Of that amount, $292,500 was due on December 18, 2010 and $315,900 was scheduled to 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.  In connection with the Settlement Agreement dated June 18, 2009, all the Zoo Publishing Notes and the note to the individual were cancelled and no cash payments were required to be made for either the principal amounts of the notes or the interest accrued.  The net amount of the obligations relieved for the Zoo Publishing Notes was approximately $3.0 million and is included in the Gain on Settlement on the Statement of Operations.

As part of the acquisition of Zoo Publishing, Zoo Games was required to pay $1,200,000 to an employee of Zoo Publishing.  Of that amount, as of June 30, 2009, Zoo Games paid $387,000; $193,000 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 Publishing has additional debt outstanding which debt existed prior to Zoo Games’ acquisition of that subsidiary. As of June 30, 2009, Zoo Publishing owes approximately $310,000 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.

8

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.

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 fee upon their funding of each purchase order and we commit to pay a total fee for twelve months in the aggregate amount of $337,500.  If the fees earned during the twelve month period do not exceed $337,500, we are required to pay the difference between the $337,500 and the amounts already paid 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, to be offset against actual fees paid by us upon their payment of each purchase order, to be 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.

9

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.

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, 2010. The agreement initially expired on March 31, 2009, but was amended to extend the term for certain customers until March 31, 2010.

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 on August 31, 2009 and September 26, 2009, as applicable, into equity or restructure the maturing note obligations. We believe that we require at least an additional $4 million to $10 million in financing in order to fund our operating requirements and strategic plan for the following 12 months.

In addition, should we be successful in raising capital, we may need to 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.

10

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 June 30, 2009.

Recently Issued Accounting Pronouncements

See Note 3 to the unaudited condensed consolidated financial statements included in this quarterly report for the period ended June 30, 2009.

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 have engaged additional qualified personnel to assist in these areas.  We will continue to reassess our accounting and finance staffing levels to ensure that we have the appropriate accounting resources to handle the existing workload.

11

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.

12

PART II - OTHER INFORMATION

ITEM  1.  LEGAL PROCEEDINGS

On February 19, 2009, Susan Kain Jurgensen, Steven Newton, Mercy Gonzalez, Bruce Kain, Wesley Kain, Raymond Pierce and Cristie Walsh filed a complaint 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 sought compensatory damages, punitive damages and preliminary and permanent injunctive relief, among other remedies.  On June 18, 2009, we reached a settlement whereby we agreed to pay to the plaintiffs an aggregate of $560,000 (the “Settlement Amount”) in full satisfaction of the disputed claims, without any admission of any liability of wrongdoing as follows: (a) $300,000 on June 26, 2009; (b) $60,000 on or before the earlier of (i) the date that is 90 days from June 18, 2009 or (ii) the date the Company obtains new and available financing, including any amounts currently held in escrow that will be released from escrow after June 18, 2009, in any form and from any source, in an amount totaling at least $2,000,000; (c) $100,000 on or before December 18, 2009; and (d) $100,000 on or before June 18, 2010.  To date, $300,000 of the Settlement Amount has been paid to the plaintiffs.  The Zoo Publishing Notes and all other notes, employment,  agreements, loan agreements, options, warrants and other agreements  relating to the plaintiffs (except with respect to that certain Employment Agreement between Zoo Publishing and Cristie Walsh) were terminated and all outstanding obligations of the Company related to these agreements were cancelled.  In addition, the plaintiffs returned to us an aggregate of 5,563,950 shares of our common stock owned by them prior to such date.

In connection with an action brought by Revolution Partners, LLC against Zoo Games, Inc., the claimant Revolution Partners, LLC was 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 settled this claim in June 2009 for $140,000, $60,000 of which was paid as of June 30, 2009 and the balance of which is included in accounts payable as of June 30, 2009, to be paid in four monthly installments through October 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

Issuer Purchases of Equity Securities

Period	(a) Total Number of Shares (or Units) Purchased			(b) Average Price Paid per Share (or Unit)			(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1, 2009- April 30, 2009	-			-			-		-
May 1, 2009- May 31, 2009		-			-			-		-
June 1, 2009- June 30, 2009	5,563,950		(1)			(1)		-		-

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(1)  On February 19, 2009, Susan Kain Jurgensen, Steven Newton, Mercy Gonzalez, Bruce Kain, Wesley Kain, Raymond Pierce and Cristie Walsh filed a compliant against Zoo Publishing, Zoo Games and Zoo in the Supreme Court of the State of New York, New York County, alleging claims for breach of certain loan agreements and employment agreements, intentional interference and fraudulent transfer.  The complaint sought compensatory damages, punitive damages and preliminary and permanent injunctive relief, among other remedies.  On June 18, 2009, we reached a settlement whereby we agreed to pay to the plaintiffs an aggregate of $560,000 in full satisfaction of the disputed claims, without any admission of any liability of wrongdoing. In connection with the settlement agreement, the plaintiffs returned to us an aggregate of 5,563,950 shares of our common stock owned by the plaintiffs prior to such date.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

On June 26, 2009, the Company received, in lieu of a meeting, written consents from the holders of 19,346,362 shares of common stock, representing approximately 63.6% of the total issued and outstanding shares of common stock, approving an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 shares to 250,000,000 shares.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS

10.1	Amendment No. 2 to Senior Secured Convertible Note, dated as of June 26, 2009, by and among Zoo Entertainment, Inc. and the holders of Notes set forth therein.
10.2	Letter Agreement, dated as of June 26, 2009, by and among Zoo Entertainment, Inc. and the holders of Notes set forth therein.
10.3	Amendment Number 3 to the October 24, 2008 Sales Agreement, dated as of June 15, 2009, by and between Zoo Publishing, Inc. and Atari, Inc. †
10.4	Amendment No. 2 to License Agreement, dated as of May 20, 2009, by and among Zoo Publishing, Inc., Zoo Entertainment, Inc. and New World IP, LLC.
10.5	Employment Agreement, dated as of January 1, 2008, by and between Zoo Publishing, Inc. and David Rosenbaum.  *
10.6	Amendment No. 1 to Employment Agreement, dated as of July 1, 2008, by and between Zoo Publishing, Inc. and David Rosenbaum.  *
10.7	Amendment No. 2 to Employment Agreement, dated as of July 23, 2009, by and between Zoo Publishing, Inc. and David Rosenbaum.  *
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.

* Management compensation agreements

† Confidential treatment as to certain portions requested

14

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.

Dated August 14, 2009

ZOO ENTERTAINMENT, INC

/s/ Mark Seremet

Mark Seremet

President and Chief Executive Officer

(Principal Executive Officer)

/s/ David Fremed

David Fremed

Chief Financial Officer

(Principal Financial Officer)

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EXHIBIT INDEX

10.1	Amendment No. 2 to Senior Secured Convertible Note, dated as of June 26, 2009, by and among Zoo Entertainment, Inc. and the holders of Notes set forth therein.
10.2	Letter Agreement, dated as of June 26, 2009, by and among Zoo Entertainment, Inc. and the holders of Notes set forth therein.
10.3	Amendment Number 3 to the October 24, 2008 Sales Agreement, dated as of June 15, 2009, by and between Zoo Publishing, Inc. and Atari, Inc. †
10.4	Amendment No. 2 to License Agreement, dated as of May 20, 2009, by and among Zoo Publishing, Inc., Zoo Entertainment, Inc. and New World IP, LLC.
10.5	Employment Agreement, dated as of January 1, 2008, by and between Zoo Publishing, Inc. and David Rosenbaum.  *
10.6	Amendment No. 1 to Employment Agreement, dated as of July 1, 2008, by and between Zoo Publishing, Inc. and David Rosenbaum.  *
10.7	Amendment No. 2 to Employment Agreement, dated as of July 23, 2009, by and between Zoo Publishing, Inc. and David Rosenbaum.  *
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.

* Management compensation agreements

† Confidential treatment as to certain portions requested

16

EX-10.1

AMENDMENT NO. 2

TO

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

This Amendment No. 2 (this “Amendment”), dated as of June 26, 2009, is entered into by and among Zoo Entertainment, Inc. (the “Company”) and the undersigned holders of the Notes (as defined below) representing the Requisite Holders (as defined below).

RECITALS

WHEREAS, the Company entered into that certain Note Purchase Agreement, dated as of July 7, 2008, as subsequently amended on July 15, 2008, July 31, 2008 and August 12, 2008, pursuant to which the Company consummated a financing (the “First Financing”) to raise $9,000,000 through the sale of senior secured convertible notes (the “Notes”) to certain investors, and the issuance to such investors of warrants to purchase an aggregate of 8,181,818 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”); and

WHEREAS, on July 7, 2008, Trinad Capital Master Fund, Ltd. (“Trinad”) invested $2,500,000 in the First Financing and received a Note in the principal amount of $2,500,000; and

WHEREAS, on July 7, 2008, Back Bay LLC (“Back Bay”) invested $2,000,000 in the First Financing and received a Note in the principal amount of $2,000,000; and

WHEREAS, on July 7, 2008, the Company issued to Trinad Capital Management, LLC, a Note in the principal amount of $750,000; and

WHEREAS, on July 10, 2008, Cipher 06 LLC invested $150,000 in the First Financing and received a Note in the principal amount of $150,000; and

WHEREAS, on July 24, 2008, each of Soundpost Capital, LP and Soundpost Capital Offshore Ltd. invested $500,000 in the First Financing and each received a Note in the principal amount of $500,000; and

WHEREAS, on August 1, 2008, Trinad invested $1,500,000 in the First Financing and received a Note in the principal amount of $1,500,000; and

WHEREAS, on August 12, 2008, Amendment No. 1 to the Senior Secured Convertible Promissory Notes was executed; and

WHEREAS, on August 13, 2008, S.A.C. Venture Investments, LLC invested $1,850,000 in the First Financing and received a Note in the principal amount of $1,850,000; and

WHEREAS, on September 26, 2008, the Company entered into that certain Note Purchase Agreement, pursuant to which the Company consummated a second financing (the “Second Financing”) to raise $1,400,000 through the sale of Notes to certain investors, and the issuance to such investors of warrants to purchase an aggregate of 1,272,727 shares of Common Stock; and

