UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004
                                             -----------------

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                        Commission file number 333-70526

                               Mac Filmworks, Inc.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

            Delaware                                       74-2820999
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)


9464 Mansfield Road, Suite A-1, Shreveport, Louisiana         71118
--------------------------------------------------------------------------------
      (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (318) 687-8785

        Securities registered pursuant to Section 12(b) of the Act: None

    Securities registered pursuant to Section 12(g) of the Act: Common Stock

         Check 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. Yes |X| No |_|

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB. |_|

         Issuer's revenues for the fiscal year ended December 31, 2004: $0.

         The aggregate  market value of the voting and non-voting  common equity
held by non-affiliates of the Issuer as of March 31, 2005, was zero based on the
shares of common stock not being publicly traded.

         The Registrant's common stock outstanding as of December  31, 2004,
was 10,754,658 shares

         Documents incorporated by reference:  none.

--------------------------------------------------------------------------------

         Transitional Small Business Disclosure Format (Check One):
         Yes |_| No |X|

<PAGE>

                               Mac Filmworks, Inc.



                                      INDEX
                                                                        Page No.
                                                                        --------

Part I    Item 1.   Description of Business                                 3
          Item 2.   Description of Property                                13
          Item 3.   Legal Proceedings                                      13
          Item 4.   Submission of Matters to a Vote of Security
                      Holders                                              13

Part II   Item 5.   Market for Registrant's Common Equity and
                      Related Stockholder Matters                          13
          Item 6.   Management's Discussion and Analysis                   14
          Item 7.   Financial Statements                                   19
          Item 8.   Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure               32
          Item 8A.  Controls and Procedures                                32
          Item 8B.  Other Information                                      32

Part III  Item 9.   Directors and Executive Officers of the
                      Registrant                                           34
          Item 10.  Executive Compensation
          Item 11.  Security Ownership of Certain Beneficial Owners and
                      Management and Related Stockholder Matters           34
          Item 12.  Certain Relationships and Related Transactions         35
          Item 13.  Exhibits                                               36
          Item 14.  Principal Accountant Fees and Services                 36



                                       2
<PAGE>

FORWARD LOOKING STATEMENT

     The  statements   contained  in  this  report,  other  than  statements  of
historical fact, constitute forward-looking statements. Such statements include,
without limitation, all statements as to expectation or belief and statements as
to our future  results of  operations,  the progress of our research and product
development  programs,  the need for,  and timing  of,  additional  capital  and
capital expenditures, partnering prospects, the need for additional intellectual
property rights, effects of regulations,  the need for additional facilities and
potential  market  opportunities.  Our actual results may vary  materially  from
those contained in such forward-looking  statements because of risks to which we
are  subject,  such as failure to obtain a  corporate  partner  or  partners  to
support the development of our stem cell programs,  our ability to sell,  assign
or sublease  our interest in our  facilities  related to our  encapsulated  cell
technology  program,  risks of  delays in  research,  development  and  clinical
testing  programs,  obsolescence of our technology,  lack of available  funding,
competition from third parties,  intellectual  property rights of third parties,
failure of our collaborators to perform, regulatory constraints,  litigation and
other risks to which we are subject.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

Organizational History and Background

     We are a development  stage company with a limited  operating  history.  We
were  organized  as a Delaware  corporation  in September  1997,  under the name
Keystone Entertainment,  Inc., as a wholly-owned subsidiary of G/O International
Inc.,  a publicly  held  Colorado  corporation.  In October  1997,  we entered a
reorganization   agreement  with  Mac  Filmworks,   Inc.,  a  Texas  corporation
("Company"),  which  was  formed  in  November  1994  to  acquire,  license  and
distribute classic films,  television serials,  children's programming and other
film  products.  Through the  reorganization  we acquired  all of the issued and
outstanding common stock of Mac Filmworks-Texas in exchange for 4,747,680 shares
of our common stock, or 77% of the outstanding shares.  Under the reorganization
agreement,  G/O  International  was  required to register  the  distribution  of
1,600,000 shares of Keystone common stock which it owned, to the shareholders of
G/O International.  In January 1998, we amended our certificate of incorporation
to change our name from Keystone Entertainment, Inc. to Mac Filmworks, Inc.

     In November  2000,  we amended  the  reorganization  agreement  between Mac
Filmworks-Texas,  Mac  Filmworks-Delaware  and  G/O  International  because  G/O
International had not registered the distribution of the 1,600,000  shares.  The
amendment to the reorganization agreement provided that G/O International agreed
to cancel any ownership rights in the 1,600,000 shares of Mac Filmworks-Delaware
common  stock it was  originally  issued,  and in return Mac  Filmworks-Delaware
released G/O  International  from its obligation to register the distribution of
the  1,600,000  shares of common stock and issued to G/O  International  160,000
shares of common stock. In July 2002, we entered into a licensing agreement with
UAV that allows UAV to  distribute  our film  "Creature  from Black Lake" on DVD
throughout the United States.  We have received a $20,000  advance for this sale
and will  receive a 20% royalty  based on the  wholesale  value of the DVD.  The
contract expired in September 2004.

