Conspiracy Entertainment 10Q 2009 Q1 Quarterly report

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3. Quantitative and Qualitative Disclosure About Market Risk	8
Item 4T. Controls and Procedures	8

PART II - OTHER INFORMATION
	8
Item 1. Legal Proceedings	9
Item 1A. Risk Factors	9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3. Defaults Upon Senior Securities	9
Item 4. Submission of Matters to a Vote of Security Holders	9
Item 5. Other Information	9
Item 6. Exhibits	10
SIGNATURES	11

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets	F-2

Condensed Consolidated Statements of Operations	F-4

Condensed Consolidated Statements of Cash Flows	F-5

Notes to the Condensed Consolidated Financial Statements	F-6

F-1

CONSPIRACY ENTERTAINMENT HOLDINGS, INC.
Condensed Consolidated Balance Sheets


ASSETS


	March 31,		December 31,
	2009		2008
	(unaudited)
CURRENT ASSETS

Cash and cash equivalents	$	67,147	$	424,529
Accounts receivable, net		334,820		256,820
Prepaid manufacturing		-		-

Total Current Assets		401,967		681,349

PROPERTY AND EQUIPMENT, NET		14,493		11,158

OTHER ASSETS

Capitalized development costs and licenses, net		2,732,791		2,543,710
Deposits		6,906		6,906
Other receivable		92,500		92,500

Total Other Assets		2,832,197		2,643,116

TOTAL ASSETS	$	3,248,657	$	3,335,623

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

F-2

CONSPIRACY ENTERTAINMENT HOLDINGS, INC.
Condensed Consolidated Balance Sheets (Continued)


LIABILITIES AND STOCKHOLDERS' DEFICIT


	March 31,			December 31,
	2009			2008
	(unaudited)
CURRENT LIABILITIES

Accounts payable	$	783,831		$	712,175
Accrued expenses		2,485,658			2,440,193
Payroll taxes payable		689,775			712,585
Deferred compensation		362,287			371,555
Related party loans		30,000			80,000
Deferred revenue		1,907,435			2,145,632
Notes payable, net of discount of
$-0- in 2009 and $3,183 in 2008		421,871			418,688
Derivative liability		890,924			2,816,604
Convertible notes payable		2,217,400			2,217,400

Total Current Liabilities		9,789,181			11,914,832
Total Liabilities		9,789,181			11,914,832
STOCKHOLDERS' DEFICIT

Common stock, $0.001 par value; 100,000,000 shares
authorized, 51,189,065 shares issued and outstanding		51,190			51,190
Additional paid in capital		2,790,394			2,790,394
Accumulated deficit		(9,382,108	)		(11,420,793	)

Total Stockholders' Deficit		(6,540,524	)		(8,579,209	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	3,248,657		$	3,335,623

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

F-3

CONSPIRACY ENTERTAINMENT HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)


	For the Three Months
	Ended March 31,
	2009			2008

NET SALES	$	3,545,968		$	3,240,866

COST OF SALES		2,943,605			2,450,012

GROSS PROFIT		602,363			790,854

OPERATING EXPENSES

Professional fees		116,000			177,412
Wages and salaries		155,827			151,852
Selling, general and administrative		167,761			353,552

Total Operating Expenses		439,588			682,816

NET INCOME FROM OPERATIONS		162,775			108,038

OTHER INCOME (EXPENSE)

Interest expense		(46,587	)		(45,224	)
Net financing income (expense)		(3,183	)		(46,547	)
Gain (loss) on valuation of derivative liability		1,925,680			(12,403,415	)

Total Other Income (Expense)		1,875,910			(12,495,186	)

NET INCOME (LOSS) BEFORE INCOME TAXES		2,038,685			(12,387,148	)

PROVISION FOR INCOME TAXES		-			-

NET INCOME (LOSS)	$	2,038,685		$	(12,387,148	)

