qsb
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For six months ended June 30, 2006
OR

[  ] 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 000-3078
CAMELOT ENTERTAINMENT GROUP, INC.

 (Exact name of registrant as specified in its charter)
 
 
Delaware                         52-2195605

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


2020 Main Street #990
Irvine, CA 92614

   (Address of principal executive offices (zip code))

(949) 777-1090

   (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 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 o


As of June 30, 2006, the Registrant had outstanding 93,649,589 shares of Common Stock, $0.001 par value.

 
 
Page - 1


 
CAMELOT ENTERTAINMENT GROUP, INC. 
INDEX TO FORM 10-QSB

 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
 
 
 
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3. Controls and Procedures
 
 
Item 1. Legal Proceedings 
 
Item 2. Changes in Securities and Use of Proceeds
 
Item 3. Defaults Upon Senior Securities
 
Item 4. Submissions of Matters to a Vote of Security Holders
 
Item 5. Other Information 
 
Item 6. Exhibits and Reports on Form 8-K 
 

 
 
 
Page - 2


THIS REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE SUBJECT TO THE "SAFE HARBOR" CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING STATEMENTS INCLUDE BUT ARE NOT LIMITED TO STATEMENTS CONCERNING OUR BUSINESS OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY, REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS; AND STATEMENTS CONCERNING ASSUMPTIONS MADE OR EXCEPTIONS AS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE OR OTHER MATTERS WHICH ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. ALL STATEMENTS, OTHER THAN HISTORICAL FINANCIAL INFORMATION, MAY BE MARKET TO BE FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVES", "PLANS", "ANTICIPATES", "EXPECTS", AND SIMILAR EXPRESSIONS HEREIN ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES, AND OTHER FACTORS, WHICH WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "FACTORS THAT MAY AFFECT FUTURE RESULTS," AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN THE COMPANY'S OTHER SEC FILINGS.


 
 
Page - 3

 
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
 
Camelot Entertainment Group, Inc.
Balance Sheet
 

 
 
June 30, 
 
   
2006
 
 
 
Unaudited 
 
       
 ASSETS
     
Current Assets
     
Cash
$
3,779
 
Prepaid Expenses
 
27,049
 
       
Total Current Assets
 
30,828
 
       
Investments
     
 
     
Scripts Costs
 
78,800
 
       
Subtotal
 
78,800
 
       
Total Assets
$
109,628
 
       
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
     
       
Current Liabilities
     
Accounts Payable and accured liabilities
$
264,549
 
 
     
Stockholder advances
 
294,292
 
       
Total Current Liabilities
 
558,841
 
       
Total Liablilities
 
558,841
 
       
       
Stockholders' Equity
     
Common Stock; Par Value $.001 Per Share; Authorized
     
150,000,000 Shares; 93,649,589 Shares
     
Issued and Outstanding.
 
93,649
 
 
     
Class A Convertible Preferred Stock; Par Value $.001 per share
 
5,100
 
Authorized, issued and outstanding 5,100,000 shares
     
       
Class B Convertible Preferred Stock; Par Value $.001 per share
 
5,100
 
Authorized, issued and outstanding 5,100,000 shares
     
       
Subscription Receivable
 
(258,072
)
       
Capital in Excess of Par Value
 
11,923,586
 
Deficit Accumulated During the Development Stage
 
(12,218,576
)
 
     
       
Total Stockholders' Equity (Deficit)
 
(449,213
)
       
Total Liabilities and Stockholders' Equity
$
109,628
 
       
 
The accompanying notes are an integal part of theses financial statements.
 
Page - 4

 
Camelot Entertainment Group, Inc.
Statements of Operations
(Unaudited)

 
         
 
 
 
 
 
 
 
 
 
From 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Inception on 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
April 21, 1999 
 
 
 
 
For the Three Months Ended, 
 
 
For Six Months Ended,
 
 
through
 
 
 
 
June 30, 
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
 
 
2006
 
 
2005
 
 
2006
 
 
2005
 
 
2006
 
                                 
REVENUE
 
$
-
 
$
-
 
$
-
 
$
-
 
$
58,568
 
                                 
Total Revenue
 
$
-
 
$
-
 
$
-
 
$
-
 
$
58,568
 
                                 
EXPENSES
                               
Costs of services
                           
95,700
 
Sales and Marketing
                           
53,959
 
Research & Development
                           
252,550
 
General & Administrative
   
202,956 
   
486,174
   
393,716
   
603,270
   
8,986,284
 
Impairment of assets
                           
2,402,338
 
Impairment of investments in
                               
other companies
                           
710,868
 
                                 
Total Expenses
   
202,956 
   
486,174
   
393,716
   
603,270
   
12,501,699
 
                                 
NET OPERATING LOSS
   
(202,956
)
 
(486,174
)
 
(393,716
)
 
(603,270
)
 
(12,443,131
)
                                 
OTHER INCOME (EXPENSES)
                               
                                 
Interest (Expense)
   
-
   
-
   
-
   
-
   
(9,294
)
Other income (expense)
   
-
   
-
   
-
   
-
   
(21,652
)
Gain on extinguishment of debt
   
-
   
-
   
-
   
-
   
255,500
 
                                 
Total Other Income (Expenses)
   
-
   
-
   
-
   
-
   
224,554
 
                                 
NET LOSS
 
$
(202,956
)
$
(486,174
)
$
(393,716
)
$
(603,270
)
$
(12,218,576
)
                                 
BASIC LOSS PER COMMON SHARE
   
(0.0022
)
 
(0.0062
)
 
(0.0042
)
 
(0.0081
)
$
(0.29
)
                                 
WEIGHTED AVERAGE NUMBER OF
                               
SHARES OUTSTANDING
   
93,649,589
   
79,013,587
   
93,649,589
   
74,582,002
   
42,178,165
 

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

 
Page - 5


Camelot Entertainment Group, Inc.
Statements of Cash Flows
(Unaudited)

       
 
 
From
 
 
 
 
 
 
 
 
 
 
Inception on 
 
 
 
 
 
 
 
 
 
 
April 21, 1999 
 
 
 
 
For Six Months Ended, 
 
 
through
 
 
 
 
June 30, 
 
 
June 30,
 
 
30-Jun
 
 
 
 
2006
 
 
2005
 
 
2006
 
                     
OPERATING ACTIVITIES
             
                     
Net (loss) income for the period
 
$
(393,716
)
$
(603,270
)
$
(12,218,576
)
                     
Adjustments to reconcile net (loss) to cash provided (used) by operating activities:
                   
Value of options expensed
   
-
       
351,000
 
Gain on extinguishment of debt
   
-
       
(255,500
)
Depreciation
               
3,997
 
Amortization of deferred compensation
   
-
       
1,538,927
 
Common Stock issued for debt
             
194,171
 
Common Stock issued for services
   
-
   
384,843
   
1,939,732
 
Common Stock issued for expense reimbursement
   
-
   
55,462
   
354,788
 
Common Stock issued for technology
               
19,167
 
Impairment of investments in other companies
   
-
         
710,868
 
Impairment of assets
               
2,628,360
 
Prepaid services expensed
   
2,392
         
531,429
 
Expenses paid through notes payable proceeds
           
66,489
 
Loss on disposal of property and equipment
               
5,854
 
Preferred Stock issued to shareholder
             
3,366,000
 
Change in assets and liabilities:
               
(increase) decrease in other current assets
   
(20,626
)
 
(9,615
)
 
(22,622
)
Increase (decrease) in accounts payable & other a/p
   
182,891
   
(27,825
)
 
301,358
 
Increase (decrease) in due to officers
   
-
   
-
   
-
 
Net Cash provided (used) by operating activities
   
(229,059
 
(200,405
)
 
(484,558
)
                     
Cash flows from investing activities:
                   
Purchase of fixed assets
           
$
(6,689
)
Purchase of assets-Script Costs
   
(60,000
)
       
(78,800
)
Cash provided (used) from investing activities
   
(60,000
)
     
$
(85,489
)
                     
Cash flows from financing activities:
                   
Contributed capital
               
25,500
 
Advanced from affiliate/shareholder loans for cash flow
   
294,292 
   
200,013
   
521,968 
 
 
                   
Proceeds from issuance of common stock
             
30,835
 
Incease (decrease) in notes payable
   
(4,477
)
       
(4,477 
)
                     
Cash provided (used) in financing activities
   
289,815
 
 
200,013
   
573,826
 
                     
Increase (decrease) in cash
   
756
   
(392
)
 
3,779
 
                     
Cash at beginning of period
   
3,023
   
1,140
   
0
 
                     
Cash at the end of the period
 
$
3,779
 
$
748
 
$
3,779
 

The accompanying notes are an integal part of theses financial statements.