WHEREAS, on September 26, 2008, Trinad invested $500,000 in the Second Financing and received a Note in the principal amount of $500,000; and

WHEREAS, on September 26, 2008, Back Bay invested $500,000 in the Second Financing and received a Note in the principal amount of $500,000; and

WHEREAS, on September 26, 2008, John S. Lemak invested $100,000 in the Second Financing and received a Note in the principal amount of $100,000; and

WHEREAS, on September 26, 2008, Sandor Capital Master Fund LP invested $300,000 in the Second Financing and received a Note in the principal amount of $300,000; and

WHEREAS, pursuant to Section 8 of the Notes, the Notes may be amended with the consent of the Company and the holders of Notes representing at least seventy-five percent (75%) of the aggregate principal amount then outstanding under all Notes (the “Requisite Holders”); and

WHEREAS, the undersigned holders represent the Requisite Holders and desire to amend certain provisions of all of the Notes.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged by the parties hereto, the undersigned parties do hereby agree as follows:

AGREEMENT

1. Amendment to Section 1 of the Notes Issued in the First Financing.  Section 1 of each of the Notes issued in the First Financing is hereby amended by deleting the date “July 7, 2009” and inserting the following in place thereof: “August 31, 2009, or, if the Company receives comments from the Securities and Exchange Commission with respect to that certain Information Statement Pursuant to Section 14(c) that the Company is contemplating filing in connection with an amendment to the Company’s certificate of incorporation authorizing a sufficient number of shares of Common Stock to permit the conversion of the Notes, September 15, 2009”.

2. Amendment to Section 2 of the Notes.  Effective immediately on the date (the “Effective Date”) by which the following two events have occurred, regardless of the order in which they occur: (1) the effectiveness of the filing with the Secretary of State of the State of Delaware of the Certificate of Amendment to the Company’s Certificate of Incorporation, in accordance with Section 103 of the Delaware General Corporation Law, in the form attached hereto as Exhibit A (the “Certificate of Amendment”), and (2) the consummation of an Investor Sale (as defined below in Section 3 of this Amendment), Section 2 of each of the Notes shall be deleted in its entirety and replaced with the following:

“2.          Conversion.

(a)           General.  On the Mandatory Conversion Date, the outstanding principal balance and all accrued and unpaid interest under this Note (collectively, the “Note Value”) shall automatically be converted, in whole, into shares of the Company’s Common Stock, par value $0.001 per share (“Common Stock”), at a rate of one (1) share of Common Stock for each $0.20 (the “Conversion Price”) of the Note Value on the Mandatory Conversion Date (as defined below).  The “MandatoryConversion Date” means the Effective Date (as defined in that certain Amendment No. 2 to Senior Secured Convertible Promissory Notes, dated as of June 26, 2009, by and among the Company and the Holders identified therein).  On the Mandatory Conversion Date, this Note shall be deemed converted automatically and without any further action by the Holder and whether or not this Note is surrendered to the Company or the transfer agent for this Note; provided, however, that the Company shall not be obligated to issue a certificate or certificates evidencing the shares into which this Note is convertible unless this Note is delivered to the Company, or the holder notifies the Company that the Note has been lost, stolen, or destroyed and executes and delivers an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith and, if the Company so elects, provides an appropriate indemnity.

(b)           Issuance of Conversion Shares.  Upon conversion of this Note pursuant to Section 2(a), the Holder shall be deemed to be the holder of record of Common Stock issuable upon such conversion (the “Conversion Shares”), notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.  If required by the Company, the Note surrendered shall be endorsed or accompanied by a written instrument or instruments of surrender, in form satisfactory to the Company, duly executed by the registered holder or his or its attorney duly authorized in writing.  Subject to compliance with the provisions of Section 2(a), the Company shall, as soon as practicable after such surrender, issue and deliver to such holder of this Note, or to his or its nominees, a certificate or certificates for the Conversion Shares to which such holder shall be entitled.

(c)           Termination of Rights Under this Note.  Immediately upon the Mandatory Conversion Date, this Note shall no longer be deemed to be outstanding and all rights with respect to this Note shall immediately cease and terminate on the Mandatory Conversion Date, except only the right of the Holder to receive the shares to which it is entitled as a result of the conversion on the Mandatory Conversion Date under the terms, and subject to conditions, of this Note.

(d)           Taxes or other Issuance Charges.The issuance of any Conversion Shares upon conversion of this Note, and the delivery of certificates or other instruments representing the same, shall be made without charge to the Holder for any tax or other charge in respect of such issuance.   The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate or instrument in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate or instrument unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

(e)           Holder Not a Stockholder.  The Holder shall not have, solely on account of such status as a holder of this Note, any rights of a stockholder of the Company, either at law or in equity, or any right to any notice of meetings of stockholders or of any other proceedings of the Company until such time as this Note has been converted pursuant to Section 2(a), at which time the Holder shall be deemed to be the holder of record of the Conversion Shares, as applicable, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.

(f)           Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of this Note.  In lieu thereof, the shares of Common Stock otherwise issuable shall be rounded up or down to the nearest whole share of Common Stock.

(h)           Securities Act of 1933.Upon conversion of this Note, the Holder may be required to execute and deliver to the Company an instrument, in form satisfactory to the Company, representing that the shares of Common Stock issuable upon conversion hereof are being acquired for investment only and not with a view to distribution within the meaning of the Securities Act of 1933, as amended.”

3. For purposes of this Amendment, the “Investor Sale” shall mean the sale of shares of the Company’s Series A Preferred Stock, par value $.001 per share (the “Series A Preferred Stock”), on substantially the terms set forth in the Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock of Zoo Entertainment, Inc., attached hereto as Exhibit B, at closings for which (A) such sale results in aggregate gross proceeds to the Company of at least Four Million Dollars ($4,000,000), (B) the Series A Preferred Stock is sold at $10.00 per share, and (C) each share of Series A Preferred Stock is initially convertible into 50 shares of the Company’s Common Stock, par value $0.001 per share.

4. The Company shall cause notice of the Effective Date to be mailed to the registered holders of the Notes, at each such holder’s address appearing in the records of the Company, within five (5) days after the Effective Date.

5. If the amendment to the Notes set forth in Section 2 of this Amendment does not become effective as provided in Section 2 above on or prior to August 31, 2009, or, if the Company receives comments from the Securities and Exchange Commission with respect to that certain Information Statement Pursuant to Section 14(c) that the Company is contemplating filing in connection with the Certificate of Amendment, on or prior to September 15, 2009, the provisions of Section 2 above shall become null and void and shall be of no further effect.

6. Except as otherwise set forth herein, the Notes shall remain in full force and effect without change or modification.  This Amendment, the Notes and other agreements related to the Notes constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral, with respect to such subject matter.  The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other term or provision hereof.  The headings in this Amendment are for convenience of reference only and shall not alter, limit or otherwise affect the meaning hereof.  This Amendment may be executed in any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties and their respective successors and assigns.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on their behalf as of the date first written above.

COMPANY:

ZOO ENTERTAINMENT, INC.

By: /s/ David Fremed                                                      

Name: David Fremed                                                      

Title: Chief Financial Officer                                         

PURCHASERS:

TRINAD CAPITAL MASTER FUND, LTD.

By: /s/ Robert S. Ellin

Name: Robert S. Ellin

Title:   Managing Director of

Trinad Management, LLC, its Manager

BACK BAY LLC

By: /s/ Howard Smuckler

Name: Howard Smuckler

Title:   Chief Financial Officer

CIPHER 06 LLC

By: ________________________________

Name: ________________________________

Title:   ________________________________

SOUNDPOST CAPITAL, LP

By: ________________________________

Name: ________________________________

Title:   ________________________________

SOUNDPOST CAPITAL OFFSHORE LTD.

By: ________________________________

Name: ________________________________

Title:   ________________________________

[Additional Signature Page Follows]
	TRINAD MANAGEMENT, LLC
	By: /s/ Robert S. Ellin
	Name: Robert S. Ellin
	Title:   Managing Director
	S.A.C. VENTURE INVESTMENTS, LLC
	By: /s/ Peter A Nussbaum
	Name: Peter A. Nussbaum
	Title:   Authorized Signatory
	SANDOR CAPITAL MASTER FUND LP
	By: /s/ John S. Lemak
	Name: John S. Lemak
	Title:   John S. Lemak
	/s/ John S. Lemak
	John S. Lemak

EX-10.2

June  26, 2009

Zoo Entertainment, Inc.

2121 Avenue of the Stars

Suite 2550

Los Angeles, CA 90067

Re:         Senior Secured Convertible Promissory Note

Ladies and Gentlemen:

Reference is made to that certain Amendment No. 2 (“Amendment No. 2”) to Senior Secured Convertible Promissory Note, dated as of the date hereof, by and among Zoo Entertainment, Inc. (the “Company”) and each of the holders of the Senior Secured Convertible Notes (the “Notes) identified on the signature page thereto (the “Holders”).   Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in Amendment No. 2.  Pursuant to Amendment No. 2, the parties have agreed to amend the Notes to provide that the outstanding principal amount plus accrued but unpaid interest underlying the Notes shall automatically convert into shares of Common Stock, at a conversion price of $0.20 per share on the Effective Date (as defined in Amendment No. 2).  In consideration of the execution and delivery of Amendment No. 2, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company desires to grant to the Holders certain registration rights and to make certain representations and warranties to the Holders as set forth herein.  Accordingly, the undersigned parties do hereby agree as follows:

1.             Registration Rights.

1.1           Definitions.  In addition to the terms defined elsewhere in this letter agreement, for all purposes of this letter agreement, the following terms shall have the meanings indicated in this Section 1.1:

 “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Closing” means the final closing date of an Investor Sale.

“Commission” means the United States Securities and Exchange Commission.

“Effective Date” means the date that the Registration Statement is first declared effective by the Commission.

“Exchange Act" means the Securities Exchange Act of 1934, as amended.

“Filing Date” means within either 30 calendar days after receipt of Stockholder Approval, or 60 calendar days after the Closing, whichever is later.

“Indemnifying Party” has the meaning set forth in Section 1.5(c).