BASIC INCOME (LOSS) PER SHARE	$	0.04		$	(0.24	)
DILUTED INCOME PER SHARE	$	0.00		$	0.00

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC		51,189,065			51,189,065

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED		352,294,187			197,059,065

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

F-4

CONSPIRACY ENTERTAINMENT HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)


	For the Three Months
	Ended March 31,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	2,038,685		$	(12,387,148	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		898			644
Amortization of discount on convertible notes payable		-			46,547
Amortization of capitalized development costs and licenses		191,169			523,000
Amortization of discount on notes payable		3,183			2,433
Net change in derivative liability		(1,925,680	)		12,403,415
Change in operating assets and liabilities:
Accounts receivable and other receivable		(78,000	)		(319,205	)
Prepaid expenses		-			277,200
Accounts payable and accrued expenses		94,311			(109,622	)
Deferred compensation		(9,268	)		(103,142	)
Deferred revenue		(238,197	)		(326,958	)

Net Cash Provided by Operating Activities		77,101			7,164

CASH FLOWS FROM INVESTING ACTIVITIES

Payments for development costs and licenses		(380,250	)		(553,041	)
Purchase of property and equipment		(4,233	)		-

Net Cash Used by Investing Activities		(384,483	)		(553,041	)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on related party loans		(50,000	)		-
Proceeds from notes payable		-			205,000
Payments on notes payable		-			(20,000	)

Net Cash Provided (Used) by Financing Activities		(50,000	)		185,000

DECREASE IN CASH AND CASH EQUIVALENTS		(357,382	)		(360,877	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		424,529			539,990

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	67,147		$	179,113

SUPPLEMENTAL DISCLOSURES:

Cash paid for interest	$	-	$	-
Cash paid for income taxes	$	-	$	-

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Beneficial conversion feature of convertible notes payable	$	-	$	-

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

F-5

CONSPIRACY ENTERTAINMENT HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

March 31, 2009 (Unaudited)

NOTE 1 -	BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with the Company’s audited financial statements and notes thereto included in its December 31, 2008 Annual Report on Form 10-K which was filed on April 15, 2009. Operating results for the three-months ended March 31, 2009 are not necessarily indicative of the results to be expected for year ending December 31, 2009.


NOTE 2 -	GOING CONCERN The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, as of March 31, 2009, the Company had an accumulated deficit of approximately $9,400,000, significant negative working capital, and is in default on its debt. These factors raise substantial doubt about the Company's ability to continue as a going concern. Recovery of the Company's assets is dependent upon future events, the outcome of which is indeterminable. Successful completion of the Company's development program and its transition to the attainment of profitable operations is dependent upon the company achieving a level of sales adequate to support the Company’s cost structure. In addition, realization of a major portion of the assets in the accompanying balance sheet is dependent upon the Company's ability to meet its financing requirements and the success of its plans to develop and sell its products. Management plans to issue additional debt and equity to fund the release of new products in 2009 and to continue to generate cash flow from operations. The consolidated financial statements do no include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

F-6

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

The information in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this report and with our annual report on Form 10-K for the fiscal year ended December 31, 2008. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Revenues for the three months ended March 31, 2009 were $3,545,968, compared to $3,240,866 for the three months ended March 31, 2008. This represents an increase of $305,102 or 9.4%. This increase was primarily attributable to more balanced reorders unlike 2008 when the majority of sales was for Winter Sports (Wii) and the new releases of SBK on PS2, PS3, PSP and Xbox.

There was a 23.8% decrease in gross profit for the three months ended March 31, 2009, which was $602,363, compared to $790,854 for the three months ended March 31, 2008. This decrease in gross profit was primarily the result of the 2008 Winter Sports (Wii) sales being royalty free.

Interest expense was $46,587 and $45,224 for the three months ended March 31, 2009 and March 31, 2008, respectively. This was a slight increase of $1,362, or 3%.

Our gain on valuation of derivative liability was $1,925,680 for the three months ended March 31, 2009, compared to a loss of $12,403,415 for the three months ended March 31, 2008. This was an increase of $14,329,095 or 115%.