     In November 2002, we entered into a license  agreement with Hong Kong Audio
Video Multimedia Publishing Co., Ltd. Under the agreement,  we have licensed the
broadcast  television,  home  video and  theatrical  distribution  rights to one
copyrighted film for a period of ten years for a fee of $7,500. In January 2003,
we delivered  the film to HKAVM and received a $750 deposit and the remainder of
the fee shall be paid upon the occurrence of certain conditions.

     On December 30, 2002,  we entered into a two-year  license  agreement  with
Passion  Music  Corp.  to wherein we have sold to Passion  Music Group up to 120
films. Under the agreement, Passion is permitted to make DVD masters of the tape
masters  delivered,  and is  required  to (1) pay $300 per title  (less fees and
allowances)  and (2) return a  duplicate  DVD master  ($700  value) and the tape
master we provided to Passion Music.  Under the agreement,  we delivered fifteen
(15) tape masters and received  $4,500 in cash,  DVD masters for each film,  and
the  return  of the tape  master.  In June  2003,  Passion  Music  Group and Mac
Filmworks mutually agreed to terminate the contract.

     On January 21, 2005, we filed our seventh amended registration statement on
Form SB-2,  which  registered  250,000  units  consisting of one share of common
stock and seven redeemable warrants, each to purchase one share of common stock.
Our  registration  statement  was declared  "effective"  by the  Securities  and
Exchange  Commission  ("SEC") on  February  7,  2005.  As a result of filing our
registration  statement,  we are obligated to file with the SEC certain  interim
and periodic reports  including an annual report  containing  audited  financial
statements.   We  anticipate  that  we  will  continue  to  file  such  reports,
notwithstanding  the fact that,  in the future,  we may otherwise be required to
file such reports  based on the criteria  set forth under  Section  12(g) of the
Exchange Act.


                                       3
<PAGE>

     We are  offering  units  consisting  of one share of common stock and seven
redeemable  warrants,  each to  purchase  one share of common  stock,  on a best
efforts  minimum/maximum  basis  with a minimum  offering  of  100,000  units or
$100,000,  and a maximum offering of 250,000 units or $250,000. We have retained
One Financial Securities, Ltd. to assist us in offering and selling the units.

     The units,  common  shares,  and warrants are not  currently  traded on any
exchange, Nasdaq or on the OTC Bulletin Board. We intend to apply for listing of
the common shares on the OTC Bulletin Board.

     On March 18, 2005, we entered into an asset  purchase  agreement with Amity
Entertainment,  Inc.  pursuant to which they agreed to  purchase  the  Company's
right,  title and interest in 98 films. In consideration  for the film purchase,
Amity has agreed to pay up to $1,850,000. The closing date is April 30, 2005.

     Our principal executive office is located at 464 Mansfield Road, Suite A-1,
Shreveport, Louisiana 71118, and our telephone number is (318) 687-8785.

Overview

     We are a start-up entertainment company that will engage in the development
of our existing and to-be-acquired nostalgic content entertainment library of:

        o  full length motion pictures or feature films;
        o  television series;
        o  made-for television movies;
        o  animation for children's films; and
        o  cartoons.

     Initially,   we  intend  to  market  and  distribute  our  library  through
traditional   distribution  channels,  which  include  network  and  independent
televisions stations,  cable and satellite, pay television and home video in the
domestic and international markets,  including videocassette and DVDs. If we are
able to generate significant revenues or raise additional capital in the future,
we intend to market and distribute our library  directly to sellers  through the
Internet.

     We currently own  approximately  996 films, of which 93 are copyrighted and
903 are public domain titles. In addition, we currently have options to purchase
approximately an additional 70 films, of which 62 are copyrighted. Our films and
the films under option,  include a wide variety of genres,  including  westerns,
family,  horror,  action,  drama,  and comedy.  The film libraries and number of
films purchased for the libraries acquired are as follows:

Film Library                               Number of Films
Delta Equities                             132

Durbin Entertainment                       100

McCullough Productions                     1
                                           (copyrighted)

RAMM I                                     175

RAMM II                                    96
Saturn Productions                         300

Western International, Inc. (Cinevid)      92
                                           (92 copyrighted)

Western International, Inc.                100
Total Films/Properties............         996


                                       4
<PAGE>

   A summary of our sole purchase option is as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                                                              Number of Optioned
                                    Number of Films                                           Films Exercised as of
Film Library                        Optioned              Exercise Price of Option            January 1, 2005

-------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                   <C>                                 <C>
Saturn Productions                  70                    o $10,000;                          None
                                    (62 copyrighted)      o 100,000 shares of common
                                                            stock; and
                                                          o promissory note in the
                                                            principal amount of
                                                            $5,000 due in August
                                                            2005.
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

     We believe that distributors and  broadcast-television  and cable companies
will be attracted to both our  copyrighted  and public  domain  properties  as a
realistic means to provide programming without the risks of failure from the new
production of television shows or movies.  We intend to market our properties to
broadcasters and cable operators on mutually attractive barter syndication terms
or at competitive licensing rates.