 
Page - 6

 
Camelot Entertainment Group, Inc.
Statements of Cash Flows
(Unaudited)
(continued)

           
From
 
 
 
 
 
 
 
Inception on
 
 
 
 
 
 
 
 
 
 
April 21, 1999 
 
 
 
 
For the Year Ended 
 
 
through
 
 
 
 
June 30, 
 
 
June 30,
 
 
30-Jun
 
 
 
 
2005
 
 
2004
 
 
2006
 
Supplemental Cash Flow Information
                   
                     
Interest Paid
   
0
   
0
 
$
31,000
 
                     
Supplemental Disclosure of Non Cash Investing and Financing Activities:
                   
                     
Issuance of common stock for
                   
property and equipment
   
0
   
0
 
$
1,153,162
 
                     
Issuance of common stock
                   
for licensed technology
   
0
   
0
   
938,000
 
                     
Purchase of Treasury Stock
   
0
   
0
   
2,400
 
                     
Issuance of common stock
                   
for debt
   
0
   
0
   
40,000
 
                     
Purchase of licensed technology
                   
for debt to seller
   
0
   
0
   
250,000
 
                     
Issuance of common stock for prepaid
                   
and other assets
   
0
   
0
   
1,726
 
                     
Prepayment of services for
                   
common stock
   
0
   
0
   
2,046,000
 
                     
Investments in other
                   
companies
   
0
   
0
   
710,000
 
                     
Conversion of debt to
                   
common stock
   
0
   
0
   
225,500
 
                     
Forgiveness of debt by
                   
stockholder
   
0
   
0
   
31,489
 
 
The accompanying notes are an integral part of these financial statements
 
 
 
Page - 7


 
Camelot Entertainment Group, Inc.
Statements of Stockholders' Equity (Deficit)
(Unaudited)

 
                                 
(Deficit) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock 
 
 
Preferred Stock
 
 
 
 
 
Additional
 
 
During
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Paid-In  
 
 
Development
 
 
Subscription
 
 
Deferred
 
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Stage
 
 
Receivable
 
 
Compensation
 
 
Total
 
                                                         
Balance at January 1, 2004
   
33,856,433
   
33,857
   
0
   
0
   
5,464,539
   
-6,059,442
   
0
   
0
   
-561,046
 
                                                         
Shares issued for services
   
100,000
   
100
               
2,900
                     
3,000
 
Shares issued for financing
   
6,791,287
   
6,791
               
196,948
                     
203,739
 
Subscriptions receivable for financing agreement
   
0
   
0
                           
-116,069
         
-116,069
 
Net (loss) for the three months ended March 31, 2004
   
0
   
0
                     
-131,681
               
-131,681
 
Balance at March 31, 2004
   
40,747,720
 
$
40,748
 
$
0
 
$
0
 
$
5,664,387
   
(6,191,123.00
)
 
($116,069
)
$
0
   
($602,057
)
Share issued for services
   
24,009,000
   
24,009
               
1,085,500
                     
1,109,509
 
                                                         
 
                                                       
Share issued for financing
   
7,604,562
   
7,605
   
0
   
0
   
221,460
         
(316,003
)
       
(86,938
)
Advances offset sub a/r
                                       
174,000
         
174,000
 
Shares issued for debt
   
1,000,000
   
1,000
   
0
   
0
   
39,000
                     
40,000
 
                                                         
Shares issued for amt due
   
1,589,927
   
1,590
   
0
   
0
   
47,000
                     
48,590
 
Value of option exercised
                           
351,000
                     
351,000
 
Net (loss)
                                 
(1,161,756
)
             
(1,161,756
)
Balance as of December 31, 2004
   
74,951,209
   
74952
   
0
   
0
   
7408347
   
(7,324,719
)
              158,580  
                                                         
Net (loss) 1st quarter
                                 
(117,096
)
              (117,096 )
 
                                                       
Balance at March 31, 2005
   
74,951,209
   
74,952
 
$
0
 
$
0
   
7,408,347
   
(7,441,815
)
 
(258,072
)
$
0
   
(216,588
)
                                                         
Shares issued for
   
4,000,000
   
4,000
   
0
   
0
   
216,000
   
0
                220,000  
consulting services
                                                       
                                                         
Shares issued for
   
2,276,033
   
2,276
   
0
   
0
   
187,568
   
0
                189,844  
officers salaries
                                                       
                                                         
Shares issued to
   
1,848,723
   
1,849
   
0
   
0
   
79,078
   
0
                80,927  
Eagle for expenses paid
                                                       
Net Loss
                                 
(486,174
)
              (486,174 )
Subtotals for 2nd quarter
   
8,124,756
   
8,125
   
0
   
0
   
482,646
   
0
                4,597  
                                                         
Balance at June 30, 2005
   
83,075,965
   
83,076
   
0
   
0
   
7,890,993
   
(7,927,989
)
 
(258,072
)
       
(211,991
)
                                                         
Net Loss
                               
$
(127,024
)
             $ (127,024 )
Balance at Sept 30, 2005
   
83,075,965
   
83,076
   
0
   
0
   
7,890,993
 
$
(8,055,013
)
 
($258,072
)
       
(339,015
)
                                                         
Shares issued for
   
233,547
   
233
   
0
   
0
   
9,767
                    10,000  
consulting services
                                                     
                                                         
Shares issued for
   
3,538,263
   
3,538
   
0
   
0
   
171,462
                      175,000  
officers salaries
                                                       
                                                         
Shares issued to
   
1,452,662
   
1,453
   
0
   
0
   
118,219
                      119,672  
Eagle for expenses paid
                                                       
                                                         
Shares issued to Eagle
   
1,762,271
   
1,762
               
120,991
                      122,753  
20% of shares issued
                                                       
Shares issued for
   
3,586,881
   
3,587
               
256,354
                      259,943  
Shareholder loans 2005
                                                       
Net Loss 4th Quarter
                               
$
(3,769,845
)
              (3,769,845 )
Class A Preferred Stock issued
             
5,100,000
   
5,100
   
555,900
                      561,000   
Class B Preferred Stock issued
             
5,100,000
   
5,100
   
2,799,900
                      2,805,000   
 
                                                       
                                                         
Balance at Dec 31, 2005
   
93,649,589
   
93,649
   
10,200,000
   
10,200
   
11,923,586
   
(11,824,858
)
 
-258,072
          (55,496 )
                                                         
Net Loss
                                 
(190,762
)
                 
                                                         
Balance at March 31, 2006
   
93,649,589
   
93,649
   
10,200,000
   
10,200
   
11,923,586
   
(12,010,620
)
 
-258,072
          (241,259 )
                                                         
Net Loss
                                 
(202,956
)
                 
                                                         
Balance at June 30, 2006
   
93,649,589
   
93,649
   
10,200,000
   
10,200
   
11,923,586
   
(12,218,576
)
 
-258,072
          (449,213 )
 
The accompanying notes are an integal part of theses financial statements.
 
Page - 8

 
CAMELOT ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED, JUNE 30, 2006

 
1.  
ORGANIZATION AND BASIS OF PRESENTATION

Camelot Entertainment Group, Inc. (the Company), a Delaware corporation, is comprised of three divisions: Camelot Film Group, which develops, produces, markets and distributes motion pictures; Camelot Studio Group, which is currently proceeding with a major studio development; and Camelot Production Services Group, which is involved with a number of various motion picture related projects, including technology, consulting and bridge financing, was originally incorporated under a different name with the intention of providing services and resources to entrepreneurs looking to launch novel products and ventures worldwide in exchange for an interest in the startup ventures. The Company brought in new management and was restructured in 2003 prior to changing its name to Camelot Entertainment Group in 2004.
 
The Company’s original activities from inception through its restructuring in 2003 consisted of raising capital, recruiting a management team and entering into ventures and alliances with Affiliates. The Company substantially relied on issuing stock to officers, directors, professional service providers and other parties in exchange for services and technology. As of December 31, 2002, the Company had written-off all of its investments due to impairments in the carrying value of the assets. Since inception, impairment of investments in other companies and of long-lived assets accounts for approximately 65% of the Company’s net losses. Since March of 2003, the Company’s activities have consisted of developing and implementing its business model, recruiting executives and staff, entering into various contracts with producers, writers and directors of motion pictures, establishing its distribution company, negotiating potential acquisitions, developing its studio project and taking steps to raise additional capital.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has had minimal revenues, has experienced material operating losses and has a stockholders’ deficit. Unless rectified in the next year, these conditions, combined with failing to secure a successful source of additional financial resources, could raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the classification of liabilities that may result from the outcome of this uncertainty.

Management’s plans with respect to the current financial situation consist of seeking additional financial resources from existing investors or others in implementing its new business model. However, instability in the stock price may make it difficult to find parties willing to accept the Company’s restricted shares of common stock in exchange for cash and or services required to execute its Plan of Operation. There is no assurance that such resources would be made available to the Company, or that they would be on financially viable terms.

2.  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers all investment instruments purchased with maturities of three months or less to be cash equivalents.

 Basis Of Presentation

The unaudited financial statements included herein were prepared from the records of the Company in accordance with Generally Accepted Accounting Principles and in accordance with current securities regulations. These unaudited financial statements have been reviewed by our independent auditors. These financial statements reflect all adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results of operations and financial position for the interim periods. Such financial statements generally conform to the presentation reflected in the Company's Form 10-KSB filed with the Securities and Exchange Commission for the year ended December 31, 2005. The current interim period reported herein should be read in conjunction with the Company's Form 10-KSB subject to independent audit at the end of the year.

 
Page - 9

 
CAMELOT ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED, JUNE 30, 2006
(continued)

 
Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Income taxes 

The Company provides for income taxes based on the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, which, among other things, requires that recognition of deferred income taxes be measured by the provisions of enacted tax laws in effect at the date of financial statements.
 