Our net income was $2,038,685 for the three months ended March 31, 2009, compared to a net loss of $12,387,187 for the three months ended March 31, 2008. The increase in net income for the three months ended March 31, 2009 was due to a greater operational profit and a gain on valuation of derivative liability.

Liquidity and Capital Resources

As of March 31, 2009, our cash balance was $67,147, compared to $424,529 at December 31, 2008. Total current assets at March 31, 2009 were $401,967, compared to $681,349 at December 31, 2008. We currently plan to use the cash balance and cash generated from operations for increasing our working capital reserves and, along with additional debt financing, for new product development, securing new licenses, building up inventory, hiring more sales staff and funding advertising and marketing. Management believes that the current cash on hand and additional cash expected from operations in fiscal 2009 will be sufficient to cover our working capital requirements for fiscal 2009. The Company reached this conclusion by assuming that a major portion ($2,217,400) of our debt is attributed to convertible notes payable. The Company expects that this debt will be eventually be converted into shares (although there is no assurance that this debt will actually be converted into.) Deferred Revenue ($1,907,435) will be reclassified as revenue upon the completion of current projects in development. Derivative Liability ($890,924) represents the amount of cash required should our investors call in our outstanding loans. Although we can provide no assurance that this will not occur, we do not believe this will happen anytime in the near future. We have informally negotiated with the IRS to pay down our Payroll Taxes liability in the amount of $10,000, per month. The Company is negotiating with several other parties to waive portions of our debt, or to pay the debt with the issuance of company stock including Deferred Compensation ($362,287). In addition, based on our schedule of development for the remainder of this year, we anticipate an increase in sales, profitability and cash receipts in 2009 which will allow the Company to continue to pay down our working capital requirements and help avoid the additional need for working capital.

For the three months ended March 31, 2009, net cash used provided by operating activities was $77,101 as compared to $7,164 for the three months ended March 31, 2008. The increase in cash provided by operating activities can be attributed to larger net income as compared to a smaller change in net change in derivative liability.

For the three months ended March 31, 2009, net cash used in investing activities was $384,483, compared to net cash used in investing activities of $553,041 for the three months ended March 31, 2008. The decrease in cash used in investing activities can be attributed to less payments made for licensing and development.

For the three months ended March 31, 2009, net cash used by Financing Activities was $50,000 compared to cash provided in the amount of $185,000 for the three months ended March 31, 2008. This decrease in cash used by financing activities resulted primarily from the finance arrangement made in Februrary 2008.

Our accounts receivable at March 31, 2009 was $334,820, compared to $256,820 at December 31, 2008. The increase in accounts receivable is primarily attributable to a slight slowness in receiving payment from our major distributor who was purchased by a new owner.

As of March 31, 2009 we had a working capital deficiency of $9,387,214. A major portion of our debt is attributed to consulting fees, attorney fees, and payroll taxes payable. We plan to reduce these debts with proceeds generated from normal operational cash flow as well as the issuance of company stock.

At March 31, 2009, we had no bank debt.

Financings

On January 16, 2004, we received $50,000 from Calluna Capital Corporation under the terms of a February 25, 2003 convertible notes payable agreement bringing the total amount borrowed from Calluna Capital Corporation to $500,000.

On May 17, 2004, we sold 2,792,200 shares of common stock to accredited investors for $.10 per share, or an aggregate of $279,220.

On August 31, 2004, we sold an aggregate of $1,050,000 principal amount of 5% Secured Convertible Debentures, Class A Common Stock Purchase Warrants to purchase 21,000,000 shares of our common stock, and Class B Common Stock Purchase Warrants to purchase 21,000,000 shares of our common stock, to four institutional investors. We received gross proceeds totaling $1,050,000 from the sale of the Debentures and the Warrants.

On September 28, 2004, we sold a $50,000 principal amount 5% Secured Convertible Debenture, Class A Common Stock Purchase Warrants to purchase 1,000,000 shares of our common stock, and Class B Common Stock Purchase Warrants to purchase 1,000,000 shares of our common stock, to one institutional investor. We received gross proceeds totaling $50,000 from the sale of the Debentures and the Warrants.