“Losses” means any and all losses, claims, damages, liabilities, settlement costs and expenses, including, without limitation, reasonable attorneys’ fees.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means shares of Common Stock issuable upon conversion of the Notes; provided, that the Holder has completed and delivered to the Company a Selling Stockholder Questionnaire; and provided, however, that shares of Common Stock shall cease to be Registrable Securities upon any permitted sale of such shares pursuant to (i) a registration statement filed under the Securities Act, or (ii) Rule 144 promulgated under the Securities Act.

“Registration Statement” means each registration statement required to be filed under this Section 1, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Required Effectiveness Date” means within 90 calendar days after the Filing Date, or within 180 calendar days after the Filing Date in the event the Registration Statement is reviewed by the Commission.

"Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act" means the Securities Act of 1933, as amended.

2

“Selling Stockholder Questionnaire” means a questionnaire as may reasonably be adopted by the Company from time to time.

“Stockholder Approval” means the approval by the stockholders of the Company of an amendment to the Company’s Certificate of Incorporation authorizing a sufficient number of shares of Common Stock to permit the conversion of the Notes into shares of Common Stock.

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded in the over-the-counter market is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.

“Trading Market” means whichever of the NYSE, the NYSE Amex, the NASDAQ Stock Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

“Transaction Documents” means this letter agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Empire Stock Transfer, Inc., or any successor transfer agent for the Company.

1.2         Registration Statement.

(a)           As promptly as possible, and in any event on or prior to the Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance with the Securities Act and the Exchange Act).

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(b)           Each Holder agrees to furnish to the Company a completed Selling Stockholder Questionnaire not more than five (5) Trading Days following the date that the Selling Stockholder Questionnaire is provided by the Company to the Holder. At least five (5) Trading Days prior to the first anticipated filing date of a Registration Statement for any registration under this letter agreement, the Company will notify each Holder of the information the Company requires from that Holder other than the information contained in the Selling Stockholder Questionnaire, if any, which shall be completed and delivered to the Company promptly upon request and, in any event, within two (2) Trading Days prior to the applicable anticipated filing date.  Each Holder further agrees that it shall not be entitled to be named as a selling securityholder in the Registration Statement or use the Prospectus for offers and resales of Registrable Securities at any time, unless such Holder has returned to the Company a completed and signed Selling Stockholder Questionnaire and a response to any requests for further information as described in the previous sentence. If a Holder of Registrable Securities returns a Selling Stockholder Questionnaire or a request for further information, in either case, after its respective deadline, the Company shall use its commercially reasonable efforts at the expense of the Holder who failed to return the Selling Stockholder Questionnaire or to respond for further information to take such actions as are required to name such Holder as a selling security holder in the Registration Statement or any pre-effective or post-effective amendment thereto and to include (to the extent not theretofore included) in the Registration Statement the Registrable Securities identified in such late Selling Stockholder Questionnaire or request for further information. Each Holder acknowledges and agrees that the information in the Selling Stockholder Questionnaire or request for further information as described in this Section 1.2(b) will be used by the Company in the preparation of the Registration Statement and hereby consents to the inclusion of such information in the Registration Statement.

(c)           The Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the Commission as promptly as possible after the filing thereof, but in any event prior to the Required Effectiveness Date, and shall use its commercially reasonable efforts to keep the Registration Statement continuously effective under the Securities Act until the earlier of the date that all shares of Common Stock covered by such Registration Statement have been sold or that all shares of Common Stock that would otherwise be covered by such Registration Statement can be resold by a Holder, with respect to such Holder’s shares, without restriction (including volume limitations) pursuant to Rule 144 of the Securities Act (the “Effectiveness Period”); provided that, notwithstanding the foregoing, so long as a Holder’s securities represent 7.5% or more of the Company’s outstanding securities, that Holder’s shares of Common Stock will continue to be covered by such Registration Statement until such time as such Holder’s shares of Common Stock no longer represent at least 7.5% of the Company’s outstanding securities; provided further that, upon notification by the Commission that a Registration Statement will not be reviewed or is no longer subject to further review and comments, the Company shall request acceleration of such Registration Statement within five (5) Trading Days after receipt of such notice and request that it become effective on 4:00 p.m. New York City time on the Effective Date and file a prospectus supplement for any Registration Statement, whether or not required under Rule 424 (or otherwise), by 9:00 a.m. New York City time the day after the Effective Date.  For purposes of clarification, in the event an individual Holder is able to resell such Holder’s shares of Common Stock without restriction (including volume limitations) pursuant to Rule 144 of the Securities Act, the Company shall not have any obligation to keep the Registration Statement continuously effective to cover the resale of such Holder’s shares of Common Stock.

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(d)           The Company shall notify the Holders in writing promptly (and in any event within five Trading Days) after receiving notification from the Commission that the Registration Statement has been declared effective.

(e)           Notwithstanding anything in this letter agreement to the contrary, after sixty (60) consecutive Trading Days of continuous effectiveness of the initial Registration Statement filed and declared effective pursuant to this letter agreement, the Company may, by written notice to the Holders, suspend sales under a Registration Statement after the Effective Date thereof and/or require that the Holders immediately cease the sale of shares of Common Stock pursuant thereto and/or defer the filing of any subsequent Registration Statement if the Company is engaged in a material merger, acquisition or sale and the Board of Directors determines in good faith, by appropriate resolutions, that, as a result of such activity, (A) it would be materially detrimental to the Company (other than as relating solely to the price of the Common Stock) to maintaina Registration Statement at such time or (B) it is in the best interests of the Company to suspend sales under such registration at such time.  Upon receipt of such notice, each Holder shall immediately discontinue any sales of Registrable Securities pursuant to such registration until such Holder is advised in writing by the Company that the current Prospectus or amended Prospectus, as applicable, may be used.  In no event, however, shall this right be exercised to suspend sales beyond the period during which (in the good faith determination of the Company’s Board of Directors) the failure to require such suspension would be materially detrimental to the Company.  The Company’s rights under this Section 1.2(e) may be exercised for a period of no more than 20 Trading Days at a time and not more than once in any twelve-month period.  Immediately after the end of any suspension period under this Section 1.2(e), the Company shall take all necessary actions (including filing any required supplemental prospectus) to restore the effectiveness of the applicable Registration Statement and the ability of the Holders to publicly resell their Registrable Securities pursuant to such effective Registration Statement.

(f)           If for any reason the Commission does not permit all of the Registrable Securities to be included in the Registration Statement filed pursuant to this Section 1.2, or for any other reason any Registrable Securities are not permitted by the Commission to be included in a Registration Statement filed under this Agreement, then the Company shall prepare and file as soon as possible after the date on which the Commission shall indicate as being the first date or time that such filing may be made, an additional Registration Statement covering the resale of all Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415.  The Company shall cause each such Registration Statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than its Effective Date, and shall use its best efforts to keep such Registration Statement effective under the Securities Act during the entire Effectiveness Period.

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(g)           Notwithstanding anything to the contrary contained in this Agreement, in the event the Commission determines any Registration Statement filed pursuant to this Agreement (i) constitutes a primary offering of securities by the Company or (ii) requires any Holder to be named as an underwriter and such Holder does not consent to being so named as an underwriter in such Registration Statement, the Company may reduce, on a pro rata basis, the total number of Registrable Securities to be registered on behalf of each such Holder, and the failure to include such Registrable Securities in any Registration Statement shall not cause the Company to be required to pay any penalty, financial or otherwise.  The pro rata adjustment will reduce all Registrable Securities other than those issued pursuant to that certain Mutual Settlement, Release and Waiver Agreement, as amended, dated as of June 18, 2009, by and among the Company, Zoo Games, Inc., Zoo Publishing, Inc. and the individual plaintiffs set forth therein.  In the event of any such reduction in Registrable Securities, the affected Holders shall have the right to require, upon delivery of a written request to the Company signed by the Holders of at least a majority of the Registrable Securities then outstanding, the Company to file a registration statement within 90 days of such request subject to any restrictions imposed by Rule 415, until such time as: (i) all Registrable Securities have been registered pursuant to an effective Registration Statement, (ii) the Registrable Securities may be resold without restriction (including volume limitations) pursuant to Rule 144 of the Securities Act or (iii) the Holder agrees to be named as an underwriter in any such Registration Statement.

1.3          Registration Procedures.  In connection with the Company’s registration obligations hereunder, the Company shall:

 (a)            (i) Subject to Section 1.2(e), prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective, as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible (except to the extent that the Company reasonably requires additional time to respond to accounting comments), to any comments received from the Commission with respect to the Registration Statement or any amendment thereto; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.

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(b)           Notify the Holders as promptly as reasonably possible, and (if requested by the Holders confirm such notice in writing no later than two Trading Days thereafter, of any of the following events:  (i) the Commission notifies the Company whether there will be a “review” of any Registration Statement; (ii) the Commission comments in writing on any Registration Statement; (iii) any Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to any Registration Statement or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Registration Statement become ineligible for inclusion therein or any Registration Statement or Prospectus or other document contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(c)           Use its commercially reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as possible.

(d)           If requested by a Holder, provide such Holder without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(e)           (i) In the time and manner as may be required by each Trading Market, prepare and file with such Trading Market an additional shares listing application covering all of the Registrable Securities; (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on each Trading Market as soon as possible thereafter; (iii) provide to each Holder evidence of such listing; and (iv) during the Effectiveness Period, maintain the listing of such shares of Common Stock on each such Trading Market, as applicable.

(f)           Prior to any public offering of Registrable Securities, use its reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective for so long as required, but not to exceed the duration of the Effectiveness Period, and to do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

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(g)           Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by this letter agreement and under law, of all restrictive legends, and to enable such certificates to be in such denominations and registered in such names as any such Holders may reasonably request.

(h)           Upon the occurrence of any event described in Section 1.3(b)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(i)           Cooperate with any reasonable due diligence investigation undertaken by the Holders in connection with the sale of Registrable Securities, including, without limitation, by making available documents and information; provided that the Company will not deliver or make available to any Holder material, nonpublic information unless such Holder requests in advance in writing to receive material, nonpublic information and agrees to keep such information confidential.

(j)           Comply with all rules and regulations of the Commission applicable to the registration of the Registrable Securities.