Financial Instruments 

Financial instruments consist primarily of obligations under accounts payable and accrued expenses, notes payable and capital lease obligations. The carrying amounts of accounts payable and accrued expenses approximate fair value because of the short maturity of those instruments. The carrying value of notes payable and capitalized lease obligations approximate fair value because they contain market value interest rates and have specified repayment terms. The Company has applied certain assumptions in estimating these fair values. The use of different assumptions or methodologies may have a material effect on the estimates of fair values.

Impairment of Long-Lived Assets 

Impairment of long-lived assets is assessed by the Company whenever there is an indication that the carrying amount of the asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows generated by those assets to the assets’ net carrying value. The amount of impairment loss, if any, is measured as the difference between the net book value of the assets and the estimated fair value of the related assets.

Loss Per Common Share 

The Company has adopted SFAS No. 128, Earnings per Share, which supercedes APB No. 15. Basic EPS differs from primary EPS calculation in that basic EPS does not include any potentially dilutive securities. Diluted EPS must be disclosed regardless of the dilutive impact to basic EPS. There were no potentially dilutive securities outstanding at June 30, 2006.

Revenue Recognition

Revenue consists of professional services. Revenues for services are recognized when the services are rendered. The amounts of such revenues are recorded based on the value of compensation received for the services. In the Company's current operations, compensation to the Company has consisted of stock in start up companies to whom the services were rendered.
 
 
Page - 10

 
CAMELOT ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED, JUNE 30, 2006
(continued)

 
3. GOING CONCERN UNCERTAINTIES 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has experienced recurring operating losses and negative cash flows from operations, which raise substantial doubt about its ability to continue as a going concern. The Company's continued existence is dependent upon its ability to increase operating revenues and/or obtain additional equity financing. In view of these matters, the Company has undergone a series of negotiations to obtain additional equity financing to enable it to achieve its strategic objectives. The Company has an agreement with Eagle Consulting Group, Inc., a Nevada corporation ("Eagle"), to provide equity financing. While Eagle has advanced the Company $294,292 during the first and second quarter of 2006, it appears unlikely that such funding will be enough to implement the Company's Plan of Operation beyond the current fiscal year unless that agreement is extended. As a result, the Company may be in a position where it will need to find additional sources of financing in order to remain a going concern in the future. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
4. COMMITMENTS AND CONTINGENCIES

The Company believes it has identified and accrued for all valid claims from creditors, consultants, stock option adjustments and vendors. Although there have been no specific disputes over these matters and related amounts, these third parties may assert additional claims as the Company attempts to settle all past due obligations.

The Company also has a non-dilution commitment with an Affiliate to issue 20% of all newly issued common shares to the Affiliate in exchange for funding cash flow deficits over the period specified in the agreement. The Company has not issued shares this quarter to this Affiliate.
 

 
Page - 11

 
CAMELOT ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED, JUNE 30, 2006
(continued)

 
5. ADVANCES FROM AFFILIATE

During the first and second quarter of 2006, the Company had not issued common shares to Affiliate. The Affiliate’s cash advances for the first and second quarter of $294,292 were covered under an agreement in which the Affiliate must fund the Company’s cash flow deficits over the period specified in the agreement. These advances were for general and administrative costs, cost of screenplays, prepaid exhibitors space for the quarter, and studio development costs.

6. DUE TO OFFICERS

As of June 30, 2006, $225,000 was due to officers for salaries during the first and second quarter. No other amounts are currently due.

7. COMMON STOCK

No common stock was issued during the first or second quarter of 2006.

8. RELATED PARTY TRANSACTIONS

On March 30, 2003, the Company entered into an agreement with an Affiliate whereby the Company will issue 20% of its outstanding common shares in exchange for services and advances. No shares were issued during the first or second quarter of 2006. The Affiliate paid $294,292 in expenses on behalf of the Company during the first and second quarter of 2006.
 
8. SUBSEQUENT EVENTS
 
During the second quarter, Camelot Entertainment Group, Inc. entered into an agreement with Elemental Pictures (a South African film company) to potentially purchase the company. The company expects to make a formal announcement regarding the transaction in September 2006.
 
Page - 12

 
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 

The matters discussed in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. These forward-looking statements include but are not limited to statements concerning our business outlook or future economic performance; anticipated profitability, revenues, expenses or other financial items; and statements concerning assumptions made or exceptions as to any future events, conditions, performance or other matters which are "forward-looking statements" as that term is defined under the Federal Securities Laws. All statements, other than historical financial information, may be deemed to be forward-looking statements. The words "believes", "plans", "anticipates", "expects", and similar expressions herein are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties, and other factors, which would cause actual results to differ materially from those stated in such statements. Forward-looking statements include, but are not limited to, those discussed in "Factors That May Affect Future Results," and elsewhere in this report, and the risks discussed in the Company's other SEC filings.

Critical Accounting Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management’s initial estimates as reported. A summary of our significant accounting policies is detailed in the notes to the financial statements, which are an integral component of this filing.
 
Management evaluates the probability of the utilization of the deferred income tax asset related to the net operating loss carry forwards. The Company has estimated a $2,450,000 deferred income tax asset related to net operating loss carry forwards and other book/tax differences at September 30, 2005. Management determined that because the Company has yet to generate taxable income, and that the generation of taxable income in the short term is uncertain, it was appropriate to provide a valuation allowance for the total deferred income tax asset.
 
The Company has acquired certain technology and licenses. Prior to January 1, 2004, the Company determined that the value of these acquired assets was impaired and has provided an impairment allowance for the full purchase price of these assets. The impairment amount charged to operations in prior years was $3,113,206.

Critical Accounting Policies

The Company has defined a critical accounting policy as one that is both important to the portrayal of the Company's financial condition and results of operations, and requires the management of the Company to make difficult, subjective or complex judgments. Estimates and assumptions about future events and their effects cannot be perceived with certainty. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes.
 
 
Page - 13

 
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations, where such policies affect our reported and expected financial results. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Significant Accounting Practices
 
Beginning January 1, 2004 we adopted new accounting rules which were effective January 1, 2001, which require, among other changes, that exploitation costs, including advertising and marketing costs, be expensed as incurred. Theatrical print costs are amortized over the periods of theatrical release of the respective territories. Under accounting rules in effect for periods prior to January 1, 2001, such costs were capitalized as a part of film costs and amortized over the life of the film using the individual-film-forecast method. The current practice dramatically increases the likelihood of reporting losses upon a film’s theatrical release, but should provide for increased returns when a film is released in the ancillary markets of home video and television, when we incur a much lower proportion of advertising costs. Additional provisions under the new accounting rules include changes in revenue recognition and accounting for development costs and overhead, and reduced amortization periods for film costs.
 
Accounting for Motion Picture Costs 

In accordance with accounting principles generally accepted in the United States and industry practice, we amortize the costs of production, including capitalized interest and overhead, as well as participations and talent residuals, for feature films using the individual-film-forecast method under which such costs are amortized for each film in the ratio that revenue earned in the current period for such title bears to management’s estimate of the total revenues to be realized from all media and markets for such title. All exploitation costs, including advertising and marketing costs, are expensed as incurred. Theatrical print costs are amortized over the periods of theatrical release of the respective territories.
 
Management plans to regularly review, and revise when necessary, our total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization and/or a write-down of the film asset to estimated fair value. These revisions can result in significant quarter-to-quarter and year-to-year fluctuations in film write-downs and amortization. A typical film recognizes a substantial portion of its ultimate revenues within the first two years of release. By then, a film has been exploited in the domestic and international theatrical markets and the domestic and international home video markets, as well as the domestic and international pay television and pay-per-view markets. A similar portion of the film’s capitalized costs should be expected to be amortized accordingly, assuming the film or television program is profitable.
 
The commercial potential of individual motion pictures varies dramatically, and is not directly correlated with production or acquisition costs. Therefore, it is difficult to predict or project a trend of our income or loss. However, the likelihood that we would report losses, particularly in the year of a motion picture’s release, is increased by the industry’s method of accounting, which requires the immediate recognition of the entire loss (through increased amortization) in instances where it is estimated the ultimate revenues of a motion picture could not recover our capitalized costs. On the other hand, the profit of a profitable motion picture must be deferred and recognized over the entire revenue stream generated by that motion picture. This method of accounting may also result in significant fluctuations in reported income or loss, particularly on a quarterly basis, depending on our release schedule, the timing of advertising campaigns and the relative performance of individual motion pictures.
 
 
Page - 14

 
Accounting for Films

In June 2000, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 00-2 “Accounting by Producers or Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes new accounting standards for producers or distributors of films, including changes in revenue recognition, capitalization and amortization of costs of acquiring films and accounting for exploitation costs, including advertising and marketing expenses. We elected adoption of SoP 00-2 effective as of April 1, 2004.

The principal changes as a result of applying SoP 00-2 are as follows:

Advertising and marketing costs, which were previously capitalized to investment in films on the balance sheet and amortized using the individual film forecast method, are now expensed the first time the advertising takes place.

We capitalize costs of production, including financing costs, to investment in motion pictures. These costs are amortized to direct operating expenses in accordance with SoP 00-2. These costs are stated at the lower of unamortized motion picture costs or fair value (net present value). These costs for an individual motion picture or television program are amortized in the proportion that current period actual revenues bear to management’s estimates of the total revenue expected to be received from such motion picture over a period not to exceed ten years from the date of delivery.

