The wireless entertainment market has emerged as a result of the rapid growth and significant technological advancement in the wireless communications industry. Wireless carriers are launching new data services, including downloadable games, ring tones and images, to drive revenues and take advantage of advanced wireless networks and next-generation mobile phones.

In 2002, the number of global wireless subscribers surpassed one billion and subscriber growth is expected to continue as wireless communications increase in emerging markets, including China and India. According to IDC, the number of global wireless subscribers grew from approximately 749 million in 2000 to 1.3 billion in 2003, and is predicted to grow to 2.0 billion by 2008.

Wireless carriers are deploying high-speed, next-generation digital networks to enhance wireless voice and data transmission. These advanced networks have enabled the provisioning and billing of data applications and have increased the ability of wireless subscribers to quickly download large amounts of data, including games, to their mobile phones.

Annual mobile phone sales grew from 385.2 million units in 2001 to 465.0 million units in 2003 and are expected to grow to 689.1 million units in 2008, according to ARC. ARC estimates that sales of BREW-enabled mobile phones are expected to grow from 11.6 million units in 2003 to 75.6 million units in 2008, and sales of Java-enabled mobile phones are expected to grow from 95.5 million units in 2003 to 594.9 million units in 2008, collectively representing approximately 97% of all mobile phones to be sold in 2008.

The fees for the Company’s wireless games generally range from $3.99 to $7.49 for a one time purchase and from $1.49 to $2.99 for a monthly subscription. The fees for the Company’s ring tones generally range from $0.99 for a single ring tone to $11.99 for a collection of ring tones.

Utilizing its licenses with the NFL, MLB, the NBA and the NHL, the Company has released a series of SPORTS-branded titles, including MLB 2003, MLB 2004, NBA One-on-One, NBA 2004 and NHL Hockey '04. The Company also intends to release NFL 2005 later this year and to release additional sports titles on a regular basis.

The Company offers a suite of applications, including games, ring tones and images, based on The Lord of the Rings motion picture trilogy. The Lord of the Rings: The Two Towers and The Lord of the Rings: The Return of the King are strategy and action games, and were rated 8.0 out of 10 and 9.0 out of 10, respectively, by Wireless Gaming Review. The Company also released The Lord of the Rings Trivia and The Lord of the Rings Pinball, as well as ring tones and images based on music and characters from the motion pictures.

Bejeweled is a fast-paced puzzle game and Bejeweled Multiplayer is a real-time, multiplayer version of the original game. Bejeweled Multiplayer is the only game ever to be rated 10 out of 10 on Wireless Gaming Review.

Cost of revenues increased 82% from $1.1 million in the year ended December 31, 2002 to $2.0 million in the year ended December 31, 2003.

Gross profit increased 2,218% from $0.5 million in the year ended December 31, 2002 to $11.5 million in the year ended December 31, 2003.

Research and development expenses increased 84% from $4.0 million in the year ended December 31, 2002 to $7.3 million in the year ended December 31, 2003.

Selling and marketing expenses increased 217% from $1.0 million for the year ended December 31, 2002 to $3.2 million for the year ended December 31, 2003.