On February 9, 2005, we sold an aggregate of $650,000 principal amount of 5% Secured Convertible Debentures, 13,000,000 Class A Common Stock Purchase Warrants, and 13,000,000 Class B Common Stock Purchase Warrants, to four accredited institutional investors for gross proceeds totaling $650,000.

On August 11, 2006, we sold an aggregate of $247,000 principal amount of 15% secured convertible notes to two accredited institutional investors for gross proceeds totaling $247,000 less expenses of $4,000.

On March 30, 2007, we sold an aggregate of $80,000 principal amount of 15% secured convertible notes to two accredited institutional investors for gross proceeds of $80,000 less expenses of $12,500.

We do not have any current plans to obtain additional debt or equity financing. We plan to satisfy our capital expenditure commitments and other capital requirements through cash generated from operations and through funds received upon exercise of outstanding warrants. We believe the proceeds from exercise of our outstanding warrants will be sufficient to fund any need for additional capital. We currently have outstanding 35,000,000 Class A Warrants and 35,000,000 Class B Warrants with exercise prices of the lower of $0.02 per share or 70% of the average five lowest closing bid prices of our Common Stock for the 30 trading days prior to the conversion date. Exercise of all of these warrants would provide gross proceeds of $8,750,000. However, at recent market prices of our common stock, none of these warrants are in the money. Thus, if the market price of our common stock does not increase and warrant holders do not exercise their warrants, we may be required to seek additional debt or equity financing. If additional financing is required and we cannot obtain additional financing in sufficient amounts or on acceptable terms when needed, our financial condition and operating results will be materially adversely affected.

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2009:

	Payments due by period
			Less than					More
Contractual Obligations	Total		One Year		Years 1-2			than 2 years

Notes Payable	$	2,669,271	$	2,669,271
Operating Lease Obligations	$	152,080	$	96,376		$	55,704
License Fee Obligations	$	60,000	$	60,000
Total	$	2,881,351	$	2,825,647		$	55,704

In September 2008, we entered into two notes payable agreements totaling $80,000 with two related parties. The notes have a fixed interest amount of $5,000 per each loan and will be paid in 2009. As of March 31, 2009 the balance owed to one part has been paid and $30,000 is due to the remaining party.

In February 2008, we entered into two notes payable agreements with accredited investors totaling $227,778. To date, these notes are past due and have not been called. The amount owed as of March 31, 2009 is $227,778.

In July 2007, we entered into a convertible debenture in the amount of $200,000. To date, these notes are past due and have not been called. As of March 31, 2009 the balance owed is $200,000.

In March 2007, we entered into a convertible notes agreement totaling $80,000. To date, these notes are past due and have not been called. As of March 31, 2009 the balance owed is $80,000.

In August 2006, we entered into a convertible notes agreement totaling $247,000. To date, these notes are past due and have not been called. As of March 31,2009 the balance owed is $247,000.

On August 5, 2005 and August 8, 2005, two accredited investors loaned us an aggregate of $223,600 in gross proceeds in exchange for two notes payable. As of March 31, 2009 the balance owed is $194,093. The notes bear no interest and were due February 1, 2006.

On February 9, 2005, we entered into three convertible notes payable agreements totaling $650,000, and in September and October 2004, we entered into two convertible notes payable agreements totaling $1.1 million. The balance due as of March 31, 2009 is $1,690,400. To date, these notes are past due and have not been called.