Management plans to regularly review, and revise when necessary, its total revenue estimates, which may result in a change in the rate of amortization and/or write-down of all or a portion of the unamortized costs of the motion picture to its fair value. No assurance can be given that unfavorable changes to revenue estimates will not occur, which may result in significant write-downs affecting our results of operations and financial condition.

Revenue Recognition 

Revenue from the sale or licensing of motion pictures is recognized upon meeting all recognition requirements of SoP 00-2. Revenue from the theatrical release of motion pictures is recognized at the time of exhibition based on the company’s participation in box office receipts. Revenue from the sale of DVDs in the retail market, net of an allowance for estimated returns, is recognized on the latter of shipment to the customer or “street date” (when it is available for sale by the customer). Under revenue sharing arrangements, rental revenue is recognized when we are entitled to receipts and such receipts are determinable.

Revenues from television licensing are recognized when the motion picture is available to the licensee for telecast. For television licenses that include separate availability “windows” during the license period, revenue is allocated over the “windows.” Revenue from sales of international territories are recognized when the feature film is available to the distributor for exploitation and no conditions for delivery exist, which under most sales contracts requires that full payment has been received from the distributor.

For contracts that provide for rights to exploit a program on multiple media (i.e. theatrical, video, television) with a fee for a single motion picture where the contract specifies the permissible timing of release to various media, the fee is allocated to the various media based on management’s assessment of the relative fair value of the rights to exploit each media and is recognized as the program is released to each media. For multiple-title contracts with a fee, the fee is allocated on a title-by-title basis, based on management’s assessment of the relative fair value of each title. Cash payments received are recorded as deferred revenue until all the conditions of revenue recognition have been met.
 
 
Page - 15

 
Income Taxes 

The Company recognizes future income tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the financial statements or income tax returns. Future income taxes are provided for using the liability method. Under the liability method, future income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities.
 
Capital Structure
 
The Company has adopted Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS 129"), which requires companies to disclose all relevant information regarding their capital structure. The Company reached an agreement with Eagle Consulting Group, Inc. on March 28, 2003 to provide operational funding for the Company. In exchange for twenty percent (20%)of the Company’s outstanding common stock on an anti-dilutive, continuing basis until the Company could secure additional financing from another source, Eagle agreed to provide funding for the Company’s annual audit, quarterly filings, accounts payable and other ongoing expenses including office, phones, business development, legal and accounting fees. Eagle advances from January 1, 2005 to September 30, 2005 total $264,512 including interest. In accordance with the anti-dilutive provision, the amount of stock due Eagle is calculated on a quarterly basis. This anti-dilution provision to the agreement could have a material adverse effect on our shareholders as it might continue for a substantial period of time and as a result the dilutive effect to the shareholders cannot be fully determined until the funding from Eagle ceases.

Going Concern Uncertainties

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has experienced recurring operating losses and negative cash flows from operations.

The Company's continued existence is dependent upon its ability to increase operating revenues and/or obtain additional equity financing.

The Company has an agreement with Eagle Consulting Group, Inc., a Nevada corporation ("Eagle"), to provide equity financing. While Eagle has advanced the Company $294,292 during the first and second quarter of 2006, it appears unlikely that such funding will be enough to implement the Company's Plan of Operation beyond the current fiscal year unless that agreement is extended. As a result, the Company may be in a position where it will need to find additional sources of financing in order to remain a going concern in the future. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


 
Page - 16

 

PLAN OF OPERATION

OVERVIEW

The Company was incorporated in Delaware on October 12, 1999. In March, 2003, the Company underwent a restructuring which resulted in a new management team and a new business model. During May 2004, we changed our name to Camelot Entertainment Group, Inc. (“CMEG”), and changed our business model from pursuing a new approach to venture formation to pursuing a new approach to developing, producing, marketing and distributing motion pictures.

CMEG is comprised of three divisions: Camelot Film Group, Camelot Studio Group, and Camelot Production Services Group.

CAMELOT FILM GROUP

Camelot Film Group is also comprised of three divisions, Camelot Films, Camelot Features and Camelot Distribution.

Camelot Films’ business model embraces the Camelot Studio Model (or "CSM"), which provides for the development, production, marketing and distribution of motion pictures utilizing a unique financial and operational structure. The CSM attempts to combine the efficiencies realized by studios of the early 1900s, with the artistic focus and diversity of today's independent productions. Using this approach, the Company believes the risk-reward relationship facing the typical film project can be dramatically shifted. For example, whereas a typical film pushes artists and directors to rush development and production in hopes of conserving cash, the CSM extends the pre-production cycle substantially, increases the amount of time allocated for principal photography and begins the post production process from the start to reduce costs while simultaneously increasing quality. Add in other features such as financial transparency, annualized employment and the utilization of CMEG common stock and the entire process begins to run efficiently, minimizing expenses while giving CMEG the potential to generate maximum revenues.

Similarly, whereas a low-budget picture is severely limited by the types of postproduction technology used, due to budget constraints, we intend to invest directly in top of the line technology, spreading the costs over a targeted minimum of 12 original motion pictures each year as part of a three year slate which should produce a minimum of 36 films per slate. The ultimate goal of the CSM is to develop the ability to consistently produce films with the look, feel and artistic content of multi-million dollar pictures, for a fraction of the cost. The term frequently used by CMEG is “films with a budget.” All of the CSM product should be distributed by our distribution division.

Camelot Features’ business model inherits many of Camelot Film’s main points, including financial transparency, the utilization of CMEG common stock, utilization of technology and increased pre-production time while focusing on motion pictures in all budget ranges. Many of the projects developed and or acquired by CMEG may not fit into the CSM. These types of projects might include documentaries, special effect based films, movies with major stars and other productions which require larger budgets due to subject matter, market requirements and genres.

Camelot Features operations will in many ways mirror the typical current day production company, which either develops or acquires a property, packages the project by adding director and cast, and then funds the film by using a wide assortment of funding techniques, including equity, loans, bridge financing, gap financing, pre-sales and incentives. Whenever possible, product produced under this division should be distributed by our distribution company. In some cases, certain films will require a major distributor due to the size of release, marketing and advertising requirements. In other cases, some or all of the financing may come from another distributor, necessitating alternate distribution.
 
 
Page - 17

 
Camelot Distribution is comprised of two divisions, Camelot Domestic and Camelot International. Our distribution company will handle all aspects of distribution for films produced under the Camelot Films banner, and whenever possible for films produced under the Camelot Features banner. Camelot Domestic will be responsible for United States and Canada theatrical and ancillary market releases, including DVD, television, cable, satellite, hand held devices, internet, PPV, VOD and other domestic distribution outlets. Camelot International will be responsible for international theatrical and ancillary market releases, focusing primarily on foreign theatrical, television and DVD. In certain circumstances, cable, satellite, hand held devices, internet, PPV, VOD and other international distribution outlets will be serviced through this division, depending upon release dates and patterns, contractual obligations and market conditions.

CAMELOT STUDIO GROUP

Camelot Studio Group is solely focused on the development, design, planning, building, completion and operation of our major production studio, which we are currently developing in the Western United States. The studio, when completed, will be the permanent home for CMEG, with all production emanating from the facility. In addition to at least 12 sound stages and support buildings, the studio complex will include office buildings and other amenities designed to make the site a home for current and future filmmakers “Where Filmmaking Dreams Come True.” A formal announcement is expected during the third quarter of 2006.

CAMELOT PRODUCTION SERVICES GROUP

Camelot Production Services Group is comprised of three divisions, technology, consulting and financial services. Our technology division is focused on enabling CMEG to utilize the best and most up-to-date technology available in order to enable our production team to produce the highest quality product achievable under our business model. In addition, our technology team is directly involved in future technology encompassing all aspects of production and distribution. Our consulting division is designed to assist producers, writers, directors, cast, crew members, distributors and other production companies in various aspects of the filmmaking process, including assistance in all phases of physical production, delivery and collection. Our financial services division is currently focusing on late stage bridge financing. An announcement on this program is expected during the fourth quarter of 2006.

Note on Historical Operations

Our historical operations prior to becoming a motion picture company consisted primarily of attempting to provide support, organization and restructuring services to other development stage companies. Due to the complete and drastic change in our business focus, from seeking to aid development stage companies to our current focus of producing, distributing and marketing original motion pictures, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied on as an indication of future performance. However, it is still important that you read the discussion in connection with the audited financial statements, the unaudited interim financials and the related notes included elsewhere in this quarterly report in addition to thoroughly reading our current plan of operations.

Camelot Films: Our View of the Steps Required for Motion Picture Commercialization

We view the motion picture commercialization process as involving three major steps, each of which bears a symbiotic relationship to the costs, creative value and profitability of any planned film to be released by us. These three steps are development, production and distribution. Under our planned model, development should include not only screenplay acquisition and development, but also a carefully constructed and unusually elongated pre-production phase. This process was developed as a result of the direct experience and observations of our management.
 
 
Page - 18

 
By viewing the development phase as a distinct and major component of the motion picture creation process, we hope that we can create a culture that encourages producers, writers and directors associated with our projects to focus their efforts and expertise on creating world-class pictures before the first day of shooting begins. We believe that creating such a culture could potentially result in a substantial reduction of the cost of our film projects, as compared to the film projects of our competitors. When combined with what we believe is a unique method of attracting, compensating and retaining talent that would otherwise not be involved in an active motion picture project, it is expected that the opportunity for a cost advantage could emerge.
  
