SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-KSB





x   ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





o   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
fiscal year ended: December 31, 2007





Commission
file number 000-31048





PACIFICAP ENTERTAINMENT
HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)





Nevada
            33-0766069(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)4521
      Campus Drive, #562Irvine, California
            92612(Address
      of principal executive offices)
            (zip
      code)




Issuer's
Telephone Number:   (949)
706-1834





Securities
registered under Section 12(b) of the Exchange Act:


None





Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $.001 par value


(Title if
Class)





Indicate by check mark whether the
issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.  YesxNoo





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  YesoNox





Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-B is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to Form 10-K.  YesoNoxDelinquent filers are
disclosed herein.





Total
revenues for Fiscal Year 2007 were $0.





The
aggregate market value of the Common Stock held by non-affiliates (as affiliates
are defined in Rule 12b-2 of the Exchange Act) of the registrant, $68,888,
computed based on the average of the high and low price of the Company’s Common
stock on the Over-The Counter-Bulletin Board on October 10, 2008, which was
$0.0001.





As of
November 10, 2008 there were 377,258,692 shares of
issuer’s common stock outstanding.





Transitional
Small Business Disclosure Format (check one): Yes o  No x





Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


ANNUAL
REPORT ON FORM 10-KSB


For
the Fiscal Year Ended December 31, 2007





TABLE OF CONTENTS




PART
      I
            
            PageItem    1.
            Business
            1Item   
      2.
            Properties
            5Item   
      3.
            Legal
      Proceedings
            5Item   
      4.
            Submission
      of Matters to a vote of Securites Holders
            5PART
      IIItem   
      5.
            Market for
      Registrant’s Common Equity and Related Stockholder
      Matters
            6Item   
      6.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            14Item   
      7.
            Financial
      Statements
            F-1Item   
      8.
            Changes in and
      Disagreements with Accountants on Auditing and Financial
      Disclosure
            27Item   
      8A.
            Controls and
      Procedures
            27Item   
      8B.
            Other
      Information
            28PART
      IIIItem   
      9.
            Directors and Executive Officers of the
      Registrant
            29Item   
      10.
            Executive
      Compensation
            31Item   
      11.
            Security
      Ownership of Certain Beneficial Owners and
      Management
            33Item   
      12.
            Certain
      Relationships and Related Transactions
            33PART
      IVItem   13.
            Exhibits
            34Item  
      14.
            Principal
      Accountant Fees and Services
            46Signatures
            SIGNATURES







Table of Contents





FORWARD-LOOKING
STATEMENTS





This Form
10-K contains forward-looking statements within the meaning of the federal
securities laws. These forward-looking statements are necessarily based on
certain assumptions and are subject to significant risks and uncertainties.
These forward-looking statements are based on management's expectations as of
the date hereof, and the Company does not undertake any responsibility to update
any of these statements in the future. Actual future performance and results
could differ from that contained in or suggested by these forward-looking
statements as a result of factors set forth in this Form 10-K (including those
sections hereof incorporated by reference from other filings with the Securities
and Exchange Commission), in particular as set forth in the "Management’s
Discussion and Analysis and Results of Operation" under Item 6.





In this
form 10-K references to "Pacificap", “the Company”, "we," "us," and "our" refer
to Pacificap Entertainment Holdings, Inc.





PART
I





ITEM
      1.
            DESCRIPTION OF
BUSINESS





OVERVIEW





We were a
development stage company engaged in the film financing and television series
production business. Our business plan was modeled to restructure the risk
profile of film production, while maximizing the ancillary profits from
marketing, merchandising and licensing.





Organizational/Historical
Background





In
September of 1999, we changed our business model from a shoe manufacturing and
distributing company to an entertainment company focusing on the nostalgic
sports broadcasting business. On December 17, 1999, we amended our Articles of
Incorporation to change our name to Cavalcade of Sports Media, Inc., and on
December 22, 1999, Cavalcade of Sports Network, Inc., a New York corporation,
was merged with and into the Company, leaving Cavalcade of Sports Media, Inc.,
the Nevada corporation, as the survivor.





On
September 19, 2003, we completed a plan and agreement of reorganization with
Pacificap Entertainment Holdings, Inc., a privately-held company organized under
the laws of the State of California with no significant assets or
operations.





Pursuant
to the reorganization plan, all previously outstanding common stock owned by
Pacificap stockholders was exchanged for an aggregate of 18,000,000 shares of
our common stock.





After the
merger took effect, the President of the dissolved Pacificap Entertainment,
Inc., Michael Riley, joined the Board of Directors. As a result of the
transaction, our control changed, we changed our name to Pacificap Entertainment
Holdings, Inc. from Cavalcade of Sports Media, Inc.




On December 21, 2005, we entered into
an agreement with Collectible Concepts Group, Inc., pursuant to which we agreed
to sell our library of nostalgic sporting events, vintage cartoons and classic
films to Collectible Concepts Group. The closing of the transaction was
contingent upon the cataloguing of the library, which was completed on January
20, 2006, at which time the transaction closed. Pursuant to the agreement, we
will receive $50,000 within 90 days of December 21, 2005 and received a
promissory note for $200,000. The note accrues interest at the rate of six
percent per annum and is becomes due on December 15, 2010. We received $50,000
during the year ended December 31, 2006, however the collectibility of the
remaining purchase price due from Collectible Concepts Group can not be
reasonably assured. Accordingly, income will be deferred until the payments are
collected in future period.





Recent
Transaction/Developments





We were a
development stage company engaged in the film financing and television series
production business.  Our business plan was modeled to restructure the
risk profile of film production, while maximizing the ancillary profits from
marketing, merchandising and licensing.





Beginning
in 2008, the company has engaged in reviewing various business opportunities
from private companies looking for film financing.






1
 Table of Contents







The
Company’s principal business objective for the next 12 months and beyond such
time will be to achieve long-term growth potential through a combination with a
business rather than immediate, short-term earnings. The Company will not
restrict its potential candidate target companies to any specific business,
industry or geographical location and, thus, may acquire any type of business,
however
its primary focus will continue to be film finance.


The
analysis of new business opportunities has and will be undertaken by or under
the supervision of the officers and directors of the Company. The Company has
unrestricted flexibility in seeking, analyzing and participating in potential
business opportunities. In its efforts to analyze potential acquisition targets,
the Company will consider the following kinds of factors:





(a)
  Potential for growth, indicated by new technology, anticipated market
expansion or new products;





(b)
  Competitive position as compared to other firms of similar size and
experience within the industry segment as well as within the industry as a
whole;





(c)
  Strength and diversity of management, either in place or scheduled for
recruitment;




(d)
  Capital requirements and anticipated availability of required funds, to
be provided by the Registrant or from operations, through the sale of additional
securities, through joint ventures or similar arrangements or from other
sources;





(e)
  The cost of participation by the Registrant as compared to the perceived
tangible and intangible values and potentials;





(f)
  The extent to which the business opportunity can be
advanced;





(g)
  The accessibility of required management expertise, personnel, raw
materials, services, professional assistance and other required items;
and





(h)
  Other relevant factors.





In
applying the foregoing criteria, no one of which will be controlling, management
will attempt to analyze all factors and circumstances and make a determination
based upon reasonable investigative measures and available data. Potentially
available business opportunities may occur in many different industries, and at
various stages of development, all of which will make the task of comparative
investigation and analysis of such business opportunities extremely difficult
and complex. Due to the Registrant's limited capital available for
investigation, the Registrant may not discover or adequately evaluate adverse
facts about the opportunity to be acquired.





Former
Business Plan





Through
the fiscal year 2007, our business plan was to develop a structured approach
that evolved from altering the risk profile of investing in movies, while
participating in the equity profit of the film. Altering the risk profile means
that we look to various rights to the movies in domestic and foreign territories
prior to, instead of after, the film release. We look to participate in the
following ways:





-
Leveraging film-financing funding;





-
Aligning with strategic content providers;





-
Developing continued cash flow from production fees, licensing fees, marketing,
and merchandising; and





-
Participating in the equity profit of each film without deploying corporate
capital.





By
producing commercially-driven yet uncompromising entertainment, we hope our
business model will also be a vehicle capable of generating returns for
investors. We will be responsible for funding owning and exploiting the
intellectual property that will be created from each individual
project.





FILM
FINANCE





Traditional
Film Finance





In the
past, the most common methods of motion picture financing have been “equity
pre-sale”, “rights pre-sale”, “studio output”, and “first look”
arrangements.






2
 Table of Contents







·
            In
      an “equity pre-sale” deal, for example, a producer circles investors prior
      to the making of a film and equity investors pay all costs. P&A
      (distribution) expenses are usually financed by the distributor, but are
      recouped in fist position pushing all risk to the
    investors.·
            In
      a “rights pre-sale” deal, a producer offers the film to foreign (usually)
      or other distributors who agree to purchase some of the distribution
      rights upon completion of the film. If approximately 1.3 to 1.5 times the
      cost of the film can be pre-sold, a production lender loans the funds to
      produce the picture, subject to the credit-worthiness of the obligated
      distributors.·
            In
      a “studio-output” (financing) deal, the owner of a script enters an
      agreement with a studio that likes the concept. The studio manages
      production, funds production and, almost always retains all proceeds
      generated from the film. The script owner can often receive a moderate fee
      and a “net” profit participation typically around 5%. This net profit
      participation, after allocation of studio overhead, is rarely, if ever,
      paid.·
            In
      a “first look” (financing) deal, a studio enters into a contract
      relationship with a filmmaker or star agreeing to pay overhead and
      development expenses in exchange for a priority position to produce and
      distribute that person’s films. If the studio rejects a project, the
      filmmaker or star may present the project to other
  studios.





Over the
last decade, however, a new trend has developed in Hollywood: Studios are
mitigating the capital-intensive nature of filmmaking by co-financing and
co-producing movies with others as well as distributing portfolios of movies
financed by third parties.





The
New World of Co-Financing





Since the mid-1990s, virtually every
major studio has mitigated financial exposure by splitting ownership of film
portfolios with partners. Sharing ownership of films both reduces the impact of
box-office failures on a studio and lessens the capital burden induced by the
mega-budget films towards which studios have trended.





In a
co-financing deal for a portfolio of movies, a studio distributes the entire
slate of films in exchange for a distribution fee (usually 10-15%) and a
participation in the profits equal to their financing contribution to the film
budgets.





Under our
co-financing arrangement, we and the distributing studio will each finance 50%
of the production and marketing costs, and will split the related profits (after
the pre-arranged distribution fees, third-party fees and distribution expenses).
The studio will both share risk with investors and will provide guidance to the
project on elements critical to globally-released films. Investors will
therefore benefit from an extensive alignment of interest between the project
and the studio/distributor.





DISTRIBUTION





The
actual results from past films suggest that a movie that is widely distributed
tends to recoup most of its costs, even if the quality and commercial appeal of
the movie turn out to be below average. Conversely, a “good” film can fail to
generate acceptable receipts if it is not adequately distributed.





A
securitized film structure like this Project require that each film be “widely
released” on a global basis. While there tend to be many variables in the final
terms of such a distribution arrangement, a wide release typically means that
each film is theatrically released in the U.S. and Canada (the “Domestic”
market) on 1,500 or more screens and on a similar number of screens within a
reasonably short period of time overseas (the “International” market). To ensure
complete distribution of the entire portfolio, the lender tends to require that
the distribution partner maintain an investment-grade credit rating - the senior
unsecured debt rating of the entity or its parent company must be BBB -
SS&P)/Baa3 (Moody’s) or higher. The film distributors that meet this
qualification and thus that are eligible candidates for the Project’s
distribution partner(s) are Fox, Disney, Sony, Paramount, Warner, and Universal.
This correspondingly protects the equity investors with the increased certainty
that the films will continue to be distributed throughout the life of the
project.





TRANSACTION
COSTS





The costs
of assembling the multitude of transactions necessary to raise capital and/or
pre-sell the rights to a single movie as distinct from a portfolio are
prohibitively large. When added to the cost of the multiple transactions
involved in any motion picture production effort - script acquisitions and
revision, corporate infrastructure, legal, financial tracking and reporting,
etc., the transaction costs tend to materially reduce the returns to equity
investors. Our business model mitigates these risks by spreading many such costs
over many movies thereby dramatically reducing individual film transaction
costs.





Another
critical risk is the potential for cost overruns, which can most seriously
impact return on investment. While our business model initially addresses this
risk with a proven management team, each film produced will also have an
investment-grade completion bond in order to insure against
overruns.






3
 Table of Contents







ACCOUNTABILITY





The
entertainment industry has a reputation for frequent litigation and obscure
accounting. Our business model, however, is designed to operate with full
professional transparency, accountability and integrity. The securitized debt
structure will require stringent controls and reporting procedures, which
protects equity investors and clarifies cash management and reporting. All cash
receipts from the distribution of the films in this transaction will be subject
to a cash flow allocation arrangement whereby parties to the transaction will
receive pre-agreed allocations of cash flows. For the investors this means that:
(i) credible non-studio parties will be involved in the accounting and
disbursement of cash; (ii) any and all claims to cash that are senior to the
investor will be understood at the outset of the transaction; and (iii) all
parties will have regular detailed reports of cash flows and the functionality
of the deal. We will engage a third-party firm to act an administrator to
monitor, account for and administer the cash flow reports. The administrator
will, in conjunction with the bank custodial agent, oversee the disbursements of
funds to the accounts of the parties to the transaction.


BUSINESS
PRACTICE





While
written agreements are necessary, the spirit of any agreement is the correct
measure of ethics. The business model’s structure includes a team of
professionals with complementary skills who also have the demonstrated maturity
in their convictions to fully embrace and enforce the principles upon which this
business model is being founded. The project’s management and oversight board
will not only honor all contractual arrangements but also ultimately adhere to a
standard that demands the utmost in business ethics and morality and that
embraces a system of checks and balances.





CURRENT
PROJECTS





American
Cannibal





We
completed filming of our first movie, entitled, “American Cannibal: The Road to
Reality.” The film is a documentary that follows the creation and filming of a
reality television show called American Cannibal. Two aspiring TV
writer-producers were hired to create a brutal all-or-nothing reality show. The
entire process was documented and filmed to the end, when a contestant was
critically injured and production was forced to shut down. “American Cannibal”
provides full access to behind-the-scenes action and interviews with several
reality TV veterans. “American Cannibal” premiered at the Tribeca Film Festival
in New York City in April 2006.




On
October 16, 2006, Operation Pilot LLC, a company in which we have a
50% economic interest (“Licensor”) entered into a Distribution Rights
Agreement with Happy Fellow Films, Inc., d/b/a Lifesize Entertainment and
Releasing (“Licensee”) whereby Licensor granted the Licensee the
exclusive rights to market, advertise, and promote the film “American Cannibal”
throughout the world for an initial term of 10 years. Licensee shall also have
the right to advertise, publicize and promote the Film and Licensee's related
services by any means and media.In consideration of the rights granted, Licensee
will pay to the Licensor all gross receipts received by Licensee resulting from
the exercise of rights after making deductions for distribution expenses and
fees. However, the marketing and sale of the film is highly uncertain in the
near future and there is no guarantee we will ever recognize a profit from this
film.





On August
7, 2007, the Company entered into and closed an Asset Purchase Agreement
pursuant to which the Company sold its economic interest in the rights to
distribute the film “American Cannibal” to The Motion Picture Group, Inc.
(“MPRG”) in consideration for MPRG assuming $2,500,000 worth of indebtedness
held by New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW Offshore, Ltd. and AJW Partners, LLC.





Rebel
Gucci





We own the rights to produce a
television reality show surrounding the life of Gemma Gucci, daughter of Paulo
and Jenny Gucci, of the Gucci fashion designers. WE, the Women’s Entertainment
cable channel, has greenlighted and agreed to show one season of 13 shows
(Variety Magazine, November 29, 2005). At this time, we have not begun
production of the show as it will cost at least $200,000 per episode to produce.
We are currently seeking funding for this project, however, no assurances can be
given that we will be able to secure the funding needed on a timely basis, if at
all.  On January 15, 2007, our rights to this produce this show
expired.





Employees





At
October 27, 2008, we had 1 consultant, who is our executive officer and
director.






4
 Table of Contents







ITEM
      2.
            DESCRIPTION OF
PROPERTY





We
maintain our principal office at 4521 Campus Drive – Suite 562, Irvine
CA  92612.  This office space was provided to us free of
charge by our president.   We believe that our current office
space and facilities are sufficient to meet our present needs and do not
anticipate any difficulty securing alternative or additional space, as needed,
on terms acceptable to us.





ITEM
      3.
            LEGAL PROCEEDINGS





From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.





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





On November 19, 2007,we
helda special meeting of the stockholders,at which the majority of stockholders
approved the following actions:




1.
            To
      elect one member to our Board of Directors, to hold office until the 2008
      Annual Meeting and until his successor is elected and
      qualified;





2.
            To
      amend our Certificate of Incorporation to increase the number of
      authorized shares of common stock, par value $.001 per share of the
      Company from 300,000,000 shares to 3,000,000,000
  shares;





3.
            To
      consider, approve and ratify the appointment of RBSM LLP as our
      independent auditors for the fiscal year ending December 31,
      2007.






5
 Table of Contents







PART
II





ITEM
      5.
            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS





Our
common stock is approved for quotation on the OTC Bulletin Board under the
symbol “PFEH.” Prior to December 4, 2003, our common stock was quoted under the
symbol “CVOS.”





For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.





High($)
            
            Low
      ($)Fiscal Year   2006First
      Quarter
            
            
            0.011
            
            
            0.0035Second
      Quarter
            
            
            0.021
            
            
            0.0021Third
      Quarter
            
            
            0.0055
            
            
            0.0021Fourth
      Quarter
            
            
            0.003
            
            
            0.0012Fiscal Year   2007First
      Quarter
            
            
            0.0036
            
            
            0.0008Second
      Quarter
            
            
            0.001
            
            
            0.0003Third
      Quarter
            
            
            0.0007
            
            
            0.0002Fourth
      Quarter
            
            
            0.0005
            
            
            0.0003Fiscal Year   2008First
      Quarter
            
            
            0.0007
            
            
            0.0001Second
      Quarter
            
            
            0.0002
            
            
            0.0001Third
      Quarter
            
            
            0.0002
            
            
            0.0001Fourth
      Quarter
            
            
            0.0001
            
            
            0.0001




Dividends





We
have not paid any cash dividends on our Common Stock or our Preferred Stock. Our
Board of Directors has no present intention of declaring any cash dividends, as
we expect to re-invest all profits in the business for additional working
capital for continuity and growth. The declaration and payment of dividends in
the future will be determined by our Board of Directors considering the
conditions then existing, including the Company's earnings, financial condition,
capital requirements, and other factors.





DESCRIPTION
OF SECURITIES





COMMON
STOCK





We are
authorized to issue up to 3,000,000,000 shares of common stock, par value $.001.
As of November 10, 2008, there were 377,258,692 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.







PREFERRED
STOCK





We are
authorized to issue up to 50,000,000 shares of Preferred Stock, par value $.001.
As of November 10, 2008, there were no shares of preferred stock issued and
outstanding.






6
 Table of Contents







OPTIONS





None.





WARRANTS





In
connection with a Securities Purchase Agreement dated June 10, 2004, we issued
2,000,000 warrants to purchase shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price of
$0.24 per share. In connection with a Securities Purchase Agreement dated
December 17, 2004, we issued 2,800,000 warrants to purchase shares of common
stock. The warrants are exercisable until five years from the date of issuance
at a purchase price of $0.02 per share. In connection with a Securities Purchase
Agreement dated September 19, 2005, we issued 450,000 warrants to purchase
shares of common stock. The warrants are exercisable until five years from the
date of issuance at a purchase price of $0.02 per share. In connection with a
Securities Purchase Agreement dated January 23, 2006, we issued 180,000 warrants
to purchase shares of common stock. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.02 per
share.  In connection with a Securities Purchase Agreement dated June
1, 2006, we issued 10,000,000 warrants to purchase shares of common stock. The
warrants are exercisable until five years from the date of issuance at a
purchase price of $0.01 per share. In connection with a Securities Purchase
Agreement dated August 28, 2006, we issued 10,000,000 warrants to purchase
shares of common stock. The warrants are exercisable until five years from the
date of issuance at a purchase price of $0.005 per share.  In
connection with a Securities Purchase Agreement dated February 15, 2007, we
issued 10,000,000 warrants to purchase shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price of
$0.005 per share.  In connection with a Securities Purchase Agreement
dated February 23, 2007, we issued 10,000,000 warrants to purchase shares of
common stock. The warrants are exercisable until five years from the date of
issuance at a purchase price of $0.005 per share.  In connection with
a Securities Purchase Agreement dated May 11, 2007, we issued 8,000,000 warrants
to purchase shares of common stock.  The warrants are exercisable
until five years from the date of issuance at a purchase price of $0.005 per
share.  In connection with a Securities Purchase Agreement dated June
13, 2007, we issued 10,000,000 warrants to purchase shares of common
stock.  The warrants are exercisable until five years from the date of
issuance at a purchase price of $0.005 per share.  In connection with
a Securities Purchase Agreement dated August 30, 2007, we issued 8,000,000
warrants to purchase shares of common stock.  The warrants are
exercisable until five years from the date of issuance at a purchase price of
$0.005 per share.





CONVERTIBLE
SECURITIES





Not
including approximately 71,430,000 shares of common stock issuable upon exercise
of outstanding warrants, approximately 13,697,023,444 shares of common stock at
current market prices would be issuable under the secured convertible notes
outstanding pursuant to our September 2005 securities purchase agreement
;approximately 10,555,555,555 shares of common stock at current market
prices  under the secured convertible notes outstanding pursuant to
our January 2006 securities purchase agreement; approximately 2,000,000,000
shares of common stock at current market prices under the secured convertible
notes outstanding pursuant to our June 2006 securities purchase agreement;
approximately 3,333,333,333 shares of common stock at current market prices
under the secured convertible notes outstanding pursuant to our August 2006
securities purchase agreement; approximately 2,666,666,667 shares of common
stock at current market prices under the secured convertible notes outstanding
pursuant to our January 1, 2007 securities purchase agreement; under the secured
convertible notes outstanding pursuant to our February 15, 2007 securities
purchase agreement; approximately  1,333,333,333 shares of common
stock at current market prices under the secured convertible notes outstanding
pursuant to our February 23, 2007 securities purchase agreement; approximately
1,333,333,333 shares of common stock at current market prices under the secured
convertible notes outstanding pursuant to our May 2007 securities purchase
agreement; approximately 933,333,333 shares of common stock at current market
prices under the secured convertible notes outstanding pursuant to our June 2007
securities purchase agreement; approximately 545,454,545 shares of common stock
at current market prices under the secured convertible notes outstanding
pursuant to our August 2007 securities purchase agreement; approximately
1,600,000,000 shares of common stock at current market prices under the secured
convertible notes outstanding pursuant to our December  2007
securities purchase agreement;approximately 388,888,889 shares of common stock
at current market prices under the secured convertible notes outstanding
pursuant to our February 2008 securities purchase agreement; approximately
1,222,222,222 shares of common stock at current market prices under the secured
convertible notes outstanding pursuant to our July 2008 securities purchase
agreement.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 8, 2004, for the sale of (i)
$2,000,000 in secured convertible notes and (ii) warrants to buy 2,000,000
shares of our common stock.





The
investors provided us with an aggregate of $2,000,000 as follows:





·
            $700,000
      was disbursed on June 8, 2004;





·
            $700,000
      was disbursed on July 13, 2004;





·
            $600,000
      was disbursed on July 20, 2004;





The
secured convertible notes bear interest at 10%, mature three years from the date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of:





·
            $0.35;
      or·
            30%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.






7
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The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.24 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on December 17, 2004, and amended on
August 31, 2005 and January 23, 2006, for the sale of (i) $2,800,000 in secured
convertible notes and (ii) warrants to buy 2,800,000 shares of our common stock.
We are registering 1,000,000 shares in this offering underlying the secured
convertible notes and we are registering 2,800,000 shares underlying the
warrants.





The
investors provided us with an aggregate of $2,800,000 as follows:





·
            $1,400,000
      was disbursed on December 17, 2004;





·
            $900,000
      was disbursed on June 1, 2005;





·
            $150,000
      was disbursed on July 1, 2005;





·
            $170,000
      was disbursed on August 1, 2005;
and





·
            $180,000
      was disbursed on September 1, 2005.





The
secured convertible notes bear interest at 10%, mature three years from the date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of:





·
            $0.35;
      or·
            30%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.02 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on September 19, 2005 and amended on
January 23, 2006 for the sale of (i) $450,000 in secured convertible notes and
(ii) warrants to buy 450,000 shares of our common stock.





The
investors purchased all the secured convertible notes on September 19,
2005.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            30%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.02 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on January 23, 2006 for the sale of (i)
$180,000 in secured convertible notes and (ii) warrants to buy 180,000 shares of
our common stock.





The
investors purchased all the secured convertible notes on January 23,
2006.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or






8
 Table of Contents






·
            30%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.02 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on January 23, 2006 for the sale of (i)
$250,000 in secured convertible notes and (ii) warrants to buy 10,000,000 shares
of our common stock.





The
investors purchased all the secured convertible notes on June 1,
2006.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            25%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.02 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on August 28, 2006 for the sale of (i)
$200,000 in secured convertible notes and (ii) warrants to buy 10,000,000 shares
of our common stock.





The
investors purchased all the secured convertible notes on August 28,
2006.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            25%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.005 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To
obtain funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on February 15, 2007 for the sale of
(i) $100,000 in secured convertible notes and (ii) warrants to buy 10,000,000
shares of our common stock.





The
investors purchased all the secured convertible notes on February 15,
2007.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            25%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.005 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on February 23, 2007 for the sale of
(i) $100,000 in secured convertible notes and (ii) warrants to buy 10,000,000
shares of our common stock.





The
investors purchased all the secured convertible notes on February 23,
2007.






9
 Table of Contents







The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            25%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.005 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on May 11, 2007 for the sale of (i)
$70,000 in secured convertible notes and (ii) warrants to buy 8,000,000 shares
of our common stock.





The
investors purchased all the secured convertible notes on May 11,
2007.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            25%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.005 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 12, 2007 for the sale of (i)
$50,000 in secured convertible notes and (ii) warrants to buy 10,000,000 shares
of our common stock.





The
investors purchased all the secured convertible notes on June 12,
2007.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            25%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.





The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.005 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on August 30, 2007 for the sale of (i)
$120,000 in secured convertible notes and (ii) warrants to buy 8,000,000 shares
of our common stock.





The
investors purchased all the secured convertible notes on August 30,
2007.





The
secured convertible notes bear interest at 10%, mature three from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:





·
            $0.02;
      or·
            25%
      of the average of the three lowest intraday trading prices for the common
      stock on a principal market for the 20 trading days before but not
      including the conversion date.







10
 Table of Contents






The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.005 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.





On August
7, 2007, the Company entered into and closed an Asset Purchase Agreement
pursuant to which the Company sold its economic interest in the rights to
distribute the film “American Cannibal” to The Motion Picture Group, Inc.
(“MPRG”) in consideration for MPRG assuming $2,500,000 worth of the above
mentioned convertible debentures.  These debentures were held by New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC.





On March
10, 2008, we entered into a Securities Purchase Agreement with an accredited
investor, New Millennium Capital Partners II, LLC (the “Investor”) for the sale
of $35,000 in convertible notes (the “Notes”).





The Notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.02 or (ii) 25% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including the conversion date.  Accordingly, there
is in fact no limit on the number of shares into which the secured convertible
notes may be converted.





On July
31, 2008, we entered into a Securities Purchase Agreement (the “Agreement”),
with New Millennium Capital Partners II, LLC (“New Millennium”), AJW Partners,
LLC (“AJW”), and AJW Master Fund, Ltd. (“AJW Master”), collectively (the
“Investors”), whereby the Investors purchased 12% secured convertible notes (the
“Notes”), in the aggregate principal amount
of  $150,000.  The Notes will be funded in two tranches, the
first tranche amount will be $100,000 and the second will be
$50,000.  The Notes are convertible into shares of the Company’s
common stock and have warrants that allow the Investors to purchase 2,400,000
shares of the Company’s common stock.





The Notes
are convertible by the Investor at the lower of (i) $0.02 or (ii) 25% of the
average of the three lowest intraday trading prices for the common stock on a
principal market for the 20 trading days before but not including the conversion
date.





On July
31, 2008, the Company entered into an amendment agreement with the Investors,
AJW Qualified Partners, LLC (“AJW Qualified”), and AJW Offshore, Ltd. (“AJW
Offshore”), whereby all notes convertible into the Company’s common stock ever
issued by the Company to the Investors, AJW Qualified, and AJW Offshore shall
have an interest rate of 12%.  The amendment of the interest rate
shall be effective as of January 1, 2008.





Penny
Stock Regulation





Shares
of our common stock are subject to rules adopted by the Securities and Exchange
Commission that regulate broker-dealer practices in connection with transactions
in “penny stocks.” Penny stocks are generally equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in those securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, deliver a
standardized risk disclosure prepared by the Securities and Exchange Commission,
which contains the following:





·
            A
      description of the nature and level of risk in the market for penny stocks
      in both public offerings and secondary trading;·
            A
      description of the broker’s or dealer’s duties to the customer and of the
      rights and remedies available to the customer with respect to violation to
      such duties or other requirements of securities’ laws;·
            A
      brief, clear, narrative description of a dealer market, including “bid”
      and “ask” prices for penny stocks and the significance of the spread
      between the “bid” and “ask” price;











·
            A
      toll-free telephone number for inquiries on disciplinary
      actions;·
            Definitions
      of significant terms in the disclosure document or in the conduct of
      trading in penny stocks; and·
            Such
      other information and in such form (including language, type, size and
      format), as the Securities and Exchange Commission shall require by rule
      or regulation.





Prior to
effecting any transaction in a penny stock, the broker-dealer also must provide
the customer the following:





·
            The
      bid and offer quotations for the penny stock;·
            The
      compensation of the broker-dealer and its salesperson in the
      transaction;·
            The
      number of shares to which such bid and ask prices apply, or other
      comparable information relating to the depth and liquidity of the market
      for such stock; and·
            Monthly
      account statements showing the market value of each penny stock held in
      the customer’s account.