(k)           It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this letter agreement with respect to the Registrable Securities of any particular Holder that such Holder furnish to the Company information regarding itself, the Registrable Securities and other shares of Common Stock held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall complete and execute such documents in connection with such registration as the Company may reasonably request.

(l)           The Company shall comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to make available a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.

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1.4           Registration Expenses.  The Company shall pay all fees and expenses incident to the performance of or compliance with Section 1 of this letter agreement by the Company, including without limitation (a) all registration and filing fees and expenses, including without limitation those related to filings with the Commission, any Trading Market and in connection with applicable state securities or Blue Sky laws, (b) printing expenses, if applicable (including without limitation expenses of printing certificates for Registrable Securities), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company, (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this letter agreement, and (f) all listing fees to be paid by the Company to the Trading Market, if applicable.

1.5         Indemnification

(a)           Indemnification by the Company.  The Company shall, notwithstanding any termination of this letter agreement, indemnify and hold harmless each Holder, the officers, directors, partners, members, agents and employees of each of them, each person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and employees of each such controlling person, to the fullest extent permitted by applicable law, from and against any and all Losses, as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of Company prospectus or in any amendment or supplement thereto or in any Company preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder  for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved by such Holder in writing expressly for use in the Registration Statement, or (ii) with respect to any prospectus, if the untrue statement or omission of material fact contained in such prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, if such corrected prospectus was timely made available by the Company to the Holder, and the Holder seeking indemnity hereunder was advised in writing not to use the incorrect prospectus prior to the use giving rise to Losses.    

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(b)           Indemnification by Holders.  Each Holder shall, severally and not jointly, indemnify and hold harmless the Company and its directors, officers, agents and employees to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising out of  such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act, or any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising out of or relating to any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, but only to the extent that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished to the Company by such Holder in writing expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the information provided by the Holder to the Company in the Selling Stockholder Questionnaire and other information provided by the Holder to the Company in or pursuant to the Transaction Documents constitutes information reviewed and expressly approved by such Holder in writing expressly for use in the Registration Statement), such Prospectus or such form of prospectus or in any amendment or supplement thereto.  In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c)           Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this letter agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of separate counsel shall be at the expense of the Indemnifying Party).  It shall be understood, however, that the Indemnifying Party shall not, in connection with any one such Proceeding (including separate Proceedings that have been or will be consolidated before a single judge) be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties, which firm shall be appointed by a majority of the Indemnified Parties.  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

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All reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within 20 Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d)           Contribution.  If a claim for indemnification under Sections 1.5(a) or  (b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations.  The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 1.5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 1.5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 1.5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceed the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

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The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

1.6    Dispositions.  Each Holder agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement and shall sell its Registrable Securities in accordance with the plan of distribution set forth in the Prospectus.  Each Holder further agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 1.3(b)(v), (vi) or (vii), such Holder will discontinue disposition of such Registrable Securities under the Registration Statement until such Holder is advised in writing by the Company that the use of the Prospectus, or amended Prospectus, as applicable, may be resumed.  The Company may provide appropriate stop orders to enforce the provisions of this paragraph. Each Holder, severally and not jointly with the other Holders, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in Section 2 is predicated upon the Company’s reliance that the Holder will comply with the provisions of this subsection. Both the Company and the Transfer Agent, and their respective directors, officers, employees and agents, may rely on this subsection.

1.7    Piggy-Back Registrations.  If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder not then eligible to sell all of their Registrable Securities under Rule 144 in a three-month period, written notice of such determination and if, within ten days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered.  Notwithstanding the foregoing, in the event that, in connection with any underwritten public offering, the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Holder has requested inclusion hereunder as the underwriter shall permit; provided, however, that (i) the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not contractually entitled to inclusion of such securities in such Registration Statement or are not contractually entitled to pro rata inclusion with the Registrable Securities and (ii) after giving effect to the immediately preceding proviso, any such exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities and the holders of other securities having the contractual right to inclusion of their securities in such Registration Statement by reason of demand registration rights, in proportion to the number of Registrable Securities or other securities, as applicable, sought to be included by each such Holder or other holder.  If an offering in connection with which a Holder is entitled to registration under this Section 1.7 is an underwritten offering, then each Holder whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this letter agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering and shall enter into an underwriting agreement in a form and substance reasonably satisfactory to the Company and the underwriter or underwriters.

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 2. Legends.  Certificates evidencing the Common Stock will contain the following legend until no longer required:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

3.  Representations of the Company.  The Company hereby makes the following representations and warranties to each Holder:

(a)           The Company has not waived or amended any provision contained in the warrants issued by the Company to certain Holders in connection with that certain Note Purchase Agreement, dated as of July 7, 2008, as subsequently amended on July 15, 2008, July 31, 2008 and August 12, 2008, pursuant to which the Company consummated a financing to raise $9,000,000 through the sale of Notes to certain investors, and the issuance to such investors of warrants to purchase an aggregate of 8,181,818 shares of Common Stock, or those warrants issued by the Company to certain Holders in connection with that certain Note Purchase Agreement, dated as of September 26, 2008, pursuant to which the Company consummated a second financing to raise $1,400,000 through the sale of Notes to certain investors, and the issuance to such investors of warrants to purchase an aggregate of 1,272,727 shares of Common Stock.

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(b)           In connection with the transactions contemplated by Amendment No. 2, the Company is not issuing any additional equity securities to the Holders, except for the issuance of Common Stock to the Holders upon conversion of the Notes or the issuance to Holders of any equity or other securities in connection with such Holder’s participation in an Investor Sale.

4.            Governing Law; Jurisdiction.  This letter agreement shall be governed by and construed in accordance with the laws of the State of Delaware governing contracts to be made and performed therein without giving effect to principles of conflicts of law, and with respect to any dispute arising out of this letter agreement, each party hereby consents to the exclusive jurisdiction of the courts sitting in the State of Delaware.  Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and each party further agrees not to bring any action or proceeding arising out of or relating to this letter agreement in any other court.

7.            Counterparts.   This letter agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

8.             Assignment. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Holders. Any Holder may assign any or all of its rights under this letter agreement to any person to whom such Holder assigns or transfers any shares of Common Stock issuable upon conversion of the Notes, provided such transferee agrees in writing to be bound, with respect to the transferred shares of Common Stock, by the provisions hereof that apply to the Holders.  This letter agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

9.             Further Assurances.   The Holder will execute and deliver to the Company any writings and do all things necessary or reasonably requested by the Company to carry into effect the provisions and intent of this letter agreement.

10.           Miscellaneous.   This letter agreement supersedes all prior agreements and sets forth the entire understanding among the parties hereto and thereto with respect to the subject matter hereof and thereof and supersedes all prior agreements and understandings relating to the subject matter hereof and thereof.  If any provision of this letter agreement shall be held to be illegal, invalid or unenforceable, then such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this letter agreement, and this letter agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein.

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IN WITNESS WHEREOF, the undersigned have executed this letter agreement as of the dates set forth below.

HOLDERS:
TRINAD CAPITAL MASTER FUND, LTD.
By:	/s/ Robert S. Ellin
Name:	Robert S. Ellin
Title:	Managing Director of
Trinad Management, LLC, its Manager

BACK BAY LLC

By: /s/ Howard Smuckler

Name: Howard Smuckler

Title:   Chief Financial Officer

CIPHER 06 LLC

By:    ________________________________

Name: ________________________________

Title:   ________________________________

SOUNDPOST CAPITAL, LP

By:    ________________________________

Name: ________________________________

Title:   ________________________________

SOUNDPOST CAPITAL OFFSHORE LTD.

By:    ________________________________

Name: ________________________________

Title:   ________________________________

TRINAD MANAGEMENT, LLC

By: /s/ Robert S. Ellin

Name: Robert S. Ellin

Title:   Managing Director

[Additional Signature Page Follows]

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S.A.C. VENTURE INVESTMENTS, LLC

By: /s/ Peter A Nussbaum

Name: Peter A. Nussbaum

Title:   Authorized Signatory

SANDOR CAPITAL MASTER FUND LP

By: /s/ John S. Lemak

Name: John S. Lemak

Title:   John S. Lemak

/s/ John S. Lemak                                        

John S. Lemak

Accepted and Agreed:

COMPANY:

ZOO ENTERTAINMENT, INC.

By:/s/ David Fremed                              

Name: David Fremed                              

Title: Chief Financial Officer                  

17

EX-10.3

AMENDMENT NUMBER THREE

TO THE OCTOBER 24, 2008 SALES AGREEMENT

This amendment number three (“Amendment 3”), effective as of June 1, 2009 (the “Amendment 3 Effective Date”), amends the Sales Agreement dated October 24, 2008 between Zoo Publishing, Inc. (“Zoo”) and Atari, Inc. (“Atari”), in full force and effect as of the date hereof (the “Sales Agreement”).  This Amendment 3, when fully executed, shall constitute the further understanding between the parties with respect to the Sales Agreement, as follows:

1. Section 1(b) is deleted and replaced with the following:

“Platforms,” shall include Microsoft Xbox 360 (Xbox360), Nintendo Game Boy Advance System (GBA), Nintendo Dual Screen System (DS), Nintendo DSi System (DSi), Nintendo Wii System (Wii), Sony Playstation Portable (PSP),  Sony Playstation 2 (PS2), Sony Playstation 3 (PS3) and the Personal Computer, and any and all derivatives and successors thereof.”

2. Notwithstanding anything to the contrary which may be contained in the Sales Agreement, including without limitation Sections 2(a) and 6, the following shall apply from August 1, 2009 until the end of the Term.  :

All rights granted to Atari in the Sales Agreement shall be limited to the following wholesalers and retailers in the Territory: Wal-Mart, Sam’s Club, Jack of All Games, GameStop and Target (the “Atari Accounts”).  The right to sell the Video Games to the Atari Accounts shall be exclusive to Atari.  Atari shall not sell the Video Games to any other retailers, wholesalers or customers and Zoo shall have the right to sell to all wholesalers, retailers and other customers except for the Atari Accounts.  In the event Atari does not pay Zoo for any purchase order(s) for the Atari Accounts in accordance with the Agreement and does not render such payment within 10 days of receipt of Zoo’s subsequent written request for such payment relating to any purchase order(s) for the Atari Accounts, and such purchase order(s) do not represent a material change from the sales forecast as set forth in Paragraph 5 of this Amendment 3, the Atari Account(s) subject to such request will be automatically deleted from the definition of Atari Accounts and Zoo shall be free to sell to such account(s) with no payment obligations to or by Atari.  For clarity, Atari shall no longer have any right to sell to such account(s).   In addition, on or after November 1, 2009, the parties shall reassess the business relationship, including the feasibility of adding wholesalers and retailers to the Atari Accounts. 