President and Chief Executive Officer Robert P. Atwell, has worked extensively in financing, producing and directing original motion pictures and television programs. This experience led our management to a number of beliefs upon which our planned business model should be founded. These key views are:
 
·  
The manner in which development and pre-production activities are managed can have the largest impact on both the quality, or creative content, and the cost of creating a motion picture.

·  
There are a number of factors that make it difficult for most motion pictures to invest large amounts of time and a proportionally large share of a motion picture’s overall budget into development and pre-production activities.

·  
The factors that make it difficult for many motion picture projects to invest a major share of a film’s time and financial resources into development and pre-production activities may have created a pervasive business culture that emphasizes moving projects towards principal photography too quickly.

·  
A very small percentage of all writers that want to have their screenplays become completed motion picture projects will ever realize this ambition.

·  
A very small percentage of all directors will participate in principal photography in any given year.

·  
The percentage of qualified actors that never have the opportunity to participate in a completed original motion picture that is released commercially is substantial.

·  
There are large periods of unemployment for many individuals involved in motion picture production.

We believe that these observations suggest that the capacity to create motions pictures, in terms of employable professionals, is far higher than the current demand of existing film production companies for these services. However, we also believe that growth in motion picture consumption worldwide has created increased demand for original motion pictures in general. As a result, we anticipate that the underemployed, or unemployed, directors, writers and other film professionals could help fill a void for low cost, quality original motion picture production, given the right mix of incentives and business structure. There can be no assurance that such benefits, advantages or capacity will ever materialize.

Successfully creating such low cost, but relatively high quality pictures should result in a higher per picture financial return and a lower breakeven point for each film produced. Also, by distributing these pictures primarily through in-house distribution professionals, the per picture return might be increased even further, enabling more motion pictures to be produced by us annually and thereby diversifying the risk associated with any single film project. These beliefs form the foundation for our planned business model and expected strategy.
 
 
Page - 19

 
Our Strategy of Emphasizing the Pre-Production Phase of Motion Picture Commercialization

As noted previously, we believe that a very small percentage of all writers that want to have their screenplays become completed motion picture projects will ever realize this ambition. We believe that this assertion speaks to the opportunity we envision to cost effectively acquire writing, directing producing and other motion picture production talent that would otherwise exceed demand for these services.
 
This perceived opportunity is critical to our strategy, because without a great script, we believe it is either incredibly expensive or simply impossible to produce a great motion picture. However, we also believe that few great scripts begin as great scripts, but most evolve from a great idea to a substandard script and so forth. Matching great script ideas with tried and true expertise of professionals that know character development, genre formulas and how to convert words into pictures that create passion are expected to allow us to realize our vision.
 
We believe that many small and medium sized production companies can rarely afford to invest their time into unproven writers, much less even consider going with unproven directing talent. Moreover, we believe that the investors and distributors they are aligned with often play a major role in which projects get approved for production, or “green-lighted.”
 
Similarly, we believe that major studios have even more reasons for steering clear from these unproven sources of product. If these assertions are correct, then a large pool of untapped creative talent available for use in motion picture production exists. It is our intention to engage this pool to commercialize motion pictures in accordance with our strategy. To accomplish this objective, we intend to do the following:
 
·  
Obtain Complete And Outright Ownership Of Scripts And Other Literary Works: We anticipate that by offering the proper incentives to screenwriters and other authors of compelling literary works well suited for a film project, we should be able to acquire complete and outright ownership of these copyrights for a fraction of what many producers would pay simply to get an option on a script. As mentioned, such writers have an incentive that fewer than 10% of Screenwriters Guild members expect to experience in a given year the true opportunity to have their vision become a theatrically released motion picture. In addition, our plan calls for participating writers to share in the success of their script, through profit participation and indirectly in the success of other film projects we complete, through restricted shares of or common stock. This same formula is expected to allow us to attract directors, producers and other creative personnel with a passion for making pictures that the public wants to see.

·  
A Recurring 6-Month Cycle Of Pre-Production Activities: Our plans for the pre-production phase for each motion picture project we initiate is to utilize a recurring 6-month cycle that starts every month for a new film, enabling us to create a rolling pipeline of product. Unlike our perception of pure independents and small production companies, we don’t anticipate that our pre-production phase could consume creative resources by having producers, writers and directors hunt for additional film financing. Instead, we anticipate that each film should have a set and fixed budget. We expect the additional time that should emerge, if we are successful, to allow the production designer, producers, director of photography and other personnel adequate time to find ways to increase quality and reduce costs through skillful planning.

·  
Relatively Firm Scheduling Of Film Projects: Another feature we expect to emerge as a result of our planned approach is that it should allow relatively firm scheduling of the cast at a very early stage, something that we believe is rare in the world of pure independent productions. During this same time, we expect the production team to benefit from a mentoring environment that insures the creative spark sought in each of our productions does not become an increasing collection of unrealistic ambitions, leading to missed production schedules. With these elements firmly in place, we would typically expect principal photography to begin in the fifth month of each project.
 
 
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Our Strategy of Achieving Higher Quality and Lower Costs During the Production Phase of Motion Picture Commercialization

Four key elements following development and pre-production are expected to enable us to create quality pictures for a fraction of the cost experienced by our competitors. These four elements are:

1. Digital Photography

Like the model we plan to pursue, we believe that purely independent productions can realize costs savings by using digital film technology due to the lower cost of processing, stock, dailies and certain editing costs. We also believe that major studios benefit from using digital technology in certain genres, but not so much from a cost standpoint.

Instead, we think that the heavy special effects used by major studios’ high-budget action and science-fiction pictures are increasingly enhanced as a result of using digital photography. While, if true, this would negate some of the cost benefits of using digital photography, the overall value in terms of entertainment quality would still be enhanced, in general. One party that we believe has found the benefits of digital photography rather elusive is the small and mid-sized production company.

We believe that this is generally because when such companies convince a director to use digital photography, the director and director of photography (or “DP”) are likely to specify additional camera setups. We also believe that the increased, low-cost coverage available, along with real-time video monitoring, often results in issues between directors and directors of photography on projects of these companies, as they analyze and debate each shot during precious shooting time. As a result, the mixed use of digital photography by small and medium sized production companies generally has a neutral impact on overall value, in our opinion.

2. Profit Participation

We believe that it is very common for purely independent productions to offer profit participation, or points, as a means of getting parties they could otherwise not afford to hire (for cash) to work on the production. If this is in fact a standard method of simply getting a picture made for these types of productions, we believe the effects on value are neutral. That is, if every competitive production is offering this same type of compensation, the potential impact of the incentive is reduced.

Similarly, in the case of major studios, we believe that all of the parties involved in such productions have access to sophisticated negotiators and advocates that can reasonably weigh the potential market value of such incentives. If so, we believe that such incentives rarely offer a competitive advantage to the production. However, for small and medium sized independents, our model assumes that the added incentive of points can be the extra incentive needed to attract certain parties that would otherwise not participate on a given project.

We intend to use profit participation in a manner that we think is precedent setting in the industry. Firstly, under our model, every member of the production stands to participate in the financial success of our film projects, thereby reversing a industry tradition whereby the phrase “net” has had little or no meaning or substance. Similarly, since the same types of writers and directors that would be otherwise willing to work on a picture with little or no compensation are being pursued under our model, albeit at very low cash rates, the added incentive of profit participation is expected to be a meaningful bonus in the eyes of these parties.

3. Production Management

We believe that the largest full-time employers of motion picture production management, and also the entities with the most developed production management infrastructures, are major studios. However, we believe that these large bureaucracies, while essential to the management of a relatively large volume of high budget pictures, also create an environment that often pits creative talent against management. If true, then to a certain degree, this may offset some of the potential advantages of their production management systems. The production management systems of one-picture only, pure independent productions tend to be ad hoc systems that find their way into the process through the producer, director and other personnel that are assembled to create a one-time organization, in our opinion. This leaves the small and medium sized production companies, who benefit from their ambitions of creating multiple motion pictures. Unfortunately, as their staffs of full-time production and development personnel grow, we believe their budgets grow accordingly, in general, creating little competitive value over time.
 
 
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4. Common Stock Incentives

To the best of our knowledge, no other publicly traded film company has ever utilized common stock to incentive all of its creative, production and management resources. There are two specific reasons why this option is not generally available to competitors. Firstly, most of the companies making lower budget pictures do not have business models that justify becoming a publicly traded company. Secondly, for companies that do have the scale to offer publicly traded stock as a form of production compensation, we believe that doing so would be at odds with their fundamental business cultures and, in many cases, at odds with the wishes of their shareholders.

With the exception of using common stock, we believe that each of these value enhancement tools is used to varying degrees, with varying success, by other motion picture productions. However, we are not aware of any other Company that uses the systematic and flawless integration of these elements into each of their productions the way that we intend to. If this is correct, we believe it may explain why few if any motion picture companies can consistently realize the reduction in cash production expenditures combined with the increase of quality that we expect to be a key element of our business model.