11
 Table of Contents






In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser’s written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably
statement.





These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
Holders of shares of our common stock may have difficulty selling those shares
because our common stock will probably be subject to the penny stock rules for
an indeterminate period of time.





Recent
Sales of Unregistered Securities





On March
10, 2008, we entered into a Securities Purchase Agreement with an accredited
investor, New Millennium Capital Partners II, LLC (the “Investor”) for the sale
of $35,000 in convertible notes (the “Notes”).





The Notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.02 or (ii) 25% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including the conversion date.  Accordingly, there
is in fact no limit on the number of shares into which the secured convertible
notes may be converted.  As of March 10, 2008, the average of the
three lowest intraday trading prices for our common stock during the preceding
20 trading days as reported on the Pink Sheets was $0.0002 and, therefore, the
conversion price for the secured convertible notes was $.00005.  Based
on this conversion price, the $35,000 secured convertible notes, excluding
interest, were convertible into 700,000,000 shares of our common
stock.    If the Company’s stock price should decrease, the
Company will be required to issue substantially more shares, which will cause
dilution to the Company’s existing stockholders. There is no upper limit
on the number of shares that may be issued, which will have the effect of
further diluting the proportionate equity interest and voting power of holders
of the Company’s common stock.





The full
principal amount of the Notes are due upon default under certain terms of such
Notes. The Company is obligated to register the resale of the conversion shares
issuable upon conversion of the Notes under the Securities Act of 1933, as
amended, no later than thirty (30) days after receipt of written demand from the
Investor.





We may
prepay the Notes in the event that no event of default exists, there are a
sufficient number of shares available for conversion of the Notes and the market
price is at or below $.02 per share. The full principal amount of the Notes is
due upon default under the terms of Notes. In addition, we have granted the
Investors a security interest in substantially all of our assets and
intellectual property as well as registration rights.





The Investor has contractually agreed
to restrict their ability to convert the notes and receive shares of our common
stock such that the number of shares of the Company common stock held by them
and their affiliates after such conversion or exercise does not exceed 4.99% of
the Company’s then issued and outstanding shares of common stock.





The Notes were offered and sold to the
Investor in a private placement transaction made in reliance upon exemptions
from registration pursuant to Section 4(2) under the Securities Act of 1933 and
Rule 506 promulgated thereunder.   Each of the Investors is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.





On July
31, 2008, we entered into a Securities Purchase Agreement with an accredited
investors (the “Investors”) for the sale of $110,000 in convertible notes (the
“Notes”).





The Notes
bear interest at 12%, mature three years from the date of issuance, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.02 or (ii) 25% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including the conversion date.  Accordingly, there
is in fact no limit on the number of shares into which the secured convertible
notes may be converted.  As of July 31, 2008, the average of the three
lowest intraday trading prices for our common stock during the preceding 20
trading days as reported on the Pink Sheets was $0.0002 and, therefore, the
conversion price for the secured convertible notes was $.00005.  Based
on this conversion price, the $110,000 secured convertible notes, excluding
interest, were convertible into 2,200,000,000 shares of our common
stock.    If the Company’s stock price should decrease, the
Company will be required to issue substantially more shares, which will cause
dilution to the Company’s existing stockholders. There is no upper limit
on the number of shares that may be issued, which will have the effect of
further diluting the proportionate equity interest and voting power of holders
of the Company’s common stock.





The full
principal amount of the Notes are due upon default under certain terms of such
Notes. The Company is obligated to register the resale of the conversion shares
issuable upon conversion of the Notes under the Securities Act of 1933, as
amended, no later than thirty (30) days after receipt of written demand from the
Investor.






12
 Table of Contents







We may
prepay the Notes in the event that no event of default exists, there are a
sufficient number of shares available for conversion of the Notes and the market
price is at or below $.02 per share. The full principal amount of the Notes is
due upon default under the terms of Notes. In addition, we have granted the
Investors a security interest in substantially all of our assets and
intellectual property as well as registration rights.





The Investor has contractually agreed
to restrict their ability to convert the notes and receive shares of our common
stock such that the number of shares of the Company common stock held by them
and their affiliates after such conversion or exercise does not exceed 4.99% of
the Company’s then issued and outstanding shares of common stock.





The Notes were offered and sold to the
Investor in a private placement transaction made in reliance upon exemptions
from registration pursuant to Section 4(2) under the Securities Act of 1933 and
Rule 506 promulgated thereunder.   Each of the Investors is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.





On July
31, 2008, we amended the annual interest rate on all outstanding convertible
debentures from 10% per annum to 12% effective January 1, 2008.





For the
fiscal year ended December 31, 2007, we have issued 102,890,000 shares of common
stock upon conversion of an aggregate principal amount of $24,515 on our
convertible notes.






13
 Table of Contents







ITEM
      6.
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
      RESULT OF OPERATIONS.





Critical
Accounting Policies and Estimates





The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments:





o
stock-based compensation;


o revenue
recognition;


o
capitalized film costs;


o
manufacturing costs; and


o
exploitation costs and advertising.





Stock-Based
Compensation





Effective
January 1, 2006, the beginning of the Company’s first fiscal quarter of 2006,
the Company adopted the fair value recognition provisions of SFAS 123R, using
the modified-prospective transition method. Under this transition method,
stock-based compensation expense was recognized in the consolidated financial
statements for granted, modified, or settled stock options. Compensation expense
recognized included the estimated expense for stock options granted on and
subsequent to January 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123R, and the estimated expense for the
portion vesting in the period for options granted prior to, but not vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provisions of SFAS 123. Results for prior periods have not been
restated, as provided for under the modified-prospective method.




SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. In the Company’s pro forma information required under SFAS 123 for
the periods prior to fiscal 2006, the Company accounted for forfeitures as they
occurred.






Upon
adoption of SFAS 123(R), the Company is using the Black-Scholes option-pricing
model as its method of valuation for share-based awards granted beginning in
fiscal 2006, which was also previously used for the Company’s pro forma
information required under SFAS 123. The Company’s determination of fair value
of share-based payment awards on the date of grant using an option-pricing model
is affected by the Company’s stock price as well as assumptions regarding a
number of highly complex and subjective variables. These variables include, but
are not limited to the Company’s expected stock price volatility over the term
of the awards, and certain other market variables such as the risk free interest
rate.






Revenue
Recognition





We
recognize revenue in accordance with American Institute of Certified Public
Accountants Statements of Position (SOP) 00-2, Accounting by Producers or
Distributors of Films. SOP 00-2 requires that the following conditions must be
met before we can recognize revenue from a sale or licensing arrangement of a
film:





·
            Persuasive
      evidence of a sale or licensing arrangement with a customer
      exists;·
            The
      film is complete and, in accordance with the terms of the arrangement, has
      been delivered or is available for immediate and unconditional
      delivery;·
            The
      license period of the arrangement has begun and the customer can begin its
      exploitation, exhibition, or sale;·
            The
      arrangement fee is fixed or determinable; and·
            Collection
      of the arrangement fee is reasonably
assured.





If
we do not meet any one of the preceding conditions, we should defer recognizing
revenue until all of the conditions are met.





Capitalized
Film Costs





We follow
the policy of capitalizing the costs of producing a film and bringing that film
to market, and reporting the film costs as a separate asset on our balance
sheet. We account for interest costs related to the production of a film in
accordance with the provisions in FASB Statement No. 34, Capitalization of Interest
Cost . Production overhead, includes allocable costs of individuals or
departments with exclusive or significant responsibility for the production of
films. Production overhead does not include administrative and general expenses,
the costs of certain overall deals, or charges for losses on properties sold or
abandoned.






14
 Table of Contents







For an
episodic television series, ultimate revenue for an episodic television series
can include estimates from the initial market and secondary markets. Until we
can establish estimates of secondary market revenue, we follow the policy of
capitalizing costs for each episode produced that does not exceed an amount
equal to the amount of revenue contracted for that episode. Film costs in excess
of this limitation on an episode-by-episode basis will be expensed as incurred,
and such amounts will not be restored as film cost assets in subsequent periods.
We expense all capitalized costs for each episode as we recognize the related
revenue for each episode. Once we can establish estimates of secondary market
revenue, we will capitalize subsequent film costs.





We
amortize film costs using the individual-film-forecast-computation method, which
amortizes such costs in the same ratio that current period actual revenue
(numerator) bears to estimated remaining unrecognized ultimate revenue as of the
beginning of the current fiscal year (denominator).





If an
event or change in circumstance indicates that we should assess whether the fair
value of a film is less than its unamortized film costs, we will determine the
fair value of the film (the determination of which is affected by estimated
future exploitation costs still to be incurred) and charge to operations the
amount by which the unamortized capitalized costs exceeds the film's fair
value.




Manufacturing
Costs





We
follow the policy of charging manufacturing and/or duplication costs of products
for sale, such as videocassettes and digital video discs, to expense on a
unit-specific basis when the related product revenue is recognized. We will at
each balance sheet date, evaluate inventories of such products for net
realizable value and obsolescence exposures, with appropriate adjustments
recorded as necessary. We follow the policy of charging the cost of theatrical
film prints to expense over the period benefited.





Exploitation
Costs and Advertising





We
account for advertising costs in accordance with the provisions of SOP 93-7,
Reporting on Advertising
Costs . All other exploitation costs, including marketing costs, are
expensed as incurred.




Recent
Accounting Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.





In
December 2007, the FASB issued SFAS No. 141(R),"Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15,
2008.  Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any, that the adoption will have on its financial
position, results of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51"
("SFAS No. 160"), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the consolidated balance
sheets.  SFAS No. 160 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008.  Earlier
adoption is prohibited and the Company is currently evaluating the effect, if
any, that the adoption will have on its financial position, results of
operations or cash flows.




In
December 2007, the FASB ratified the consensus in Emerging Issues Task Force
(EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements”
(EITF 07-1). EITF 07-1 defines collaborative arrangements and requires
collaborators to present the result of activities for which they act as the
principal on a gross basis and report any payments received from (made to) the
other collaborators based on other applicable authoritative accounting
literature, and in the absence of other applicable authoritative literature, on
a reasonable, rational and consistent accounting policy is to be elected.
EITF 07-1 also provides for disclosures regarding the nature and purpose of
the arrangement, the entity’s rights and obligations, the accounting policy for
the arrangement and the income statement classification and amounts arising from
the agreement.  EITF 07-1 will be effective for fiscal years
beginning after December 15, 2008, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date. The Company has not yet evaluated the potential impact
of adopting EITF 07-1 on its consolidated financial position, results of
operations or cash flows.






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In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of SFAS No. 133”. SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133 for derivative instruments
and hedging activities. SFAS No. 161 requires qualitative disclosure about
objectives and strategies for using derivative and hedging instruments,
quantitative disclosures about fair value amounts of the instruments and gains
and losses on such instruments, as well as disclosures about credit-risk
features in derivative agreements. We do not expect the adoption of SFAS No. 161
to have a significant impact on our consolidated financial
statements.





In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under FASB Statement No. 142,
“Goodwill and Other Intangible Assets”. This new guidance applies prospectively
to intangible assets that are acquired individually or with a group of other
assets in business combinations and asset acquisitions. FSP 142-3 is effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008. Early adoption is prohibited. The Company is currently
evaluating the impact, if any, that FSP 142-3 will have on its consolidated
financial statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS 162 will become effective 60 days following the SEC’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The Company does not currently expect the adoption of SFAS 162 to
have a material effect on its consolidated results of operations and financial
condition.





In May
2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting
for Convertible Debt instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The Company does not believe the adoption of FSP APB 14-1 will have
significant effect on its consolidated results of operations and financial
condition.




In May
2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee
Insurance Contracts”, which clarifies how FASB Statement No. 60, “Accounting and Reporting by
Insurance Enterprises”, applies to financial guarantee insurance
contracts issued by insurance enterprises.    The standard is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, including interim periods in that year. The Company does not
expect the adoption of SFAS 163 to have a material effect on its consolidated
financial statements.




In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that
contain rights to receive nonforfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The Company does
not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on
its consolidated financial statements.





Results
of Operations





We are in
the development stage and to date, have not generated revenues. The risks
specifically discussed are not the only factors that could affect future
performance and results. In addition the discussion in this prospectus
concerning us, our business and our operations contain forward-looking
statements. Such forward-looking statements are necessarily speculative and
there are certain risks and uncertainties that could cause actual events or
results to differ materially from those referred to in such forward-looking
statements. We do not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence by our management over
time means that actual events or results are occurring as estimated in the
forward-looking statements herein.





As a
development stage company, we have yet to earn revenues from operations. We may
experience fluctuations in operating results in future periods due to a variety
of factors., including our ability to obtain additional financing in a timely
manner and on terms favorable to us, our ability to successfully develop our
business model, the amount and timing of operating costs and capital
expenditures relating to the expansion of our business, operations and
infrastructure and the implementation of marketing programs, key agreements, and
strategic alliances, and general economic conditions specific to our
industry.





Revenues





We have
generated no operating revenues from operations from our inception. We believe
we may begin earning revenues from operations in 2007 as we transition from a
development stage company to that of an active, operating company. Potential
revenue includes the sale of or distribution rights of our “American Cannibal”
movie.






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Costs
And Expenses





From our inception through December 31,
2007, we have not generated any revenues. We have incurred losses of $62,950,442
during this period. These losses stem from expenses associated principally with
compensation to consultants who have provided marketing, public relations and
investor services, acquisition costs and professional service (legal and
accounting) fees, as well as non-cash interest and derivative liability
valuation adjustments in connection with issuance of convertible
debentures.





Other
Income And Expenses





Asset
Purchase Agreement with Collectible Concepts Group, Inc.





On
December 21, 2005, the Company entered into an “Asset Purchase Agreement” with
Collectible Concepts Group, Inc., (“CCGI”) pursuant to which the Company agreed
to sell its library of nostalgic sporting events, vintage cartoons and classic
films to CCGI.  The closing of the transaction was contingent upon the
cataloguing of the library, which was completed on January 20, 2006, at which
time the transaction is deemed closed.  The Company received an
initial payment of $50,000 in January 2006.  The Company shall also be
paid, with interest, within three years of the date hereof on December 21, 2010
(“the “Maturity Date”), the principal sum of $200,000, at the rate of six
percent (6%) per annum.  Due to lack of working capital and production
activities in prior years, the Company has impaired the film library sold to
CCGI during the year ended December 31, 2002.  For the year ended
December 31, 2006, the Company accounted for the $50,000 cash consideration
received as other income.  The Company management has determined that
the collectibility of the remaining purchase price due from CCGI can not be
reasonably assured. Accordingly, income will be recognized as collected in
future period.





Asset
Purchase Agreement with The Motion Picture Group, Inc.





In August
2007, the Company sold its economic interest in the distribution rights of
“Operation Pilot” in exchange for the assumption of $2,500,000 of convertible
debentures.  The Company recognized a gain of $11,082,695 comprised of
the following:





Debt
      assumed in sale of film distribution rights
            $2,500,000Reduction
      in derivative liability relating to the assumption of the convertible
      debentures
            8,817,778Reduction
      in accrued interest
            730,470Write-off
      of capitalized financing costs
            (113,163)Accretion
      adjustment relating to the assumption of the convertible
      debentures
            (852,390)Net
      gain on sale of film distribution rights
            $11,082,695





Release
and Consulting Agreement with Ed Litwak





As of
December 31, 2006, the Company has accrued unpaid salaries and advances due Mr.
Litwak in an aggregate amount of $449,247.  In the forth quarter of
fiscal year 2006, Mr. Litwak agreed to receive $217,000 to settle all unpaid
accrued salaries and advances as of December 31, 2006.  A formal
agreement, Separation, Release and Consulting Agreement (the “Agreement”), was
signed by both parties in January 2007.  Pursuant to the Agreement,
Mr. Litwak shall receive an aggregate amount of $217,000, payable (i) $25,000
upon the execution of the agreement and (ii) $192,000 over a 64 month period at
a rate of $3,000 per month, and Mr. Litwak resigned as President and Director of
the Company.  At December 31, 2006, the Company has accounted for a
gain from settlement of accrued liabilities due Mr. Litwak in the amount of
$232,247 and included in its other income. The Company made payments to Mr.
Litwak in the amount of $46,000 pursuant to the Agreement during the year ended
December 31, 2007. In September 2007, Mr. Litwak resigned his consulting
position with the Company and waived the remaining liabilities due to him in the
amount of $171,000. The Company accounted for the forgiveness of debt as other
income during the year ended December 31, 2007.





Unrealized
Loss of Derivatives





During
the year ended December 31, 2007 and 2006, the Company recognized unrealized
loss related to adjustment of derivative and warrant liability to fair value of
underlying securities in the amount of $3,426,968 and $12,284,854, respectively,
in connection with its convertible debentures.





Interest
Expenses





Net
interest expenses for the year ended December 31, 2007 and 2006 amounted
$1,694,465 and $2,713,138, respectively. In the 4th quarter
of 2007, the Company negotiated with certain of its convertible debenture
holders to settle accrued and unpaid interest. The Company did not accrue
additional interest for these debentures in the 4th quarter
of 2007 anticipating the interest would be settled. The final settlement was
reached on December 31, 2007, the Company’s interest accruals in prior periods
had exceeded the settlement amount. The Company recorded other income in the
amount of $399,852 in connection with the forgiveness of interest.






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Liquidity
And Capital Resources





As of
December 31, 2007, we had a working capital deficit of $5,995,032. As a result
of our operating losses from our inception through December 31, 2007, we
generated a cash flow deficit of $6,661,338 from operating activities from our
inception on July 29, 1997 through December 31, 2007. Cash flows used in
investing activities was $167,198 during this period. We met our cash
requirements during this period through the private placement of $272,200 of
common stock, $4,759,711 (net of repayments) and $1,240,665 from the issuance of
convertible and capital notes, respectively, and $567,111 of advances (net of
repayments) from our officers, principal shareholders and third
parties.





While we
have raised capital to meet our working capital and financing needs in the past,
additional financing is required in order to meet our current and projected cash
flow deficits from operations and development and to acquire desirable film
library assets. We are discussing possible joint venture arrangements to share
or finance costs, and pre selling advertising and or sponsorships to raise
working capital. We currently have no commitments for financing. There is no
guarantee that we will be successful in raising the funds required.





We
believe that our existing and planned capital resources will be sufficient to
fund our current level of operating activities, capital expenditures and other
obligations through the next 12 months. However, if during that period or
thereafter, we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable to
us, this could have a material adverse effect on our business, results of
operations liquidity and financial condition.





By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits. However, if during that period or thereafter, we are not successful in
generating sufficient liquidity from operations or in raising sufficient capital
resources, on terms acceptable to us, this could have a material adverse effect
on our business, results of operations liquidity and financial
condition.





The
independent auditor's report on our December 31, 2007 financial statements
states that our recurring losses and default under our debt obligations raise
substantial doubts about our ability to continue as a going
concern.





We
entered into a Securities Purchase Agreement with four accredited investors on
June 10, 2004 for the issuance of an aggregate of $2,000,000 of convertible
notes, and attached to the Convertible Notes were warrants to purchase 2,000,000
shares of the Company’s common stock.  The Convertible Notes accrues
interest at 10% per annum, payable and due two years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.35 or
(ii) 50% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date. Effective August 31, 2005; the terms of the notes
were changed for the remaining outstanding debt to a conversion rate from 50% of
the average the day lowest intraday trading prices to a 40%
rate.  Effective January 23, 2006, the terms of the notes were again
changed for the remaining outstanding debt from a conversion rate of 40%
(effective August 31, 2005) of the average day lowest intraday trading prices to
a 30% rate.  During the year ended December 31, 2004, the Company
issued to the investors Convertible Notes in a total amount of $2,000,000 in
exchange for net proceeds of $1,356,565.  The proceeds that the
Company received was net of prepaid interest of $400,000 calculated at 10% per
annum for the aggregate of $2,000,000 of convertible notes for two years, and
related fees and costs of $243,435.  Prepaid interest and capitalized
financing costs were amortized over the maturity period (two years) of the
convertible notes. In January 2007, the maturity of the outstanding notes was
extended to December 31, 2008.





We
entered into a Securities Purchase Agreement with four accredited investors on
December 17, 2004 for the issuance of an aggregate of $2,800,000 of convertible
notes and attached to the Convertible Notes were warrants to purchase 2,800,000
shares of the Company’s common stock.  The Convertible Notes accrues
interest at 10% per annum (15% if the Company is in default under the terms of
the note agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 60% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.  On August 31, 2005; the Securities
Purchase Agreement was amended to increase the aggregate from $2,800,000 to
$3,250,000 of convertible notes, attached warrants were increased from 2,800,000
shares of the Company’s common stock to 3,250,000 shares.  The
conversion rate to the noteholder was changed from a 60% of the average of the
three lowest intraday trading prices for the common stock on the principal
market for the 20 trading dates before but not including conversion date to a
rate of 40%.





On
January 23, 2006; the Securities Purchase Agreement was again amended to
increase the aggregate from $3,250,000 to $3,430,000 of convertible notes,
attached warrants were increased from 3,250,000 shares of the Company’s common
stock to 3,430,000 shares.  The conversion rate to the noteholder was
changed from 40% of the average of the three lowest intraday trading prices for
common stock on the principal market for the 20 trading dates before but not
including conversion date to a rate of 30%.  On January 23, 2006, the
Company issued to the investors an aggregate of $180,000 of secured convertible
notes, and attached to the secured convertible notes were warrants to purchase
180,000 shares of our common stock. The Company received net proceeds of
$145,000, net of related fees and costs of $35,000. Capitalized financing costs
were amortized over the maturity period (three years) of the convertible
notes.






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As
of December 31, 2007 and 2006, the Company issued to the investors a Convertible
Note in the aggregate amount of $3,430,000, in exchange for net proceeds of
$2,939,146, net of related fees and costs of $490,854. The capitalized financing
costs are amortized over the maturity period (three years) of the convertible
notes. Pursuant to the Securities Purchase Agreement, the Company was required
to file a registration statement with the Securities and Exchange Commission
within 45 days after closing, which will include the common stock underlying the
secured convertible notes and the warrants.  In January 2007, the
maturity of the outstanding notes was extended to December 31,
2008.




We
entered into a Securities Purchase Agreement with four accredited investors on
June 1, 2006 for the issuance of an aggregate of $250,000 of convertible notes
and attached to the Convertible Notes were warrants to purchase 10,000,000
shares of the Company’s common stock.  The Convertible Notes accrues
interest at 10% per annum (15% if the Company is in default under the terms of
the note agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As
of December 31, 2007, we issued to the investors a Convertible Note in the
amount of $250,000, in exchange for net proceeds of $205,000, net of related
fees and costs of $45,000. The capitalized financing costs are amortized over
the maturity period (three years) of the convertible notes. Pursuant to the
Securities Purchase Agreement, the Company was required to file a registration
statement with the Securities and Exchange Commission within 45 days after
closing, which will include the common stock underlying the secured convertible
notes and the warrants.





We
entered into a Securities Purchase Agreement with four accredited investors on
August 28, 2006 for the issuance of an aggregate of $200,000 of convertible
notes and attached to the Convertible Notes were warrants to purchase 10,000,000
shares of the Company’s common stock.  The Convertible Notes accrues
interest at 10% per annum (15% if the Company is in default under the terms of
the note agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As
of December 31, 2007, the Company issued to the investors a Convertible Note in
the amount of $200,000, in exchange for net proceeds of $180,000, net of related
fees and costs of $20,000. The capitalized financing costs are amortized over
the maturity period (three years) of the convertible notes. Pursuant to the
Securities Purchase Agreement, the Company was required to file a registration
statement with the Securities and Exchange Commission within 45 days after
closing, which will include the common stock underlying the secured convertible
notes and the warrants.





We entered into a Securities Purchase Agreement with four accredited investors
on January 1, 2007 for the issuance of an aggregate of $30,000 of convertible
notes, in exchange for $30,000 of working capital these investors advanced to
the Company during the year ended December 31, 2006. The Convertible Notes
accrues interest at 10% per annum (15% if the Company is in default under the
terms of the note agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date. Pursuant to the Securities Purchase Agreement, the
Company was required to file a registration statement with the Securities and
Exchange Commission within 45 days after closing.





We
entered into a Securities Purchase Agreement with four accredited investors on
February 15, 2007 for the issuance of an aggregate of $100,000 of convertible
notes  and attached to the Convertible Notes were warrants to purchase
10,000,000 shares of the Company’s common stock.  The Convertible
Notes accrues interest at 10% per annum (15% if the Company is in default under
the terms of the note agreement), payable and due three years from the date of
the note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As
of December 31, 2007, the Company issued to the investors a Convertible Note in
the amount of $100,000, in exchange for proceeds of $100,000. Pursuant to the
Securities Purchase Agreement, the Company was required to file a registration
statement with the Securities and Exchange Commission within 45 days after
closing, which will include the common stock underlying the secured convertible
notes and the warrants.





We
entered into a Securities Purchase Agreement with four accredited investors on
February 23, 2007 for the issuance of an aggregate of $100,000 of convertible
notes and attached to the Convertible Notes were warrants to purchase 10,000,000
shares of the Company’s common stock.  The Seventh Convertible Notes
accrues interest at 10% per annum (15% if the Company is in default under the
terms of the note agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.






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As of December 31, 2007, the Company issued to the investors a Convertible Note
in the amount of $100,000, in exchange for proceeds of
$100,000.  Pursuant to the Securities Purchase Agreement, the Company
was required to file a registration statement with the Securities and Exchange
Commission within 45 days after closing, which will include the common stock
underlying the secured convertible notes and the warrants





We
entered into a Securities Purchase Agreement with four accredited investors on
May 11, 2007 for the issuance of an aggregate of $70,000 of convertible notes
and attached to the Convertible Notes were warrants to purchase 8,000,000 shares
of the Company’s common stock.  The Convertible Notes accrues interest
at 10% per annum (15% if the Company is in default under the terms of the note
agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As
of December 31, 2007, we issued to the investors a Convertible Note in the
amount of $70,000, in exchange for proceeds of $65,000.  Pursuant to
the Securities Purchase Agreement, the Company was required to file a
registration statement with the Securities and Exchange Commission within 45
days after closing, which will include the common stock underlying the secured
convertible notes and the warrants.





We
entered into a Securities Purchase Agreement with four accredited investors on
June 12, 2007 for the issuance of an aggregate of $50,000 of convertible notes,
and attached to the Convertible Notes were warrants to purchase 10,000,000
shares of the Company’s common stock.  The Convertible Notes accrues
interest at 10% per annum (15% if the Company is in default under the terms of
the note agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As
of December 31, 2007, we issued to the investors a Convertible Note in the
amount of $50,000, in exchange for proceeds of $50,000.  Pursuant to
the Securities Purchase Agreement, the Company was required to file a
registration statement with the Securities and Exchange Commission within 45
days after closing, which will include the common stock underlying the secured
convertible notes and the warrants





We
entered into a Securities Purchase Agreement with three accredited investors on
August 30, 2007 for the issuance of an aggregate of $120,000 of convertible
notes, and attached to the Convertible Notes were warrants to purchase 8,000,000
shares of the Company’s common stock.  The Convertible Notes accrues
interest at 10% per annum (15% if the Company is in default under the terms of
the note agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As
of December 31, 2007, we issued to the investors a Convertible Note in the
amount of $120,000, in exchange for proceeds of $100,000.  Pursuant to
the Securities Purchase Agreement, the Company was required to file a
registration statement with the Securities and Exchange Commission within 45
days after closing, which will include the common stock underlying the secured
convertible notes and the warrants.





On March
10, 2008, we entered into a Securities Purchase Agreement with an accredited
investor, New Millennium Capital Partners II, LLC (the “Investor”) for the sale
of $35,000 in convertible notes (the “Notes”).





The Notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.02 or (ii) 25% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including the conversion date.  Accordingly, there
is in fact no limit on the number of shares into which the secured convertible
notes may be converted.  As of March 10, 2008, the average of the
three lowest intraday trading prices for our common stock during the preceding
20 trading days as reported on the Pink Sheets was $0.0002 and, therefore, the
conversion price for the secured convertible notes was $.00005.





On July
31, 2008, we entered into a Securities Purchase Agreement with an accredited
investors (the “Investors”) for the sale of $110,000 in convertible notes (the
“Notes”).





The Notes
bear interest at 12%, mature three years from the date of issuance, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.02 or (ii) 25% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including the conversion date.  Accordingly, there
is in fact no limit on the number of shares into which the secured convertible
notes may be converted.  As of July 31, 2008, the average of the three
lowest intraday trading prices for our common stock during the preceding 20
trading days as reported on the Pink Sheets was $0.0002 and, therefore, the
conversion price for the secured convertible notes was $.00005






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On July
31, 2008, we amended the annual interest rate on all outstanding convertible
debentures from 10% per annum to 12% effective January 1, 2008.





For the fiscal year ended December 31, 2007, we have issued 102,890,000 shares
of common stock upon conversion of an aggregate principal amount of $24,515 on
our convertible notes.





In
connection with the sale of the secured convertible notes, we granted the
investors registration rights and security interests in all of our assets.
Several events of default have occurred regarding all of the secured convertible
notes, including failure to increase the number of shares of authorized common
stock, failure to have a sufficient number of shares reserved for issuance upon
conversion of the secured convertible notes and warrants, and failure to have an
effective registration statement for the shares underlying secured convertible
the notes and warrants. As a result of these defaults, we are obligated to pay
the note holders the principal amount of the notes together with interest and
certain other amounts. We do not have the capital resources to pay the amounts
required under these agreements. The secured convertible note holders have
informed us that they do not intend to take any action at this time due to the
default. We do not, however, have any legally binding commitment from the note
holders to waive the default provision of the debenture. These events of
default, taken as a whole, are reasonably likely to have a material impact on
our short-term and long-term liquidity. The investors have been willing in the
past to provide us with capital as needed to sustain our day-to-day operations
and to forego enforcing default provisions, however, no assurance can be given
that they will provide such capital in the future or continue to forego
enforcing default provisions, which they are under no obligation to do so. In
the event that we need additional capital in the future for our day-to-day
operations, and the investors do not provide such funds, we will have to seek
capital from new investors. As a result of these events of default and that all
of our assets are secured by the current investors, it is highly unlikely that
we would be able to obtain additional capital from other investors. If we are
unable to obtain additional capital, we would likely be required to curtail or
cease our operations. As all of our assets are secured by our existing lendors,
of which we are currently in default, we do not anticipate filing for bankruptcy
protection, as all of our assets would be transferred to our lendors pursuant to
our existing security agreements.