3. Notwithstanding anything to the contrary which may be contained in the Sales Agreement, including without limitation, Sections 2(d)-(f), 4(b) and 6(b), the following shall apply from August 1, 2009 until the end of the Term:

Atari shall receive purchase orders directly from the Atari Accounts.  Atari shall have no obligation with respect to any purchase order that is not made to Atari.  Without limiting the generality of the foregoing, Atari may withhold payments related to any purchase order not made out to Atari unless and until Zoo causes the Atari Account to make such purchase order to Atari.   Atari shall supply Zoo with copies of all orders made by the Atari Accounts when such orders are placed.

Atari shall hold all rights in connection with credit and collections issues relating to purchase orders made by Atari Accounts.  Atari hereby assumes all collection risk relating to purchase orders made out to Atari from the Atari Accounts.  Zoo shall reasonably assist Atari with collections on any and all purchase orders, if needed.  Atari may continue to hold a reserve (and shall have no obligation to liquidate such reserve) unless and until Atari receives full payment in connection with all purchase orders.

AMENDMENT NUMBER THREE TO OCTOBER 24TH, 2008 SALES AGREEMENT- June 15, 2009

Page 1 of 2

4. Notwithstanding anything to the contrary which may be contained in the Sales Agreement, including without limitation, Section 2(f), the following shall apply from August 1, 2009 until the end of the Term:

For Video Games sold in Wal-Mart in end caps and having a retail price of $[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2] per unit or less, Zoo shall pay the cost of goods for such Video Games and the ATARI Price for such Video Games shall be [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2]% of the price on the customer purchase order for such Video Games.

For Video Games sold to any of the Atari Accounts with allowances, price protection and other charges, fees and expenses (collectively, “Retail Charges”), Atari may deduct such Retail Charges from the reserve held by Atari.  If such reserve is insufficient to cover any Retail Charges granted by Zoo to any of the Atari Accounts, then Atari may deduct such Retail Charges from any amounts payable to Zoo.

If Atari incurs any charges, fees or expenses in connection with the performance of any services requested by Zoo, including without limitation, sales support and shipping costs not otherwise covered by this Agreement, then Zoo shall promptly reimburse Atari for such charges, fees or expenses.  All such charges, fees or expenses incurred pursuant to this paragraph shall be subject to the prior mutual agreement of Atari and Zoo.  For the purpose of clarity, Atari shall have no obligation to render any such services.

5. Notwithstanding anything to the contrary which may be contained in the Sales Agreement, including without limitation, Sections 2(e)-(g), the following shall apply from August 1, 2009 until the end of the Term:

Zoo shall provide Atari with sales forecasts on a rolling 13-week basis.  If the sales forecast for any week include any material change(s), then Atari shall have no payment or other obligation to Zoo with respect to such change(s), unless Atari agrees to accommodate such change(s).  As used in this paragraph, material changes means a deviation in units of ten percent (10%) or greater from the forecast for the relevant week as reflected in the original sales forecast dated April  3, 2009.  Less than 10% shall not be deemed a “material change”.  In the event Atari chooses to not accommodate the relative material change, Zoo shall not be obligated to order the units above the amounts of units that Atari has agreed to fund.

6. Section 3 is modified as follows:

The Term is hereby extended through March 31, 2010.

7. Section 6(b) is modified as follows:

The period during which Atari shall have the right to hold a reasonable reserve for projected returns is extended through July 31, 2010, except as otherwise set forth herein.

Except as expressly or by necessary implication modified or amended by this Amendment 3, the terms of the Sales Agreement are hereby ratified and confirmed without limitation or exception.  Capitalized terms used in this Amendment 3 and not otherwise defined shall have the same meaning ascribed to them as set forth in the Sales Agreement.

The parties hereto have executed this Amendment 3, which shall be effective as of the Amendment 3 Effective Date.

Zoo Publishing, Inc.		Atari, Inc.
By:	/s/ David J. Fremed	By: /s/ James Wilson
Name:	David J. Fremed	Name: James Wilson
Title:	Chief Financial Officer	Title: President/CEO

*We have requested confidential treatment of certain provisions contained in this exhibit.  The copy filed as an exhibit omits the information subject to the confidentiality request.*

AMENDMENT NUMBER THREE TO OCTOBER 24TH, 2008 SALES AGREEMENT- June 15, 2009

Page 2 of 2

EX-10.4

AMENDMENT NO.2 TO LICENSE AGREEMENT

This Amendment No. 2 to License Agreement and Amendment No.1 to License Agreement is dated as of May 20, 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, Publisher and Parent entered into a License Agreement dated as of May 1, 2009 (the “Agreement”) and;

(b) Licensor, Publisher and Parent amended the Agreement as documented in Amendment No.1 to License Agreement dated as of May 8, 2009 (the “First Amendment”) and;

(c) Licensor, Publisher and Parent desire to amend the Agreement, as amended, as set forth herein.

(d) Terms used but not defined herein shall have the meanings given them in the Agreement.

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

1.The Agreement is hereby amended by adding the following:

“1.7           The Publisher unconditionally releases all rights granted under Section 1 of the Agreement to the Game International Cricket Captain and any variation of such title (“ICC Game”) to provide for the sale of ICC Game to Childish Things Limited, a company registered and incorporated in England and Wales.”

1

“6.9           Proceeds of the sale of ICC Game as described in Section 1.7 will be used to (i) satisfy all legal and other expenses incurred by the Licensor from the sale of ICC Game and; (ii) to the extent that such proceeds exceed $42,398 and all legal and other expenses incurred by the Licensor from the sale of ICC Game, proceeds of the sale of ICC  will be used to extinguish the Publisher’s obligation to the Licensor of $42,398 as described in Section 6.6 of the Agreement. The remainder of the proceeds from the sale of ICC Game (“Remaining Proceeds”) will be held in a bank account in favor of the Licensor to be used at a later date to satisfy certain future obligations of the Publisher to the Licensor under the Agreement.”

2.           The Agreement is hereby amended by amending and restating in its entirety Schedule 1 of the Agreement to have the meaning of Schedule 1 in this Amendment No. 2 to License Agreement.

3.           Except as modified hereby, the Agreement and First Amendment remain in full force and effect.

[SIGNATURE PAGE FOLLOWS]

2

THIS AMENDMENT NO.2 TO LICENSE 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

3

EX-10.5

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Employment Agreement” or “Agreement”) dated as of January 1, 2008 (the “Effective Date”) by and between Destination Software, Inc., a corporation having an office and principal place of business at 137 Hurffville Crosskeys Rd., Sewell, NJ 08080 (hereinafter referred to as the "Company") and David Rosenbaum, an individual residing in Cincinnati, Ohio (hereinafter referred to as the "Employee").

WITNESSETH :

WHEREAS, the Employee is currently an independent contractor of Company; and

WHEREAS, Green Screen Interactive Software LLC (“GSIS”) has acquired all of the stock of Company; and

WHEREAS, Company and Employee desire Employee to be employed by Company under the terms of this Employment Agreement;

WHEREAS, the Company wishes to protect its business, good will and confidential and proprietary information.

NOW, THEREFORE, in consideration of the premises herein, and the mutual promises and undertakings herein contained and set forth, and for other good and valuable consideration, made over by each party to the other, the receipt and sufficiency of which are hereby acknowledged, it is covenanted and agreed as follows:

1.      Employment.  The Company hereby agrees to employ the Employee, and the Employee hereby agrees to employment with the Company, upon and subject to the terms and conditions of this Agreement.

2.      Term.  The term of this Agreement shall begin on the date hereof (the “Commencement Date”) and shall continue for a period of four (4) years, unless sooner terminated in the manner provided for herein (the “Term”).  In addition the parties agree to discuss the renewal of this Agreement starting at least six (6) months prior to the end of the Term.  As used herein, the term “Contract Year” shall mean each of the four 12 month periods during the Term beginning on the Effective Date or the anniversary of the Effective Date.

3.     Compensation.

A.           Base Salary.  For all services to be rendered by the Employee to the Company under this Agreement, or otherwise, the Company shall pay to the Employee a base salary (“Base Salary”) at the rate of Three Hundred Seventy Five Thousand Dollars ($375,000) for each of the first two Contract Years and Four Hundred Thousand Dollars ($400,000) for each remaining Contract Year, which sum shall be paid on such basis as the Company shall reasonably determine, but not less frequently than monthly.  It is understood that the Company may, in its sole discretion, increase said base salary without affecting any of the other terms of this Agreement.

B.           Bonuses.  (i)  Employee shall annually receive a bonus of $375,000 for each of the first two Contract Years and $400,000 for each of the final two Contract Years, payable in equal semi-annual installments within 30 days of the end of the relevant six month period (the “Minimum Bonus”). (ii)  In addition, Employee shall be eligible to receive an additional bonus based on reasonable semi-annual North American sales and/or profits targets for Company and GSIS, and other milestones, including, without limitation, establishing a fully functional national sales force and establishing direct relationships with specific major retailers, the specifics of which are to be set on a semi-annual basis by the Company and GSIS (the “Additional Bonus”).  Any Additional Bonus amounts shall be payable semi-annually, within 60 days of the end of the relevant six month period.  The Additional Bonus will be $750,000 per Contract Year ($375,000 semi-annually) if the goals are met, but not exceeded.

C.           Equity.  Employee shall be eligible to participate in any incentive equity option plan GSIS may have, subject to the discretion of GSIS or its compensation committee, taking into account Employee’s senior management role in the Company, among other things.