Our Strategy of Developing and Utilizing In-house Distribution Expertise

A number of new distribution channels have increased the means by which motion picture product can be consumed and, therefore, the potential channels for revenue. These channels include theatrical or box office, video cassette, DVD, pay-per-view television, cable television, network television, television syndication, hand held devices, internet, PPV, VOD, IPTV, non-theatrical outlets, such as in-flight movies, and international channels. With so many new distribution channels available, it my seem surprising that pictures with smaller budgets still find it so difficult to get their films in front of audiences. Our management believes this pervasive problem is primarily due to two difficult obstacles to overcome.

Firstly, we believe that the very reliance on a distributor places a small independent production at the mercy of a party they have limited bargaining power with and virtually no control over: the distributor. Under such a scenario, we believe that even if revenues and expenses are fairly and properly accounted for by the distributor, cash must flow through many hands before revenue makes it way back to investors and other profit participants.

Secondly, and perhaps equally important, we believe that without a large volume of product in the pipeline, the alternatives to using an outside distributor are few, and rarely result in large, predictable inflows of cash. For instance, if an independent producer has a single picture budgeted at $5 million; it is generally economically impractical to establish an in-house distribution department with the limited mission of directly marketing that one film. At the same time, we believe that volume purchasers of motion picture product, including studios, cable outlets, home video companies and other buyers with large needs for product, require a dependable source of multiple pictures. The one-picture or two-picture production company simply can’t meet these needs, making it more efficient for buyers to deal with an agent or sub-distributor, in our opinion. Our planned combination of high-volume and high-quality motion pictures stands to change these economics, making in-house distribution an essential element of our strategy.
 
 
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Motion Picture Library

A potential benefit of our business model is the planned ownership of an expansive library of feature films that should be, for the most part, unencumbered. If we are successful in implementing our business plan, we could have 12 films or more going into our library annually that could have an extended shelf life in ancillary markets, including, but not limited to, cable, satellite and television syndication, both domestically and internationally, extended DVD’s, special edition DVD’s and other areas of repurposing.


RESULTS OF OPERATIONS

General

Our historical operations consisted primarily of attempting to provide support, organization and restructuring services to other development stage companies. Due to the complete and drastic change in our business focus, from seeking to aid development stage companies to our current focus of producing, distributing and marketing original motion pictures, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied on as an indication of future performance. However, it is still important that you read the discussion in connection with the audited financial statements, the unaudited interim financial and the related notes included elsewhere in this quarterly report.
  
SIX MONTHS ENDED JUNE 30, 2006, COMPARED TO SIX MONTHS ENDED JUNE 30, 2005: 
 
The Company did not generate any revenue during the six months ended, June 30, 2006 and June 30, 2005.

All expenses incurred during the comparative periods were general and administrative in nature.

The Company has incurred $ 8,987,093 of general and administrative expenses since its inception. General and administrative expenses were $ 394,525 for the six months ended June 30, 2006, respectively, compared to $603,270 for the six months ended June 30, 2005. Decreases during this period are due mainly to reduction in the costs at the Cannes Film Festival. In May 2005 costs related to this film festival of $195,000 for professional services, $86,752 for marketing costs and $37,666 for travel costs compared to $8,170 in Marketing costs and $24,107 in travel costs for May 2006.
 
The general and administrative expenses for the six months ended June 30, 2006 were primarily comprised of $285,000 for officers compensation, professional fees of $45,927, marketing costs of $8,170, travel and lodging costs for industry trade shows of $24,107, corporate and stock fees of $8,343 and other expenses of $22,978. Additionally, $60,000 in screenplay costs, which were capitalized. These expenses were related to the pursuit of the Company’s plan of operation to produce and distribute motion pictures.
 
Total General and Administrative expenses of $394,525 are for the six months ended June 30, 2006.

Professional services rendered by financial, film directors, screenplay fees, producers and distributors and costs related to the studio development were incurred during the six month ended, June 30, 2006 and were incurred during the same period of 2005. The expenses were incurred as a result of the Company’s efforts to develop a working management team to assist in completing the operation plan for the company.

 
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LIQUIDITY AND CAPITAL RESOURCES 

We have a limited history of operations as a film production and distribution company. We believe that, due to the complete and drastic change in our business focus, period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied on as an indication of future performance.

Our current liquidity and capital resources are provided principally through our financing agreement with Eagle Consulting Group, Inc. (“Eagle”). We entered into an agreement with Eagle on March 28, 2003, to provide operational funding for the Company. In exchange for twenty percent (20%)of the Company’s outstanding common stock on a non-dilutive, continuing basis until the Company can secure additional financing from another source, Eagle has agreed to provide funding for the Company’s annual audit, quarterly filings, accounts payable and other ongoing expenses including office, phones, business development, legal and accounting fees. This quarter, Eagle has advanced the Company a total, including interest, of $294,292. The funding commitment from Eagle should cover all of our operating expenses for the remaining six months of 2006.
 
Further, we are in the process of preparing various financial offerings as we gear up all three divisions of CMEG, including a 506 offering for operating overhead, an SB-2 registration statement for the purpose of funding our initial slate of pictures and a major funding offering in connection with the studio project. If the anticipated slate funding is successful, it is our goal to have between 10 and 12 motion pictures in various stages of development or production within 12 months. In the event we are unable to complete the funding, we could have to delay our slate until such time as the necessary funding is acquired.

Like all motion picture production companies, our revenues and results of operations could be significantly dependent upon the timing of releases and the commercial success of the motion pictures we distribute, none of which can be predicted with certainty. Accordingly, our revenues and results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods. Similarly, the efficiencies we aim to realize through our model may not materialize. Failure of the efficiencies to materialize, along with other risks germane to the picture production, may cause us to produce fewer films than our plan calls for.

FACTORS THAT MAY AFFECT FUTURE RESULTS 

We have an Accumulated Deficit and we have a Limited History of Operations as a Motion Picture Company

  We have incurred losses in each operating period since our inception on October 12, 1999. Operating losses may continue, which could adversely affect financial results from operations and stockholder value, and there is a risk that we may never become profitable.

  As of June 30, 2006, we have an accumulated deficit of $12,219,385, the majority of which related to our previous activities as a business development organization, and some of which relates to our current activities as a motion picture production, marketing and distribution entity. There can be no assurance that our management will be successful in managing the Company as a motion picture production, distribution and marketing concern.

We expect to have a need for Additional Financing

  As of June 30, 2006 we had a working capital deficit of $450,022. Our history of recurring losses from operations raises a substantial doubt about our ability to continue as a going concern. There can be no assurance that we will have adequate capital resources to fund planned operations or that any additional funds will be available to us when needed, or if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund our motion picture operations, it may be required to delay, scale back or eliminate some or all of our operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.
 
 
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Our business requires a substantial investment of capital. The production, acquisition and distribution of motion pictures require a significant amount of capital. A significant amount of time may elapse between our expenditure of funds and the receipt of commercial revenues from our motion pictures, if any. This time lapse requires us to fund a significant portion of our capital requirements from private parties, institutions, and other sources. Although we intend to reduce the risks of our production exposure through strict financial guidelines and financial contributions from broadcasters, sub-distributors, tax shelters, government and industry programs and studios, we cannot assure you that we will be able to implement successfully these arrangements or that we will not be subject to substantial financial risks relating to the production, acquisition, completion and release of future motion pictures. If we increase our production slate or our production budgets, we may be required to increase overhead, make larger up-front payments to talent and consequently bear greater financial risks. Any of the foregoing could have a material adverse effect on our business, results of operations or financial condition.

Competition is Severe in the Motion Picture Industry

  The motion picture industry is highly competitive. Our management believes that a motion picture's theatrical success is dependent upon general public acceptance, marketing technology, advertising and the quality of the production. We intend to produce motion picture productions that normally should compete with numerous independent and foreign productions as well as productions produced and distributed by a number of major domestic companies, many of which are units of conglomerate corporations with assets and resources substantially greater than ours.

  Our management believes that in recent years there has been an increase in competition in virtually all facets of the motion picture industry. With increased alternative distribution channels for many types of entertainment, the motion picture business competes more intensely than previously with all other types of entertainment activities as well as television. While increased use of pay per view television, pay television channels, and home video products are potentially beneficial, there is no guarantee that we will be able to successfully penetrate these markets. Failure to penetrate these potential distribution channels would have a material adverse impact on our results of operations.
 
Substantial Risks Germane to the Motion Picture Industry

  The success of a single motion picture project is fraught with an unusually high degree of uncertainty and risk. Similarly, the probability of successfully completing a motion picture project is also laden with an unusually high degree of uncertainty and risks. A studio or independent producer’s ability to finance a project, execute a successful distribution strategy, obtain favorable press and compete with an unknown quantity of competing releases are just some of the factors that impact the commercial success or failure of a film project. Our strategy involves producing a minimum of 12 motion pictures per year. While the intent is to reduce production risk through this strategy, our plan has the potential to compound risks germane to the industry.

Movie producers are often involved in several projects at the same time and an active film director is often presented with opportunities to direct many movies. In addition, independent contractors needed to produce the film often have commitments to more than one movie project. Because we may decide to replace key members of our production team if they are unable to perform their duties within our schedule, the marketing appeal of our film may be reduced.
 
 
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If we do not complete a film on schedule or within budget, our ability to generate revenue may be diminished or delayed. Our success depends on our ability to complete the film on schedule and within budget.