The securities purchase agreements we entered into in June 2004, December 2004,
September 2005, January 2006, June 2006, August 2006, February 15, 2007,
February 23, 2007, May 2007 and June 2007, August 2007 and July 2008 were with
the same four institutional investors.  The security purchase
agreement we entered into in August 2007 was with three of the four
institutional investors described above.  The March 2008 security
purchase agreements were entered into with New Millennium Capital Partners II,
LLC.





Since our
inception, we have been seeking additional third-party funding. During such
time, we have retained a number of different investment banking firms to assist
us in locating available funding; however, we have not yet been successful in
obtaining any of the long-term funding needed to make us into a commercially
viable entity. Although we are continuing with our efforts to obtain funding to
maintain our operations, we cannot assure you that we will be successful or that
any funding we receive will be received timely or on commercially reasonable
terms. Due to our working capital deficiency, and if we do not receive adequate
financing, we will be unable to pay our vendors, lenders and other creditors if
we cease our operations, since the net realizable value of our non-current
assets will not generate adequate cash. We currently have no commitments for
financing. There is no guarantee that we will be successful in raising the funds
required.





Until
such time, if at all, as we receive adequate funding, we intend to continue to
defer payment of all of our obligations which are capable of being deferred,
which actions have resulted in some vendors demanding cash payment for their
goods and services in advance, and other vendors refusing to continue to do
business with us. In the event that we are successful in obtaining third-party
funding, we do not expect to generate a positive cash flow from our operations
for at least several years, if at all, due to anticipated expenditures for
research and development activities, administrative and marketing activities,
and working capital requirements and expect to continue to attempt to raise
further capital through one or more further private placements.




Product
Research and Development





We do not
anticipate performing research and development for any products during the next
twelve months.





Acquisition
or Disposition of Plant and Equipment





We do not
anticipate the sale of any significant property, plant or equipment during the
next twelve months. We do not anticipate the acquisition of any significant
property, plant or equipment during the next 12 months.





Number
of Employees





At
November 4, 2008, we had 1 consultant, who is our executive officer and
director.




Off
Balance Sheet Arrangements





We do not
have any off balance sheet arrangements as of December 31, 2007 or as of the
date of this report.






21
 Table of Contents







Inflation





The
effect of inflation on the Company's  revenue and
operating  results was not significant.





Risk
Factors





Much of
the information included in this annual report includes or is based upon
estimates, projections or other "forward-looking statements". Such
forward-looking statements include any projections or estimates made by us and
our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested herein.





Such
estimates, projections or other "forward-looking statements" involve various
risks and uncertainties as outlined below. We caution the reader that important
factors in some cases have affected and, in the future, could materially affect
actual results and cause actual results to differ materially from the results
expressed in any such estimates, projections or other "forward-looking
statements".





Our
common shares are considered speculative. Prospective investors should consider
carefully the risk factors set out below.





Risks
Relating to Our Business :





We
Have a History Of Losses Which May Continue, Which May Negatively Impact Our
Ability to Achieve Our Business Objectives.





We have
not generated any revenues since our inception. We incurred accumulated losses
of $62,725,870 since inception. We cannot assure you that we can achieve or
sustain profitability on a quarterly or annual basis in the future. Our
operations are subject to the risks and competition inherent in the
establishment of a business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including whether we will be able to continue expansion of our
revenue. We may not achieve our business objectives and the failure to achieve
such goals would have an adverse impact on us.





If
We Are Unable to Obtain Additional Funding Our Business Operations Will be
Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders
May Suffer Substantial Dilution.





We will
require additional funds to sustain and expand our film finance, sales and
marketing activities. We anticipate that we will require up to approximately
$2,000,000 to fund our continued operations for the next twelve months,
depending on revenue from operations. Additional capital will be required to
effectively support the operations and to otherwise implement our overall
business strategy. We currently do not have any contracts of commitments for
additional financing. There can be no assurance that financing will be available
in amounts or on terms acceptable to us, if at all. The inability to obtain
additional capital will restrict our ability to grow and may reduce our ability
to continue to conduct business operations. If we are unable to obtain
additional financing, we will likely be required to curtail our marketing and
development plans and possibly cease our operations. Any additional financing
may involve substantial dilution to our then existing shareholders.





Our
Independent Registered Public Accounting Firm Have Expressed Substantial Doubt
About Our Ability to Continue As a Going Concern, Which May Hinder Our Ability
to Obtain Future Financing.





In their report dated April 9, 2008,
our independent registered public accounting firm stated that our financial
statements for the year ended December 31, 2007 were prepared assuming that we
would continue as a going concern. Our ability to continue as a going concern is
an issue raised as a result of accumulated losses from inception in the amounts
of $62,725,870 and being in default under the terms of our capital notes and
notes payable obligations. We continue to experience net operating losses. Our
ability to continue as a going concern is subject to our ability to generate a
profit and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from various financial institutions where possible.
Our continued net operating losses increases the difficulty in meeting such
goals and there can be no assurances that such methods will prove
successful.





There
is competition for those private companies suitable for a merger transaction of
the type contemplated by management.





The
Company is in a highly competitive market for a small number of business
opportunities which could reduce the likelihood of consummating a successful
business combination. We are and will continue to be an insignificant
participant in the business of seeking mergers with, joint ventures with and
acquisitions of small private and public entities. A large number of established
and well-financed entities, including small public companies and venture capital
firms, are active in mergers and acquisitions of companies that may be desirable
target candidates for us. Nearly all these entities have significantly greater
financial resources, technical expertise and managerial capabilities than we do;
consequently, we will be at a competitive disadvantage in identifying possible
business opportunities and successfully completing a business combination. These
competitive factors may reduce the likelihood of our identifying and
consummating a successful business combination.






22
 Table of Contents






Future
success is highly dependent on the ability of management to locate and attract a
suitable acquisition.





The
nature of our operations is highly speculative and there is a consequent risk of
loss of your investment. The success of our plan of operation will depend to a
great extent on the operations, financial condition and management of the
identified business opportunity. While management intends to seek business
combination(s) with entities having established operating histories, we cannot
assure you that we will be successful in locating candidates meeting that
criterion. In the event we complete a business combination, the success of our
operations may be dependent upon management of the successor firm or venture
partner firm and numerous other factors beyond our control.





The
Company has no existing agreement for a business combination or other
transaction.





We have
no arrangement, agreement or understanding with respect to engaging in a merger
with, joint venture with or acquisition of, a private or public entity. No
assurances can be given that we will successfully identify and evaluate suitable
business opportunities or that we will conclude a business combination.
Management has not identified any particular industry or specific business
within an industry for evaluation. We cannot guarantee that we will be able to
negotiate a business combination on favorable terms, and there is consequently a
risk that funds allocated to the purchase of our shares will not be invested in
a company with active business operations.





The
time and cost of preparing a private company to become a public reporting
company may preclude us from entering into a merger or acquisition with the most
attractive private companies.





Target
companies that fail to comply with SEC reporting requirements may delay or
preclude acquisition. Sections 13 and 15(d) of the Exchange Act require
reporting companies to provide certain information about significant
acquisitions, including certified financial statements for the company acquired,
covering one, two, or three years, depending on the relative size of the
acquisition. The time and additional costs that may be incurred by some target
entities to prepare these statements may significantly delay or essentially
preclude consummation of an acquisition. Otherwise suitable acquisition
prospects that do not have or are unable to obtain the required audited
statements may be inappropriate for acquisition so long as the reporting
requirements of the Exchange Act are applicable.





Any
potential acquisition or merger with a foreign company may subject us to
additional risks.





If we
enter into a business combination with a foreign concern, we will be subject to
risks inherent in business operations outside of the United States. These risks
include, for example, currency fluctuations, regulatory problems, punitive
tariffs, unstable local tax policies, trade embargoes, risks related to shipment
of raw materials and finished goods across national borders and cultural and
language differences. Foreign economies may differ favorably or unfavorably from
the United States economy in growth of gross national product, rate of
inflation, market development, rate of savings, and capital investment, resource
self-sufficiency and balance of payments positions, and in other
respects.





Risks
Relating to Our Current Financing Arrangement :





There
Are a Large Number of Shares Underlying Our Secured Convertible Notes, and
Warrants That May be Available for Future Sale and the Sale of These Shares May
Depress the Market Price of Our Common Stock.





As of
November 10, 2008, we had 377,258,692 shares of common stock issued and
outstanding. Not including approximately 71,430,000 shares of common stock
issuable upon exercise of outstanding warrants, approximately 13,697,023,444
shares of common stock at current market prices would be issuable under the
secured convertible notes outstanding pursuant to our September 2005 securities
purchase agreement ;approximately 10,555,555,555 shares of common stock at
current market prices  under the secured convertible notes outstanding
pursuant to our January 2006 securities purchase agreement; approximately
2,000,000,000 shares of common stock at current market prices under the secured
convertible notes outstanding pursuant to our June 2006 securities purchase
agreement; approximately 3,333,333,333 shares of common stock at current market
prices under the secured convertible notes outstanding pursuant to our August
2006 securities purchase agreement; approximately 2,666,666,667 shares of common
stock at current market prices under the secured convertible notes outstanding
pursuant to our January 1, 2007 securities purchase agreement; under the secured
convertible notes outstanding pursuant to our February 15, 2007 securities
purchase agreement; approximately  1,333,333,333 shares of common
stock at current market prices under the secured convertible notes outstanding
pursuant to our February 23, 2007 securities purchase agreement; approximately
1,333,333,333 shares of common stock at current market prices under the secured
convertible notes outstanding pursuant to our May 2007 securities purchase
agreement; approximately 933,333,333 shares of common stock at current market
prices under the secured convertible notes outstanding pursuant to our June 2007
securities purchase agreement; approximately 545,454,545 shares of common stock
at current market prices under the secured convertible notes outstanding
pursuant to our August 2007 securities purchase agreement; approximately
1,600,000,000 shares of common stock at current market prices under the secured
convertible notes outstanding pursuant to our December  2007
securities purchase agreement; approximately 466,666,667 shares of common stock
at current market prices under the secured convertible notes outstanding
pursuant to our February 2008 securities purchase
agreement;  approximately 388,888,889 shares of common stock at
current market prices under the secured convertible notes outstanding pursuant
to our February 2008 securities purchase agreement; approximately 1,222,222,222
shares of common stock at current market prices under the secured convertible
notes outstanding pursuant to our July 2008 securities purchase
agreement.






23
 Table of Contents







The
Continuously Adjustable Conversion Price Feature of Our Secured Convertible
Notes Could Require Us to Issue a Substantially Greater Number of Shares, Which
Will Cause Dilution to Our Existing Stockholders.





Our
obligation to issue shares upon conversion of our secured convertible notes is
essentially limitless. The following is an example of the amount of shares of
our common stock that are issuable, upon conversion of our secured convertible
notes (excluding accrued interest), based on market prices 25%, 50% and 75%
below the market price, as of October 27, 2008 of $0.0002.





Number
            
            %
      of%
      Below
            
            Price
      Per
            
            With
      Discount
            
            of
      Shares
            
            OutstandingMarket
            
            Share
            
            at
      70%
            
            Issuable
            
            Stock25%
            
            $
            0.00015
            
            $
            0.000045
            
            
            84,232,222,222
            
            
            24,455
            %50%
            
            $
            0.0001
            
            $
            0.00003
            
            
            126,348,333,333
            
            
            36,682
            %75%
            
            $
            0.00005
            
            $
            0.000015
            
            
            252,696,666,667
            
            
            73,365
            %





As illustrated, the number of shares of
common stock issuable upon conversion of our secured convertible notes will
increase if the market price of our stock declines, which will cause dilution to
our existing stockholders.





The
Continuously Adjustable Conversion Price feature of our Secured Convertible
Notes May Encourage Investors to Make Short Sales in Our Common Stock, Which
Could Have a Depressive Effect on the Price of Our Common Stock.





The
secured convertible notes are convertible into shares of our common stock at a
70% and greater than 70% discount to the trading price of the common stock prior
to the conversion. The significant downward pressure on the price of the common
stock as the investors convert and sell material amounts of common stock could
encourage short sales by other investors. This could place further downward
pressure on the price of the common stock. The investors could sell common stock
into the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise of
notes, warrants and options, but also the mere perception that these sales could
occur, may adversely affect the market price of the common stock.





The
Issuance of Shares Upon Conversion of the Secured Convertible Notes and Exercise
of Outstanding Warrants May Cause Immediate and Substantial Dilution to Our
Existing Stockholders.





The
issuance of shares upon conversion of the secured convertible notes and exercise
of warrants may result in substantial dilution to the interests of other
stockholders since the investors may ultimately convert and sell the full amount
issuable on conversion. Although the investors may not convert their secured
convertible notes and/or exercise their warrants if such conversion or exercise
would cause them to own more than 4.99% of our outstanding common stock, this
restriction does not prevent the investors from converting and/or exercising
some of their holdings and then converting the rest of their holdings. In this
way, the investors could sell more than this limit while never holding more than
this limit. There is no upper limit on the number of shares that may be issued
which will have the effect of further diluting the proportionate equity interest
and voting power of holders of our common stock, including investors in this
offering.





In The Event That Our Stock Price
Declines, The Shares Of Common Stock Allocated For Conversion Of The Secured
Convertible Notes and Registered Pursuant To a Registration Statement May Not Be
Adequate And We May Be Required to File A Subsequent Registration Statement
Covering Additional Shares. If The Shares We Have Allocated And Are Registering
on a Registration Statement Are Not Adequate And We Are Required To File An
Additional Registration Statement, We May Incur Substantial Costs In Connection
Therewith.





Based on
our current market price and the potential decrease in our market price as a
result of the issuance of shares upon conversion of the secured convertible
notes, we have made a good faith estimate as to the amount of shares of common
stock that we are required to register and allocate for conversion of the
secured convertible notes. In the event that our stock price decreases, the
shares of common stock we have allocated for conversion of the secured
convertible notes and are registering pursuant to a resale registration
statement may not be adequate. If the shares we have allocated to the
registration statement are not adequate and we are required to file an
additional registration statement, we may incur substantial costs in connection
with the preparation and filing of such additional registration statement.






24
 Table of Contents







If
We Are Required for any Reason to Repay Our Outstanding Secured Convertible
Notes, We Would Be Required to Deplete Our Working Capital, If Available, Or
Raise Additional Funds. Our Failure to Repay the Secured Convertible Notes, If
Required, Could Result in Legal Action Against Us, Which Could Require the Sale
of Substantial Assets.





In
December 2004, we entered into a Securities Purchase Agreement for the sale of
an aggregate of $2,800,000 principal amount of secured convertible notes. In
August  2005, the Securities Purchase Agreement was amended to
increase the aggregate from $2,800,000 to $3,250,000 of convertible notes, In
January  2006, the Securities Purchase Agreement was again amended to
increase the aggregate from $3,250,000 to $3,430,000 of convertible notes. In
June 2006, we entered into a Securities Purchase Agreement for the sale of an
aggregate of $250,000 principal amount of secured convertible
notes.  In August 2006, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $200,000 principal amount of secured
convertible notes. In January 2007, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $30,000 principal amount of secured
convertible notes. On February 15, 2007, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $100,000 principal amount of secured
convertible notes. On February 23, 2007, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $100,000 principal amount of secured
convertible notes. . In May 2007, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $70,000 principal amount of secured
convertible notes. . In June 2007, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $50,000 principal amount of secured
convertible notes. . In August 2007, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $120,000 principal amount of secured
convertible notes.  In December 2007, we entered into a Securities
Purchase Agreement for the sale of an aggregate of $507,718 principal amount of
secured convertible notes. The secured convertible notes are due and payable,
with 10% interest, two years from the date of issuance, unless sooner converted
into shares of our common stock. In addition, any event of default such as our
failure to repay the principal or interest when due, our failure to issue shares
of common stock upon conversion by the holder, our failure to timely file a
registration statement or have such registration statement declared effective,
breach of any covenant, representation or warranty in the Securities Purchase
Agreement or related convertible note, the assignment or appointment of a
receiver to control a substantial part of our property or business, the filing
of a money judgment, writ or similar process against our company in excess of
$50,000, the commencement of a bankruptcy, insolvency, reorganization or
liquidation proceeding against our company and the delisting of our common stock
could require the early repayment of the secured convertible notes, including a
default interest rate of 15% on the outstanding principal balance of the notes
if the default is not cured with the specified grace period. As discussed
elsewhere herein, we are currently in default under the terms of the various
securities purchase agreements and secured convertible notes, although, as of
the date of filing, the investors have not exercised any of their rights, as
discussed above.





We
anticipate that the full amount of the secured convertible notes will be
converted into shares of our common stock, in accordance with the terms of the
secured convertible notes. If we are required to repay the secured convertible
notes, we would be required to use our limited working capital and raise
additional funds. If we were unable to repay the notes when required, the note
holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.





Risks
Relating to Our Common Stock :





If
We Fail to Remain Current on Our Reporting Requirements, We Could be Removed
From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to
Sell Our Securities and the Ability of Stockholders to Sell Their Securities in
the Secondary Market.





Companies
approved for quotation on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.





Our
Common Stock is Subject to the “Penny Stock” Rules of the SEC and the Trading
Market in Our Securities is Limited, Which Makes Transactions in Our Stock
Cumbersome and May Reduce the Value of an Investment in Our Stock.





The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:





·
            that
      a broker or dealer approve a person's account for transactions in penny
      stocks; and·
            the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.





In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:





·
            obtain
      financial information and investment experience objectives of the person;
      and






25
 Table of Contents






·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.





The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:





·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and·
            that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.





Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.





Disclosure also has to be made about
the risks of investing in penny stocks in both public offerings and in secondary
trading and about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.





THERE
ARE RESTRICTIONS ON THE TRANSFERABILITY OF THE SECURITIES.





Rule 144
promulgated under the Securities Act (“Rule 144”), which provides for an
exemption from the registration requirements under the Securities Act under
certain conditions, without having to satisfy the registration requirements
under the Securities Act. However, our securities currently are not eligible for
the Rule 144 exemption until we satisfy the requirements under Rule 144(i).
There can be no assurance that we will satisfy the requirements under Rule
144(i).





Trends,
Risks and Uncertainties





We have
sought to identify what we believe to be the most significant risks to our
business, but we cannot predict whether, or to what extent, any of such risks
may be realized nor can we guarantee that we have identified all possible risks
that might arise. Investors should carefully consider all of such risk factors
before making an investment decision with respect to our Common
Stock.






26
 Table of Contents







ITEM
      7.
            FINANCIAL
STATEMENTS








SECURITIES
AND EXCHANGE COMMISSION





WASHINGTON,
D.C. 20549











FINANCIAL
STATEMENTS AND SCHEDULES





DECEMBER
31, 2007 AND 2006











FORMING
A PART OF ANNUAL REPORT


PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934








PACIFICAP
ENTERTAINMENT HOLDINGS, INC.








Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)





INDEX
TO FINANCIAL STATEMENTS





Page
      No .Report
      of Registered Independent Certified Public Accounting Firm
            F-2Consolidated
      Balance Sheets at December 31, 2007 and 2006
            F-3Consolidated
      Statements of Losses for the years ended December 31, 2007 and 2006, and
      for the period July 29, 1997 (date of inception) to December 31,
      2007
            F-4Consolidated
      Statements of Deficiency in Stockholders’ Equity for  the period
      July 29, 1997 (date of inception) to December 31, 2007
            F-5
      - F-13Consolidated
      Statements of Cash Flows for the years ended December 31, 2007 and 2006,
      and for the period July 29, 1997 (date of inception) to December 31,
      2007
            F-14
      - F-16Notes
      to Consolidated Financial Statements
            F-17
      - F-37








Table of Contents





RBSM
LLP


Certified
Public Accountants





REPORT OF
INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM





Board of
Directors


Pacificap
Entertainment Holdings, Inc.


Irvine,
California





We have
audited the accompanying consolidated balance sheets of Pacificap Entertainment
Holdings, Inc. and its wholly-owned subsidiaries (the "Company"), a development
stage Company, as of December 31, 2007 and 2006 and the related consolidated
statements of Income (losses), deficiency in stockholders' equity, and cash
flows each of the two years in the period ended December 31, 2007, and for the
period July 29, 1997 (date of inception) to December 31, 2007. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 2007 and 2006, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2007, and from
July 29, 1997 (date of inception) to December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note M to the
consolidated financial statements, the Company has suffered recurring losses
from operations, is in default under the terms of its debt obligations and has
not established a source of revenue. This raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note M. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.




/s/ RBSM
LLP


RBSM LLP


McLean,
Virginia


November
10, 2008








F-2
 Table of Contents







PACIFICAP
      ENTERTAINMENT HOLDINGS, INC.(A
      DEVELOPMENT STAGE COMPANY)CONSOLIDATED BALANCE
      SHEETS2007
            
            
            2006ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            2,151
            
            
            $
            -Total
      current assets
            
            
            2,151
            
            
            
            -Property
      and equipment:Office
      furniture, net of accumulated depreciation of $14,139 and $10,418 at
      December 31, 2007 and 2006, respectively
            
            
            5,186
            
            
            
            8,907Other
      assets:Prepaid
      expense
            
            
            44,339
            
            
            
            59,938Financing
      Costs, net of accumulated amortization and write off of $778,084 and
      $570,453 at December 31, 2007 and 2006, respectively
            
            
            82,206
            
            
            
            264,837Total
      other assets
            
            
            126,545
            
            
            
            324,775Total
      assets
            
            $
            133,882
            
            
            $
            333,682LIABILITIES
      AND (DEFICIENCY IN) STOCKHOLDERS' EQUITYCurrent
      liabilities:Cash
      disbursed in excess of available funds
            
            $
            -
            
            
            $
            250Accounts
      payable and accrued expenses
            
            
            2,101,074
            
            
            
            2,610,822Other
      accrued liabilities
            
            
            380,000
            
            
            
            380,000Notes
      payable , current portion
            
            
            3,462,876
            
            
            
            3,526,645Advances
      from related parties
            
            
            5,090
            
            
            
            222,090Other
      advances
            
            
            164,362
            
            
            
            194,362Total
      current liabilities
            
            
            6,113,402
            
            
            
            6,934,169Notes
      payable, long-term portion
            
            
            208,000
            
            
            
            1,016,128Derivative
      liability relating to convertible debentures
            
            
            14,055,623
            
            
            
            18,700,966Warrant
      liability relating to convertible debentures
            
            
            28,403
            
            
            
            35,630Total
      long term liabilities
            
            
            14,292,026
            
            
            
            19,752,724Total
      liabilities
            
            
            20,405,428
            
            
            
            26,686,893Commitments
      and contingencies
            
            
            -
            
            
            
            -(Deficiency
      in) stockholders' equity:Preferred
      stock, par value, $0.001 per share; 50,000,000 shares authorized; none
      issued and outstanding at December 31, 2007 and 2006
            
            
            -
            
            
            
            -Common
      stock, par value, $0.001 per share; 3,000,000,000 and 300,000,000 shares
      authorized at December 31, 2007 and 2006, respectively; 299,668,892 and
      196,778,892 shares issued at December 31, 2007 and 2006,
      respectively
            
            
            299,669
            
            
            
            196,779Additional
      paid-in-capital
            
            
            42,379,227
            
            
            
            42,457,602Deficit
      accumulated during development stage
            
            
            (62,950,442
            )
            
            
            (69,007,592
            )Total
      (deficiency in) stockholders’ equity
            
            
            (20,271,546
            )
            
            
            (26,353,211
            )Total
      liabilities and (deficiency in) stockholders’ equity
            
            $
            133,882
            
            
            $
            333,682See
      accompanying notes to the consolidated financial
statements








F-3
 Table of Contents







PACIFICAP
      ENTERTAINMENT HOLDINGS, INC.(A
      DEVELOPMENT STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF INCOME (LOSSES)For
      the year ended December 31,
            
            
            For
      the Period July 29, 1997 (Date of Inception) to December 31, 20072007
            
            
            2006Costs
      and Expenses:Selling,
      general and administrative
            
            $
            471,243
            
            
            $
            895,143
            
            
            $
            16,065,107Acquisition
      of Pacificap Entertainment Holdings, Inc.
            
            
            -
            
            
            
            -
            
            
            
            29,160,000Acquisition
      of Cineports.com, Inc.
            
            
            -
            
            
            
            -
            
            
            
            2,248,461Write-off
      of capitalized production costs
            
            
            -
            
            
            
            750,000
            
            
            
            900,273Impairment
      of film library
            
            
            -
            
            
            
            -
            
            
            
            372,304Impairment
      of investment
            
            
            -
            
            
            
            -
            
            
            
            62,500Depreciation
            
            
            3,721
            
            
            
            3,795
            
            
            
            210,324Total
      operating expenses
            
            
            474,964
            
            
            
            1,648,938
            
            
            
            49,018,969Loss
      from operations
            
            
            (474,964
            )
            
            
            (1,648,938
            )
            
            
            (49,018,969
            )Other
      income, net
            
            
            171,000
            
            
            
            282,247
            
            
            
            568,004Interest
      expense, net
            
            
            (1,694,465
            )
            
            
            (2,713,138
            )
            
            
            (9,103,722
            )Forgiveness
      of interest expenses
            
            
            399,852
            
            
            
            -
            
            
            
            399,852Other
      income from settlement of convertible debt and accrued interest in
      connection with sale of film distribution rights
            
            
            11,082,695
            
            
            
            -
            
            
            
            11,082,695Unrealized
      loss related to adjustment of derivative and warrant liability to fair
      value of underlying securities
            
            
            (3,426,968
            )
            
            
            (12,284,854
            )
            
            
            (16,310,088
            )Total
      other income (expenses)
            
            
            6,532,114
            
            
            
            (14,715,745
            )
            
            
            (13,363,259
            )Income
      (loss) from continuing operations, before income taxes and discontinued
      operations
            
            
            6,057,150
            
            
            
            (16,364,683
            )
            
            
            (62,382,228
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -Income
      (loss) from continuing operations, before discontinued
      operations
            
            
            6,057,150
            
            
            
            (16,364,683
            )
            
            
            (62,382,228
            )Loss
      from discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            (352,905
            )Income
      on disposal of discontinued operations, net
            
            
            -
            
            
            
            -
            
            
            
            78,973Net
      income (loss)
            
            $
            6,057,150
            
            
            $
            (16,364,683
            )
            
            $
            (62,656,160
            )Cumulative
      effect of accounting change
            
            
            -
            
            
            
            -
            
            
            
            (294,282
            )Net
      income (loss) applicable to common shares
            
            $
            6,057,150
            
            
            $
            (16,364,683
            )
            
            $
            (62,950,442
            )Income
      (loss) per share-basic
            
            $
            0.02
            
            
            $
            (0.15
            )Income
      (loss) per share- diluted and assuming diluted
            
            $
            0.00
            
            
            $
            (0.15
            )Weighted
      average shares outstanding used in earnings (loss) per share
      calculation:Basic
            
            
            285,741,221
            
            
            
            110,486,529Diluted
            
            
            45,574,559,154
            
            
            
            110,486,529See
      the accompanying notes to the consolidated financial
      statements








F-4
 Table of Contents








PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007




Preferred
      Shares
            
            
            Stock
      Amount
            
            
            Common
      Shares
            
            
            Stock
      Amount
            
            
            Common
      Stock subscription
            
            
            Additional
      Paid in Capital
            
            
            Deficit
      Accumulated During Development Stage
            
            
            Treasury
      Stock
            
            
            TotalShares
      issued at date of inception (July 29, 1997) to founders in exchange for
      contribution of organization costs valued at $27.38 per shares, as
      restated
            
            
            -
            
            
            $
            -
            
            
            
            422
            
            
            $
            1
            
            
            $
            -
            
            
            $
            11,552
            
            
            $
            -
            
            
            $
            -
            
            
            $
            11,553Net
      Loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Balance
      at December 31, 1997
            
            
            -
            
            
            $
            -
            
            
            
            422
            
            
            $
            1
            
            
            $
            -
            
            
            $
            11,552
            
            
            $
            -
            
            
            $
            -
            
            
            $
            11,553Shares
      issued December 22, 1998 to consultants in exchange for services valued at
      $.054 per shares
            
            
            -
            
            
            
            -
            
            
            
            37,083
            
            
            
            37
            
            
            
            -
            
            
            
            1,965
            
            
            
            -
            
            
            
            -
            
            
            
            2,002Shares
      issued December 22, 1998 to President in exchange for debt valued at $.054
      per shares
            
            
            -
            
            
            
            -
            
            
            
            277,778
            
            
            
            278
            
            
            
            -
            
            
            
            14,722
            
            
            
            -
            
            
            
            -
            
            
            
            15,000Operating
      expenses incurred by principal shareholder
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,925
            
            
            
            -
            
            
            
            -
            
            
            
            8,925Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (212,773
            )
            
            
            -
            
            
            
            (212,773
            )Balance
      at December 31, 1998
            
            
            -
            
            
            $
            -
            
            
            
            315,283
            
            
            $
            316
            
            
            $
            -
            
            
            $
            37,164
            
            
            $
            (212,773
            )
            
            $
            -
            
            
            $
            (175,293
            )Shares
      issued on April 13, 1999 for cash in connection with private placement at
      $30.08 per share
            
            
            -
            
            
            
            -
            
            
            
            133
            
            
            
            -
            
            
            
            -
            
            
            
            4,000
            
            
            
            -
            
            
            
            -
            
            
            