4.  Social Security and Withholding.  All compensation provided for in this Agreement shall be subject to the Company deducting therefrom such Social Security, withholding and any other payments as may be required by law.

5.  Duties.

A.           During the Term, the Employee will hold the initial office of Senior Vice President of Sales of the Company and such other office(s) of the Company and/or its affiliates to which he may be elected or appointed, and Employee shall perform all duties incidental thereto as may be prescribed by the Company from time to time. The Employee shall report to the President of the Company, currently Susan Kain.  The precise services and responsibilities of the Employee may be extended or curtailed, from time to time, at the direction of the Company, in its sole discretion.  In the event that the Employee is now or shall in the future be elected or appointed as an officer of the Company or of any affiliate of the Company during the Term, the Employee will serve in such capacity or capacities without further compensation; however, nothing herein shall be construed as requiring the Company, or anyone else, to cause the election or appointment of the Employee as such officer.

B.           The Employee warrants and represents (and breach hereof shall be cause for termination by the Company of this Agreement for Cause) that (i) he is not under any contractual or other obligations of any sort which will (a) prevent him from performing fully all of his obligations hereunder, and/or (b) vest in any other person, firm or corporation any right to recover damages as a result of the Employee's performance hereunder, and/or (c) permit any other person or entity to enjoin or otherwise prevent full compliance by him hereunder; and (ii) he is not party to, either directly or indirectly, to any agreement with COKem International, Ltd. (“COKem”) and or Jack of All Games, Inc. (“Jack”) except for confideantaility and nondisclosure provisions under the prior agreement with Jack. Employee hereby indemnifies and holds harmless Company, GSIS, their subsidiaries, affiliates, successors, licensees and assigns, from and against any (i) claim, liability, cost or expense including reasonable attorneys' fees and costs, arising out of the breach or alleged breach, of Employee’s representations, warranties, covenants or agreements contained in this Agreement; and/or (ii) claim, liability, cost or expense including reasonable attorneys' fees and costs, arising out of any claim made by COKeM and/or Jack, their parent companies, subsidiaries, affiliates, successors, licensees and assigns, relating to any agreement(s) between such companies and Employee.

C.           Company agrees that Employee may perform his duties and reside either in Cincinnati, Ohio and/or Naples, Florida.  Employee agrees to travel as is necessary to perform his duties.

6.  Extent of Services.  The Employee shall devote his entire, full time, attention, energies and best efforts to the business of the Company, and shall not during the Term be engaged in any other business activity whether or not such business activity is pursued for gain, profit, or other pecuniary advantage; but this shall not be construed as preventing the Employee from investing his assets in such form or manner as will not require any services on the part of the Employee in the operation of the affairs of the companies in which such investments are made.  The Employee agrees to perform faithfully and to the best of his ability all assignments given him by the Company.

7.   Benefits.  During the Term:

A.           Vacation. The Employee shall be entitled to a vacation of twenty (20) working days during each Contract Year, or pro rata for a portion of a Contract Year.   The time or times of said vacation shall be determined by the mutual agreement of the Company and the Employee.

B.           Benefits.  The Employee and his dependents, if applicable, shall be eligible to participate in any plan of the Company relating to group life insurance, medical coverage, dental coverage, disability insurance, education and/or other retirement or employee benefit plans or programs that the Company has adopted or may adopt for the benefit of its executive employees (“Plans”).  The Employee acknowledges and agrees that the Company shall have the absolute right, at any time and from time to time, to modify, amend, replace and/or discontinue any of the Plans and  Employee’s coverage (and that of his eligable family members)  shall be consistent with the Company’s policy for payment of insurance premiums for its other executives.  Nowithstanding anything to the contrary contained above, Company shall pay 100% of premiumns for all Company-provided insurance for Employee and his eligible dependents.

C.           Expenses.  The Employee is authorized to incur reasonable and necessary expenses for promoting the business of the Company, including expenses for entertainment, travel and similar items; provided, however, that any single such expense in excess of $500 must be approved in advance by the Company, with the exception of air travel which Company agrees may be business class.  The Company will pay for and/or reimburse the Employee for all such expenses upon the presentation by the Employee, within thirty (30) days of the date incurred, of an itemized account of such expenditures and invoices and/or such other verification of such expenses as may be requested by the Company.

8.   Title to Business.  The Employee shall keep and maintain accurate, detailed and legible records of all work performed by the Employee on behalf of the Company, including, but not limited to, specific proposals to clients and customers, proposals and presentations, the Employee's work product and other ideas created and implemented during the Term.  All right, title, and interest in and to all of the above, together with any and all books, records, accounts, good will, all related business and all other business conducted by the Company, or the Employee on the Company's behalf, whether produced by the Employee or not, and any renewals thereof, shall remain in the Company before and after the termination of this Agreement for any reason.

9.   Ventures.  If, during the Term of this Agreement, the Employee is engaged in or associated with the planning or implementing of any project, program or venture involving the Company or its affiliates and a third party or parties, all rights in such project, program or venture shall belong to the Company.  The Employee shall not be entitled to any interest in such project, program or venture or to any commission, finder's fee or other compensation in connection therewith other than the salary to be paid to the Employee as provided in this Agreement.  This provision shall not apply to any equity ownership of Employee in Company, GSIS or their subsidiaries.

10.  Life Insurance.  The Company may, in its discretion, at any time after the execution of this Agreement, apply for and procure as owner, and for its own benefit, insurance on the life of the Employee, in such amounts and in such form or forms as the Company may choose.  The Employee shall have no interest whatsoever in any such policy or policies, but shall, at the request of the Company, submit to such medical examinations, supply such information, and execute such documents as may be reasonably required by the insurance Company or companies to whom the Company has applied for such insurance.

11.  Confidentiality of Information.

A.           The Employee acknowledges and recognizes that in the course of his employment hereunder he will become acquainted with confidential and/or proprietary information of the Company, (all of such confidential and/or proprietary information being collectively referred to as "Confidential Information"). “Confidential Information” includes, but is not limited to, any trade secrets, confidential or secret designs, processes, formulae, plans, devices or material (whether or not patented or patentable) directly or indirectly useful in any aspect of the business of the Company or its affiliates, any customer or supplier lists of the Company, any confidential or secret development or research work of the Company, or any other confidential information or secret aspects of the business of the Company, whether developed by the Employee or by others, as well as all such information of affiliates of Company, including GSIS and other subsidiaries and affiliates of GSIS.  In recognition of the foregoing, the Employee agrees that he will keep secret and confidential any and all Confidential Information and that he will not, directly or indirectly, without the prior written consent of the Company, either during the Term or at any time thereafter, except as may be required in the course of his employment hereunder:

(i)  Communicate, divulge or otherwise disclose any such Confidential Information to any person or entity; and/or

(ii)  Use or attempt to use any such Confidential Information for any purpose or in any manner, including, without limiting the foregoing, for the purpose of inducing or attempting to induce any account, client and/or customer of the Company to become an account, client and/or customer of the Employee or of any person or entity with which the Employee is affiliated in any capacity; and/or for any purpose which may injure or cause loss or may be calculated to injure or cause loss, whether directly or indirectly, to the Company.

B.           All records, files, manuals, lists of customers, blanks, forms, materials, supplies, computer programs and other materials furnished to the Employee by the Company, used by him on its behalf, or generated or obtained by him during the course of his employment, shall be and remain the property of the Company.  The Employee shall be deemed the bailee thereof for the use and benefit of the Company and shall safely keep and preserve such property, except as consumed in the normal business operations of the Company.  The Employee acknowledges that this property is confidential and/or proprietary and is not readily accessible to the Company's competitors. Upon the termination of the Employee’s employment for any reason whatsoever, all documents, records, notebooks, equipment, employee lists, price lists, specifications, programs, customer and prospective customer lists and other materials which refer or relate to any aspect of the business of the Company which are in the possession of the Employee including all copies thereof, shall be promptly returned to the Company.

C.           The products and proceeds of Employee’s services hereunder that Employee may acquire, obtain, develop or create during the term of this Agreement, or that are otherwise made at the direction of the Company or with the use of the Company’s or its affiliates’ facilities or materials, including, but not limited to, all materials, ideas, concepts, formats, suggestions, developments, packages, programs, inventions, products, programs, procedures, formats, intellectual properties, and other materials of any kind created or developed or worked on by the Employee during his employment by the Company (collectively, “Works”), shall be considered a “work made for hire,” as that term is defined under the United States Copyright Act, and Employee shall be considered an employee for hire of the Company, and all rights in and to the Works, including the copyright or patent thereto, shall be the sole and exclusive property of the Company, as the sole author and owner thereof, and the copyright thereto may be registered by the Company in its own name, and the Employee will not have any right, title or interest of any nature or kind therein except to the extent that the Employee is required to use such Works in connection with his employment by the Company.  Without limiting the foregoing, it will be presumed that any copyright, patent, trademark or other right and any idea, invention, product, program, procedure, format or material created, developed or worked on by the Employee at any time during the Term of his employment will be a result or proceed of the Employee’s services under this Agreement.  Furthermore, the Employee’s right to any compensation or other amounts under this Agreement will not constitute a lien on any results or proceeds of the Employee’s services under this Agreement. In the event that any part of the Works shall be determined not to be a work made for hire or shall be determined not to be owned by the Company, Employee hereby irrevocably assigns and transfers and agrees to assign and transfer to the Company, its successors and assigns, the following: (a) the entire right, title and interest in and to the copyrights, trademarks and other rights in any such Work and any rights in and to any works based upon, derived from, or incorporating any such Work (“Derivative Work”); (b) the exclusive right to obtain, register and renew the copyrights or copyright protection in any such Work or Derivative Work; (c) all income, royalties, damages, claims and payments now or hereafter due or payable with respect to any such Work and Derivative Work; and (d) all causes of action in law or equity, past and future, for infringements or violation of any of the rights in any such Work or Derivative Work, and any recoveries resulting therefrom. Employee also hereby waives in writing any moral or other rights that he has under state or federal laws, or under the laws of any foreign jurisdiction, which would give him any rights to constrain or prevent the use of any Work or Derivative Work, or which would entitle him to receive additional compensation from the Company. Employee shall execute all documents, including without limitation copyright assignments and applications and waivers of moral rights, and perform all acts that the Company may request, in order to assist the Company in perfecting its rights in and to any Work and Derivative Work anywhere in the world. Employee hereby appoints the officers of the Company as Employee’s attorney-in-fact to execute documents on behalf of Employee for this limited purpose.