  Each film we produce and distribute should appeal to a given segment of society to achieve acceptance. Although our intent to target niche markets that should require less than broad market acceptance to achieve commercial success, there can be no assurance that this strategy will succeed.

Motion picture production and distribution is highly speculative and inherently risky. There can be no assurance of the economic success of any motion picture since the revenues derived from the production and distribution of a motion picture (which do not necessarily bear a direct correlation to the production or distribution costs incurred) depend primarily upon its acceptance by the public, which cannot be predicted. The commercial success of a motion picture also depends upon the acceptance of competing films released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Further, the theatrical success of a motion picture is generally a key factor in generating revenues from other distribution channels. There is a substantial risk that some or all of our motion pictures will not be commercially successful, resulting in costs not being recouped or anticipated profits not being realized.
 
Theaters are more likely to exhibit feature films with substantial studio marketing budgets. Even if we are able to complete the films and obtain distribution, it is unclear how much should be spent on marketing to promote each film by our distributors.
 
All of these factors cannot be predicted with certainty. In addition, motion picture attendance is seasonal, with the greatest attendance typically occurring during the summer and holidays. The release of a film during a period of relatively low theater attendance is likely to affect the film’s box office receipts adversely.
 
Distribution in Foreign Countries

  We plan to license motion picture and television programming in foreign countries to sub-distributors. If we are at all successful in this regard, a portion of our revenues should be derived from foreign sources. Because of this, our business is subject to certain risks inherent in international trade, many of which are beyond our control. Such risks include, but are not limited to, changes in laws and policies affecting trade, investment and taxes (including laws and policies relating to the repatriation of funds and to withholding taxes), differing degrees of protection for intellectual property, the instability of foreign economies and governments and in some cases an adverse acceptance to a film may occur, resulting in a demand to renegotiate the license agreement’s terms and conditions. In addition, fluctuations in foreign exchange rates may affect our results of operations.

Piracy of Original Motion Pictures we Plan to Produce may Reduce our Revenues and Potential Earnings
 
  According to industry sources, piracy losses in the motion picture industry have increased substantially, from an estimated $2.2 billion in 1997 to an estimated $3.5 billion in 2002. In certain regions such Asia, the former Soviet Union and South America, motion picture piracy has been a major issue for some time. With the proliferation of DVD format around the globe, along with other digital recording and playback devices, losses from piracy have spread more rapidly in North America and Europe. Piracy of original motion pictures we produce and distribute may adversely impact the gross receipts received from the exploitation of these films, which could have a material adverse effect on our business, results of operations or financial condition.
 
 
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Fluctuation of Operating Results

  Like all motion picture production companies, our revenues and results of operations could be significantly dependent upon the timing of releases and the commercial success of the motion pictures we distribute, none of which can be predicted with certainty. Accordingly, our revenues and results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods.
 
  In accordance with generally accepted accounting principles and industry practice, we intend to amortize film costs using the individual-film-forecast method under which such costs are amortized for each film in the ratio that revenue earned in the current period for such title bears to management's estimate of the total revenues to be realized from all media and markets for such title. To comply with this accounting principal, our management plans to regularly review, and revise when necessary, our total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization and/or a write-down of the film asset to net realizable value. Results of operations in future years should be dependent upon our amortization of film costs and may be significantly affected by periodic adjustments in amortization rates. The likelihood of the Company's reporting of losses is increased because the industry's accounting method requires the immediate recognition of the entire loss in instances where it is expected that a motion picture should not recover the Company's investment.

Similarly, should any of our films be profitable in a given period, we should have to recognize that profit over the entire revenue stream expected to be generated by the individual film.
 
Film Production Budgets may Increase and Film Production Spending may Exceed such Budgets
 
Our future film budgets may increase due to factors including, but not limited to, (1) escalation in compensation rates of people required to work on our projects, (2) number of personnel required to work on our projects, (3) equipment needs, (4) the enhancement of existing or the development of new proprietary technology and (5) the addition of facilities to accommodate the growth of a studio. Due to production exigencies, which are often difficult to predict, it is not uncommon for film production spending to exceed film production budgets, and our projects may not be completed within the budgeted amounts. In addition, when production of each film is completed, we may incur significant carrying costs associated with transitioning personnel on creative and development teams from one project to another. These carrying costs increase overall production budgets and could have a material adverse effect on our results of operations and financial condition.
 
Our Anticipated Successive Releases of Films could Place a Significant Strain on our Limited Resources
 
We anticipate establishing parallel creative teams so that we can develop more than one film at a time. These teams are expected to work on future projects, as we move towards producing 12 films per year. Due to the anticipated strain on our personnel from the effort required for the release of an upcoming film and the time required for creative development of future films, it is possible that we would be unable to release twelve new films in the first year and in subsequent years. We may be required to expand our employee base, increase capital expenditures and procure additional resources and facilities in order to accomplish the scheduled releases of our films. This growth and expansion may place a significant strain on our resources. We cannot provide any assurances that any future film will be released as targeted or that this strain on resources will not have a material adverse effect on our business, financial condition or results of operations. As we move towards achieving 12 films a year, there will likely be additional demands placed on the availability of key people. A lack of availability of key people may adversely impact the success and timing of our future films.
 
We may implement a variety of new and upgraded operational and financial systems, procedures and controls, including improvement and maintenance of our accounting system, other internal management systems and backup systems. Our growth and these diversification activities, along with the corresponding increase in the number of our employees and our rapidly increasing costs, may result in increased responsibility for our management team. We may need to improve our operational, financial and management information systems, to hire, train, motivate and manage our employees, and to provide adequate facilities and other resources for them. We cannot provide any assurance we will be successful in accomplishing all of these activities on a timely and cost-effective basis. Any failure to accomplish one or more of these activities on a timely and cost-effective basis would have a material adverse effect on our business, financial condition and results of operations.
 
 
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The decisions regarding the timing of theatrical releases and related products, the marketing and distribution strategy, and the extent of promotional support are important factors in determining the success of our motion pictures and related products. We may enter into agreements with third-parties to assist us in the marketing and distribution of our films, and we may require the marketers and distributors to consult with us with respect to all major marketing and distribution decisions. Said agreements may or may not include: (1) the manner in which distributors may distribute our films and related products; (2) the number of theaters to which our films are distributed; (3) the specific timing of release of our films and related products; or (4) the specific amount or quality of marketing and promotional support of the films and related products as well as the associated promotional and marketing budgets.
 
Terrorist Activities and Resulting Military and other Actions could Adversely Affect our Business
 
The continued threat of terrorism within the United States and abroad, military action and heightened security measures in response to such threats, as well as other socioeconomic and political events, may cause significant disruption to commerce, including the entertainment industry, throughout the world. For example, the terrorist attacks in New York and Washington, D.C. on September 11, 2001 disrupted commerce throughout the United States and Europe. Such disruption in the future could have a material adverse effect on our business and results of operations.
 
We are Smaller and Less Diversified than Many of our Competitors. 

Although we plan to be an independent distributor and producer, we expect to constantly compete with major U.S. and international studios. Most of the major U.S. studios are part of large diversified corporate groups with a variety of other operations, including television networks and cable channels that can provide both means of distributing their products and stable sources of earnings that may allow them better to offset fluctuations in the financial performance of their motion picture and television operations. In addition, the major studios have more resources with which to compete for ideas, storylines and scripts created by third parties as well as for actors, directors and other personnel required for production. The resources of the major studios may also give them an advantage in acquiring other businesses or assets, including film libraries, that we might also be interested in acquiring. The foregoing could have a material adverse effect on our business, results of operations and financial condition.

The Motion Picture Industry is Highly Competitive and at Times may Create an Oversupply of Motion Pictures in the Market.

The number of motion pictures released by our competitors, particularly the major U.S. studios, may create an oversupply of product in the market, reduce our share of box office receipts and make it more difficult for our films to succeed commercially once we begin to produce, market and distribute our films. Oversupply may become most pronounced during peak release times, such as school holidays and national holidays, when theater attendance is expected to be highest. For this reason, and because of our more limited production and advertising budgets, we plan to not release our films during peak release times, which may also reduce our potential revenues for a particular release. Moreover, we cannot guarantee that we can release all of our films when they are otherwise scheduled. In addition to production or other delays that might cause us to alter our release schedule, a change in the schedule of a major studio may force us to alter the release date of a film because we cannot always compete with a major studio’s larger promotion campaign. Any such change could adversely impact a film’s financial performance. In addition, if we cannot change our schedule after such a change by a major studio because we are too close to the release date, the major studio’s release and its typically larger promotion budget may adversely impact the financial performance of our film. The foregoing could have a material adverse effect on our business, results of operations and financial condition.
 
 
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The limited supply of motion picture screens compounds this product oversupply problem. Currently, a substantial majority of the motion picture screens in the U.S. typically are committed at any one time to only ten to 15 films distributed nationally by major studio distributors. In addition, as a result of changes in the theatrical exhibition industry, including reorganizations and consolidations and the fact that major studio releases occupy more screens, the number of screens available to us when we want to release a picture may decrease. If the number of motion picture screens decreases, box office receipts, and the correlating future revenue streams, such as from home video and pay and free television, of our motion pictures may also decrease, which could have a material adverse effect on our business, results of operations or financial condition.