            4,000Shares
      issued on April 13, 1999 to consultants in exchange for services valued at
      $30.00per share
            
            
            -
            
            
            
            -
            
            
            
            6,000
            
            
            
            6
            
            
            
            -
            
            
            
            179,994
            
            
            
            -
            
            
            
            -
            
            
            
            180,000Shares
      issued May 28, 1999 in exchange for services valued at $.001 per
      share
            
            
            855,000
            
            
            
            855
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            855Contribution
      of shares to treasury on September 30, 1999 by principal
      shareholder
            
            
            -
            
            
            
            -
            
            
            
            (94,048
            )
            
            
            -
            
            
            
            -
            
            
            
            94
            
            
            
            -
            
            
            
            (94
            )
            
            
            -Shares
      issued on November 12, 1999 for cash in connection with private placement
      at $3.00 per share
            
            
            -
            
            
            
            -
            
            
            
            33,333
            
            
            
            33
            
            
            
            -
            
            
            
            99,967
            
            
            
            -
            
            
            
            -
            
            
            
            100,000Release
      of shares held in treasury and acquisition of Cavalcade of Sports Network,
      Inc on December 16, 1999
            
            
            -
            
            
            
            -
            
            
            
            94,048
            
            
            
            -
            
            
            
            -
            
            
            
            282,050
            
            
            
            -
            
            
            
            94
            
            
            
            282,144Operating
      expenses incurred by principal shareholder
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,000
            
            
            
            -
            
            
            
            -
            
            
            
            6,000Net
      Loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (438,045
            )
            
            
            -
            
            
            
            (438,045
            )Balance
      at December 31, 1999
            
            
            855,000
            
            
            $
            855
            
            
            
            354,749
            
            
            $
            355
            
            
            $
            -
            
            
            $
            609,269
            
            
            $
            (650,818
            )
            
            $
            -
            
            
            $
            (40,339
            )




See
accompanying notes to the consolidated financial statements






F-5
 Table of Contents






PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007




Preferred
      Shares
            
            
            Stock
      Amount
            
            
            Common
      Shares
            
            
            Stock
      Amount
            
            
            Common
      Stock Subscription
            
            
            Additional
      Paid in Capital
            
            
            Deficit
      Accumulated During Development Stage
            
            
            Treasury
      Stock
            
            
            TotalBalance
      Forward
            
            
            855,000
            
            
            $
            855
            
            
            
            354,749
            
            
            $
            355
            
            
            $
            -
            
            
            $
            609,269
            
            
            $
            (650,818
            )
            
            $
            -
            
            
            $
            (40,339
            )Shares
      issued in March 2000 in exchange for debt at $37.50 per
    share
            
            
            -
            
            
            
            -
            
            
            
            2,060
            
            
            
            2
            
            
            
            -
            
            
            
            77,245
            
            
            
            -
            
            
            
            -
            
            
            
            77,247Shares
      issued March 28, 2000 in exchange for services at $37.50 per
      share
            
            
            -
            
            
            
            -
            
            
            
            70
            
            
            
            -
            
            
            
            -
            
            
            
            2,625
            
            
            
            -
            
            
            
            -
            
            
            
            2,625Shares
      issued April 27, 2000 in exchange for services at $37.50 per
      share
            
            
            -
            
            
            
            -
            
            
            
            250
            
            
            
            -
            
            
            
            -
            
            
            
            9,375
            
            
            
            -
            
            
            
            -
            
            
            
            9,375Shares
      issued May 8, 2000 in exchange for services at $37.50 per
      share
            
            
            -
            
            
            
            -
            
            
            
            417
            
            
            
            1
            
            
            
            -
            
            
            
            15,624
            
            
            
            -
            
            
            
            -
            
            
            
            15,625Shares
      issued May 17, 2000 in exchange for services at 37.50 per
      share
            
            
            -
            
            
            
            -
            
            
            
            833
            
            
            
            1
            
            
            
            -
            
            
            
            31,249
            
            
            
            -
            
            
            
            -
            
            
            
            31,250Shares
      issued June 2000 in exchange for debt at $37.59 per share
            
            
            -
            
            
            
            -
            
            
            
            133
            
            
            
            -
            
            
            
            -
            
            
            
            5,000
            
            
            
            -
            
            
            
            -
            
            
            
            5,000Shares
      issued June 2000 in exchange for services at $37.46 per
    share
            
            
            -
            
            
            
            -
            
            
            
            589
            
            
            
            1
            
            
            
            -
            
            
            
            22,082
            
            
            
            -
            
            
            
            -
            
            
            
            22,083Shares
      issued July 25, 2000 in exchange for debt at $37.88 per
    share
            
            
            -
            
            
            
            -
            
            
            
            33
            
            
            
            -
            
            
            
            -
            
            
            
            1,250
            
            
            
            -
            
            
            
            -
            
            
            
            1,250Shares
      issued August 2000, in exchange for services at $37.50 per
      share
            
            
            -
            
            
            
            -
            
            
            
            2,167
            
            
            
            2
            
            
            
            -
            
            
            
            81,248
            
            
            
            -
            
            
            
            -
            
            
            
            81,250Conversion
      of preferred stock on September 18, 2000
            
            
            (855,000
            )
            
            
            (855
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (855
            )Shares
      issued October 13, 2000, in exchange for services at $37.86 per
      share
            
            
            -
            
            
            
            -
            
            
            
            35
            
            
            
            -
            
            
            
            -
            
            
            
            1,325
            
            
            
            -
            
            
            
            -
            
            
            
            1,325Shares
      issued October 30, 2000 in exchange for services at $37.48 per
      share
            
            
            -
            
            
            
            -
            
            
            
            667
            
            
            
            1
            
            
            
            -
            
            
            
            24,999
            
            
            
            -
            
            
            
            -
            
            
            
            25,000Shares
      issued November 9, 2000 in exchange for services at $37.65 per
      share
            
            
            -
            
            
            
            -
            
            
            
            83
            
            
            
            -
            
            
            
            -
            
            
            
            3,125
            
            
            
            -
            
            
            
            -
            
            
            
            3,125Shares
      issued December 1, 2000 in exchange for services at $36.76 per
      share
            
            
            -
            
            
            
            -
            
            
            
            17
            
            
            
            -
            
            
            
            -
            
            
            
            625
            
            
            
            -
            
            
            
            -
            
            
            
            625Operating
      expenses incurred by principal shareholder
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,000
            
            
            
            -
            
            
            
            -
            
            
            
            6,000Net
      Loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (856,968
            )
            
            
            -
            
            
            
            (856,968
            )Balance
      at December 31, 2000
            
            
            -
            
            
            $
            -
            
            
            
            362,103
            
            
            $
            363
            
            
            $
            -
            
            
            $
            891,041
            
            
            $
            (1,507,786
            )
            
            $
            -
            
            
            $
            (616,382
            )





See
accompanying notes to the consolidated financial statements







F-6
 Table of Contents






PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007





Preferred
      Shares
            
            Stock
      Amount
            
            Common
      Shares
            
            Stock
      Amount
            
            Common
      Stock Subscription
            Additional
      Paid in Capital
            
            Deficit
      Accumulated During Development Stage
            
            Treasury
      Stock
            TotalBalance
      Forward
            -
            
            $
            -
            
            362,103
            
            $
            363
            
            $
            -
            $
            891,041
            
            $
            (1,507,786
            )
            $
            -
            $
            (616,382
            )Shares
      issued in January 2001, in exchange for services at $37.50 per
      share
            -
            
            
            -
            
            6,667
            
            
            7
            
            
            -
            
            249,993
            
            
            -
            
            
            -
            
            250,000Shares
      issued in April 2001, in exchange for services at $37.50 per
      share
            -
            
            
            -
            
            4,000
            
            
            4
            
            
            -
            
            149,996
            
            
            -
            
            
            -
            
            150,000Shares
      issued in April 2001, in exchange for advances from officers at $37.50 per
      share
            -
            
            
            -
            
            3,333
            
            
            3
            
            
            -
            
            124,997
            
            
            
            
            
            
            
            125,000Shares
      issued in 2001, in exchange for services at $37.50 per
    share
            -
            
            
            -
            
            2,500
            
            
            3
            
            
            -
            
            93,747
            
            
            -
            
            
            -
            
            93,750Shares
      issued in 2001, in exchange for services at $37.50 per
    share
            -
            
            
            -
            
            1,000
            
            
            1
            
            
            -
            
            37,499
            
            
            -
            
            
            -
            
            37,500Fractional
      shares
            -
            
            
            -
            
            (5
            )
            
            -
            
            
            -
            
            -
            
            
            -
            
            
            -
            
            -Shares
      canceled in November 2001, for services that were not performed and shares
      were previously issued in October 2001
            -
            
            
            -
            
            (667
            )
            
            (1
            )
            
            -
            
            (24,999
            )
            
            -
            
            
            -
            
            (25,000
            )Shares
      issued in December 2001, to board of directors members for services at
      37.50 per share
            -
            
            
            -
            
            2,100
            
            
            2
            
            
            -
            
            78,748
            
            
            -
            
            
            -
            
            78,750Operating
      expenses incurred by principal shareholder
            -
            
            
            -
            
            -
            
            
            -
            
            
            -
            
            6,000
            
            
            -
            
            
            -
            
            6,000Net
      loss
            -
            
            
            -
            
            -
            
            
            -
            
            
            -
            
            -
            
            
            (1,257,584
            )
            
            -
            
            (1,257,584
            )Balance
      at December 31, 2001
            -
            
            $
            -
            
            381,031
            
            $
            382
            
            $
            -
            $
            1,607,022
            
            $
            (2,765,370
            )
            $
            -
            $
            (1,157,966
            )




See
accompanying notes to the consolidated financial statements





F-7
 Table of Contents






PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007




Preferred
      Shares
            
            
            Stock
      Amount
            
            
            Common
      Shares
            
            
            Stock
      Amount
            
            
            Additional
      Paid in Capital
            
            
            Deficit
      Accumulated During Development Stage
            
            
            Treasury
      Stock
            
            
            TotalBalance
      Forward
            
            
            -
            
            
            $
            -
            
            
            
            381,031
            
            
            $
            382
            
            
            $
            1,607,022
            
            
            $
            (2,765,370
            )
            
            $
            -
            
            
            $
            (1,157,966
            )Shares
      issued in January 2002, in exchange for investment at $37.50 per
      share
            
            
            -
            
            
            
            -
            
            
            
            1,667
            
            
            
            2
            
            
            
            62,498
            
            
            
            -
            
            
            
            -
            
            
            
            62,500Shares
      issued in March 2002, in exchange for services at $37.50 per
      share
            
            
            -
            
            
            
            -
            
            
            
            8,333
            
            
            
            8
            
            
            
            312,492
            
            
            
            -
            
            
            
            -
            
            
            
            312,500Shares
      issued in June 2002, in exchange for services at approximately $40.15 per
      share
            
            
            -
            
            
            
            -
            
            
            
            18,890
            
            
            
            19
            
            
            
            758,356
            
            
            
            -
            
            
            
            -
            
            
            
            758,375Shares
      issued in June 2002, in exchange for debts at $37.50 per
    share
            
            
            -
            
            
            
            -
            
            
            
            2,667
            
            
            
            2
            
            
            
            99,998
            
            
            
            -
            
            
            
            -
            
            
            
            100,000Shares
      issued in July 2002, in exchange for services at $10.84 per
      share
            
            
            -
            
            
            
            -
            
            
            
            717
            
            
            
            1
            
            
            
            7,769
            
            
            
            -
            
            
            
            -
            
            
            
            7,770Shares
      issued in July 2002, in connection with acquisition of Cineports.com, Inc.
      at approximately $7.50 per share
            
            
            -
            
            
            
            -
            
            
            
            159,653
            
            
            
            160
            
            
            
            1,197,237
            
            
            
            -
            
            
            
            -
            
            
            
            1,197,397Shares
      issued in August 2002, in exchange for services at approximately $10.84
      per share
            
            
            -
            
            
            
            -
            
            
            
            2,133
            
            
            
            2
            
            
            
            23,127
            
            
            
            -
            
            
            
            -
            
            
            
            23,129Shares
      issued in September 2002, in exchange for services at approximately $10.84
      per share
            
            
            -
            
            
            
            -
            
            
            
            10,000
            
            
            
            10
            
            
            
            108,410
            
            
            
            -
            
            
            
            -
            
            
            
            108,420Shares
      issued in October 2002, in exchange for services at approximately $11.69
      per share
            
            
            -
            
            
            
            -
            
            
            
            4,000
            
            
            
            4
            
            
            
            46,736
            
            
            
            -
            
            
            
            -
            
            
            
            46,740Shares
      issued in October 2002 for cash in connection with private placement at
      $6.94 per share
            
            
            -
            
            
            
            -
            
            
            
            18,018
            
            
            
            18
            
            
            
            124,982
            
            
            
            -
            
            
            
            -
            
            
            
            125,000Shares
      issued in October 2002, in exchange for interest at approximately $11.68
      per share
            
            
            -
            
            
            
            -
            
            
            
            507
            
            
            
            -
            
            
            
            5,920
            
            
            
            -
            
            
            
            -
            
            
            
            5,920Shares
      issued in November 2002, in exchange for services at approximately $8.70
      per share
            
            
            -
            
            
            
            -
            
            
            
            1,667
            
            
            
            2
            
            
            
            14,498
            
            
            
            -
            
            
            
            -
            
            
            
            14,500Shares
      issued in November 2002 for cash in connection with private placement at
      $10.20 per share
            
            
            -
            
            
            
            -
            
            
            
            1,000
            
            
            
            1
            
            
            
            10,199
            
            
            
            -
            
            
            
            -
            
            
            
            10,200Shares
      issued in November 2002 for cash in connection with private placement at
      $7.50 per share
            
            
            -
            
            
            
            -
            
            
            
            4,000
            
            
            
            4
            
            
            
            29,996
            
            
            
            -
            
            
            
            -
            
            
            
            30,000Shares
      issued in November 2002, in exchange for debts at $37.49 per
      share
            
            
            -
            
            
            
            -
            
            
            
            867
            
            
            
            1
            
            
            
            32,499
            
            
            
            -
            
            
            
            -
            
            
            
            32,500Shares
      issued in November 2002, in exchange for interest at $37.56 per
      share
            
            
            -
            
            
            
            -
            
            
            
            217
            
            
            
            -
            
            
            
            8,150
            
            
            
            -
            
            
            
            -
            
            
            
            8,150Shares
      issued in December 2002, in exchange for services at approximately $12.26
      per share
            
            
            -
            
            
            
            -
            
            
            
            9,333
            
            
            
            9
            
            
            
            114,371
            
            
            
            -
            
            
            
            -
            
            
            
            114,380Warrants
      issued in connection with acquisition of Cineports
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,051,065
            
            
            
            -
            
            
            
            -
            
            
            
            1,051,065Options
      issued in exchange for services rendered
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            661,365
            
            
            
            -
            
            
            
            -
            
            
            
            661,365Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,210,614
            )
            
            
            -
            
            
            
            (5,210,614
            )Balance
      at December 31, 2002
            
            
            -
            
            
            $
            -
            
            
            
            624,700
            
            
            $
            625
            
            
            $
            6,276,690
            
            
            $
            (7,975,984
            )
            
            $
            -
            
            
            $
            (1,698,669
            )





See
accompanying notes to the consolidated financial statements





F-8
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007





Preferred
      Shares
            
            Share
      Amount
            
            Common
      Shares
            Share
      Amount
            Additional
      Paid in Capital
            
            Deficit
      Accumulated during Development Stage
            
            Treasury
      Stock
            TotalBalance
      forward
            -
            
            $
            -
            
            624,700
            $
            625
            $
            6,276,690
            
            $
            (7,975,984
            )
            $
            -
            $
            (1,698,669
            )Shares
      issued in January 2003 in exchange for services at approximately $4.63 per
      share
            -
            
            
            -
            
            56,300
            
            56
            
            260,434
            
            
            -
            
            
            -
            
            260,490Shares
      issued in February 2003 in exchange for services at $2.10 per
      share
            -
            
            
            -
            
            36,683
            
            37
            
            77,000
            
            
            -
            
            
            -
            
            77,037Shares
      issued in February 2003 for cash in connection with private placement at
      $1.20 per share
            -
            
            
            -
            
            6,667
            
            6
            
            7,994
            
            
            -
            
            
            -
            
            8,000Shares
      issued in February 2003 in exchange for services at $1.50 per
      share
            -
            
            
            -
            
            6,667
            
            6
            
            9,994
            
            
            -
            
            
            -
            
            10,000Shares
      issued in April, 2003 in exchange for services at $.90 per
      share
            -
            
            
            -
            
            14,000
            
            14
            
            12,586
            
            
            -
            
            
            -
            
            12,600Shares
      issued in April 2003 in exchange for expenses paid by shareholders at $.90
      per share
            -
            
            
            -
            
            22,222
            
            22
            
            19,978
            
            
            -
            
            
            -
            
            20,000Shares
      issued in April 2003 in exchange for financing expenses at $.90 per
      share
            -
            
            
            -
            
            22,960
            
            23
            
            20,641
            
            
            -
            
            
            -
            
            20,664Shares
      issued in April 2003 for cash in connection with private placement at
      $1.20 per share
            -
            
            
            -
            
            4,333
            
            4
            
            4,996
            
            
            -
            
            
            -
            
            5,000Shares
      issued in May 2003 in exchange for financing expenses at $1.65 per
      share
            -
            
            
            -
            
            2,591
            
            3
            
            4,272
            
            
            -
            
            
            -
            
            4,275Shares
      issued in May 2003 in exchange for services at $1.50 per
    share
            -
            
            
            -
            
            17,667
            
            18
            
            25,882
            
            
            -
            
            
            -
            
            25,900Shares
      issued in May 2003 for cash in connection with private placement at $.90
      per share
            -
            
            
            -
            
            16,667
            
            17
            
            14,983
            
            
            -
            
            
            -
            
            15,000Shares
      issued in May 2003 in exchange for expenses paid by shareholders at $.90
      per share
            -
            
            
            -
            
            22,167
            
            22
            
            19,978
            
            
            -
            
            
            -
            
            20,000Shares
      issued in July 2003 in exchange for services at $2.10 per
      share
            -
            
            
            -
            
            13,850
            
            14
            
            29,006
            
            
            -
            
            
            -
            
            29,020Shares
      issued in July 2003 in exchange for debts at $.70 per
share
            -
            
            
            -
            
            14,334
            
            14
            
            9,986
            
            
            -
            
            
            -
            
            10,000Shares
      issued in July 2003 in exchange for financing expenses at $3.60 per
      share
            -
            
            
            -
            
            37,487
            
            38
            
            134,915
            
            
            -
            
            
            -
            
            134,953Shares
      issued in August 2003 in exchange for services at $3.14 per
      share
            -
            
            
            -
            
            37,667
            
            38
            
            117,762
            
            
            -
            
            
            -
            
            117,800Shares
      issued in August 2003 in exchange for debts at $.81 per
    share
            -
            
            
            -
            
            43,667
            
            44
            
            35,456
            
            
            -
            
            
            -
            
            35,500Shares
      issued in September 2003 in exchange for services at $1.80 per
      share
            -
            
            
            -
            
            264,916
            
            265
            
            280,085
            
            
            -
            
            
            -
            
            280,350Fractional
      shares issued in September 2003 due to rounding resulted from reverse
      stock split
            -
            
            
            -
            
            1,210
            
            1
            
            (1
            )
            
            -
            
            
            -
            
            -Shares
      issued in October 2003 in exchange for financing expenses at $2.00 per
      share
            -
            
            
            -
            
            50,000
            
            50
            
            99,950
            
            
            -
            
            
            -
            
            100,000Shares
      issued in October 2003 in exchange for services at $1.59 per
      share
            -
            
            
            -
            
            2,405,000
            
            2,405
            
            3,826,895
            
            
            -
            
            
            -
            
            3,829,300Shares
      issued in November 2003 in exchange for services at $1.18 per
      share
            -
            
            
            -
            
            43,000
            
            43
            
            50,707
            
            
            -
            
            
            -
            
            50,750Shares
      issued in November 2003 in exchange for interest expenses at $1.25 per
      share
            -
            
            
            -
            
            10,000
            
            10
            
            12,490
            
            
            -
            
            
            -
            
            12,500Shares
      issued in November 2003 in exchange for financing expenses at $1.75 per
      share
            -
            
            
            -
            
            14,000
            
            14
            
            24,486
            
            
            -
            
            
            -
            
            24,500Shares
      issued in December 2003 in exchange for services at $1.28 per
      share
            -
            
            
            -
            
            29,500
            
            29
            
            37,871
            
            
            -
            
            
            -
            
            37,900Shares
      issued in connection with acquisition of Pacificap
            -
            
            
            -
            
            18,000,000
            
            18,000
            
            29,142,000
            
            
            -
            
            
            -
            
            29,160,000Net
      loss
            -
            
            
            -
            
            -
            
            -
            
            -
            
            
            (35,405,841
            )
            
            -
            
            (35,405,841
            )Balance
      at December 31, 2003
            -
            
            $
            
            
            21,818,255
            $
            21,818
            
            40,557,036
            
            $
            (43,381,825
            )
            $
            -
            $
            (2,802,971
            )





See
accompanying notes to the consolidated financial statements







F-9
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (continued)


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007





Preferred
      Shares
            
            
            Share
      Amount
            
            
            Common
      Shares
            
            
            Share
      Amount
            
            
            Additional
      Paid in Capital
            
            
            Deficit
      Accumulated during Development Stage
            
            
            TotalBalance
      forward
            
            
            -
            
            
            $
            -
            
            
            
            21,818,255
            
            
            $
            21,818
            
            
            $
            40,557,036
            
            
            $
            (43,381,825
            )
            
            $
            (2,802,971
            )Shares
      issued in January, 2004 in exchange for interest expense at approximately
      $1.01 per share
            
            
            -
            
            
            
            -
            
            
            
            145,166
            
            
            
            145
            
            
            
            146,473
            
            
            
            -
            
            
            
            146,618Shares
      issued in January, 2004 in exchange for services at approximately $1.01
      per share
            
            
            -
            
            
            
            -
            
            
            
            125,000
            
            
            
            125
            
            
            
            126,125
            
            
            
            -
            
            
            
            126,250Shares
      issued in February, 2004 in exchange for services at approximately $0.66
      per share
            
            
            -
            
            
            
            -
            
            
            
            687,886
            
            
            
            688
            
            
            
            453,178
            
            
            
            -
            
            
            
            453,866Shares
      issued in March, 2004 in exchange for services at approximately $0.52 per
      share
            
            
            -
            
            
            
            -
            
            
            
            293,250
            
            
            
            293
            
            
            
            151,637
            
            
            
            -
            
            
            
            151,930Shares
      issued in April, 2004 in exchange for services at approximately $0.40 per
      share
            
            
            -
            
            
            
            -
            
            
            
            440,000
            
            
            
            440
            
            
            
            175,560
            
            
            
            -
            
            
            
            176,000Shares
      issued in April, 2004 in exchange for services at approximately $0.39 per
      share
            
            
            -
            
            
            
            -
            
            
            
            175,000
            
            
            
            175
            
            
            
            68,075
            
            
            
            -
            
            
            
            68,250Shares
      issued in May, 2004 in exchange for services at approximately $0.34 per
      share
            
            
            -
            
            
            
            -
            
            
            
            75,000
            
            
            
            75
            
            
            
            25,425
            
            
            
            -
            
            
            
            25,500Shares
      issued in May, 2004 in exchange for services at approximately $0.30 per
      share
            
            
            -
            
            
            
            -
            
            
            
            10,000
            
            
            
            10
            
            
            
            2,990
            
            
            
            -
            
            
            
            3,000Shares
      issued in May, 2004 in exchange for services at approximately $0.24 per
      share
            
            
            -
            
            
            
            -
            
            
            
            400,000
            
            
            
            400
            
            
            
            95,600
            
            
            
            -
            
            
            
            96,000Shares
      issued in May, 2004 in exchange for services at approximately $0.25 per
      share
            
            
            -
            
            
            
            -
            
            
            
            285,000
            
            
            
            285
            
            
            
            70,965
            
            
            
            -
            
            
            
            71,250Shares
      issued in June, 2004 in exchange for settlement of interest at
      approximately $0.30 per share
            
            
            -
            
            
            
            -
            
            
            
            10,000
            
            
            
            10
            
            
            
            2,990
            
            
            
            -
            
            
            
            3,000Shares
      issued in July, 2004 in exchange for services at approximately $0.28 per
      share
            
            
            -
            
            
            
            -
            
            
            
            1,038,538
            
            
            
            1,039
            
            
            
            289,750
            
            
            
            -
            
            
            
            290,789Shares
      issued in July, 2004 in exchange for settlement of interest at
      approximately $0.28 per share
            
            
            -
            
            
            
            -
            
            
            
            44,275
            
            
            
            45
            
            
            
            12,355
            
            
            
            -
            
            
            
            12,400Shares
      issued in July, 2004 in exchange for services at approximately $0.22 per
      share
            
            
            -
            
            
            
            -
            
            
            
            250,000
            
            
            
            250
            
            
            
            54,750
            
            
            
            -
            
            
            
            55,000Shares
      issued in July, 2004 in exchange for services at approximately $0.28 per
      share
            
            
            -
            
            
            
            -
            
            
            
            100,000
            
            
            
            100
            
            
            
            27,900
            
            
            
            -
            
            
            
            28,000Shares
      issued in July, 2004 as payment towards convertible
    debentures
            
            
            -
            
            
            
            -
            
            
            
            1,100,000
            
            
            
            1,100
            
            
            
            75,900
            
            
            
            -
            
            
            
            77,000Shares
      issued in August. 2004 in exchange for services at approximately $0.02 per
      share
            
            
            -
            
            
            
            -
            
            
            
            250,000
            
            
            
            250
            
            
            
            4,750
            
            
            
            -
            
            
            
            5,000Shares
      issued in September, 2004 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            1,100,000
            
            
            
            1,100
            
            
            
            6,490
            
            
            
            -
            
            
            
            7,590Shares
      issued in October, 2004 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            1,100,000
            
            
            
            1,100
            
            
            
            4,950
            
            
            
            -
            
            
            
            6,050Shares
      issued in November, 2004 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            1,100,000
            
            
            
            1,100
            
            
            
            4,730
            
            
            
            -
            
            
            
            5,830Shares
      issued in December, 2004 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            2,200,000
            
            
            
            2,200
            
            
            
            13,750
            
            
            
            -
            
            
            
            15,950Shares
      issued in December, 2004 in exchange for services at approximately $0.02
      per share
            
            
            -
            
            
            
            -
            
            
            
            810,000
            
            
            
            810
            
            
            
            15,390
            
            
            
            -
            
            
            
            16,200Shares
      issued in December, 2004 in exchange for interest at approximately $0.02
      per share
            
            
            -
            
            
            
            -
            
            
            
            197,025
            
            
            
            197
            
            
            
            3,742
            
            
            
            -
            
            
            
            3,939Shares
      issued in December, 2004 in exchange for acquisition costs at
      approximately $0.02 per share
            
            
            -
            
            
            
            -
            
            
            
            4,582,106
            
            
            
            4,582
            
            
            
            87,060
            
            
            
            -
            
            
            
            91,642Net
      loss, as restated
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,946,614
            )
            
            
            (4,946,614
            )Balance
      at December 31, 2004
            
            
            -
            
            
            
            -
            
            
            
            38,336,501
            
            
            $
            38,337
            
            
            $
            42,477,571
            
            
            $
            (48,328,439
            )
            
            $
            (5,812,531
            )





See
accompanying notes to the consolidated financial statements






F-10
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (continued)


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007





Preferred
      Shares
            
            
            Share
      Amount
            
            
            Common
      Shares
            
            
            Share
      Amount
            
            
            Additional
      Paid in Capital
            
            
            Deficit
      Accumulated during Development Stage
            
            
            TotalBalance
      forward
            
            
            -
            
            
            
            -
            
            
            
            38,336,501
            
            
            $
            38,337
            
            
            $
            42,477,571
            
            
            $
            (48,328,439
            )
            
            $
            (5,812,531
            )Shares
      issued in January, 2005 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            2,200,000
            
            
            
            2,200
            
            
            
            9,900
            
            
            
            -
            
            
            
            12,100Shares
      issued in February, 2005 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            3,300,000
            
            
            
            3,300
            
            
            
            13,200
            
            
            
            -
            
            
            
            16,500Shares
      issued in March, 2005 in exchange for services at approximately $0.01 per
      share
            
            
            -
            
            
            
            -
            
            
            
            340,000
            
            
            
            340
            
            
            
            3,060
            
            
            
            -
            
            
            
            3,400Shares
      issued in March, 2005 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            2,200,000
            
            
            
            2,200
            
            
            
            7,700
            
            
            
            -
            
            
            
            9,900Shares
      issued in April, 2005 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            1,900,000
            
            
            
            1,900
            
            
            
            3,420
            
            
            
            -
            
            
            
            5,320Shares
      issued in May, 2005 as payment towards convertible
    debentures
            
            
            -
            
            
            
            -
            
            
            
            10,000,000
            
            
            
            10,000
            
            
            
            1,600
            
            
            
            -
            
            
            
            11,600Shares
      issued in June, 2005 as payment towards convertible
    debentures
            
            
            -
            
            
            
            -
            
            
            
            19,500,000
            
            
            
            19,500
            
            
            
            (7,692
            )
            
            
            -
            
            
            
            11,808Shares
      issued in July 2005 as payment towards convertible
    debentures
            
            
            -
            
            
            
            -
            
            
            
            10,900,000
            
            
            
            10,900
            
            
            
            (6,506
            )
            
            
            -
            
            
            
            4,394Shares
      issued in December 2005 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            886,760
            
            
            
            886
            
            
            
            (303
            )
            
            
            -
            
            
            
            583Net
      Loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,314,470
            )
            
            
            (4,314,470
            )Balance
      at December 31, 2005
            
            
            -
            
            
            $
            -
            
            
            