We currently lease office space at 612 Santa Monica Boulevard in Santa Monica, California. Through the remainder of the lease term, our minimum lease payments are as follows:

2009	$	96,376

2010	$	55,704

Our license agreement with Discovery for "The Jeff Corwin Experience" requires payments of the remaining $80,000 to be paid in full during the year 2005. Although we have only made $20,000 in payments to date, we are looking into our options on how to best handle this matter and plan to pay the balance in full by the end of 2009.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Summary of Significant Accounting Policies

Assignment of Accounts Receivable. We regularly assign our receivables to vendors with recourse. Assigned accounts receivable are shown on the accounts receivable section of the balance sheet until collected by the beneficiary. Should the accounts receivable become uncollectible, we are ultimately responsible for paying the vendor and recording an allowance for potential credit losses as deemed necessary. The assigned accounts receivable are generally collected within 90 days; therefore, the balance shown approximates its fair value.

Capitalized Development Costs and Licenses. Capitalized development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation.

Capitalized Development Costs. For products where proven technology exits, this may occur early in the development cycle. Technological feasibility is evaluated on a product-by-product basis. Prior to a product's release, we expense, as part of cost of sales, development costs when we believe such amounts are not recoverable. Amounts related to capitalized development costs that are not capitalized are charged immediately to cost of sales. We evaluate the future recoverability of capitalized amounts on a quarterly basis. The recoverability of capitalized development costs is evaluated based on the expected performance of the specific products for which the costs relate. The following criteria are used to evaluate expected product performance: historical performance of comparable products using comparable technology and orders of the product prior to its release. Commencing upon product release, capitalized development costs are amortized to cost of sales - software royalties and amortization is based on the ratio of current revenues to total projected revenues, generally resulting in an amortization period of one year or less. For products that have been released in prior periods, we evaluate the future recoverability of capitalized amounts on a quarterly basis. The primary evaluation criterion is actual title performance.

Capitalized Licenses. Capitalized license costs represent license fees paid to intellectual property rights holders for use of their trademarks or copyrights in the development of the products. Depending on the agreement with the rights holder, we may obtain the rights to use acquired intellectual property in multiple products over multiple years, or alternatively, for a single product over a shorter period of time.

We evaluate the future recoverability of capitalized licenses on a quarterly basis. The recoverability of capitalized license costs is evaluated based on the expected performance of the specific products in which the licensed trademark or copyright is to be used. Prior to the related product's release, we expense, as part of cost of sales, licenses when we believe such amounts are not recoverable. Capitalized development cost for those products that are cancelled or abandoned are charged to cost of sales. The following criteria are used to evaluate expected product performance: historical performance of comparable products using comparable technology and orders for the product prior to its release.

Commencing upon the related products release, capitalized license costs are amortized to cost of sales - licenses based on the ratio of current revenues for the specific product to total projected revenues for all products in which the licensed trademark or copyright will be utilized. As license contracts may extend for multiple years, the amortization of capitalized intellectual property license costs relating to such contracts may extend beyond one year. For intellectual property included in products that have been released, we evaluate the future recoverability of capitalized amounts on a quarterly basis. The primary evaluation criterion is actual title performance.

Revenue Recognition. Revenue from video game distribution contracts, which provide for the receipt of non-refundable guaranteed advances, is recognized when the games are delivered to the distributor by the manufacturer under the completed contract method, provided the other conditions of sale are satisfied.

Until all of the conditions of the sale have been met, amounts received on such distribution contracts are recorded as deferred income. Although we regularly enter into the assignment of accounts receivable to vendors, we do not record revenues net versus gross since we:

i. Act as the principal in the transaction.

ii. Take title to the products.

iii. Have risks and rewards of ownership, such as the risk of loss for collection, delivery, or returns.

iv. Do not act as an agent or broker.

At all times, we maintain control of the development process and is responsible for directing the vendor. Other than for payment, the customer does not communicate with the vendor.

We utilize the completed contract method of revenue recognition as opposed to the percentage-of-completion method of revenue recognition for substantially all of its products since the majority of its products are completed within six to eight months. We complete the products in a short period of time since we obtain video games that are partially complete or obtain foreign language video games published by foreign manufacturers that are completed.