We May Not be Able to Obtain Additional Funding to Meet our Requirements

Our ability to grow our company through acquisitions, business combinations and joint ventures, to maintain and expand our development, production and distribution of motion pictures and to fund our operating expenses will depend upon our ability to obtain funds through equity financing, debt financing (including credit facilities) or the sale or syndication of some or all of our interests in certain projects or other assets. If we do not have access to such financing arrangements, and if other funding does not become available on terms acceptable to us, there could be a material adverse effect on our business, results of operations or financial condition.

We Face Risks from Doing Business Internationally

We may distribute motion picture productions outside the United States through third party licensees and derive revenues from these sources. As a result, our business is subject to certain risks inherent in international business, many of which are beyond our control. These risks include changes in local regulatory requirements, including restrictions on content; changes in the laws and policies affecting trade, investment and taxes (including laws and policies relating to the repatriation of funds and to withholding taxes); differing degrees of protection for intellectual property; instability of foreign economies and governments; cultural barriers; wars and acts of terrorism. Any of these factors could have a material adverse effect on our business, results of operations or financial condition.

Leverage Risks

The degree to which we might become leveraged may require us to dedicate a substantial portion of our cash flow to the payment of principal of, and interest on, our indebtedness, reducing the amount of cash flow available to fund film production costs and other operating expenses. Additionally, the degree to which we might become leveraged may adversely affect our ability to obtain additional financing, if necessary, for such operating expenses, to compete effectively against competitors with greater financial resources, to withstand downturns in our business or the economy generally and to pursue strategic acquisitions and other business opportunities that may be in the best interests of us and our stockholders.

ITEM 3. CONTROLS AND PROCEDURES 

Within the 90 days prior to the date of this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, our management concluded that our disclosure controls and procedures are effective and timely alerting them to material information relating to the Company required to be included in our periodic SEC filings.

There were no significant changes in our internal controls over financial reporting or other factors that could significantly affect these controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies or material weaknesses.

 
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PART II. OTHER INFORMATION 

ITEM 1. LEGAL PROCEEDINGS 

None.

ITEM 2. CHANGE IN SECURITIES 

On January 5, 2005, at 1:30 p.m. PST, via telephone conference a special meeting of the board of directors was held to Establish Series A and Series B Preferred Stock, with such voting powers, designations, preferences and rights or qualifications, limitations or restrictions as detailed in the Preferred Stock designations.

It was Resolved that Series A Preferred Stock shall be reserved for employees, consultants and other professionals retained by the Company.

It was further Resolved that Series B Preferred Stock shall be reserved for the Board of Directors of the Company.

The Chairman next stated that, in accordance with the agreements, letters of intent and other assurances between the Company and Robert P. Atwell, including companies controlled and or owned by Mr. Atwell or his affiliates, collectively (“Atwell”), the Company shall need to issue to Atwell 5,100,000 shares of Series A Preferred Stock at a par value of $.001 per share and 5,100,000 shares of Series B Preferred Stock at a par value of $.001 per share. Upon a motion duly made and seconded, and following a discussion, the following resolutions were unanimously passed.

On June 29, 2005, at 1:30pm PST, via telephone conference a special meeting of the board of directors was held to issue shares of common stock for accrued officer compensation, issue shares of common stock to various consultants performing services for the company and to Eagle Consulting Group for providing capital for continuing operations of the company.

It was Resolved that the company owed its officers $191,666 in accrued compensation. First quarter accrued compensation of $87,500 and second quarter accrued compensation of $104,166. The company issued a total of 911,459 restricted common shares at a market value of $87,500 for the first quarter of 2005 services and a total of 1,364,575 restricted common shares at a market value of $102,343 for second quarter 2005 services. The total shares issued for compensation of officers for the first and second quarter of 2005 was 2,276,034 shares.

It was Resolved that the Board authorized the company to issue 651,042 shares of the Company’s $.001 par value common stock to Robert Atwell for services during the first quarter of 2005.

It was Resolved that the Board authorized the company to issue 833,333 shares of the Company’s $.001 par value common stock to Robert Atwell for services during the second quarter of 2005.
 
 
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It was Resolved that the Board authorized the company to issue 260,417 shares of the Company’s $.001 par value common stock to Jane Olmstead for services during the first quarter of 2005.

It was Resolved that the Board authorized the company to issue 86,602 shares of the Company’s $.001 par value common stock to Jane Olmstead for services during the second quarter of 2005.

It was Resolved that the Board authorized the company to issue 444,440 shares of the Company’s $.001 par value common stock to George Jackson for services during the second quarter of 2005.

In the efforts to build a management team the company issued stock to the new management team.

It was Resolved that George Jackson, H K Dyal, Chris Davis and Craig Kitchens would each receive 1,000,000 shares of the Company’s $.001 par value common stock for consulting services provided during the second quarter of 2005.

The Chairman next stated that in accordance with the agreement with Eagle Consulting Group, Inc. and the Company, upon issuance of the above shares, there will be a total of 81,227,243 shares outstanding, resulting in 16,245,449 total shares due to Eagle Consulting Group, Inc. as of June 30, 2005. Eagle Consulting Group, Inc. had previously been issued 14,396,727 shares, leaving a balance of 1,848,722 shares to be issued. The Company determined that the price per share in connection herewith would be .03, based upon the original agreed upon price. With this issuance of shares to Eagle Consulting Group, Inc., there will be a total common stock of 83,075,964 shares, issued, and outstanding. Upon a motion duly made and seconded, and following a discussion of other business matters, and the above June 29, 2005 resolutions were unanimously passed.

On December 30, 2005 the company issued the following shares, 3,538,263 to officers for services performed during 2005, 1,452,662 to Eagle Consulting Group, Inc. for expenses paid on behalf of the company during the third and fourth quarter of 2005, 3,586,881 shares to Eagle Consulting Group for loans made to the company for expenses paid on behalf of the company during 2005 and 1,452,662 shares to Eagle Consulting Group, Inc. in according with their agreement to pay for all operational expenses during the year 2005.

Shares issued as of June 30, 2006, common shares 93,649,589, Class A preferred stock 5,100,000 and Class B preferred stock 5,100,000. No shares have been issued during the first or second quarter of 2006.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES 

NONE

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS 

NONE
 
ITEM 5. OTHER INFORMATION

NONE

 
Page - 31

 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

31.1 Certification Pursuant to the 18 U.S.C. section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

31.2 Certification Pursuant to the 18 U.S.C. section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

32.1 Certification Pursuant to the 18 U.S.C. section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

b. Reports on Form 8-K

NONE

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report on Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly authorized.

CAMELOT ENTERTAINMENT GROUP, INC.
(Registrant)


/S/ ROBERT P. ATWELL 
Robert P. Atwell
Chief Executive Officer


/S/ GEORGE JACKSON 
George Jackson
Chief Financial Officer

 
August 15, 2006 
 

 
 
Page - 32



 
Exhibit 31
CAMELOT ENTERTAINMENT GROUP, INC. 
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 CERTIFICATION  
 
I, Robert P. Atwell, certify that:
 
1.   I have reviewed this quarterly report on Form 10-QSB of Camelot Entertainment Group, Inc.;
 
2. Based on my knowledge, this quarterly 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 small business issuer as of, and for, the periods presented in this report;
 
4. The small business issuer’s other certifying officer(s) 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 small business issuer 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 small business issuer, 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 small business issuer’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 small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
 
5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’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 small business issuer’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 small business issuer’s internal control over financial reporting.
 
 Date: August 15, 2006
/s/ Robert P. Atwell
Robert P. Atwell
Chief Executive Officer

 
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CAMELOT ENTERTAINMENT GROUP, INC. 
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 CERTIFICATION  
 
I, George Jackson, certify that:
 
1.   I have reviewed this quarterly report on Form 10-QSB of Camelot Entertainment Group, Inc.;  
 
2. Based on my knowledge, this quarterly 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 small business issuer as of, and for, the periods presented in this report;
 
4. The small business issuer’s other certifying officer(s) 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 small business issuer 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 small business issuer, 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 small business issuer’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 small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
 
5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’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 small business issuer’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 small business issuer’s internal control over financial reporting.  
 
August 15, 2006

/s/George Jackson
George Jackson
Chief Financial Officer
 
 
Page - 34

 
 
 
 
 
Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Camelot Entertainment Group, Inc. (“Camelot”) on Form 10-Q for the period ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert P. Atwell, President and Chief Executive Officer of Camelot Entertainment Group, Inc. and a member of the Board of Directors, certify, pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:
 
 
(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)   The information contained in the Report fairly represents, the financial condition and result of operations of Camelot Entertainment Group, Inc..
 
 

 
 
/s/ Robert P. Atwell
Robert P. Atwell
Chief Executive Officer
 
 
August 15, 2006

 
Page - 35


 
 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Camelot Entertainment Group, Inc. (“Camelot”) on Form 10-Q for the period ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George Jackson, President and Chief Financial Officer of Camelot Entertainment Group, Inc. and a member of the Board of Directors, certify, pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:
 
 
(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)   The information contained in the Report fairly represents, the financial condition and result of operations of Camelot Entertainment Group, Inc..
 
 

 
/s/George Jackson
George Jackson
Chief Financial Officer 
August 15, 2006


 
Page - 36