            89,563,261
            
            
            $
            89,563
            
            
            $
            42,501,950
            
            
            $
            (52,642,909
            )
            
            $
            (10,051,396
            )





See
accompanying notes to the consolidated financial statements






F-11
 Table of Contents







PACIFICAP
      ENTERTAINMENT HOLDINGS, INC.(A
      DEVELOPMENT STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
    (Continued)FOR
      THE PERIOD JULY 19, 1997 (DATE OF INCEPTION) to DECEMBER 31,
      2007Preferred
      Shares
            
            Share
      Amount
            
            Common
      Shares
            Share
      Amount
            Common
      Stock Subscription
            Additional
      Paid in Capital
            
            Deficit
      Accumulated during Development Stage
            
            Treasury
      Stock
            TotalBalance
      forward
            -
            
            $
            -
            
            89,563,261
            $
            89,563
            $
            -
            $
            42,501,950
            
            $
            (52,642,909
            )
            $
            -
            $
            (10,051,396
            )Shares
      issued in May 2006 as payment towards convertible
    debentures
            -
            
            
            -
            
            895,631
            
            896
            
            -
            
            90
            
            
            -
            
            
            -
            
            986Shares
      issued in July 2006 as payment towards convertible
    debentures
            
            
            
            
            
            4,430,000
            
            4,430
            
            -
            
            265
            
            
            -
            
            
            -
            
            4,695Shares
      issued in August 2006 as payment towards convertible
      debentures
            
            
            
            
            
            13,290,000
            
            13,290
            
            -
            
            222
            
            
            -
            
            
            -
            
            13,512Shares
      issued in September 2006 as payment towards convertible
      debentures
            
            
            
            
            
            13,290,000
            
            13,290
            
            -
            
            -
            
            
            -
            
            
            -
            
            13,290Shares
      issued in October 2006 as payment towards convertible
      debentures
            
            
            
            
            
            22,150,000
            
            22,150
            
            -
            
            (8,985
            )
            
            -
            
            
            -
            
            13,165Shares
      issued in November 2006 as payment towards convertible
      debentures
            
            
            
            
            
            31,010,000
            
            31,010
            
            -
            
            (20,196
            )
            
            -
            
            
            -
            
            10,814Shares
      issued in December 2006 as payment towards convertible
      debentures
            
            
            
            
            
            22,150,000
            
            22,150
            
            -
            
            (15,744
            )
            
            -
            
            
            -
            
            6,406Net
      loss
            -
            
            
            -
            
            -
            
            -
            
            -
            
            -
            
            
            (16,364,683
            )
            
            -
            
            (16,364,683
            )Balance
      at December 31, 2006
            -
            
            $
            -
            
            196,778,892
            $
            196,779
            $
            -
            $
            42,457,602
            
            $
            (69,007,592
            )
            $
            -
            $
            (26,353,211
            )




See
accompanying notes to the consolidated financial statements







F-12
 Table of Contents








PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (continued)


FOR
THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31,
2007





Preferred
      Shares
            
            
            Share
      Amount
            
            
            Common
      Shares
            
            
            Share
      Amount
            
            
            Additional
      Paid in Capital
            
            
            Deficit
      Accumulated during Development Stage
            
            
            TotalBalance
      forward
            
            
            -
            
            
            
            -
            
            
            
            196,778,892
            
            
            
            196,779
            
            
            
            42,457,602
            
            
            
            (69,007,592
            )
            
            
            (26,353,211
            )Shares
      issued in January 2007 as payment towards convertible
      debentures
            
            
            -
            
            
            
            -
            
            
            
            39,870,000
            
            
            
            39,870
            
            
            
            (29,149
            )
            
            
            -
            
            
            
            10,721Shares
      issued in February 2007 as payment towards convertible
      debentures
            
            
            -
            
            
            
            
            
            
            
            17,720,000
            
            
            
            17,720
            
            
            
            (12,448
            )
            
            
            -
            
            
            
            5,272Shares
      issued in March 2007 as payment towards convertible
    debentures
            
            
            -
            
            
            
            -
            
            
            
            31,010,000
            
            
            
            31,010
            
            
            
            (24,808
            )
            
            
            -
            
            
            
            6,202Shares
      issued in April 2007 as payment towards convertible
    debentures
            
            
            -
            
            
            
            -
            
            
            
            13,290,000
            
            
            
            13,290
            
            
            
            (11,120
            )
            
            
            -
            
            
            
            2,170Shares
      issued in May 2007 as payment towards convertible
    debentures
            
            
            -
            
            
            
            -
            
            
            
            1,000,000
            
            
            
            1,000
            
            
            
            (850
            )
            
            
            -
            
            
            
            150Net
      Income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,057,150
            
            
            
            6,057,150Balance
      at December 31, 2007
            
            
            -
            
            
            $
            -
            
            
            
            299,668,892
            
            
            $
            299,669
            
            
            $
            42,379,227
            
            
            $
            (62,950,442
            )
            
            $
            (20,271,546
            )





See
accompanying notes to the consolidated financial statements





F-13
 Table of Contents







PACIFICAP
      ENTERTAINMENT HOLDINGS, INC.(A
      DEVELOPMENT STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the year ended December 31,
            
            
            For
      the Period July 29, 1997(Date of Inception) toDecember 31, 20072007
            
            
            2006Cash
      flows from operating activities:Net
      income (loss) for the period from continuing operations
            
            $
            6,057,150
            
            
            $
            (16,364,683
            )
            
            $
            (62,676,509
            )Loss
      from discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            (352,905
            )Disposal
      of business segment, net
            
            
            -
            
            
            
            -
            
            
            
            78,974Adjustments
      to reconcile net losses  to net cash (used in) operating
      activities:Cumulative
      effect of accounting change
            
            
            -
            
            
            
            -
            
            
            
            294,282Depreciation
            
            
            3,721
            
            
            
            3,795
            
            
            
            210,324Organization
      and acquisition costs expensed
            
            
            -
            
            
            
            -
            
            
            
            11,553Other
      income from settlement of convertible debt and accrued interest in
      connection with sale of film distribution rights
            
            
            (11,082,695
            )
            
            
            
            
            
            
            (11,082,695
            )Interest
      forgiveness by noteholders
            
            
            (399,852
            )
            
            
            -
            
            
            
            (399,852
            )Common
      stock issued in exchange for services
            
            
            -
            
            
            
            -
            
            
            
            8,530,733Non
      cash interest expense related to conversion and paydown of convertible
      debentures
            
            
            24,515
            
            
            
            62,868
            
            
            
            567,267Common
      stock issued in exchange for previously incurred debt
            
            
            -
            
            
            
            -
            
            
            
            233,498Common
      stock issued in exchange for interest
            
            
            -
            
            
            
            -
            
            
            
            45,906Common
      stock issued in exchange for expenses paid by shareholders
            
            
            -
            
            
            
            -
            
            
            
            192,500Common
      stock issued in connections with acquisition of Pacificap
            
            
            -
            
            
            
            -
            
            
            
            29,160,000Common
      stock issued in connection with acquisition of Battleship VFX,
      Inc.
            
            
            -
            
            
            
            -
            
            
            
            91,642Common
      stock issued in exchange for financing expenses
            
            
            -
            
            
            
            -
            
            
            
            284,392Common
      stock issued in connection with acquisition of Cineports
            
            
            -
            
            
            
            -
            
            
            
            1,197,396Warrants
      issued in connection with acquisition of Cineports
            
            
            -
            
            
            
            -
            
            
            
            1,051,065Stock
      options issued in exchange for services rendered
            
            
            -
            
            
            
            -
            
            
            
            661,365Preferred
      stock issued in exchange for services
            
            
            -
            
            
            
            -
            
            
            
            855Conversion
      of preferred stock
            
            
            -
            
            
            
            -
            
            
            
            (855
            )Reverse
      of notes payable liability in dispute
            
            
            -
            
            
            
            -
            
            
            
            15,280Accretion
      of convertible debentures
            
            
            536,235
            
            
            
            1,556,281
            
            
            
            3,934,319Unrealized
      loss related to adjustment of  derivative and warrant liability
      to fair value of underlying securities
            
            
            3,426,968
            
            
            
            12,284,854
            
            
            
            16,310,088Amortization
      and write off of financing costs
            
            
            94,468
            
            
            
            252,659
            
            
            
            664,921Amortization
      of prepaid interest
            
            
            15,599
            
            
            
            92,934
            
            
            
            355,661Impairment
      of film library
            
            
            -
            
            
            
            -
            
            
            
            372,304Write-off
      of  acquired asset
            
            
            -
            
            
            
            -
            
            
            
            5,000Write-off
      of  un-collectable other receivable
            
            
            -
            
            
            
            -
            
            
            
            30,000Gain
      from extinguishment of related party debt
            
            
            (171,000
            )
            
            
            (232,247
            )
            
            
            (403,247
            )Debt
      forgiveness from creditors
            
            
            -
            
            
            
            -
            
            
            
            (139,992
            )Write-off
      of capitalized production costs
            
            
            -
            
            
            
            750,000
            
            
            
            900,273Write
      off of other investment previously paid with common stock
            
            
            -
            
            
            
            -
            
            
            
            62,500Expenses
      paid by principal shareholders
            
            
            -
            
            
            
            -
            
            
            
            117,015(Increase)
      decrease in:Capital
      film costs
            
            
            -
            
            
            
            -
            
            
            
            (750,000
            )Increase
      (decrease)  in:Cash
      disbursed in excess of available funds
            
            
            (250
            )
            
            
            250
            
            
            
            -Accounts
      payable and accrued expenses, net
            
            
            1,128,292
            
            
            
            837,287
            
            
            
            3,765,604Net
      cash (used in) operating activities
            
            
            (366,849
            )
            
            
            (756,002
            )
            
            
            (6,661,338
            )





See the
accompanying notes to the consolidated financial statements






F-14
 Table of Contents







PACIFICAP
      ENTERTAINMENT HOLDINGS, INC.(A
      DEVELOPMENT STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the year ended December 31,
            
            
            For
      the Period July 29, 1997(Date of Inception) toDecember 31, 20072007
            
            
            2006Cash
      flows from investing activities:Acquisition
      of film library and footage production costs
            
            
            -
            
            
            
            -
            
            
            
            (183,080
            )Acquisition
      of office furniture
            
            
            -
            
            
            
            -
            
            
            
            (19,325
            )Cash
      acquired in connection with acquisition
            
            
            -
            
            
            
            -
            
            
            
            35,207Net
      cash (used in) investing activities
            
            
            -
            
            
            
            -
            
            
            
            (167,198
            )Cash
      flows from financing activities:Advances
      from related parties, net of repayments
            
            
            (46,000
            )
            
            
            96,218
            
            
            
            363,749Other
      advances, net
            
            
            -
            
            
            
            129,362
            
            
            
            194,362Proceeds
      from issuance of notes payable, net of repayments
            
            
            -
            
            
            
            -
            
            
            
            1,240,665Proceeds
      from issuance of long-term convertible debt, net of costs, fees,
      payments
            
            
            415,000
            
            
            
            530,000
            
            
            
            4,759,711Proceeds
      from issuance of common stock
            
            
            -
            
            
            
            -
            
            
            
            272,200Net
      cash provided by financing activities
            
            
            369,000
            
            
            
            755,580
            
            
            
            6,830,687Net
      increase (decrease) in cash and equivalents
            
            
            2,151
            
            
            
            (422
            )
            
            
            2,151Cash
      and cash equivalents at the beginning of the period
            
            
            -
            
            
            
            422
            
            
            
            -Cash
      and cash equivalents at the end of the period
            
            $
            2,151
            
            
            $
            -
            
            
            $
            2,151Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the period for interest
            
            $
            -
            
            
            $
            -
            
            
            $
            96,807Cash
      paid during the period for taxes
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock issued in exchange for services
            
            
            -
            
            
            
            -
            
            
            
            8,530,733Common
      stock issued in exchange for previously incurred debt
            
            
            -
            
            
            
            -
            
            
            
            233,498Common
      stock issued in conversion of convertible debt
            
            
            24,515
            
            
            
            62,868
            
            
            
            567,267Common
      stock issued in exchange for interest expense
            
            
            -
            
            
            
            -
            
            
            
            45,906Common
      stock issued in exchange for accrued interest
            
            
            -
            
            
            
            -
            
            
            
            146,617Common
      stock issued in exchange for expenses paid by shareholders
            
            
            -
            
            
            
            -
            
            
            
            192,500Common
      stock issued in connections with acquisition of Pacificap
            
            
            -
            
            
            
            -
            
            
            
            29,160,000Common
      stock issued in connection with acquisition of Battleship VFX,
      Inc.
            
            
            -
            
            
            
            -
            
            
            
            91,642Common
      stock issued in exchange for financing expenses
            
            
            -
            
            
            
            -
            
            
            
            284,392Common
      stock issued in connection with acquisition of Cineports
            
            
            -
            
            
            
            -
            
            
            
            1,197,396




See the
accompanying notes to the consolidated financial statements






F-15
 Table of Contents







PACIFICAP
      ENTERTAINMENT HOLDINGS, INC(A
      DEVELOPMENT STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the year ended December 31,
            
            
            For
      the Period July 29, 1997(Date of Inception) toDecember 31, 20072007
            
            
            2006Warrants
      issued in connection with acquisition of Cineports
            
            
            -
            
            
            
            -
            
            
            
            1,051,065Stock
      options issued in exchange for services rendered
            
            
            -
            
            
            
            -
            
            
            
            661,365Preferred
      stock issued in exchange for services
            
            
            -
            
            
            
            -
            
            
            
            855Conversion
      of preferred stock
            
            
            -
            
            
            
            -
            
            
            
            (855
            )Write
      off of  acquired asset
            
            
            -
            
            
            
            -
            
            
            
            5,000Write
      off of  un-collectable other receivable
            
            
            -
            
            
            
            -
            
            
            
            30,000Debt
      forgiveness from creditors
            
            
            -
            
            
            
            -
            
            
            
            (139,992
            )Gain
      from extinguishment of related party debt
            
            
            
            
            
            
            (232,247
            )
            
            
            (612,247
            )Write
      off of capitalized production costs
            
            
            -
            
            
            
            750,000
            
            
            
            900,273Write
      off of other investment previously paid with common stock
            
            
            -
            
            
            
            -
            
            
            
            62,500Impairment
      of film library
            
            
            -
            
            
            
            -
            
            
            
            372,304Expenses
      paid by principal shareholders
            
            
            -
            
            
            
            -
            
            
            
            117,015Common
      stock issued in exchange for shareholder advances
            
            
            -
            
            
            
            -
            
            
            
            45,500Capitalized
      financing costs in connection with issuance of long-term convertible notes
      payable
            
            
            25,000
            
            
            
            100,000
            
            
            
            611,290Prepaid
      interest expense in connection with issuance of long-term convertible
      notes payable
            
            
            -
            
            
            
            -
            
            
            
            400,000Unrealized
      loss on adjustment of derivative and warrant liability to fair value of
      underlying securities
            
            
            3,426,968
            
            
            
            12,284,854
            
            
            
            16,310,088Other
      advances converted to notes payable
            
            
            30,000
            
            
            
            -
            
            
            
            30,000Accrued
      interest converted to notes payable
            
            
            507,718
            
            
            
            -
            
            
            
            507,718Notes
      payable settled in connection with sale of film distribution
      rights
            
            
            2,500,000
            
            
            
            -
            
            
            
            2,500,000Accrued
      interest settled in connection with sale of film distribution
      rights
            
            
            730,271
            
            
            
            -
            
            
            
            730,471Assets
      acquired
            
            
            -
            
            
            
            -
            
            
            
            379,704Goodwill
            
            
            -
            
            
            
            -
            
            
            
            490,467Liabilities
      assumed
            
            
            -
            
            
            
            -
            
            
            
            (588,027
            )Common
      stock Issued
            
            
            -
            
            
            
            -
            
            
            
            (282,144
            )Net
      cash paid for acquisition
            
            $
            -
            
            
            $
            -
            
            
            $
            -Liabilities
      disposed of in disposition of business, net
            
            $
            -
            
            
            $
            -
            
            
            $
            79,374Net
      cash received in disposition of business
            
            $
            -
            
            
            $
            -
            
            
            $
            -Acquisition
      of Pacificap:Assets
      acquired
            
            
            -
            
            
            
            -
            
            
            
            -Liabilities
      assumed
            
            
            -
            
            
            
            -
            
            
            
            -Acquisition
      costs
            
            
            -
            
            
            
            -
            
            
            
            29,160,000Common
      stock issued
            
            
            -
            
            
            
            -
            
            
            
            (29,160,000
            )Net
      cash paid for acquisition
            
            $
            -
            
            
            $
            -
            
            
            $
            -





See the
accompanying notes to the consolidated financial statements








F-16
 Table of Contents






PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
A-SUMMARY OF ACCOUNTING POLICIES





A summary
of the significant accounting policies applied in the preparation of the
accompanying financial statements follows.





Business and Basis of
Presentation





Pacificap
Entertainment Holdings, Inc. (the “Company”), formerly Cavalcade of Sports
Media, Inc., is in the development stage and its efforts in the past have been
principally devoted to developing a sports entertainment business, which will
provide 24 hours per day broadcasting from a library of nostalgic sports films
and footage to paid subscribers. To date the Company has generated no revenues,
has incurred expenses, and has sustained losses. Consequently, its operations
are subject to all risks inherent in the establishment of a new business
enterprise. For the period from inception through December 31, 2007, the Company
has accumulated losses of $62,950,442.





Change of
Control





On
September 19, 2003, the Company completed a Plan and Agreement of Reorganization
(“Plan”) with Pacificap Entertainment Holdings, Inc., a private-held company
organized under the laws of the State of California with no significant assets
or operations. Pursuant to the Plan, all previously outstanding common stock
owned by Pacificap stockholders was exchanged for an aggregate of 18,000,000
shares of the Company’s common stock.





As a
result of the transaction, the Company’s control changed and the Company’s new
management took the following steps to restructure the Company:





·
            Changed
      the Company’s name to Pacificap Entertainment Holdings, Inc. from
      Cavalcade of Sports Media, Inc.·
            Focused
      the Company’s efforts on developing a film financing and marketing company
      modeled to restructure the risk profile of film production, while
      maximizing the ancillary profits from marketing, merchandising and
      licensing.





·
            The
      Company’s Board of Directors affected a one for thirty reverse stock
      split. All
      references in the consolidated financial statements and notes to financial
      statements, numbers of shares and share amounts have been restated to
      reflect the reverse split.





The
consolidated financial statements include the accounts of Pacificap
Entertainment Holdings, Inc. and its wholly-owned subsidiaries, Cavalcade of
Sports Network, Inc, Cineports.com, Inc., Sports Broadcasting Network, Inc. and
Ethnic Broadcasting Company, Inc. Significant intercompany transactions and
accounts have been eliminated in consolidation. Additionally, the Company owns
50% of economic interest in Operation Pilot LLC. As of December 31, 2007,
Operation Pilot LLC does not have operations other than being a party of a
distribution rights agreement (see Note A Capitalized Film Costs).





Cash and Cash
Equivalents





For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.





Property and
Equipment





Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives of 3 to 5
years.






F-17
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
A-SUMMARY OF ACCOUNTING POLICIES (Continued)





Long-Lived
Assets





The
Company has adopted Statement of Financial Accounting Standards No. 144 (“SFAS
144”). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to
sell.





Income
Taxes


The
Company has implemented the provisions on Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (“SFAS 109”). SFAS 109 requires
that income tax accounts be computed using the liability method. Deferred taxes
are determined based upon the estimated future tax effects of differences
between the financial reporting and tax reporting bases of assets and
liabilities given the provisions of currently enacted tax laws.





Net Income (loss) Per Common
Share




The
Company computes earnings per share under Financial Accounting Standard No. 128,
"Earnings Per Share" ("SFAS 128"). Net loss per common share is computed by
dividing net loss by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the year. Dilutive
common stock equivalents consist of shares issuable upon conversion of
convertible preferred shares and the exercise of the Company's stock options and
warrants (calculated using the treasury stock method). For the year ended
December 31, 2007 common stock equivalents derived from shares issuable in
conversion of the Callable Secured Convertible Notes were considered in the
calculation of the weighted average number of common shares outstanding on a
fully dilutive basis.





The
following reconciliation of net income and share amounts used in the computation
of income per share for the year ended December 31, 2007:





Year
      Ended
              December 31, 2007Net
      income used in computing basic net income per share
            
            $
            6,057,150Impact
      of assumed assumptions:Gain
      on sale of film distribution rights attributable to extinguishment of
      derivative liability
            
            
            (8,817,778
            )Loss
      on derivative liability marked to fair value
            
            
            3,426,968Net
      income in computing diluted net earnings per share:
            
            $
            666,340





The
weighted average shares outstanding used in the basic net income per share
computations for the year ended December 31, 2007 was 285,741,221. In
determining the number of shares used in computing diluted loss per share, the
Company added approximately, 45,288,817,933 potentially dilutive securities for
the year ended December 31, 2007. The potentially dilutive securities added were
mostly attributable to the warrants and convertible debentures outstanding. As a
result, the diluted income per share for the year ended December 31, 2007 was
$0.00.





Use of
Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.





Reclassifications





Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.






F-18
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
A-SUMMARY OF ACCOUNTING POLICIES (Continued)





Revenue
Recognition




The
Company recognizes revenue in accordance with American Institute of Certified
Public Accountants Statements of Position (SOP) 00-2, Accounting by Producers or
Distributors of Films. SOP 00-2 requires that the following conditions must be
met before the Company can recognize revenue from a sale or licensing
arrangement of a film:





·
            Persuasive
      evidence of a sale or licensing arrangement with a customer
      exists.·
            The
      film is complete and, in accordance with the terms of the arrangement, has
      been delivered or is available for immediate and unconditional
      delivery.·
            The
      license period of the arrangement has begun and the customer can begin its
      exploitation, exhibition, or sale.·
            The
      arrangement fee is fixed or determinable.·
            Collection
      of the arrangement fee is reasonably
assured.





If the
Company does not meet any one of the preceding conditions, the Company should
defer recognizing revenue until all of the conditions are met.





Capitalized Film
Costs





The
Company follows the policy of capitalizing the costs of producing a film and
bringing that film to market, and reporting the film costs as a separate asset
on its balance sheet. The Company accounts for interest costs related to the
production of a film in accordance with the provisions in FASB Statement No. 34,
Capitalization of Interest
Cost. Production overhead includes allocable costs of individuals or
departments with exclusive or significant responsibility for the production of
films. Production overhead does not include administrative and general expenses,
the costs of certain overall deals, or charges for losses on properties sold or
abandoned.





For an
episodic television series, ultimate revenue for an episodic television series
can include estimates from the initial market and secondary markets. Until the
Company can establish estimates of secondary market revenue, the Company follows
the policy of capitalizing costs for each episode produced that does not exceed
an amount equal to the amount of revenue contracted for that episode. Film costs
in excess of this limitation on an episode-by-episode basis will be expensed as
incurred, and such amounts will not be restored as film cost assets in
subsequent periods. The Company expenses all capitalized costs for each episode
as it recognizes the related revenue for each episode. Once the Company can
establish estimates of secondary market revenue, the Company will capitalize
subsequent film costs.





The
Company amortizes film costs using the individual-film-forecast-computation
method, which amortizes such costs in the same ratio that current period actual
revenue (numerator) bears to estimated remaining unrecognized ultimate revenue
as of the beginning of the current fiscal year (denominator).





During the year ended December 31,
2005, the Company completed filming of its first movie and capitalized film
costs in the amount of $750,000. All capitalized film costs were in production
costs, the Company had no released, completed and not released, or in
development or preproduction costs capitalized at December 31, 2007 and
2006.  As described in Note A, the Company owns 50% of economic
interest in Operation Pilot LLC. In October 2006, Operational Pilot LLC entered
into a distribution rights agreement granting a Licensee rights to market,
advertise, and promote the film. In consideration of the rights granted,
Licensee will pay to the Company all gross receipts received by Licensee
resulting from the exercise of rights after making deductions for distribution
expenses and fees, As of December 31, 2006, the Company has determined that
marketing and sale of the film is highly uncertain in the near future.
Accordingly, the Company wrote off $750,000 of the carrying value of its
capitalized film through a charge to operations during the year ended December
31, 2006.In the year ended December
31, 2007, the Company sold its economic interest in Operation Pilot for
$2,500,000 in assumed convertible debentures (Note I).




Manufacturing
Costs





The
Company follows the policy of charging manufacturing and/or duplication costs of
products for sale, such as videocassettes and digital video discs, to expense on
a unit-specific basis when the related product revenue is recognized. The
Company will at each balance sheet date, evaluate inventories of such products
for net realizable value and obsolescence exposures, with appropriate
adjustments recorded as necessary. The Company follows the policy of charging
the cost of theatrical film prints to expense over the period
benefited.  The Company incurred no manufacturing costs during the
years ended December 31, 2007 and 2006, and for the period from July 29, 1997
(date of inception) to December 31, 2007.






F-19
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
A-SUMMARY OF ACCOUNTING POLICIES (Continued)





Exploitation Costs and
Advertising





The
Company accounts for advertising costs in accordance with the provisions of SOP
93-7,Reporting on Advertising
Costs. All other exploitation costs, including marketing costs, are
expensed as incurred. The Company incurred no advertising costs during the years
ended December 31, 2007 and 2006, and for the period from July 29, 1997
(date of inception) to December 31, 2007.





Research and
Development





The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board’s Statement of Financial Accounting
Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs”.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company incurred no
expenditures on research and product development for the years ended December
31, 2007 and 2006, and the period from July 29, 1997 (date of inception) to
December 31, 2007.





Liquidity





To date
the Company has generated no revenues, has incurred expenses, and has sustained
losses. As shown in the accompanying consolidated financial statements, the
Company incurred an operating net loss of $474,964 during the year ended
December 31, 2007 and $1,648,938 during the year ended December 31, 2006. The
Company’s current liabilities exceeded its current assets by $5,995,032 as of
December 31, 2007. For the period from inception through December 31, 2007, the
Company has accumulated losses of $62,950,442. Consequently, its operations are
subject to all risks inherent in the establishment of a new business
enterprise.





Concentrations of Credit
Risk





Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. The
Company does not have accounts receivable and allowance for doubtful accounts at
December 31, 2007 and 2006.





Comprehensive
Income





Statement
of Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive
Income,” establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company does not have any items of comprehensive income in any
of the periods presented.




Fair Value of Financial
Instruments





Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term borrowings, as reflected in the
balance sheets, approximate fair value because of the short-term maturity of
these instruments.







F-20
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
A-SUMMARY OF ACCOUNTING POLICIES (Continued)





Stock Based
Compensation




Effective
January 1, 2006, the beginning of the Company’s first fiscal quarter of 2006,
the Company adopted the fair value recognition provisions of SFAS 123R, using
the modified-prospective transition method. Under this transition method,
stock-based compensation expense was recognized in the unaudited condensed
consolidated financial statements for granted, modified, or settled stock
options. Compensation expense recognized included the estimated expense for
stock options granted on and subsequent to January 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of SFAS 123R, and
the estimated expense for the portion vesting in the period for options granted
prior to, but not vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of SFAS 123. Results
for prior periods have not been restated, as provided for under the
modified-prospective method.




SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. In the Company’s pro forma information required under SFAS 123 for
the periods prior to fiscal 2006, the Company accounted for forfeitures as they
occurred.




Upon
adoption of SFAS 123(R), the Company is using the Black-Scholes option-pricing
model as its method of valuation for share-based awards granted beginning in
fiscal 2006, which was also previously used for the Company’s pro forma
information required under SFAS 123. The Company’s determination of fair value
of share-based payment awards on the date of grant using an option-pricing model
is affected by the Company’s stock price as well as assumptions regarding a
number of highly complex and subjective variables. These variables include, but
are not limited to the Company’s expected stock price volatility over the term
of the awards, and certain other market variables such as the risk free interest
rate.




The
Company had no employee stock options issued and outstanding at December 31,
2007 and 2006. All prior awards of stock options were vested at the time of
issuance in prior years.





Segment
Information





Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (“SFAS 131”) establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company’s principal operating segment.





New Accounting
Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.





In
December 2007, the FASB issued SFAS No. 141(R),"Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15,
2008.  Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any, that the adoption will have on its financial
position, results of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51"
("SFAS No. 160"), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the consolidated balance
sheets.  SFAS No. 160 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008.  Earlier
adoption is prohibited and the Company is currently evaluating the effect, if
any, that the adoption will have on its financial position, results of
operations or cash flows.








F-21
 Table of Contents





PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
A-SUMMARY OF ACCOUNTING POLICIES (Continued)





New Accounting
Pronouncements (Continued)





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of SFAS No. 133”. SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133 for derivative instruments
and hedging activities. SFAS No. 161 requires qualitative disclosure about
objectives and strategies for using derivative and hedging instruments,
quantitative disclosures about fair value amounts of the instruments and gains
and losses on such instruments, as well as disclosures about credit-risk
features in derivative agreements. We do not expect the adoption of SFAS No. 161
to have a significant impact on our consolidated financial
statements.





In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under FASB Statement No. 142,
“Goodwill and Other Intangible Assets”. This new guidance applies prospectively
to intangible assets that are acquired individually or with a group of other
assets in business combinations and asset acquisitions. FSP 142-3 is effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008. Early adoption is prohibited. The Company is currently
evaluating the impact, if any, that FSP 142-3 will have on its consolidated
financial statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS 162 will become effective 60 days following the SEC’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The Company does not currently expect the adoption of SFAS 162 to
have a material effect on its consolidated results of operations and financial
condition.





In May
2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting
for Convertible Debt instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The Company does not believe the adoption of FSP APB 14-1 will have
significant effect on its consolidated results of operations and financial
condition.







In May
2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee
Insurance Contracts”, which clarifies how FASB Statement No. 60, “Accounting and Reporting by
Insurance Enterprises”, applies to financial guarantee insurance
contracts issued by insurance enterprises.    The standard is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, including interim periods in that year. The Company does not
expect the adoption of SFAS 163 to have a material effect on its consolidated
financial statements.







