Cosmodog came into being largely because Viacom decided to stop making video games. Andrew Pines (Cosmodog's founder) was working as a producer at Viacom New Media when Viacom came to the realization that making consumer video games is difficult, risky work and chose to exit the market. That left Andrew with a choice: find another risky video game company to work for or put that MBA to use and start a new risky video game company. For good or ill he chose the latter and Cosmodog was born.
Cosmodog was founded with the intention to create arcade video games, a goal which took some years to achieve. Initially the company was involved in contract electrical engineering and programming, first in industrial controls then in toys. After a couple of years of consulting work the Ms. Pac-Man/Galaga combo game project came along and it's been pretty much all video games ever since. Cosmodog still does the occasional toy project but the consulting work has been severely curtailed in favor of in-house video game projects.