             D.              For the purposes of this Paragraph 11, subparagraphs A and B, “Company” shall be deemed to include GSIS and its subsidiaries and affiliates.

12.   Covenant Not to Compete.

A.           In order to induce the Company to enter into this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Employee, the Employee agrees as follows:

(i)  The Employee hereby agrees that he shall not, during the period of his employment and for the period that he is receiving any payments from the Company as severance under Paragraph 13 B, directly or indirectly, within the United States or territory outside the United States in which the Company is engaged in business during the period of the Employee’s employment or on the date of termination of the Employee’s employment, engage, have an interest in or render any services to any business (whether as owner, manager, operator, licensor, licensee, lender, partner, stockholder (of more than 5% of the outstanding stock of any business which is publicly traded, or of options to purchase more than 5% of the outstanding stock of any such business which is publicly traded), joint venturer, employee, consultant or otherwise) competitive with the Company’s business activities.

(ii)  The Employee hereby agrees that he shall not, during the period of his employment and for the longer of a period of one (1) year following such employment or the period that he is receiving any payments from the Company pursuant to Paragraph 13 B of this Agreement, directly or indirectly solicit any of the Company’s customers, or persons listed on the personnel lists of the Company, nor shall the Employee attempt to cause any person, firm or corporation which is a customer or client of or has a contractual relationship with the Company at the time of the termination of his employment to terminate such relationship with the Company, and this provision shall apply regardless of whether such customer, client or contracting party has a valid contractual arrangement with the Company.  Except as required by law or legal process, at no time during the Term, or thereafter shall the Employee, engage in any conduct, directly or indirectly, that disparages the commercial, business or financial reputation of the Company.  Except as required by law or legal process, at no time during the Term, or thereafter shall the Employer or any executive officer of the Company, engage in any conduct, directly or indirectly, that disparages the professional, business, financial or personal reputation of the Employee.  The above language with respect to solicitation of personnel shall not apply to Employee’s current assistant, Traci Hutmeier, and to Employee’s son, Don Rosenbaum.

(iii)  For purposes of clarification, but not of limitation, the Employee hereby acknowledges and agrees that the provision of subparagraph (ii) above prohibit him, during the period referred to therein, from directly or indirectly, hiring, offering to hire, enticing, soliciting or in any other manner persuading or attempting to persuade any officer, employee, agent, lessor, lessee, licensor, licensee or customer who has been previously contacted by either a representative of the Company, including the Employee, (but only those suppliers existing during the time of the Employee’s employment by the Company, or at the termination of his employment), to discontinue or alter his, her or its relationship with the Company.  Furthermore, for purposes of clarification, but not of limitation, the Employee hereby acknowledges and agrees that the provision of subparagraph (ii) above prohibit him from engaging, hiring, retaining, or otherwise employing any person who was an officer or employee of the Company at the time of the termination of Employee’s employment, or cause such person to otherwise become associated with the Employee or with any other person, corporation, partnership or other entity with which the Employee may thereafter become associated.  This provision shall not apply to the solicitation and/or hiring of Employee’s son, Don Rosenbaum or any dedicated personal assistant of Employee.

B.           The Employee represents that he has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with his legal counsel.

C.           Employee acknowledges that the restrictions contained in Paragraphs 11 and 12 hereof are reasonable and necessary to protect the legitimate business interests of the Company and that the Company would not have entered into this Agreement in the absence of such restrictions.  By reason of the foregoing, Employee agrees that if he violates any of the provisions of Paragraphs 11 and/or 12 hereof, the Company would sustain irreparable harm and, therefore, the Employee hereby irrevocably and unconditionally (i) agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise at law or in equity, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief, (ii) agrees that such relief and any other claim by the Company pursuant hereto may be brought in any court of general jurisdiction in New York, (iii) consents to the exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iv) waives any objection which the Employee may have to the laying of venue of any such suit, action or proceeding in any such court.  The Employee also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions hereof.

D.           The Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which he may be connected with as an officer, director, employee, partner, principal, agent representative, consultant or otherwise, or in connection with which he may use or permit his name to be used.  The Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request.

E.           In the event of any breach or violation of any of the restrictions contained in subparagraph A. above, any time period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured.

F.           If any commission, fee or other sum becomes payable to the Employee, or any person or entity with which the Employee is affiliated in any capacity, as a result of a violation by the Employee of any of the provisions of Paragraph 11 or of subparagraph A. of this Paragraph 12, then, in addition to any other legal and equitable remedies and/or contractual rights the Company may have, the Employee agrees to pay or cause the person or entity with which he is affiliated to account to the Company for and pay over to the Company any and all commissions, fees, profits, remuneration or other financial benefits obtained in connection with any such violation, and the Company may offset such amounts against any monetary obligations of the Company may have to the Employee hereunder or in connection with any other agreement between the Company and the Employee.

G.           In the event of a breach or threatened breach by the Employee of any of the provisions of Paragraphs 11 or 12, the Company shall be entitled to seek injunctive relief and the Employee agrees that it shall not be a defense to any request for such relief that the Company has an adequate remedy at law.  Notwithstanding the foregoing, the Company shall have such other remedies as may be appropriate under the circumstances, including, inter-alia, recovery of damages occasioned by such breach, all of which shall be cumulative and not exclusive.  The existence of any claim or cause of action of the Employee against the Company whether predicated on this Agreement or otherwise shall not constitute a defense to the enforcement by the Company of the covenants of Paragraphs 11 and/or 12.  Each of the foregoing covenants shall be severable from the others.

H.           It is the intent of the parties hereto that the covenants contained in Paragraphs 11 and 12 hereof shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought (the Employee hereby acknowledging that said restrictions are reasonably necessary for the protection of the Company).  Accordingly, it is hereby agreed that if any of the provisions of Paragraphs 11 or 12 hereof shall be adjudicated to be invalid or unenforceable for any reason whatsoever, said provision shall be (only with respect to the operation thereof in the particular jurisdiction in which such adjudication is made) construed by limiting and reducing it so as to be enforceable to the extent permissible, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of said provision in any other jurisdiction.

I.     If any provision contained in Paragraphs 11 or 12 hereof is found to be unenforceable by reason of the extent, duration or scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, scope or other provision and in its reduced form any such restriction shall thereafter be deemed by the parties hereto as a permitted modification of this Agreement and be enforceable as contemplated hereby.

J.     Without prejudice to any other right or remedy which may be available to the Company, to the maximum extent permitted by law, the Company shall have the right to set-off against and deduct from any payments due from the Company to the Employee (whether under this Agreement or otherwise) any loss or damage suffered by the Company in the event of any breach by the Employee of any of his covenants, agreements or obligations under this Agreement.

K.   For the purposes of Paragraph 12, subparagraph A, all references to “Company” shall be deemed to include GSIS and its subsidiaries and affiliates except for the first reference to “Company” in such subparagraph.

13.  Termination.

           A.                This Agreement shall terminate as follows:

(i)  Immediately upon the death or Permanent Disability (hereinafter defined) of the Employee.  Any base salary or other payments accrued or due to the Employee, as of the date of such termination, shall remain due and payable and shall be paid by the Company to the Employee or the Employee’s estate, as the case may be, as soon as practicable thereafter, but no later than sixty (60) days from the effective date of termination.  For purposes hereof, “Permanent Disability” shall mean the inability of the Employee to perform his duties hereunder due to mental or physical illness or other incapacity (as determined in good faith by a physician mutually acceptable to the Company and the Employee) for a period of more than 90 consecutive days (or more than 90 days during any 260 day period).  During any period of disability prior to termination on account of Permanent Disability, the Employee shall continue to be paid his base salary under Paragraph 3 above and be provided with the benefits referred to in Paragraph 7.B. above.  The Company will be entitled to deduct from all payments to be made to the Employee during any disability period an amount equal to all disability payments payable to the Employee from Workers’ Compensation, Social Security and/or any disability insurance policies or programs maintained by the Company, as the case may be.

(ii)  By the Company for “Cause” (defined below) immediately upon written notice from the Company to the Employee (subject to any cure periods set forth herein). For purposes hereof, the term “Cause” shall mean any of the following events:    (a) Employee being convicted of or pleading guilty or no contest to a felony in a court of law or any other crime or offense involving money or other property of the Company; or (b) the refusal of Employee to follow the proper written direction of the board of directors of Company (the “Board”), provided that the foregoing refusal shall not be “Cause” if Employee in good faith believes that such direction is illegal, unethical or immoral and promptly so notifies the Board; or (c) substantial and continuing willful refusal by Employee to perform the duties required of him hereunder (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for performance is delivered to Employee by the Board or its chairman, specifically identifying  the manner in which it is believed that Employee has substantially and continually refused to perform his duties hereunder; or (d) a material breach by the Employee of a fiduciary duty or duty of loyalty to the Company; or (e) the misappropriation of any asset or opportunity of the Company by or on behalf of the Employee; or (f) the breach of any representation or warranty made by Employee in Paragraph 5 B of this Employment Agreement.  Except with respect to (a) above, Employee may only be terminated if such breach is not cured within fifteen (15) days after written notice from the Company to the Employee setting forth the breach; provided, however, that the Employee shall not be entitled to such notice and opportunity to cure more than two (2) times during any twelve (12) consecutive month period. In the event that this Agreement is terminated by the Company for “Cause” or by the Employee other than pursuant to subparagraph C below, then the Company shall have no further obligations hereunder, except that the Employee’s Base Salary and accrued but unpaid Minimum Bonus to which the Employee shall be entitled for any periods prior to termination shall be prorated to the date of termination and shall be paid to the Employee as well as any earned but unpaid Additional Bonus (subject to any right of set-off in favor of the Company).