In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that
contain rights to receive nonforfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The Company does
not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on
its consolidated financial statements.





NOTE
B - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities at December 31, 2007 and 2006 are as
follows:





2007
            
            
            2006Accrued
      expenses
            
            $
            156,469
            
            
            $
            146,292Accrued
      interest
            
            
            1,944,605
            
            
            
            2,464,530Total
            
            $
            2,101,074
            
            
            $
            2,610,822






F-22
 Table of Contents


PACIFICAP
ENTERTAINMENT HOLDINGS, INC.
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007 AND 2006




NOTE
C - CONVERTIBLE PROMISSORY NOTES PAYABLE





A summary
of convertible promissory notes payable at December 31, 2007 and 2006 is as
follows:





2007
            2006Convertible
      notes payable (“First Convertible Notes”); interest rate 10% per annum,;
      due two years from the date of the note; note holder has the option to
      convert unpaid note principal to the Company’s common stock at the lower
      of (i) $0.35 or (ii) 30% of the average of the three lowest intraday
      trading prices for the common stock on a principal market for the twenty
      days before, but not including conversion date.  The Company
      granted the note holder a security interest in substantially all of the
      Company’s assets and intellectual property and registration rights. In
      January 2007, the maturity date has been extended to December 31,
      2008
            $          1,435,539
            $1,457,247Convertible
      notes payable (“Second Convertible Notes”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 30% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights. In January 2007, the
      maturity date has been extended to December 31, 2008
            909,172
            1,895,900Convertible
      notes payable (“Third Convertible Notes”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            131,963
            48,630Convertible
      notes payable (“Fourth Convertible Notes”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            -
            22,831Convertible
      notes payable (“Fifth convertible Note”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            9,973
            -








F-23
 Table of Contents





PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
C - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)




(Continued)
            2007
            2006Convertible
      notes payable (“Sixth convertible Note”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            -
            -Convertible
      notes payable (“Seventh convertible Note”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            $28,402
            $                  -Convertible
      notes payable (“Eighth convertible Note”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            14,959
            -Convertible
      notes payable (“Ninth convertible Note”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            9,224
            -Convertible
      notes payable (“Tenth convertible Note”); interest rate 10% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            13,479
            -Convertible
      notes payable (“Eleventh convertible Note”); interest rate 2% per annum
      (default interest 15% per annum); due three years from the date of the
      note; note holder has the option to convert unpaid note principal the
      Company’s common stock at the lower of (i) $0.02 or (ii) 25% of the
      average of the three lowest intraday trading prices for the common stock
      on a principal market for the twenty trading days before but not including
      conversion date.   The Company granted the note holder a
      security interest in substantially all of the Company’s assets and
      intellectual property and registration rights
            -
            -$   2,552,711
            $   3,424,608Less
      current maturities
            (2,344,711)
            (2,408,480)Long
      term portion
            $      208,000
            $   1,016,128







F-24
 Table of Contents








PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
C - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)





First Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 10, 2004 for the issuance of an aggregate of $2,000,000 of
convertible notes (“Convertible Notes”), and attached to the Convertible Notes
were warrants to purchase 2,000,000 shares of the Company’s common
stock.  The Convertible Notes accrues interest at 10% per annum,
payable and due two years from the date of the note.  The noteholder
has the option to convert any unpaid note principal to the Company’s common
stock at a rate of the lower of (i) $0.35 or (ii) 50% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including conversion date. Effective
August 31, 2005; the terms of the notes were changed for the remaining
outstanding debt to a conversion rate from 50% of the average the day lowest
intraday trading prices to a 40% rate.  Effective January 23, 2006,
the terms of the notes were again changed for the remaining outstanding debt
from a conversion rate of 40% (effective August 31, 2005) of the average day
lowest intraday trading prices to a 30% rate.  During the year ended
December 31, 2004, the Company issued to the investors Convertible Notes in a
total amount of $2,000,000 in exchange for net proceeds of
$1,356,565.  The proceeds that the Company received was net of prepaid
interest of $400,000 calculated at 10% per annum for the aggregate of $2,000,000
of convertible notes for two years, and related fees and costs of
$243,435.  Prepaid interest and capitalized financing costs were
amortized over the maturity period (two years) of the convertible notes. In
January 2007, the maturity of the outstanding notes was extended to December 31,
2008.





Second Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on December 17, 2004 for the issuance of an aggregate of $2,800,000 of
convertible notes (“Second Convertible Notes”), and attached to the Second
Convertible Notes were warrants to purchase 2,800,000 shares of the Company’s
common stock.  The Second Convertible Notes accrues interest at 10%
per annum (15% if the Company is in default under the terms of the note
agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 60% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.  On August 31, 2005; the Securities
Purchase Agreement was amended to increase the aggregate from $2,800,000 to
$3,250,000 of convertible notes (“Second Convertible Notes”), attached warrants
were increased from 2,800,000 shares of the Company’s common stock to 3,250,000
shares.  The conversion rate to the noteholder was changed from a 60%
of the average of the three lowest intraday trading prices for the common stock
on the principal market for the 20 trading dates before but not including
conversion date to a rate of 40%.





On
January 23, 2006; the Securities Purchase Agreement was again amended to
increase the aggregate from $3,250,000 to $3,430,000 of convertible notes
(“Second Convertible Notes”), attached warrants were increased from 3,250,000
shares of the Company’s common stock to 3,430,000 shares.  The
conversion rate to the noteholder was changed from 40% of the average of the
three lowest intraday trading prices for common stock on the principal market
for the 20 trading dates before but not including conversion date to a rate of
30%.  On January 23, 2006, the Company issued to the investors an
aggregate of $180,000 of secured convertible notes, and attached to the secured
convertible notes were warrants to purchase 180,000 shares of our common stock.
The Company received net proceeds of $145,000, net of related fees and costs of
$35,000. Capitalized financing costs were amortized over the maturity period
(three years) of the convertible notes.





As of
December 31, 2007 and 2006, the Company issued to the investors a Second
Convertible Note in the aggregate amount of $3,430,000, in exchange for net
proceeds of $2,939,146, net of related fees and costs of $490,854. The
capitalized financing costs are amortized over the maturity period (three years)
of the convertible notes. Pursuant to the Securities Purchase Agreement, the
Company was required to file a registration statement with the Securities and
Exchange Commission within 45 days after closing, which will include the common
stock underlying the secured convertible notes and the warrants.  In
January 2007, the maturity of the outstanding notes was extended to December 31,
2008.





Third Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 1, 2006 for the issuance of an aggregate of $250,000 of
convertible notes (“Third Convertible Notes”), and attached to the Third
Convertible Notes were warrants to purchase 10,000,000 shares of the Company’s
common stock.  The Third Convertible Notes accrues interest at 10% per
annum (15% if the Company is in default under the terms of the note agreement),
payable and due three years from the date of the note.  The noteholder
has the option to convert any unpaid note principal to the Company’s common
stock at a rate of the lower of (i) $0.02 or (ii) 25% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including conversion date.






F-25
 Table of Contents






PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
C - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)





As of
December 31, 2007, the Company issued to the investors a Third Convertible Note
in the amount of $250,000, in exchange for net proceeds of $205,000, net of
related fees and costs of $45,000. The capitalized financing costs are amortized
over the maturity period (three years) of the convertible notes. Pursuant to the
Securities Purchase Agreement, the Company was required to file a registration
statement with the Securities and Exchange Commission within 45 days after
closing, which will include the common stock underlying the secured convertible
notes and the warrants.





Fourth Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on August 28, 2006 for the issuance of an aggregate of $200,000 of
convertible notes (“Fourth Convertible Notes”), and attached to the Fourth
Convertible Notes were warrants to purchase 10,000,000 shares of the Company’s
common stock.  The Fourth Convertible Notes accrues interest at 10%
per annum (15% if the Company is in default under the terms of the note
agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As of
December 31, 2007, the Company issued to the investors a Fourth Convertible Note
in the amount of $200,000, in exchange for net proceeds of $180,000, net of
related fees and costs of $20,000. The capitalized financing costs are amortized
over the maturity period (three years) of the convertible notes. Pursuant to the
Securities Purchase Agreement, the Company was required to file a registration
statement with the Securities and Exchange Commission within 45 days after
closing, which will include the common stock underlying the secured convertible
notes and the warrants.





Fifth Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on January 1, 2007 for the issuance of an aggregate of $30,000 of
convertible notes (“Fifth Convertible Notes”), in exchange for $30,000 of
working capital these investors advanced to the Company during the year ended
December 31, 2006. The Fifth Convertible Notes accrues interest at 10% per annum
(15% if the Company is in default under the terms of the note agreement),
payable and due three years from the date of the note.  The noteholder
has the option to convert any unpaid note principal to the Company’s common
stock at a rate of the lower of (i) $0.02 or (ii) 25% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including conversion date. Pursuant to
the Securities Purchase Agreement, the Company was required to file a
registration statement with the Securities and Exchange Commission within 45
days after closing.





Sixth Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on February 15, 2007 for the issuance of an aggregate of $100,000 of
convertible notes (“Sixth Convertible Notes”), and attached to the Sixth
Convertible Notes were warrants to purchase 10,000,000 shares of the Company’s
common stock.  The Sixth Convertible Notes accrues interest at 10% per
annum (15% if the Company is in default under the terms of the note agreement),
payable and due three years from the date of the note.  The noteholder
has the option to convert any unpaid note principal to the Company’s common
stock at a rate of the lower of (i) $0.02 or (ii) 25% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including conversion date.





As of
December 31, 2007, the Company issued to the investors a Sixth Convertible Note
in the amount of $100,000, in exchange for proceeds of $100,000. Pursuant to the
Securities Purchase Agreement, the Company was required to file a registration
statement with the Securities and Exchange Commission within 45 days after
closing, which will include the common stock underlying the secured convertible
notes and the warrants.





Seventh Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on February 23, 2007 for the issuance of an aggregate of $100,000 of
convertible notes (“Seventh Convertible Notes”), and attached to the Seventh
Convertible Notes were warrants to purchase 10,000,000 shares of the Company’s
common stock.  The Seventh Convertible Notes accrues interest at 10%
per annum (15% if the Company is in default under the terms of the note
agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.








F-26
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
C - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)





As of
December 31, 2007, the Company issued to the investors a Seventh Convertible
Note in the amount of $100,000, in exchange for proceeds of
$100,000.  Pursuant to the Securities Purchase Agreement, the Company
was required to file a registration statement with the Securities and Exchange
Commission within 45 days after closing, which will include the common stock
underlying the secured convertible notes and the warrants





Eighth Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on May 11, 2007 for the issuance of an aggregate of $70,000 of
convertible notes (“Eighth Convertible Notes”), and attached to the Eighth
Convertible Notes were warrants to purchase 8,000,000 shares of the Company’s
common stock.  The Eighth Convertible Notes accrues interest at 10%
per annum (15% if the Company is in default under the terms of the note
agreement), payable and due three years from the date of the
note.  The noteholder has the option to convert any unpaid note
principal to the Company’s common stock at a rate of the lower of (i) $0.02 or
(ii) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.





As of
December 31, 2007, the Company issued to the investors a Eighth Convertible Note
in the amount of $70,000, in exchange for proceeds of
$65,000.  Pursuant to the Securities Purchase Agreement, the Company
was required to file a registration statement with the Securities and Exchange
Commission within 45 days after closing, which will include the common stock
underlying the secured convertible notes and the warrants





Ninth Convertible
Note





The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 12, 2007 for the issuance of an aggregate of $50,000 of
convertible notes (“Ninth Convertible Notes”), and attached to the Ninth
Convertible Notes were warrants to purchase 10,000,000 shares of the Company’s
common stock.  The Ninth Convertible Notes accrues interest at 10% per
annum (15% if the Company is in default under the terms of the note agreement),
payable and due three years from the date of the note.  The noteholder
has the option to convert any unpaid note principal to the Company’s common
stock at a rate of the lower of (i) $0.02 or (ii) 25% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including conversion date.





As of
December 31, 2007, the Company issued to the investors a Ninth Convertible Note
in the amount of $50,000, in exchange for proceeds of
$50,000.  Pursuant to the Securities Purchase Agreement, the Company
was required to file a registration statement with the Securities and Exchange
Commission within 45 days after closing, which will include the common stock
underlying the secured convertible notes and the warrants





Tenth Convertible
Note





The
Company entered into a Securities Purchase Agreement with three accredited
investors on August 30, 2007 for the issuance of an aggregate of $120,000 of
convertible notes (“Tenth Convertible Notes”), and attached to the Tenth
Convertible Notes were warrants to purchase 8,000,000 shares of the Company’s
common stock.  The Tenth Convertible Notes accrues interest at 10% per
annum (15% if the Company is in default under the terms of the note agreement),
payable and due three years from the date of the note.  The noteholder
has the option to convert any unpaid note principal to the Company’s common
stock at a rate of the lower of (i) $0.02 or (ii) 25% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including conversion date.





As of
December 31, 2007, the Company issued to the investors a Tenth Convertible Note
in the amount of $120,000, in exchange for proceeds of
$100,000.  Pursuant to the Securities Purchase Agreement, the Company
was required to file a registration statement with the Securities and Exchange
Commission within 45 days after closing, which will include the common stock
underlying the secured convertible notes and the warrants








F-27
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
C - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)





Eleventh Convertible
Note





The
Company entered into a Securities Purchase Agreement with three accredited
investors on December 31, 2007 for the issuance of an aggregate of $507,718 of
convertible notes (“Eleventh Convertible Notes”).  The Eleventh
Convertible Notes accrues interest at 2% per annum (15% if the Company is in
default under the terms of the note agreement), payable and due three years from
the date of the note.  The noteholder has the option to convert any
unpaid note principal to the Company’s common stock at a rate of the lower of
(i) $0.02 or (ii) 25% of the average of the three lowest intraday trading prices
for the common stock on a principal market for the 20 trading days before but
not including conversion date.





As of
December 31, 2007, the Company issued to the investors an Eleventh Convertible
Note in the amount of $507,718, in exchange for $907,570 of accrued interest
relating to previously issued convertible notes. Interest forgiveness in the
amount of $399,852 was recorded as other income at December 31, 2007. Pursuant
to the Securities Purchase Agreement, the Company was required to file a
registration statement with the Securities and Exchange Commission within 45
days after closing.





These
transactions, to the extent that it is to be satisfied with common stock of the
Company would normally be included as equity obligations.  However, in
the instant case, due to the indeterminate number of shares which might be
issued under the embedded convertible host debt conversion feature, the Company
is required to record a liability relating to both the detachable warrants and
embedded convertible feature of the notes payable (included in the liabilities
as a “derivative liability)”.





In
accordance with SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities and EITF 00-19 "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock", the Company
accounted for identified embedded derivatives and related detachable warrants to
purchase its common stock that provide for the payment of liquidated damages if
the stipulated registration deadlines were not met as liabilities.





·
            Subsequent
      to the initial recording, the increase in the fair value of the detachable
      warrants, determined under the Black-Scholes option pricing formula and
      the increase in the value of the embedded derivative in the conversion
      feature of the convertible debentures are accrued as adjustments to the
      liabilities at year end and at the end of each quarter.


·
            The
      expense relating to the increase in the fair value of the Company’s stock
      reflected in the change in the fair value of the warrants and derivatives
      (noted above) is included as another comprehensive income item of an
      unrealized gain or loss arising from convertible financing on the
      Company’s balance sheet.


·
            Accreted
      principal of $2,552,711 and $3,398,084 as of December 31, 2007 and
      December 31, 2006, respectively.





Aggregate
maturities of long-term debt as of December 31, 2007 are as
follows:





Fiscal
      Year
            
            Amount2008
            
            $
            2,481,9232009
            
            
            430,0002010
            
            
            877,7182011
      and after
            
            
            -$
            3,789,641





During
the year ended December 31, 2007, principal of the convertible notes in an
aggregate amount of $24,515 was converted to the Company’s common
stock.  In August 2007, the Company sold its economic interest in
Operation Pilot for $2,500,000 in assumed the above convertible notes.  Extinguishment of
derivative liabilities in connection with these convertible debentures amounted$
8,817,778 (Note I). The principal amount of outstanding convertible notes
payable was $3,789,641 and $5,337,247 at December 31, 2007 and December 31,
2006, respectively.







F-28
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
D - NOTES PAYABLE





Notes
payable at December 31, 2007 and 2006 are as follows:




2007
            200612
      % convertible subordinated payable, unsecured and due December 31, 2000;
      Noteholder has the option to convert unpaid note principal together with
      accrued and unpaid interest to the Company’s common stock thirty (30) days
      following the effectiveness of the registration of the Company’s common
      stock under the Securities Act of 1933 at a rate of $1.25 per share. In
      the event the unpaid principal amount of the notes, together with any
      accrued and unpaid interest, are not converted, or paid in full by
      December 31, 2000, then interest accrues at 18% per annum until paid in
      full. The Company is in default under the terms of the Note Agreements.
      (a)
            $
      467,000
            $
      467,00012
      % convertible subordinated payable, unsecured and due December 31, 2001;
      Noteholder has the option to convert unpaid note principal together with
      accrued and unpaid interest to the Company’s common stock thirty (30) days
      following the effectiveness of the registration of the Company’s common
      stock under the Securities Act of 1933 at a rate of $1.25 per share. In
      the event the unpaid principal amount of the notes, together with any
      accrued and unpaid interest, are not converted, or paid in full by
      December 31, 2001, then interest accrues at 18% per annum until paid in
      full. The Company is in default under the terms of the Note
      Agreements.
            342,500
            342,50012
      % convertible subordinated payable, unsecured and due December 31, 2002;
      Noteholder has the option to convert unpaid note principal together with
      accrued and unpaid interest to the Company’s common stock thirty (30) days
      following the effectiveness of the registration of the Company’s common
      stock under the Securities Act of 1933 at a rate of $1.25 per share. In
      the event the unpaid principal amount of the notes, together with any
      accrued and unpaid interest, are not converted, or paid in full by
      December 31, 2002, then interest accrues at 18% per annum until paid in
      full. The Company is in default under the terms of the Note
      Agreements.
            31,250
            31,250Note
      payable on demand to accredited investor; interest payable monthly at 18%
      per annum; unsecured; guaranteed by the Company’s
President
            52,415
            52,415Note
      payable on demand to accredited investor; interest payable monthly at 18%
      per annum; unsecured; guaranteed by the Company’s
President
            100,000
            100,000Note
      payable on demand to an investor; interest payable monthly at 10% per
      annum; unsecured
            75,000
            75,000Note
      payable on demand to an investor; interest payable monthly at 10% per
      annum; unsecured
            50,000
            50,000Total
            1,118,165
            1,118,165Less:
      current portion
            (1,118,165)
            (1,118,165)Notes
      payable, long-term portion
            $                      -
            $                                -








F-29
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
D - NOTES PAYABLE (continued)





(a)
During the year ended December 31, 2004, one of the note holders claimed that
the common shares that the noteholder received in prior years in connection with
conversion of $10,000 of notes payable had low market value and demanded the
Company to issue additional shares. As of December 31, 2007, the Company has not
yet resolved the issue with the noteholder and has accounted for the $10,000 of
notes payable as notes payable outstanding. During the year ended December 31,
2003, the Company issued an aggregate of 127,038 shares of its common stock to
note holders in exchange for notes payable and unpaid accrued interest. As of
December 31, 2007, the conversion of debt to equity has not been completed and
the additional numbers of shares to be issued are still to be determined. The
Company accounted the 127,038 shares issued to notes holders during the year
ended December 31, 2003 as financing expenses at the fair market value of the
time the shares were issued. In January 2004, the Company issued an aggregate of
145,166 shares of its common stock to note holders in exchange for accrued
interest. The shares were valued at $146,617, which approximately the fair
market value at the day the shares were issued.





NOTE
E - CAPITAL STOCK





The
Company has authorized 50,000,000 shares if preferred stock, with a par value of
$.001 per share. As of December 31, 2007 and 2006, the Company has no preferred
stock issued and outstanding. In November 2007, the Company increased the
authorized shares of common stock from 300,000,000 to 3,000,000,000 shares, with
a par value of $.001 per share. On September 4, 2003, the Company effected a one
one-for-thirty reverse stock split of its authorized and outstanding shares of
common stock, $.001 par value. Total authorized shares and par value remained
the unchanged. All references in the financial statements and notes to financial
statements, numbers of shares and share amounts have been retroactively restated
to reflect the reverse split. The Company has and 299,668,892 and 196,778,892
shares of common stock issued and outstanding as of December 31, 2007 and 2006,
respectively.





The
Company's predecessor was Tren Property Corp., an inactive company with no
significant operations incorporated under the laws of the State of Delaware in
July 1997. The Company issued 422 shares of common stock to the initial
shareholders in exchange for initial organization costs. The stock issued was
valued at $11,553, which represents the fair value of the services
received.





In April
1998, the shareholders of Tren Property Corp. exchanged all of their outstanding
shares on a share for share basis for shares of the common stock of Gemma
Global, Inc., an inactive company with no significant operations, organized
under the laws of the State of Nevada (“Company”). Tren Property Corp. changed
its name to Gemma Global, Inc.





In
December 1998, the Company issued 37,083 shares of common stock to non-employees
in exchange for legal and financial advisory services rendered to the Company.
The stock issued was valued at approximately $2,002 per share, which represents
the fair value of the services received, which did not differ materially from
the value of the stock issued.





In
December 1998, the Company issued 277,778 shares of common stock in exchange for
a $15,000 loan payable to the Company's principal shareholder and Chief
Executive Officer.





In March
1999, the Company was renamed Pioneer 2000, Inc. In December 1999 the Company
was renamed Cavalcade of Sports Media, Inc.





In April
1999, the Company issued 133 shares of common stock in exchange for $4,000 in
connection with a private placement memorandum.





In April
1999, the Company issued 6,000 shares of common stock to a non-employee in
exchange for financial advisory services rendered to the Company. The stock
issued was valued at $180,000, which represents the fair value of the stock
issued, which did not differ materially from the value of the services
received.




In May
1999, the Company authorized and issued a series of 855,000 shares of the
Company's preferred stock as convertible preferred stock (“1999 Global Group
Series”) to the Company's management and advisors who had been unsuccessful in
developing the Company's shoe apparel business segment in exchange for those
individuals continuing to devote their services to developing the shoe business
segment. The stock issued was valued at approximately $.001 per share, which
represents the fair value of the stock issued, which did not differ materially
from the value of the services rendered.





In
December 1999, the Company issued 33,333 shares of common stock in exchange for
$75,000 and payment of $ 25,000 of Company expenses, in connection with a
private placement to accredited investors.





F-30
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
E - CAPITAL STOCK (Continued)





In
connection with the acquisition of Cavalcade of Sports Network, Inc. in December
1999, the Company assumed $380,000 of liability representing advances by private
investors to Cavalcade of Sports Network, Inc. Subject to the Company
registering its common stock, the Company has agreed to offer shares of the
Company's common stock to the investors in exchange for the advances based upon
the price per share of the registration.





In
September 2000, the holders of the Company's preferred stock elected to convert
their shares to common stock of Global Group International, Inc. The Company
cancelled all previously issued and outstanding 855,000 shares of the
convertible preferred stock.





During
the year ended December 31, 2000, the Company issued 2,226 shares of common
stock in exchange for debts assumed by the Company in connection with its
acquisition of Cavalcade of Sports Network, Inc. The Company valued the shares
issued at $83,497, which approximated the fair value of the shares at the dates
of issuance.





During
the year ended December 31, 2000, the Company issued 5,128 shares of the
Company's common stock to consultants in exchange for services provided to the
Company. The Company valued the shares issued at $192,283, which approximated
the fair value of the shares issued during the periods the services were
rendered. The compensation cost of $192,283 was charged to income during the
year ended December 31, 2000.





During
the year ended December 31, 2001, the Company issued 15,600 shares of the
Company's common stock to consultants in exchange for services provided to the
Company. The Company valued the shares issued at $585,000, which approximated
the fair value of the shares issued during the periods the services were
rendered. The compensation cost of $585,000 was charged to income during the
year ended December 31, 2001.




During
the year ended December 31, 2001, the Company issued 3,333 shares of the
Company's common stock to the President of the Company in exchange for monies
advanced to the Company. The Company valued the shares issued at $125,000, which
approximated the fair value of the shares at the date of issuance.





In
connection with the acquisition of Cineports, the Company issued an aggregate of
159,653 shares of the Company's restricted common stock to Cineports's
shareholders in July 2002. The shares were valued at $1,197,396, which did not
differ materially from the fair value of the shares issued during the period the
acquisition occurred.





During
the year ended December 31, 2002, the Company issued an aggregate of 55,073
shares of common stock to consultants for services in the amount of $1,385,814.
All valuations of common stock issued for services were based upon the value of
the services rendered, which did not differ materially from the fair value of
the Company's common stock during the period the services were rendered. In
addition, the Company issued 3,533 shares of common stock in exchange for
$132,500 of previously incurred debt and 724 shares for $14,070 of previously
accrued interest. The Company also issued an aggregate of 23,018 shares of
common stock in exchange for $165,200 net of costs and fees and 1,667 shares for
$62,500 of investment. The Company determined the value of the investment was
impaired and recorded an impairment loss of $62,500 during the year ended
December 31, 2002.





In
January 2003, the Company issued an aggregate of 56,300 shares of common stock
to consultants for services in the amount of $260,490. All valuations of common
stock issued for services were based upon the value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered.





In
February 2003, the Company issued an aggregate of 43,350 shares of common stock
to consultants for services in the amount of $87,037. All valuations of common
stock issued for services were based upon the value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered. In addition, the Company
issued an aggregate of 6,667 shares of common stock in exchange for $8,000 net
of costs and fees.





In April
2003, the Company issued an aggregate of 14,000 shares of common stock to
consultants for services in the amount of $12,600. All valuations of common
stock issued for services were based upon the value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered. In addition, the Company
issued an aggregate of 4,333 shares of common stock in exchange for $5,000 net
of costs and fees. The Company also issued an aggregate of 22,222 shares of
common stock to shareholders in exchange for operating expenses of $20,000
previously paid by the shareholders.








F-31
 Table of Contents






PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
E - CAPITAL STOCK (Continued)





In May
2003, the Company issued an aggregate of 17,667 shares of common stock to
consultants for services in the amount of $25,900. All valuations of common
stock issued for services were based upon the value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered. In addition, the Company
issued an aggregate of 16,667 shares of common stock in exchange for $15,000 net
of costs and fees. The Company also issued an aggregate of 22,167 shares of
common stock to shareholders in exchange for operating expenses of $20,000
previously paid by the shareholders.





In July
2003, the Company issued an aggregate of 13,850 shares of common stock to
consultants for services in the amount of $29,020. All valuations of common
stock issued for services were based upon value of the services rendered, which
did not differ materially from the fair value of the Company's common stock
during the period the services were rendered. In addition, the Company issued an
aggregate of 14,334 shares of common stock in exchange for $10,000 of previously
incurred debt.





In August
2003, the Company issued an aggregate of 37,667 shares of common stock to
consultants for services in the amount of $117,800. All valuations of common
stock issued for services were based upon value of the services rendered, which
did not differ materially from the fair value of the Company's common stock
during the period the services were rendered. In addition, the Company issued an
aggregate of 43,667 shares of common stock in exchange for $35,500 of previously
incurred debt.





In
September 2003, the Company issued an aggregate of 264,916 shares of common
stock to consultants for services in the amount of $280,350. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered.




In
October 2003, the Company issued an aggregate of 2,405,000 shares of common
stock to consultants for services in the amount of $3,829,300. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered.




In
November 2003, the Company issued an aggregate of 43,000 shares of common stock
to consultants for services in the amount of $50,750. All valuations of common
stock issued for services were based upon value of the services rendered, which
did not differ materially from the fair value of the Company's common stock
during the period the services were rendered. In addition, the Company issued an
aggregate of 10,000 shares of common stock in exchange for $12,500 of accrued
interest.





In
December 2003, the Company issued an aggregate of 29,500 shares of common stock
to consultants for services in the amount of $37,900. All valuations of common
stock issued for services were based upon value of the services rendered, which
did not differ materially from the fair value of the Company's common stock
during the period the services were rendered.




The
Company also issued an aggregate of 18,000,000 shares of its common stock
pursuant to a Plan and Agreement of Reorganization (“Plan”) with Pacificap
Entertainment Holdings, Inc. (“Pacificap”). The Company accounted the shares
issued at the fair market value at the date of acquisition, which approximately
$29,160,000. The Company charged the acquisition costs of $29,160,000 to
operations for the year ended December 31, 2003 and the Company changed its name
to Pacificap Entertainment Holdings, Inc. subsequent to the
acquisition.





During
the year ended December 31, 2003, the Company issued an aggregate of 127,038
shares of common stock to its note holders in exchange for financing expenses of
$284,392.





In
January 2004, the Company issued an aggregate of 145,166 shares of common stock
to its note holders in exchange for $146,618 of accrued interest. The Company
also issued an aggregate of 125,000 shares of common stock to consultants in
exchange for services in the amount of $126,250. All valuations of common stock
issued for services were based upon value of the services rendered, which did
not differ materially from the fair value of the Company's common stock during
the period the services were rendered.





In
February 2004, the Company issued an aggregate of 537,886 shares of common stock
to consultants in exchange for services in the amount of $326,366. All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered. The Company
also issued an aggregate of 150,000 to a shareholder in exchange for $127,500 of
expenses previously paid by the shareholder on behalf of the
Company.







F-32
 Table of Contents








PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
E - CAPITAL STOCK (Continued)





In March
2004, the Company issued an aggregate of 293,250 shares of common stock to
consultants in exchange for services in the amount of $151,930. All valuations
of common stock issued for services were based upon value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered.





In April
2004, the Company issued an aggregate of 615,000 shares of common stock to
consultants in exchange for services in the amount of $244,250. All valuations
of common stock issued for services were based upon value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered.





In May
2004, the Company issued an aggregate of 770,000 shares of common stock to
consultants in exchange for services in the amount of $195,750. All valuations
of common stock issued for services were based upon value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered. The Company also
issued an aggregate of 10,000 shares of common stock to a noteholder in exchange
for interest expense of $3,000.