Allowance For Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We regularly review the adequacy of our accounts receivable allowance after considering the size of the accounts receivable balance, each customer's expected ability to pay and our collection history with each customer. We review significant invoices that are past due to determine if an allowance is appropriate based on the risk category using the factors described above. In addition, we maintain a general reserve for certain invoices by applying a percentage based on the age category. We also monitor our accounts receivable for concentration to any one customer, industry or geographic region. The allowance for doubtful accounts represents our best estimate, but changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. As of March 31, 2009, the balance of the allowance for doubtful accounts is $0.

Valuation of Long-Lived Intangible Assets Including Capitalized Development Costs and Licenses. Capitalized development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products.

We account for software development costs in accordance with SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation. The accumulation of appropriate costs as a capitalized, long-term asset involves significant judgment and estimates of employee time spent on individual software projects. The accumulation and timing of costs recorded and amortized may differ from actual results.

Our long-lived assets consist primarily of capitalized development costs and licenses. We review such long-lived assets, including certain identifiable intangibles, for impairment whenever events or changes in circumstances indicate that we will not be able to recover the asset's carrying amount in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or asset, a significant decrease in the benefits realized from the software products, difficulty and delays in sales or a significant change in the operations of the use of an asset.

Recoverability of long-lived assets by comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value.

Capitalized development costs and licenses, net of accumulated amortization, totaled approximately $2,732,791 at March 31, 2009. Factors we consider important which could trigger an impairment review include, but are not limited to, significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of our assets or the strategy for our overall business or significant negative economic trends. If this evaluation indicates that the value of an intangible asset may be impaired, an assessment of the recoverability of the net carrying value of the asset over its remaining useful life is made. If this assessment indicates that an intangible asset is not recoverable, based on the estimated undiscounted future cash flows or other comparable market valuations, of the entity or technology acquired over the remaining amortization period, the net carrying value of the related intangible asset will be reduced to fair value and the remaining amortization period may be adjusted. Any such impairment charge could be significant and could have a material adverse effect on our reported financial statements.

Income Taxes. We account for income taxes under SFAS No. 109, "Accounting for Income Taxes," which involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. In concluding that a valuation allowance is required to be applied to certain deferred tax assets, we considered such factors as our history of operating losses, our uncertainty as to the projected long-term operating results, and the nature of our deferred tax assets. Although our operating plans assume taxable and operating income in future periods, our evaluation of all of the available evidence in assessing the realizability of the deferred tax assets indicated that such plans were not considered sufficient to overcome the available negative evidence. The possible future reversal of the valuation allowance will result in future income statement benefit to the extent the valuation allowance was applied to deferred tax assets generated through ongoing operations. To the extent the valuation allowance relates to deferred tax assets generated through stock compensation deductions, the possible future reversal of such valuation allowance will result in a credit to additional paid-in capital and will not result in future income statement benefit.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

N/A.

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act the Company carried out an evaluation with the participation of the Company’s management, including Sirus Ahmadi, the Company’s Chief Executive Officer (“CEO”) and Keith Tanaka, the Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the period ended March 31, 2009. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures at the end of the period covered by this report were not effective due to material weaknesses in the design and effectiveness of the Company’s internal control over financial reporting as of March 31, 2009, as further described below, such that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in internal controls

Our management, with the participation our CEO and CFO, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the Quarter ended March 31, 2009. Based on that evaluation, our CEO and our CFO concluded that no change occurred in the Company's internal controls over financial reporting during the Quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

ITEM 1A. RISK FACTORS

There have been no material changes from the Risk Factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

Item 6. Exhibits

31.1		Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

31.2		Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

32.1		Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code

32.2		Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code

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.

DATE: May 20, 2009

	CONSPIRACY ENTERTAINMENT HOLDINGS, INC.

	By:	/s/ Sirus Ahmadi
		SIRUS AHMADI
		CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER), SECRETARY AND DIRECTOR


	By:	/s/ Keith Tanaka
		KEITH TANAKA
		CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING OFFICER) AND DIRECTOR

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Conspiracy Entertainment (CPYE) Inactive 10-Q2009 Q1 Quarterly report

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