B.           If the Employee’s employment is terminated by Company without Cause, the Employee will, subject to executing a waiver and release in a form reasonably satisfactory to Company, receive an amount equal to his Base Salary plus Minimum Bonus pursuant to Paragraph 3 B (i).  Such amount shall vary depending upon when during the Term Employee’s employment was terminated and shall be paid to Employee in equal installments for the following periods, paid in the amounts and in accordance with Company’s then current payroll schedule as follows:

(i)           If the termination occurs during the first twelve (12) months of the Term, the period is the remainder of the first twenty-four (24) months of the Term.  The total severance payment shall be the amount equal to two years Base Salary and Minimum Bonus, minus Base Salary and Minimum Bonus amounts already paid to Employee; or

(ii)           If the termination occurs on or after the end of the first twelve (12) months and on or before the end of the first thirty-six (36) months of the Term, the period shall be twelve (12) months.  The total severance payment shall be the amount equal to twelve months of Base Salary and twelve months of Minimum Bonus; or

(iii)           If the termination occurs after the first thirty-six (36) months of the Term, the period shall be the remainder of the Term.  The total severance payment shall be the amount of unpaid Base Salary and Minimum Bonus remaining for the Term.

C.   Employee shall be entitled to terminate this Agreement if there is a material breach of this Agreement by Company which is not cured within fifteen (15) business days of written notice of such breach to Company.  Employee shall also be entitled to terminate this Agreemnt upon notice to Company within six months after a Change in Conrtol has occurred and not be deemed to be in breach of this Agreement.For purposes of this Agreement, the term “Change in Control” shall mean (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (“Act”) (other than Company, GSIS, any trustee or other fiduciary holding securities under any employee benefit plan of Company or GSIS, or any company owned, directly or indirectly, by the stockholders of Company or GSIS or any of the current equity owners of GSIS), becoming the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of GSIS representing more than fifty percent (50%) of the combined voting power of GSIS’s then outstanding securities; or (ii) the equity owners of GSIS approving a merger or consolidation of GSIS with any other corporation, other than a merger or consolidation which would result in the voting securities of GSIS outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of GSIS or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of GSIS (or similar transaction) in which no person acquires more than fifty percent (50%) of the combined voting power of GSIS’s then outstanding securities shall not constitute a Change in Control of GSIS. In the event of termination by Employee pursuant to this Paragraph 13 C, Employee shall be paid as if his employment were terminated by Company for Cause under Section 13 A (ii) above.

14.  Choice of Law/Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to principles of conflict of laws.  Employee agrees to and does hereby submit to the exclusive jurisdiction before any state or federal court located in New York County, New York in connection with any claims, disputes or disagreements regarding this Agreement.

15.  Amendment or Alterations.  No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both the Company and the Employee.

16.  Notices.  All notices and other communications hereunder shall be deemed to have been given if in writing and sent by commercial overnight courier service (e.g., Federal Express) or mailed certified or registered mail, postage prepaid, return receipt requested, as follows, or to such other address as either party may designate upon at least ten (10) days prior written notice:

A.           To the Company:

          Destination Software, Inc.

137 Hurffville Crosskeys Road

Sewell, NJ 08080

Attn. President

With a copy to:

Green Screen Interactive Software, LLC

575 Broadway

New York, NY 10012

Attn.: General Counsel

B.           To the Employee:

David Rosenbaum

9435 Shawnee Run

Cincinnati, OH  45243

With a copy to:

Robert E. Brant, Esq.

Katz Teller Brant & Hild LPA

255 East Fifth Street, Suite 2400

Cincinnati, OH 45202

17.  Waiver of Breach.  No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion.

18.  Binding Effect.  All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee hereunder are of a personal nature and shall not be assignable or delegable in whole or in part by Employee.

19.  Entire Agreement. This Agreement is intended to and shall supersede and replace any and all prior agreements and understandings between the parties hereto with respect to the employment of the Employee by Company.  This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification, amendment or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto.

20.  Survival. The provisions of Paragraphs 5B, 8, 11, 12, 20 and 21 shall survive the expiration or termination of this Agreement for any reason whatsoever.

21.  Miscellaneous.

A.           The Employee agrees that the obligations of the Company hereunder shall be limited to the Company only, and the Employee agrees that he shall not bring any claim or suit against any director or shareholder of the Company or any other person other than the Company for any breach or default by the Company of its obligations hereunder.

B.           If any, provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction.

C.           No remedy conferred upon the Company by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity.

D.           BOTH PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY ANCILLARY DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE COMPANY TO HIRE EMPLOYEE.

ACCEPTED AND AGREED.
	DESTINATION SOFTWARE, INC.
	By:  /s/ Susan Kain
	Name:  Susan Kain
	Title: President
	EMPLOYEE:
	/s/ David Rosenbaum
	David Rosenbaum

EX-10.6

AMENDMENT NUMBER ONE

TO THE JANUARY 1, 2008 EMPLOYMENT AGREEMENT

This amendment number one (“Amendment 1”), effective as of July 1, 2008 (the “Amendment 1 Effective Date”), amends the Employment Agreement dated January 1, 2008 between Zoo Games, Inc. (f/k/a Destination Software, Inc.) (“Zoo”) and David Rosenbaum (“Rosenbaum”), in full force and effect as of the date hereof (the “Employment Agreement”).  This Amendment 1, when fully executed, shall constitute the further understanding between the parties with respect to the Employment Agreement, as follows:

Section 3 (B) (i) of the Employment Agreement is hereby deleted.

Except as expressly or by necessary implication modified or amended by this Amendment 1, the terms of the Employment Agreement are hereby ratified and confirmed without limitation or exception.  Capitalized terms used in this Amendment 1 and not otherwise defined shall have the same meaning ascribed to them as set forth in the Employment Agreement.

The parties hereto have executed this Amendment 1, which shall be effective as of the Amendment 1 Effective Date.

Zoo Games, Inc.
By:	/s/ Susan Kain	/s/ David Rosenbaum
		David Rosenbaum
Name:	Susan Kain
Title:	President

Page 1 of 1

EX-10.7

AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT (this “Amendment”) is entered into as of this 23rd day of July 2009, between Zoo Publishing, Inc., f/k/a Zoo Games, Inc., f/k/a Destination Software, Inc., a corporation with its principal place of business at 3805 Edwards Road, Suite 605, Cincinnati, OH  45209 (the “Company”) and David Rosenbaum, an individual residing in Cincinnati, OH (“Employee”), and amends that certain Employment Agreement entered into by the Company and Employee as of January 1, 2008, as amended by Amendment No. 1 effective as of July 1, 2008 (the “Employment Agreement”).

Section 1.              Bonus.  Section 3B of the Employment Agreement is hereby deleted in its entirety and replaced with the following:

“B.           Bonus.    Employee shall be eligible to receive such bonus as may be approved by the Board of Directors of the Company in its sole discretion.”

Section 2.              Duties.  The first two sentences of Section 5A of the Employment Agreement are hereby deleted in its entirety and replaced with the following:

“Employee will hold the office of President of the Company and such other office(s) of the Company and/or its affiliates to which he may be elected or appointed, and Employee shall perform all duties incidental thereto as may be prescribed by the Company from time to time.  Employee shall report to the Chief Executive Officer of the Company.”

Section 3.              Section 409A Compliance.     A new Section 22 is inserted to the Employment Agreement as follows:

“22.           Section 409A Compliance.  The compensation payable to Employee under this Agreement is not intended to be subject to taxation underSection 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement will be interpreted in accordance with Section 409A of the Code and any regulations or other pronouncements thereunder in a manner intended to prevent any compensation payable to Employee under this Agreement from being subject to taxation under Section 409A(a)(1) or (b) of the Code.  For purposes of Section 409A of the Code, the term "termination of employment" or any similar words hereunder shall mean "separation from service" (as defined in Treasury Regulation Section 1.409A-1(h)) with the Company and all other entities that together with the Company are treated as a single employer for purposes of Treasury Regulation Section 1.409A-1(h).  Notwithstanding anything to the contrary, (i) if Employee is a "specified employee" as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) at the time of Employee's termination of employment, and the delay of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will delay the commencement of the payment of any such payment or benefits hereunder (without any reduction in such payments or benefits  ultimately paid or provided to Employee) until the date that is six months following Employee’s termination of employment with the Company any compensation payable to Employee on account of his termination of employment that constitutes "deferred compensation" as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) shall be deferred until the later of the date that is six (6) months after Employee's termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) (the “Payment Date”) and (ii) if any other payments of money or other benefits due to Employee hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be delayed if such delay will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax (together, the delayed payments in the foregoing clauses (i) and (ii), whether they would have otherwise been payable in a single lump sum or in installments in the absence of such delay, are referred to as the “Delayed Payments”).  On the Payment Date, the Company shall pay Employee, in a single cash lump sum, an amount equal to the aggregate amount of all Delayed Payments, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. To the extent any reimbursements or in-kind benefits due to Employee under this Agreement constitutes "deferred compensation" under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to Employee in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv).  Each payment made under this Agreement shall be designated as a "separate payment" within the meaning of Section 409A of the Code.”

Section 4.  Full Force and Effect.  Except as expressly or by necessary implication modified or amended by this Amendment, the Employment Agreement shall remain in full force and effect.

Section 5.              Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the principles of conflict of laws.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment  as of the date first above written.

ZOO PUBLISHING, INC.

By: /s/ David Fremed

     Name:  David Fremed

     Title:  Chief Financial Officer

/s/ David Rosenbaum                                    

David Rosenbaum

EX-31.1

Exhibit 31.1

CERTIFICATIONS UNDER SECTION 302

I, Mark Seremet, certify that:

1. I have reviewed this Quarterly Report of Zoo Entertainment, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a 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 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 controls 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; and

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 affect, 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:  August 14, 2009

/s/ Mark Seremet

Mark Seremet

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS UNDER SECTION 302

I, David Fremed, 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 a 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 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)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls 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; and

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 affect, 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:  August 14, 2009

/s/ David Fremed

David Fremed

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Zoo Entertainment, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the period ended June 30, 2009 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 14, 2009

/s/ Mark Seremet

Mark Seremet

President and Chief Executive Officer

(Principal Executive Officer)

Date:  August 14, 2009

/s/ David Fremed

David Fremed

Chief Financial Officer

(Principal Financial Officer)