In July
2004, the Company issued an aggregate of 1,388,538 shares of common stock to
consultants in exchange for services in the amount of $373,789. All valuations
of common stock issued for services were based upon value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered. The Company also
issued an aggregate of 44,275 shares of common stock to a noteholder in exchange
for interest expense of $12,400. Additionally, the Company issued an aggregate
of 1,100,000 shares of common stock in exchange for convertible notes payable of
$77,000.





In August
2004, the Company issued an aggregate of 250,000 shares of common stock to a
consultant in exchange for services in the amount of $5,000. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered.





In
September 2004, the Company issued an aggregate of 1,100,000 shares of common
stock in exchange for convertible note payable of $7,590.





In
October 2004, the Company issued an aggregate of 1,100,000 shares of common
stock in exchange for convertible note payable of $6,050.




In
November 2004, the Company issued an aggregate of 1,100,000 shares of common
stock in exchange for convertible note payable of $5,830.





In
December 2004, the Company issued an aggregate of 2,200,000 shares of common
stock in exchange for convertible note payable of $15,950. The Company issued an
aggregate of 810,000 shares of common stock to a consultant in exchange for
services in the amount of $16,200. All valuations of common stock issued for
services were based upon value of the services rendered, which did not differ
materially from the fair value of the Company's common stock during the period
the services were rendered. The Company issued an aggregate of 197,025 shares of
common stock to in exchange for accrued interset in the amount of $3,939.
Additioannly, the Company issued an aggregate of 4,582,106 shares of its common
stock, valued at $91,642, in connection with an acquisition agreement with
Battelship VFX, Inc. (`Battleship'). The Company acquired no tangile assets and
assumed no liabilities of Battleship. The Company also entered into a consulting
agreement with Battleship's sole owner. The Company has accounted for the common
shares issued as acquisition costs and has charged $91,642 to operations during
the year ended December 31, 2004.





In
January 2005, the Company issued an aggregate of 2,200,000 shares of common
stock in exchange for convertible note payable of $12,100.





In
February 2005, the Company issued an aggregate of 3,300,000 shares of common
stock in exchange for convertible note payable of $16,500.





In March
2005, the Company issued an aggregate of 2,200,000 shares of common stock in
exchange for convertible note payable of $9,900. The Company issued an aggregate
of 340,000 shares of common stock to consultants in exchange for services in the
amount of $3,400. All valuations of common stock issued for services were based
upon value of the services rendered, which did not differ materially from the
fair value of the Company's common stock during the period the services were
rendered.





In April
2005, the Company issued an aggregate of 1,900,000 shares of common stock in
exchange for convertible note payable of $5,320.





In May
2005, the Company issued an aggregate of 10,000,000 shares of common stock in
exchange for convertible note payable of $11,600.





In June
2005, the Company issued an aggregate of 19,500,000 shares of common stock in
exchange for convertible note payable of $11,808.






F-33
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
E - CAPITAL STOCK (Continued)





In July
2005, the Company issued an aggregate of 10,900,000 shares of common stock in
exchange for convertible note payable of $4,394.





In
December 2005, the Company issued an aggregate of 886,760 shares of common stock
in exchange for convertible note payable of $583.





In May
2006, the Company issued an aggregate of 895,631shares of common stock in
exchange for convertible note payable of $986.





In July
2006, the Company issued an aggregate of 4,430,000 shares of common stock in
exchange for convertible note payable of $4,695.





In August
2006, the Company issued an aggregate of 13,290,000 shares of common stock in
exchange for convertible note payable of $13,512





In
September 2006, the Company issued an aggregate of 13,290,000 shares of common
stock in exchange for convertible note payable of $13,290.





In
October 2006, the Company issued an aggregate of 22,150,000 shares of common
stock in exchange for convertible note payable of $13,165.





In
November 2006, the Company issued an aggregate of 31,010,000 shares of common
stock in exchange for convertible note payable of $10,814.





In
January 2007, the Company issued an aggregate of 39,870,000 shares of common
stock in exchange for convertible note payable of $10,721.





In
February 2007, the Company issued an aggregate of 17,720,000 shares of common
stock in exchange for convertible note payable of $5,272.





In March
2007, the Company issued an aggregate of 31,010,000 shares of common stock in
exchange for convertible note payable of $6,202.





In April
2007, the Company issued an aggregate of 13,290,000 shares of common stock in
exchange for convertible note payable of $2,170.





In May
2007, the Company issued an aggregate of 1,000,000 shares of common stock in
exchange for convertible note payable of $150.




NOTE
F - STOCK OPTIONS AND WARRANTS





Stock
Options





The
Company did not grant any stock options during the year ended December 31, 2007
and 2006. All previously granted stock options expired as of December 31,
2004.





Warrants





The
Company granted an aggregate of 46,000,000 and 20,180,000 warrants during the
year ended December 31, 2007 and 2006, respectively, in connection with issuance
of convertible notes payable. The following table summarizes the changes in
warrants outstanding and the related prices for the shares of the Company’s
common stock, after giving effect to 1:30 reverse split in common stock in
September 2003.





Warrants
      Outstanding
            Warrants
      ExercisableExercise
      Prices
            Number
      Outstanding
            Weighted
      Average Remaining Contractual Life (Years)
            Weighed
      Average Exercise Price
            Number
      Exercisable
            Weighted
      Average Exercise Price$
      0.24
            2,000,000
            1.52
            $     0.24
            2,000,000
            $     0.24$
      0.02
            3,430,000
            2.35
            0.02
            3,430,000
            0.02$
      0.01
            10,000,000
            3.41
            0.01
            10,000,000
            0.01$0.005
            56,000,000
            4.21
            0.005
            56,000,000
            0.00571,430,000
            3.94
            $
      0.0144
            71,430,000
            $
      0.0144







F-34
 Table of Contents







PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
F - STOCK OPTIONS AND WARRANTS (continued)





All
outstanding warrants were granted in connection with issuances of convertible
notes (Note C). Transactions involving warrants issued to noteholders are
summarized as follows:





Number
      of Shares
            
            
            Weighted
      Average Price Per ShareOutstanding
      at January 1, 2006
            
            
            5,250,000
            
            
            $
            0.10Granted
            
            
            20,180,000
            
            
            
            0.0075Exercised
            
            
            -
            
            
            
            -Canceled
      or expired
            
            
            
            
            
            
            -Outstanding
      at December 31, 2006
            
            
            25,430,000
            
            
            $
            0.04Granted
            
            
            46,000,000
            
            
            
            0.005Exercised
            
            
            -
            
            
            
            -Canceled
      or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2007
            
            
            71,430,000
            
            
            $
            0.0144





NOTE
G - RELATED PARTY TRANSACTIONS





As of
December 31, 2006, the Company has accrued unpaid salaries and advances due Mr.
Litwak in an aggregate amount of $449,247.  In the forth quarter of
fiscal year 2006, Mr. Litwak agreed to receive $217,000 to settle all unpaid
accrued salaries and advances as of December 31, 2006.  A formal
agreement, Separation, Release and Consulting Agreement (the “Agreement”), was
signed by both parties in January 2007.  Pursuant to the Agreement,
Mr. Litwak shall receive an aggregate amount of $217,000, payable (i) $25,000
upon the execution of the agreement and (ii) $192,000 over a 64 month period at
a rate of $3,000 per month, and Mr. Litwak resigned as President and Director of
the Company.  At December 31, 2006, the Company has accounted for a
gain from settlement of accrued liabilities due Mr. Litwak in the amount of
$232,247 and included in its other income. The Company made payments to Mr.
Litwak in the amount of $46,000 pursuant to the Agreement during the year ended
December 31, 2007. In September 2007, Mr. Litwak resigned his consulting
position with the Company and waived the remaining liabilities due to him in the
amount of $171,000. The Company accounted for the forgiveness of debt as other
income during the year ended December 31, 2007.





The
Company’s former Chairman of the Board, Mr. Michael Riley, paid $90,090 of
office expenses on behalf of the Company during the year ended December 31,
2003.   No formal repayment terms or arrangements exist. The
Company has repaid Mr. Riley from time to time, and the net amount of the
advances due at December 31, 2007 and December 31, 2006 was
$5,090.  In January 2007, Mr. Riley resigned as members of the Board
of Directors of the Company.





NOTE
H – ASSET PURCHASE AGREEMENT





On
December 21, 2005, the Company entered into an “Asset Purchase Agreement” with
Collectible Concepts Group, Inc., (“CCGI”) pursuant to which the Company agreed
to sell its library of nostalgic sporting events, vintage cartoons and classic
films to CCGI.  The closing of the transaction was contingent upon the
cataloguing of the library, which was completed on January 20, 2006, at which
time the transaction is deemed closed.  The Company received an
initial payment of $50,000 in January 2006.  The Company shall also be
paid, with interest, within three years of the date hereof on December 21, 2010
(“the “Maturity Date”), the principal sum of $200,000, at the rate of six
percent (6%) per annum.  Due to lack of working capital and production
activities in prior years, the Company has impaired the film library sold to
CCGI during the year ended December 31, 2002.  For the year ended
December 31, 2006, the Company accounted for the $50,000 cash consideration
received as other income.  The Company management has determined that
the collectibility of the remaining purchase price due from CCGI can not be
reasonably assured. Accordingly, income will be recognized as collected in
future period.








F-35
 Table of Contents





PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
I – SALE OF FILM DISTRIBUTION RIGHTS





In August
2007, the Company sold its economic interest in the distribution rights of
“Operation Pilot” as described in Note A in exchange for the assumption of
$2,500,000 of convertible debentures (Note C).  The Company recognized
a gain of $11,082,695 comprised of the following:





Debt
      assumed in sale of film distribution rights (a)
            $2,500,000Reduction
      in derivative liability relating to the assumption of the convertible
      debentures
            8,817,778Reduction
      in accrued interest
            730,470Write-off
      of prepaid finance costs
            (113,163)Accretion
      adjustment relating to the assumption of the convertible
      debentures
            (852,390)Net
      gain on sale of film distribution rights
            $11,082,695





(a) This
arrangement settled the Fourth Convertible Note and Sixth Convertible Note in
full, and $2,200,000 of the Second Convertible Note (Note C).





NOTE
J - LOSSES PER SHARE





The
following table presents the computation of basic and diluted losses per share
for the years ended December 31, 2007 and 2006:




2007
            
            
            2006Net
      income loss available to Common stockholders
            
            $
            6,057,150
            
            
            $
            (16,364,683
            )Basic
      earnings (loss) per share
            
            $
            0.02
            
            
            $
            (0.15
            )Diluted
      earnings (loss) per share
            
            $
            0.00
            
            
            $
            (0.15
            )Continuing
      operations
            
            $
            0.02
            
            
            $
            (0.15
            )Discontinued
      operations
            
            $
            -
            
            
            $
            -Weighted
      average common shares outstanding used in income (loss) per share
      calculation:Basic
            
            
            285,741,221
            
            
            
            110,486,529Diluted
            
            
            45,574,559,154
            
            
            
            110,486,529




In
September 2003, a one (1) for thirty (30) reverse stock split of the Company’s
common stock was effected. Accordingly, all historical weighted average share
and per share amounts have been restated to reflect the reverse stock split. For
the year ended December 31, 2006 common stock equivalents derived from shares
issuable in conversion of the Convertible Notes are not considered in the
calculation of the weighted average number of common shares outstanding because
they would be anti-dilutive, thereby decreasing the net loss per
share.





NOTE
K - INCOME TAXES




At
December 31, 2007, the Company had federal and state net operating loss
carry forwards that expire through 2027. Due to the uncertainty of its ability
to utilize the deferred tax assets relating to the loss carry forwards and other
temporary differences between tax and financial reporting purposes, the Company
has recorded a valuation allowance equal to the related deferred
tax assets. If the Company continues to generate U.S. taxable income in
future periods, reversal of this valuation allowance could have a
significant positive impact on net income. As a result of the existence of the
valuation allowance, no tax provision was required for the year ended December
31, 2007, except for certain state and local taxes which are not based on
current earnings.




In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, treatment of interest and penalties, and
disclosure of such positions. Effective January 1, 2007, the Company
adopted the provisions of FIN 48, as required. As a result of implementing FIN
48, there has been no adjustment to the Company’s financial statements and the
adoption of FIN 48 did not have a material effect on the Company’s consolidated
financial statements for the year ending December 31, 2007.








F-36
 Table of Contents






PACIFICAP
ENTERTAINMENT HOLDINGS, INC.


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
K - INCOME TAXES (Continued)





At
December 31, 2007, the significant components of the deferred tax assets
are summarized below:





Net
      operating loss carry forwards
            
            $
            20,700,000Less:
      valuation allowance
            
            
            (20,700,000
            )Balance
            
            $
            —




NOTE
L - COMMITMENTS AND CONTINGENCIES





Lease
Commitments





The
Company does not lease office or operations space.





Employment and Consulting
Agreements





The
Company had an employment agreement with the Company’s former President and
Director, Mr. Ed Liwak during the year ended December 31, 2005. In addition to
salary and benefit provisions, the agreement includes defined commitments should
the employee terminate the employment with or without cause. The Company agreed
to pay a base salary at the rate of not less than $120,000.00 per year. The Base
Salary shall be paid in installments no less frequently than monthly. During the
year ended December 31, 2006, the Company and Mr. Liwak mutually agreed to
terminate the employment agreement pursuant to the “Separation, Release and
Consulting Agreement “formerly signed subsequent to the date of the financials
statements (Note G).





The
Company has consulting agreements with outside contractors, certain of whom are
also Company stockholders, directors and officers. The Agreements are generally
for a term of one to two years from inception and renewable unless either the
Company or Consultant terminates such agreement by written notice.





Litigation




The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its financial position,
results of operations or liquidity.





NOTE
M - GOING CONCERN MATTERS





The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements the Company has incurred losses from
operations of $62,950,442 from date of inception (July 29, 1997) to December 31,
2007.In addition,
the Company is currently in default under the terms of the Capital Notes and
notes payable obligations (Note D). These factors among others may indicate that
the Company will be unable to continue as a going concern for a reasonable
period of time.





The
Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance the
Company will be successful in its effort to secure additional equity
financing.





The
Company’s existence is dependent upon management’s ability to develop profitable
operations and resolve its liquidity problems. Management anticipates the
Company will attain profitable status and improve its liquidity through the
continued developing, marketing and selling of its services and additional
equity investment in the Company. The accompanying consolidated financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.





NOTE
N – SUBSEQUENT EVENTS





Subsequent
to the date of the financial statements, the Company issued an aggregate of
77,589,800 shares of its common stock in exchange for approximately $5,000 in
convertible debentures.





The
Company entered into a Securities Purchase Agreement with four accredited
investors on February 23, 2008 for the issuance of an aggregate of $35,000 of
convertible notes.  The Convertible Notes accrues interest at 10% per
annum and are due three years from the date of the note.  The
noteholder has the option to convert any unpaid note principal to the Company’s
common stock at a rate of the lower of (i) $0.02 or (ii) 25% of the average of
the three lowest intraday trading prices for the common stock on a principal
market for the 20 trading days before but not including conversion
date.





The
Company entered into a Securities Purchase Agreement with three accredited
investors on July 31, 2008 for the issuance of an aggregate of $110,000 of
convertible notes.  The Convertible Notes accrues interest at 12% per
annum and are due three years from the date of the note.  The
noteholder has the option to convert any unpaid note principal to the Company’s
common stock at a rate of the lower of (i) $0.02 or (ii) 25% of the average of
the three lowest intraday trading prices for the common stock on a principal
market for the 20 trading days before but not including conversion
date.   In connection with the issuance of the Securities
Purchase Agreement dated July 31, 2008, the Company issued 2,400,000,000
warrants to purchase the Company’s common stock at $0.001 per share expiring
seven years from issuance.





On July
31, 2008, the Company amended the annual interest rate on all outstanding
convertible debentures as described in Note C from 10% per annum to 12%
effective January 1, 2008.








F-37
 Table of Contents






ITEM
      8.
            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE





None.




ITEM
      8A (T)
            CONTROLS AND PROCEDURESa)
            Evaluation
      of Disclosure Controls and Procedures
              
              The
      Company maintains disclosure controls and procedures (as defined in Rule
      13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as
      amended) that are designed to ensure that information required to be
      disclosed in our periodic reports filed under the Exchange Act is
      recorded, processed, summarized and reported within the time periods
      specified in the SEC's rules and forms, and that such information is
      accumulated and communicated to our management, including our principal
      executive/financial officer, to allow timely decisions regarding required
      disclosure.
              
              
              As
      previously disclosed in a Current Report on Form 8-K , which we filed on
      February 26, 2007 , as a result of comments raised by the Division of
      Corporate Finance of the Securities and Exchange Commission (the
      “Commission”), we determined that accounting errors were made in the
      accounting for and disclosing our its convertible debt instruments and
      their embedded conversion features. Upon reviewing and updating our
      accounting and disclosures of our convertible debt instruments , we
      discovered our errors.
              
              
              The
      Company accounted for and disclosed the convertible promissory notes as
      conventional convertible debt. After further review, the Company
      determined the conversion option embedded in the convertible notes did not
      meet the definition of a "conventional convertible debt instrument"
      because of the option lacked a fixed conversion price.
              
              
              Therefore,
      management re-evaluated the convertible notes and embedded conversion
      feature under the guidelines of SFAS No. 133 and EITF Issue No. 00-19, and
      concluded that the embedded conversion option did not meet the SFAS No.
      133 paragraph 11(a) scope exception. Accordingly, management assessed the
      conversion feature against the additional criteria required for equity
      classification included in paragraphs 12-32 of EITF Issue No. 00-19 and
      determined that the number of shares to be delivered is not capped and
      therefore the Company did not have sufficient authorized and unissued
      shares of its common stock to settle the obligation as of the date of the
      financial statements.
              
              
              As
      a result of the above analysis , the Company concluded the embedded
      conversion option:
              
              
              o
      Does not meet the paragraph 11(a) scope exception in SFAS No.
      133
              
              
              o
      Should be bifurcated from the host instrument ; and
              
              
              o
      should be accounted for as a derivative liability under SFAS No.
      133.
              
              
              
              Accordingly,
      the Company restated its financial statements for the year ended December
      31, 2004 and the quarterly periods ended March 31, 2005, June 30, 2005 and
      September 30, 2005 filed with the SEC disclosing and accounting for the
      embedded conversion option as a derivative.
              
              
              
              As
      a result, we have determined that our disclosure controls were not
      effective as of the end of the period covered by this report.
              
              
              
              We
      have implemented the following remedial measures to address the identified
      material weaknesses.
              
              
              ·We
      reviewed all convertible equity and debt securities to identify any
      securities that may have embedded beneficial conversion
      features
              
              
              ·We
      have improved the supervision and training of our accounting staff to
      understand and implement accounting requirements , policies and procedures
      applicable to the accounting and disclosure of convertible
      securities.






27
 Table of Contents






b)
            Changes in internal
      controls .
              
              We regularly
      review our system of internal control over financial reporting and make
      changes to our processes and systems to improve controls and increase
      efficiency, while ensuring that we maintain an effective internal control
      environment. Changes may include such activities as implementing new, more
      efficient systems, consolidating activities, and migrating
      processes.
              
              There
      were no changes in our internal control over financial reporting that
      occurred during the three months ended December 31, 2007  that
      have materially affected, or are reasonably likely to materially affect,
      our internal control over financial reporting.





Management’s Report of
Internal Control over Financial Reporting.





We are
responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the
participation of our Chief Executive Officer and Chief Financial Officer, our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2007 based on criteria publicly
available in “Internal Control-Integrated Framework Executive Summary” issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as
of December 31, 2007.. Based on this evaluation, management concluded that our
internal control over financial reporting was effective as of December 31, 2007,
based on those criteria. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected.





This
annual report does not include an attestation report of the Company’s registered
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission





ITEM
      8B.
            OTHER INFORMATION





None.







28
 Table of Contents







PART
III





ITEM
      9
            DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT





Directors
and Executive Officers





Set forth
below are the directors and executive officers of the Company, their ages and
positions held with the Company, as follows





Name
            Age
            PositionMark
      Schaftlein
            50
            President
      and Director





Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Currently there are three seats on
our board of directors.





Currently,
our inside Directors are not compensated for their services, although their
expenses in attending meetings are reimbursed.





Mark
Schaftlein has been our President and Director since January 26, 2007.
Mr. Schaftlein has spent the last 6 years as the Managing Director of Ocean
Avenue Advisors, LLC. Ocean Avenue Advisors is a financial consulting firm whose
primary focus is assisting small and micro cap companies. Prior to his tenure at
Ocean Avenue Advisors Mr. Schaftlein spent 20 years in the mortgage banking
industry, including 7 years with Citigroup. Mr. Schaftlein has a Bachelor of
Science in Business Administration from Western Kentucky University. Mr.
Schaftlein is currently a member of the board of directors of the following
public companies: Globalnet Corporation, an international telecommunications
services company, Epicus Communications, Inc., a telecommunications company and
SP Holding Corp., a blank check shell company that recently merged with Organic
Holding Company, Inc.





Limitation
of Liability of Directors





Our
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Nevada law, our directors or officers shall not be personally liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.





Election
of Directors and Officers.





Directors
are elected to serve until the next annual meeting of stockholders and until
their successors have been elected and qualified. Officers are appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.





No
Executive Officer or Director of the Company has been the subject of any order,
judgment, or decree of any Court of competent jurisdiction, or any regulatory
agency permanently or temporarily enjoining, barring suspending or otherwise
limiting him from acting as an investment advisor, underwriter, broker or dealer
in the securities industry, or as an affiliated person, director or employee of
an investment company, bank, savings and loan association, or insurance company
or from engaging in or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any
securities.





No
Executive Officer or Director of the Company has been convicted in any criminal
proceeding (excluding traffic violations) or is the subject of a criminal
proceeding which is currently pending.





No
Executive Officer or Director of the Company is the subject of any pending legal
proceedings.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires Pacificap Entertainment Holdings, Inc. executive officers and
directors, and persons who beneficially own more than ten percent of the
Company’s common stock, to file initial reports of ownership and reports of
changes in ownership with the SEC. Executive officers, directors and greater
than ten percent beneficial owners are required by SEC regulations to furnish
Pacificap Entertainment Holdings, Inc. with copies of all Section 16(a) forms
they file. Based upon a review of the copies of such forms furnished to the
Company and written representations from Company executive officers and
directors, the Company believes that during the year ended 2007, the following
persons were late in filing their Section 16 reports: Mark Schaftlein has not
filed a Form 3.






29
 Table of Contents







Audit
Committee





We do not
have an Audit Committee, our board of directors during 2006, performed some of
the same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls. The Company does not currently have
a written audit committee charter or similar document.





Nominating
Committee





We
do not have a Nominating Committee or Nominating Committee Charter. Our board of
directors performed some of the functions associated with a Nominating
Committee. We have elected not to have a Nominating Committee at this time,
however, our Board of Directors intend to continually evaluate the need for a
Nominating Committee.




Code
of Conduct





We have
adopted a written code of conduct that governs all of our officers, directors,
employees and contractors. The code of conduct relates to written standards that
are reasonably designed to deter wrongdoing and to promote:





(1)
            Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;(2)
            Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that are filed with, or submitted to, the Commission and in
      other public communications made by an issuer;(3)
            Compliance
      with applicable governmental laws, rules and
  regulations;(4)
            The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code; and(5)
            Accountability
      for adherence to the code.





Upon
      written request to the Company, we will provide a copy of our code of
      ethics to any person without charge






Compensation
Committee





We
currently do not have a compensation committee of the board of directors. Until
a formal committee is established, if at all, our entire board of directors will
review all forms of compensation provided to our executive officers, directors,
consultants and employees including stock compensation and loans.







30
 Table of Contents






ITEM
      10.
            EXECUTIVE
COMPENSATION





Termination
of Employment





There are
no compensatory plans or arrangements, including payments to be received from
us, with respect to any person associated with us which would in any way result
in payments to any such person because of his resignation, retirement, or other
termination of such person’s employment with us or our subsidiaries, or any
change in control of our company, or a change in the person’s responsibilities
following a change in control of our company.





Executive
Compensation





The
following table sets forth the annual and long-term compensation paid to our
President and the other executive officers who earned more than $100,000 per
year at the end of the last completed fiscal year.  We refer to all of
these officers collectively as our "named executive officers."





Summary
Compensation Table




Name
      & Principal Position
            Year
            Salary
      ($)
            Bonus
      ($)
            Stock
      Awards($)
            Option
      Awards ($)
            Non-Equity
      Incentive Plan Compensation ($)
            Change
      in Pension Value and Non-Qualified Deferred Compensation Earnings
      ($)
            All
      Other Compensation ($)
            Total
      ($)Mark
      Schaftlein, President, Principal Executive Officer (1) (3)
            2007
            -
            -
            -
            -
            -
            -
            -
            02006
            -
            -
            -
            -
            -
            -
            -
            0Edward
      Litwak, Former President (2)
            2007
            -
            -
            -
            -
            -
            -
            -
            02006
            $122,000
            -
            -
            -
            -
            -
            -
            $122,000





(1) Mr. Schaftlein became our President
and Director on January 26, 2007.




(2) Mr. Litwak resigned as our
President and Director on January 26, 2007.




(3)
      In 2007, Ocean Avenue Advisors, a financial consulting firm was paid
      $96,000 under a Consulting Agreement with the company. For 2008, Ocean
      Avenue Advisors Agreement was extended through December 31,
      2008.  In May, the contract was assigned to Capital Consulting,
      Inc., a consulting firm wholly owned by our President Mark
      Schaftlein.




Outstanding
Equity Awards at Fiscal Year-End Table.




Option
      Awards
            Stock
      AwardsName
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Securities
      Underlying
              Unexercised
              Unearned
              Options
              (#)
            Option
              Exercise
              Price
              ($)
            Option
              Expiration
              Date
            Number
              of
      Shares
              or
      Units
              of
      Stock
              That
      Have
              Not
              Vested
              (#)
            Market
              Value
      of
              Shares
      or
              Units
      of
              Stock
              That
      Have
              Not
              Vested
              ($)
            Equity
              Incentive
              Plan
      Awards:
              Number
              of
              Unearned
              Shares,
              Units
      or
              Other
      Rights
              That
      Have
              Not
              Vested
              (#)
            Equity
      Incentive
              Plan
      Awards:
              Market
      or Payout
              Value
              of
              Unearned
              Shares,
              Units
      or
              Other
              Rights
              That
      Have
              Not
              Vested
              ($)Mark
      Schaftlein
            -
            -
            -
            -
            --
            -
            -
            -
            -







31
 Table of Contents






Employment
Agreements with Executive Officers





Ed
Litwak, Former President





On
September 18, 2003, we entered into a three-year employment contract with
automatic one-year renewals for an additional year upon reaching certain annual
objectives, with Ed Litwak to serve as Interim President and Chief Executive
Officer for a period of up to six months or we hire a new President. Upon our
hiring of a new President, Mr. Litwak’s position shall be President of our
Cavalcade Broadcast Division. The base salary under the agreement is $120,000
per annum, plus benefits.





On January 19, 2007, we entered into a
Separation, Release and Consulting Agreement with Ed Litwak, our former
President, pursuant to which Executive shall receive $217,000 payable (i)
$25,000 upon the execution of the agreement and (ii) $192,000 over a 64 month
period at a rate of $3,000 per month in consideration for, among other things,
(i) Executive’s release of claims against the Company including, but not limited
to claims involving the Broadcast Division (ii) as severance upon Executive’s
ceasing to be employed by the Company and (iii) as a bonus in recognition of
Executive’s past service and contributions to the Company.  Mr. Litwak
will also provide us ongoing consulting services over the 64 month
period.  We made payments to Mr. Litwak in the amount of $46,000
pursuant to the Agreement during the year ended December 31, 2007. In September
2007, Mr. Litwak resigned his consulting position and waived the remaining
liabilities due to him in the amount of $171,000.





Director
Compensation





Our
Directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and
qualified.





A
majority of the authorized number of directors constitutes a quorum of the Board
for the transaction of business.  The directors must be present at the
meeting to constitute a quorum.  However, any action required or
permitted to be taken by the Board may be taken without a meeting if all members
of the Board individually or collectively consent in writing to the
action.





Directors
did not received compensation for their services for the fiscal year ended
December 31, 2007.








32
 Table of Contents





ITEM
      11.
            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT





The
following table presents information, to the best of the Company’s knowledge,
about the beneficial ownership of its common stock on November 4, 2008 relating
to the beneficial ownership of the Company’s common stock by those persons known
to beneficially own more than 5% of the Company’s capital stock and by its
directors and executive officers. The percentage of beneficial ownership for the
following table is based on 377,258,692 shares of common stock
outstanding.





Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and does not necessarily indicate beneficial ownership for
any other purpose. Under these rules, beneficial ownership includes those shares
of common stock over which the stockholder has sole or shared voting or
investment power. It also includes shares of common stock that the stockholder
has a right to acquire within 60 days through the exercise of any option,
warrant or other right. The percentage ownership of the outstanding common
stock, however, is based on the assumption, expressly required by the rules of
the Securities and Exchange Commission, that only the person or entity whose
ownership is being reported has converted options or warrants into shares of our
common stock.





NAME
      AND ADDRESS
            
            
            
            NUMBER
      OF
            PERCENTAGE
      OFOF
      OWNER
            
            TITLE
      OF CLASS
            
            SHARES
      OWNED (1)
            CLASS
      (2)Mark
      Schaftlein
            
            Common
      Stock
            
            
            0
            
            
            *All
      Officers and Directors
            
            Common
      Stock
            
            
            0
            
            
            *As
      a Group (1 persons)




(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of April 14, 2008 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.





(2) Based
upon 377,258,692 shares issued and outstanding on November 4, 2008.




ITEM
      12.
            CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS





The
Company’s former President and Director, Mr. Ed Litwak, has advanced funds to
the Company for working capital purposes since the Company’s inception in July
1997.  No formal repayment terms or arrangements exist. The amount of
the advances due Mr. Litwak at December 31, 2005 was $353,029, net of cash
repayments.





As of
December 31, 2007, the Company has accrued unpaid salaries and advances due Mr.
Litwak in an aggregate amount of $449,247.  In the forth quarter of
fiscal year 2006, Mr. Litwak agreed to receive $217,000 to settle all unpaid
accrued salaries and advances as of December31, 2006.  A formal
agreement, Separation, Release and Consulting Agreement (the “Agreement”), was
signed by both parties subsequent to the date of the financials
statements.  Pursuant to the Agreement, Mr. Litwak shall receive an
aggregate amount of $217,000, payable (i) $25,000 upon the execution of the
agreement and (ii) $192,000 over a 64 month period at a rate of $3,000 per
month, and Mr. Litwak resigned as President and Director of the
Company.  At December 31, 2007, the Company has accounted for a gain
from settlement of accrued liabilities due Mr. Litwak in the amount of $232,247
and included in its
other income. The Company made payments to Mr. Litwak in the amount of $46,000
pursuant to the Agreement during the year ended December 31, 2007. In September
2007, Mr. Litwak resigned his consulting position with the Company and waived
the remaining liabilities due to him in the amount of $171,000. The Company
accounted for the forgiveness of debt as other income during the year ended
December 31, 2007.





The
Company’s former Chairman of the Board, Mr. Michael Riley, paid $90,090 of
office expenses on behalf of the Company during the year ended December 31,
2003.   No formal repayment terms or arrangements exist. The
Company has repaid Mr. Riley from time to time, and the net amount of the
advances due at December 31, 2007 and 2006 was $5,090.  Subsequent to
the date of financial statements, Mr. Riley resigned as members of the Board of
Directors of the Company.







33
 Table of Contents




PART
IV






ITEM
      13.
            EXHIBITS





Exhibit
      No.
            Description3.1
            Certificate
      of Incorporation of Tren Property Corp., filed July 29, 1997 in Delaware,
      filed as an exhibit to the registration statement on Form 10-SB filed with
      the Commission on March 20, 2001 and incorporated herein by
      reference.3.2
            Articles
      of Incorporation of Gemma Global, Inc., filed July 22, 1997 in Nevada,
      filed as an exhibit to the registration statement on Form 10-SB filed with
      the Commission on March 20, 2001 and incorporated herein by
      reference.3.3
            Reorganization
      Agreement between Tren Property Corp. and Edward E. Litwak, dated January
      1, 1998, filed as an exhibit to the registration statement on Form 10-SB
      filed with the Commission on March 20, 2001 and incorporated herein by
      reference.3.4
            Certificate
      of Amendment to the Certificate of Incorporation of Tren Property Corp.,
      changing its corporate name to Gemma Global, Inc. and increasing capital
      structure, filed February 23, 1998 in Delaware, filed as an exhibit to the
      registration statement on Form 10-SB filed with the Commission on March
      20, 2001 and incorporated herein by reference.3.5
            Certificate
      of Ownership and Merger of Gemma Global, Inc. (a Nevada Corporation) with
      and into Tren Property Corp. (a Delaware Corporation), filed February 23,
      1998 in Delaware, filed as an exhibit to the registration statement on
      Form 10-SB filed with the Commission on March 20, 2001 and incorporated
      herein by reference.3.6
            Articles/Certificate
      of Merger of Gemma Global, Inc. (a Nevada Corporation) with and into Gemma
      Global, Inc. formerly Tren Property Corp. (a Delaware Corporation) filed
      March 4, 1998 in Nevada, filed as an exhibit to the registration statement
      on Form 10-SB filed with the Commission on March 20, 2001 and incorporated
      herein by reference.3.7
            Articles
      of Incorporation of Gemma Global, Inc., filed March 5, 1998 in Nevada,
      filed as an exhibit to the registration statement on Form 10-SB filed with
      the Commission on March 20, 2001 and incorporated herein by
      reference.3.8
            Articles/Certificate
      of Merger (re-domestication) of Gemma Global, Inc. (Delaware) with and
      into Gemma Global, Inc. (Nevada) filed April 21, 1998, filed as an exhibit
      to the registration statement on Form 10-SB filed with the Commission on
      March 20, 2001 and incorporated herein by reference.3.9
            Articles
      of Amendment to the Articles of Incorporation of Gemma Global, Inc.,
      changing name to Pioneer2000, Inc. and increasing capital structure, filed
      March 4, 1999 in Nevada, filed as an exhibit to the registration statement
      on Form 10-SB filed with the Commission on March 20, 2001 and incorporated
      herein by reference.3.10
            Certificate
      of Incorporation of Cavalcade of Sports Network, Inc., filed June 22, 1998
      in New York, filed as an exhibit to the registration statement on Form
      10-SB filed with the Commission on March 20, 2001 and incorporated herein
      by reference.3.11
            Articles
      of Incorporation of Global Group International, Inc., filed March 23, 1999
      in Nevada, filed as an exhibit to the registration statement on Form 10-SB
      filed with the Commission on March 20, 2001 and incorporated herein by
      reference.








34
 Table of Contents






3.12
            Certificate
      of Designation, Powers, Preferences and Rights of 1999-Global Group Series
      of Convertible Preferred Stock, filed December 14, 1999 in Nevada, filed
      as an exhibit to the registration statement on Form 10-SB filed with the
      Commission on March 20, 2001 and incorporated herein by
      reference.3.13
            Articles
      of Amendment, filed December 17, 1999 in Nevada, filed as an exhibit to
      the registration statement on Form 10-SB filed with the Commission on
      March 20, 2001 and incorporated herein by reference.3.14
            Articles
      of Merger of Cavalcade of Sports Network, Inc. (New York) with and into
      Cavalcade of Sports Media, Inc. (Nevada), filed December 22, 1999 in
      Nevada, filed as an exhibit to the registration statement on Form 10-SB
      filed with the Commission on March 20, 2001 and incorporated herein by
      reference.3.15
            Certificate
      of Merger of Cavalcade of Sports Network, Inc. with and into Cavalcade of
      Sports Media, Inc., filed December 30, 1999 in New York, filed as an
      exhibit to the registration statement on Form 10-SB filed with the
      Commission on March 20, 2001 and incorporated herein by
      reference.3.16
            Bylaws
      of the Registrant, filed as an exhibit to the registration statement on
      Form 10-SB filed with the Commission on March 20, 2001 and incorporated
      herein by reference.3.17
            Articles
      of Incorporation of Sports Broadcasting Network, Inc., filed November 25,
      2002, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on July 8, 2004 and incorporated herein by
      reference.3.18
            Articles
      of Amendment, filed July 16, 2003 in Nevada, filed as an exhibit to the
      current report on Form 8-K filed with the Commission on July 23, 2003 and
      incorporated herein by reference.3.19
            Exchange
      Agreement with Pacificap Entertainment Holdings Inc., filed as an exhibit
      to the current report on Form 8-K filed with the Commission on September
      24, 2003 and incorporated herein by reference.3.20
            Short
      Form Articles of Merger filed October 23, 2003, in Nevada , filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.3.21
            Articles
      of Amendment to the Articles of Incorporation, filed December 4,
      2007.4.1
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated June 10, 2004, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.4.2
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated June 10, 2004, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.4.3
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated June 10,
      2004, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on July 8, 2004 and incorporated herein by
      reference.4.4
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      June 10, 2004, filed as an exhibit to the registration statement on Form
      SB-2 filed with the Commission on July 8, 2004 and incorporated herein by
      reference.4.5
            Secured
      Convertible Note with AJW Offshore, Ltd., dated June 10, 2004, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.








35
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4.6
            Secured
      Convertible Note with AJW Partners, LLC, dated June 10, 2004, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.4.7
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated June 10, 2004,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on July 8, 2004 and incorporated herein by
      reference.4.8
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated June
      10, 2004, filed as an exhibit to the registration statement on Form SB-2
      filed with the Commission on July 8, 2004 and incorporated herein by
      reference.4.9
            Securities
      Purchase Agreement, dated as of June 10, 2004, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.4.10
            Security
      Agreement, dated as of June 10, 2004, by and among Pacificap Entertainment
      Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
      Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.4.11
            Intellectual
      Property Security Agreement, dated as of June 10, 2004, by and among
      Pacificap Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified
      Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II,
      LLC, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on July 8, 2004 and incorporated herein by
      reference.4.12
            Registration
      Rights Agreement, dated as of June 10, 2004, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on July 8, 2004 and incorporated herein by
      reference.4.13
            Guaranty
      and Pledge Agreement, dated as of June 10, 2004, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd., New Millennium Capital Partners II, LLC and
      Michael Riley, filed as an exhibit to the registration statement on Form
      SB-2 filed with the Commission on July 8, 2004 and incorporated herein by
      reference.4.14
            Guaranty
      and Pledge Agreement, dated as of June 10, 2004, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd., New Millennium Capital Partners II, LLC and
      Edward Litwak, filed as an exhibit to the registration statement on Form
      SB-2 filed with the Commission on July 8, 2004 and incorporated herein by
      reference.4.15
            Secured
      Convertible Note with AJW Offshore, Ltd., dated July 13, 2004, filed as an
      exhibit to the annual report on Form 10-KSB filed with the Commission on
      April 20, 2005 and incorporated herein by reference.4.16
            Secured
      Convertible Note with AJW Partners, LLC, dated July 13, 2004, filed as an
      exhibit to the annual report on Form 10-KSB filed with the Commission on
      April 20, 2005 and incorporated herein by reference.4.17
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated July 13, 2004,
      filed as an exhibit to the annual report on Form 10-KSB filed with the
      Commission on April 20, 2005 and incorporated herein by
      reference.








36
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4.18
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated July
      13, 2004, filed as an exhibit to the annual report on Form 10-KSB filed
      with the Commission on April 20, 2005 and incorporated herein by
      reference.4.19
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated July 13, 2004, filed
      as an exhibit to the annual report on Form 10-KSB filed with the
      Commission on April 20, 2005 and incorporated herein by
      reference.4.20
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated July 13, 2004, filed
      as an exhibit to the annual report on Form 10-KSB filed with the
      Commission on April 20, 2005 and incorporated herein by
      reference.4.21
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated July 13,
      2004, filed as an exhibit to the annual report on Form 10-KSB filed with
      the Commission on April 20, 2005 and incorporated herein by
      reference.4.22
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      July 13, 2004, filed as an exhibit to the annual report on Form 10-KSB
      filed with the Commission on April 20, 2005 and incorporated herein by
      reference.4.23
            Secured
      Convertible Note with AJW Offshore, Ltd., dated July 20, 2004, filed as an
      exhibit to the annual report on Form 10-KSB filed with the Commission on
      April 20, 2005 and incorporated herein by reference.4.24
            Secured
      Convertible Note with AJW Partners, LLC, dated July 20, 2004, filed as an
      exhibit to the annual report on Form 10-KSB filed with the Commission on
      April 20, 2005 and incorporated herein by reference.4.25
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated July 20, 2004,
      filed as an exhibit to the annual report on Form 10-KSB filed with the
      Commission on April 20, 2005 and incorporated herein by
      reference.4.26
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated July
      20, 2004, filed as an exhibit to the annual report on Form 10-KSB filed
      with the Commission on April 20, 2005 and incorporated herein by
      reference.4.27
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated July 20, 2004, filed
      as an exhibit to the annual report on Form 10-KSB filed with the
      Commission on April 20, 2005 and incorporated herein by
      reference.4.28
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated July 20, 2004, filed
      as an exhibit to the annual report on Form 10-KSB filed with the
      Commission on April 20, 2005 and incorporated herein by
      reference.4.29
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated July 20,
      2004, filed as an exhibit to the annual report on Form 10-KSB filed with
      the Commission on April 20, 2005 and incorporated herein by
      reference.4.30
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      July 20, 2004, filed as an exhibit to the annual report on Form 10-KSB
      filed with the Commission on April 20, 2005 and incorporated herein by
      reference.4.31
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated December 17, 2004,
      filed as an exhibit to the current report on Form 8-K filed with the
      Commission on December 23, 2004 and incorporated herein by
      reference.








37
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4.32
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated December 17, 2004,
      filed as an exhibit to the current report on Form 8-K filed with the
      Commission on December 23, 2004 and incorporated herein by
      reference.4.33
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated December
      17, 2004, filed as an exhibit to the current report on Form 8-K filed with
      the Commission on December 23, 2004 and incorporated herein by
      reference.4.34
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      December 17, 2004, filed as an exhibit to the current report on Form 8-K
      filed with the Commission on December 23, 2004 and incorporated herein by
      reference.4.35
            Secured
      Convertible Note with AJW Offshore, Ltd., dated December 17, 2004, filed
      as an exhibit to the current report on Form 8-K filed with the Commission
      on December 23, 2004 and incorporated herein by
  reference.4.36
            Secured
      Convertible Note with AJW Partners, LLC, dated December 17, 2004, filed as
      an exhibit to the current report on Form 8-K filed with the Commission on
      December 23, 2004 and incorporated herein by reference.4.37
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated December 17,
      2004, filed as an exhibit to the current report on Form 8-K filed with the
      Commission on December 23, 2004 and incorporated herein by
      reference.4.38
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated
      December 17, 2004, filed as an exhibit to the current report on Form 8-K
      filed with the Commission on December 23, 2004 and incorporated herein by
      reference.4.39
            Securities
      Purchase Agreement, dated as of December 17, 2004, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the current report on Form 8-K filed with the Commission
      on December 23, 2004 and incorporated herein by
  reference.4.40
            Security
      Agreement, dated as of December 17, 2004, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the current report on Form 8-K filed with the Commission
      on December 23, 2004 and incorporated herein by
  reference.4.41
            Intellectual
      Property Security Agreement, dated as of December 17, 2004, by and among
      Pacificap Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified
      Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II,
      LLC, filed as an exhibit to the current report on Form 8-K filed with the
      Commission on December 23, 2004 and incorporated herein by
      reference.4.42
            Registration
      Rights Agreement, dated as of December 17, 2004, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the current report on Form 8-K filed with the Commission
      on December 23, 2004 and incorporated herein by
  reference.4.43
            Guaranty
      and Pledge Agreement, dated as of December 17, 2004, by and among
      Pacificap Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified
      Partners, LLC, AJW Offshore, Ltd., New Millennium Capital Partners II, LLC
      and Michael Riley, filed as an exhibit to the current report on Form 8-K
      filed with the Commission on December 23, 2004 and incorporated herein by
      reference.4.44
            Guaranty
      and Pledge Agreement, dated as of December 17, 2004, by and among
      Pacificap Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified
      Partners, LLC, AJW Offshore, Ltd., New Millennium Capital Partners II, LLC
      and Edward Litwak, filed as an exhibit to the current report on Form 8-K
      filed with the Commission on December 23, 2004 and incorporated herein by
      reference.






38
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4.45
            Secured
      Convertible Note with AJW Offshore, Ltd., dated June 1, 2005, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.46
            Secured
      Convertible Note with AJW Partners, LLC, dated June 1, 2005, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.47
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated June 1, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.48
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated June
      1, 2005, filed as an exhibit to the registration statement on Form SB-2
      filed with the Commission on January 31, 2006 and incorporated herein by
      reference.4.49
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated June 1, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.50
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated June 1, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.51
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated June 1,
      2005, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on January 31, 2006 and incorporated herein by
      reference.4.52
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      June 1, 2005, filed as an exhibit to the registration statement on Form
      SB-2 filed with the Commission on January 31, 2006 and incorporated herein
      by reference.4.53
            Amended
      Security Agreement, dated as of June 1, 2005, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.54
            Secured
      Convertible Note with AJW Offshore, Ltd., dated July 1, 2005, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.55
            Secured
      Convertible Note with AJW Partners, LLC, dated July 1, 2005, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.56
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated July 1, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.57
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated July
      1, 2005, filed as an exhibit to the registration statement on Form SB-2
      filed with the Commission on January 31, 2006 and incorporated herein by
      reference.






39
 Table of Contents






4.58
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated July 1, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.59
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated July 1, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.60
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated July 1,
      2005, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on January 31, 2006 and incorporated herein by
      reference.4.61
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      July 1, 2005, filed as an exhibit to the registration statement on Form
      SB-2 filed with the Commission on January 31, 2006 and incorporated herein
      by reference.4.62
            Amendment
      No. 2 to the Securities Purchase Agreement, dated as of December 17, 2004,
      by and among Pacificap Entertainment Holdings, Inc., AJW Partners, LLC,
      AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital
      Partners II, LLC, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.63
            Secured
      Convertible Note with AJW Offshore, Ltd., dated August 1, 2005, filed as
      an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.64
            Secured
      Convertible Note with AJW Partners, LLC, dated August 1, 2005, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.65
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated August 1, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.66
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated
      August 1, 2005, filed as an exhibit to the registration statement on Form
      SB-2 filed with the Commission on January 31, 2006 and incorporated herein
      by reference.4.67
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated August 1, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.68
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated August 1, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.69
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated August 1,
      2005, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on January 31, 2006 and incorporated herein by
      reference.4.70
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      August 1, 2005, filed as an exhibit to the registration statement on Form
      SB-2 filed with the Commission on January 31, 2006 and incorporated herein
      by reference.






40
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4.71
            Amendment
      No. 3 to the Securities Purchase Agreement, dated as of December 17, 2004,
      by and among Pacificap Entertainment Holdings, Inc., AJW Partners, LLC,
      AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital
      Partners II, LLC, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.72
            Secured
      Convertible Note with AJW Offshore, Ltd., dated September 1, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.73
            Secured
      Convertible Note with AJW Partners, LLC, dated September 1, 2005, filed as
      an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.74
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated September 1,
      2005, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on January 31, 2006 and incorporated herein by
      reference.4.75
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated
      September 1, 2005, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.76
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated September 1, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.77
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated September 1, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.78
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated September
      1, 2005, filed as an exhibit to the registration statement on Form SB-2
      filed with the Commission on January 31, 2006 and incorporated herein by
      reference.4.79
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      September 1, 2005, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.80
            Amendment
      No. 4 to the Securities Purchase Agreement, dated as of December 17, 2004,
      by and among Pacificap Entertainment Holdings, Inc., AJW Partners, LLC,
      AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital
      Partners II, LLC, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.81
            Securities
      Purchase Agreement, dated as of September 19, 2005, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.82
            Secured
      Convertible Note with AJW Offshore, Ltd., dated September 19, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.83
            Secured
      Convertible Note with AJW Partners, LLC, dated September 19, 2005, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.







41
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4.84
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated September 19,
      2005, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on January 31, 2006 and incorporated herein by
      reference.4.85
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated
      September 19, 2005, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.86
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated September 19, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.87
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated September 19, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.88
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated September
      19, 2005, filed as an exhibit to the registration statement on Form SB-2
      filed with the Commission on January 31, 2006 and incorporated herein by
      reference.4.89
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      September 19, 2005, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.90
            Registration
      Rights Agreement, dated as of September 19, 2005, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.91
            Amendment
      to the secured convertible notes, issued on June 10, 2004, July 13, 2004,
      July 20, 2004, December 17, 2004, June 1, 2005, July 1, 2005, August 1,
      2005, September 1, 2005 and September 19, 2005 by us to AJW Partners, LLC,
      AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital
      Partners II, LLC, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.92
            Securities
      Purchase Agreement, dated as of January 23, 2006, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.93
            Secured
      Convertible Note with AJW Offshore, Ltd., dated January 23, 2006, filed as
      an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.94
            Secured
      Convertible Note with AJW Partners, LLC, dated January 23, 2006, filed as
      an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.95
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated January 23, 2006,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.







42
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4.96
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated
      January 23, 2006, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.97
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated January 23, 2006,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.98
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated January 23, 2006,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on January 31, 2006 and incorporated herein by
      reference.4.99
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated January 23,
      2006, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on January 31, 2006 and incorporated herein by
      reference.4.100
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      January 23, 2006, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on January 31, 2006 and incorporated
      herein by reference.4.101
            Registration
      Rights Agreement, dated as of January 23, 2006, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
      as an exhibit to the registration statement on Form SB-2 filed with the
      Commission on January 31, 2006 and incorporated herein by
      reference.4.102
            Securities
      Purchase Agreement, dated as of June 1, 2006, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II,
      LLC,4.103
            Secured
      Convertible Note with AJW Offshore, Ltd., dated June 1,
    2006.4.104
            Secured
      Convertible Note with AJW Partners, LLC, dated June 1,
    2006.4.105
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated June 1,
      2006.4.106
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated June
      1, 2006.4.107
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated June 1,
      2006.4.108
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated June 1,
      2006.4.109
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated June 1,
      2006.4.110
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      June 1, 20064.111
            Registration
      Rights Agreement, dated as of June 1, 2006, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II,
      LLC,4.112
            Securities
      Purchase Agreement, dated as of August 28, 2006, by and among Pacificap
      Entertainment Holdings, Inc., AJW Partners, LLC, AJW Qualified Partners,
      LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II,
      LLC.4.113
            Secured
      Convertible Note with AJW Offshore, Ltd., dated August 28,
      2006.4.114
            Secured
      Convertible Note with AJW Partners, LLC, dated August 28,
      2006.4.115
            Secured
      Convertible Note with AJW Qualified Partners, LLC, dated August 28,
      2006.4.116
            Secured
      Convertible Note with New Millennium Capital Partners II, LLC, dated
      August 28, 2006.4.117
            Common
      Stock Purchase Warrant with AJW Offshore, Ltd., dated August 28,
      2006.4.118
            Common
      Stock Purchase Warrant with AJW Partners, LLC, dated August 28,
      2006.4.119
            Common
      Stock Purchase Warrant with AJW Qualified Partners, LLC, dated August 28,
      2006.






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4.120
            Common
      Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
      August 28, 2006,4.121
            Callable
      Secured Convertible Note issued to AJW Offshore, Ltd., dated May 11,
      2007, filed as an exhibit to the Current Report on Form 8-K filed with the
      Commission on June 19, 2007  and incorporated herein by
      reference.4.122
            Stock
      Purchase Warrant issued to AJW Offshore, Ltd., dated May 11, 2007, filed
      as an exhibit to the Current Report on Form 8-K filed with the Commission
      on June 19, 2007  and incorporated herein by
      reference.4.123
            Callable
      Secured Convertible Note issued to AJW Partners, LLC, dated June 13,
      2007,filed as an
      exhibit to the Current Report on Form 8-K filed with the Commission on
      June 19, 2007  and incorporated herein by
    reference.4.124
            Callable
      Secured Convertible Note issued to AJW Master Fund, Ltd., dated June
      13, 2007., filed as an exhibit to the Current Report on Form 8-K filed
      with the Commission on June 19, 2007  and incorporated herein by
      reference.4.125
            Callable
      Secured Convertible Note issued to New Millennium Capital
      Partners II, LLC, dated June 13, 2007, filed as an exhibit to the
      Current Report on Form 8-K filed with the Commission on June 19,
      2007  and incorporated herein by reference.4.126
            Stock
      Purchase Warrant issued to AJW Partners, LLC, dated June 13, 2007, filed
      as an exhibit to the Current Report on Form 8-K filed with the Commission
      on June 19, 2007  and incorporated herein by
      reference.4.127
            Stock
      Purchase Warrant issued to AJW Master Fund, Ltd., dated June 13, 2007,
      filed as an exhibit to the Current Report on Form 8-K filed with the
      Commission on June 19, 2007  and incorporated herein by
      reference.4.128
            Stock
      Purchase Warrant issued to New Millennium Capital Partners, LLC,
      dated June 13, 2007, filed as an exhibit to the Current Report on
      Form 8-K filed with the Commission on June 19, 2007  and
      incorporated herein by reference.4.129
            Callable
      Secured Convertible Note issued to AJW Partners, LLC, dated August
      30, 2007, filed as an exhibit to the Current Report on Form 8-K filed with
      the Commission on September 6, 2007  and incorporated herein by
      reference.4.130
            Callable
      Secured Convertible Note issued to AJW Master Fund, Ltd., dated
      August 30, 2007, filed as an exhibit to the Current Report on Form 8-K
      filed with the Commission on September 6, 2007  and incorporated
      herein by reference.4.131
            Callable
      Secured Convertible Note issued to New Millennium Capital PartnersII,
      LLC, dated August 30, 2007, filed as an exhibit to the Current Report on
      Form 8-K filed with the Commission on September 6, 2007  and
      incorporated herein by reference.4.132
            Stock
      Purchase Warrant issued to AJW Partners, LLC, dated August 30, 2007, filed
      as an exhibit to the Current Report on Form 8-K filed with the Commission
      on September 6, 2007  and incorporated herein by
      reference.4.133
            Stock
      Purchase Warrant issued to AJW Master Fund, Ltd., dated August 30,2007,
      filed as an exhibit to the Current Report on Form 8-K filed with the
      Commission on September 6, 2007  and incorporated herein by
      reference.4.134
            Stock
      Purchase Warrant issued to New Millennium Capital Partners II, LLC,dated
      August 30, 2007, filed as an exhibit to the Current Report on Form 8-K
      filed with the Commission on September 6, 2007  and incorporated
      herein by reference.10.1
            Indemnification
      Agreement with Edward E. Litwak, filed as an exhibit to the registration
      statement on Form 10-SB filed with the Commission on March 20, 2001 and
      incorporated herein by reference.10.2
            Indemnification
      Agreement with Don Parson, filed as an exhibit to the registration
      statement on Form 10-SB filed with the Commission on March 20, 2001 and
      incorporated herein by reference.10.3
            Indemnification
      Agreement with Michael Riley, filed as an exhibit to the annual report on
      Form 10-KSB filed with the Commission on May 11, 2004 and incorporated
      herein by reference.10.4
            Employment
      Agreement with Ed Litwak, filed as an exhibit to the annual report on Form
      10-KSB filed with the Commission on May 11, 2004 and incorporated herein
      by reference.10.5
            Asset
      Purchase Agreement, dated as of December 22, 2005, by and between
      Pacificap Entertainment Holidngs, Inc. and Collectible Concepts Group,
      Inc., filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on January 31, 2006 and incorporated herein by
      reference.






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10.6
            Separation,
      Release and Consulting Agreement by and between Pacificap Entertainment
      Holdings, Inc. and Ed Litwak, dated January 19, 2007., filed as an exhibit
      to the Current Report on Form 8-K filed with the Commission on January 31,
      2007  and incorporated herein by reference.10.7
            Securities
      Purchase Agreement dated May 11, 2007 by and among the Company AJW
      Offshore, Ltd., filed as an exhibit to the Current Report on Form 8-K
      filed with the Commission on June 19, 2007  and incorporated
      herein by reference.10.8
            Registration
      Rights Agreement dated May 11, 2007 by and among the Company and AJW
      Offshore, Ltd., filed as an exhibit to the Current Report on Form 8-K
      filed with the Commission on June 19, 2007  and incorporated
      herein by reference.10.9
            Securities
      Purchase Agreement, dated June 13, 2007, by and among the Company, AJW
      Partners, LLC, AJW Master Fund, Ltd., and New Millennium Capital Partners,
      LLC, filed as an exhibit to the Current Report on Form 8-K filed with the
      Commission on June 19, 2007  and incorporated herein by
      reference.10.10
            Registration
      Rights Agreement dated June 13, 2007, by and among the Company, AJW
      Partners, LLC, AJW Master Fund, Ltd., and New Millennium Capital Partners,
      LLC, filed as an exhibit to the Current Report on Form 8-K filed with the
      Commission on June 19, 2007  and incorporated herein by
      reference.10.11
            Asset
      Purchase Agreement, dated as of August 7, 2007, by and between the Company
      and The Motion Picture Group, Inc., filed as an exhibit to the Current
      Report on Form 8-K filed with the Commission on August 9,
      2007  and incorporated herein by reference.10.12
            Securities
      Purchase Agreement dated August 30, 2007 by and among the Company AJW
      Offshore, Ltd., filed as an exhibit to the Current Report on Form 8-K
      filed with the Commission on September 6, 2007  and incorporated
      herein by reference.10.13
            Registration
      Rights Agreement dated August 30, 2007 by and among the Company and AJW
      Offshore, Ltd., filed as an exhibit to the Current Report on Form 8-K
      filed with the Commission on September 6, 2007  and incorporated
      herein by reference.14.1
            Code
      of Ethics, filed as an exhibit to the annual report on Form 10-KSB filed
      with the Commission on May 11, 2004 and incorporated herein by
      reference.31
            Certification
      of principal executive officer and principal financial officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.  (Filed
      herewith)32
            Certification
      of principal executive officer and principal financial officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
      herewith)







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ITEM
      14.
            PRINCIPAL ACCOUNTANT FEES AND
  SERVICES





Audit
Fees





The
aggregate fees billed for professional services rendered by RBSM LLP for the
audit of the registrant's annual financial statements and review of the
financial statements included in the registrant's Form 10-QSB or services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for fiscal years 2007 and 2006 were $68,612
and $75,473, respectively.





Audit-Related
Fees





None.





Tax
Fees





None.





All
Other Fees





None.





Policy
On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services Of
Independent Auditors





We
currently do not have a designated Audit Committee, and accordingly, our Board
of Directors' policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to
periodically report to our Board of Directors regarding the extent of services
provided by the independent auditors in accordance with this pre-approval, and
the fees for the services performed to date. The Board of Directors may also
pre-approve particular services on a case-by-case basis.






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SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on our behalf by
the undersigned, thereunto duly authorized.








PACIFICAP
      ENTERTAINMENT HOLDINGS, INC.Dated:
      November 10 , 2008
            By:
            /s/
      MARK SCHAFTLEINMark
      SchaftleinPresident
      (Principal Executive Officer), Director, Principal Financial Officer,
      Principal Accounting Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





SIGNATURE
            TITLE
            DATE/s/
      MARK SCHAFTLEIN
            
            President
      (Principal Executive
            November
      10, 2008Mark
      Schaftlein
            Officer),
      Director, Principal FinancialOfficer
      and Principal Accounting Officer