Our entertainment library

     We will own masters,  or films and videotapes suitable to be transferred to
a master,  to all of our properties.  Approximately 130 properties are stored at
our facilities in Shreveport.  Approximately  192 properties are being stored by
Sure Save Self Storage in Palm Desert,  California for a monthly  storage fee of
$50. The remainder of our film and  television  properties  are currently  being
held by their  previous  owners until we specify a delivery date and location or
otherwise exercise our option.

     We have included in our description of our film properties  below, a sample
of the  titles  we  own.  Our  library  contains  titles  from  numerous  genres
including:

        o   film noir;
        o   classics;
        o   cult movies;
        o   martial arts;
        o   comedies;
        o   family and children's films; and
        o   television programs.

     Some of our most popular film properties which we own include:

        o   Abraham Lincoln (1930) (public domain or "PD");
        o   At War with the Army (1950 PD) (Dean Martin, Jerry Lewis);
        o   Conflict (1978 copyright) (Martin Sheen);
        o   How Awful about Allan (1970 copyright) (Anthony Perkins, Julie
            Harris);
        o   Line of Fire (1969 copyright) (Robert DeNiro);
        o   Paco (1975 copyright) (Jose Ferrer);
        o   Planet of the Dinosaurs (1980 PD); and
        o   Vengeance Valley (1951 PD) (Burt Lancaster).

     Some of the films in the Durbin Entertainment library, in which we have the
right to select 70 titles, all of which are public domain, include:

        o   Classics  such as His Girl  Friday  with Cary  Grant and  Rosalind
            Russel, Alfred Hitchcock's The 39 Steps, The Man Who Knew Too Much
            (1934), and seventeen other feature films by Alfred Hitchcock.

        o   Cult movies such as The Night of the Living Dead,  The Little Shop
            of Horrors with Jack Nicholson (1960), and Tunnelvision.


                                       5
<PAGE>

        o   Exploitation  movies like TNT  Jackson,  CC and  Company  with Joe
            Namath and Ann Margaret, and Dance Hall Racket with Lenny Bruce.

        o   Westerns feature films starring the following actors: John Wayne
            (12 films), Roy Rogers (55 films), Hopalong Cassidy (23 films),
            Zane Gray (13 films), among others.

     Some of the most popular television  properties in the Durbin Entertainment
library, in which we may select an additional 70 titles, all of which are public
domain titles, and the number of episodes available in each series,  include the
following:

        o   The Adventures of Robin Hood (80)
        o   The Adventures of Ozzie & Harriet (90)
        o   The Andy Griffith Show (13)
        o   Beverly Hillbillies (55)
        o   Bonanza (31)
        o   George Burns & Gracie Allen (12)
        o   The Cisco Kid (35)
        o   The Danny Thomas Show (13)
        o   The Dick Van Dyke Show (6)
        o   Dragnet (28)
        o   The Jack Benny Show (20)
        o   The Lone Ranger (17)
        o   The Milton Berle Show (10)
        o   You Bet Your Life  (12)

     Our film  library  will be  reduced by 98 films  should the Amity  purchase
successfully close.

Industry Background

     Both  the  motion  picture  and  television  industries  are made up of two
principal  activities:  production  and  distribution.  Production  involves the
development,  financing and  production  of  feature-length  motion  pictures or
television  series.  We plan to concentrate on the distribution and marketing of
our current film and television library and any future properties we acquire.

Film Distribution

     Films are generally  licensed for network  broadcast  and local  television
stations  following  distribution  to theaters,  home video and pay  television.
Licensing of feature  films to commercial  television is generally  accomplished
subject to agreements  that allow a fixed number of telecasts  over a prescribed
period of time for a specified  license fee. Typical U.S. network licenses cover
a six-year or seven-year period and can provide for exclusive  exhibition on the
network.  Licensing  to the  major  commercial  network  affiliates  and  direct
licensing  to local,  domestic and foreign  television  stations can be a steady
source of programming revenues.

Television Distribution.

     The U.S.  television  market  is  served by  network  affiliated  stations,
independent  stations  and cable  systems,  although  the number of  independent
stations  has  decreased  as many  formerly  independent  stations  have  become
affiliated with new networks in recent years.  During prime time hours,  network
affiliates  primarily  broadcast   programming  produced  for  the  network.  In
non-prime time, network affiliates telecast:

        o   network programming;
        o   off-network programming;
        o   first-run programming--programming produced for distribution on a
            syndicated basis; and
        o   programming produced by the local stations themselves.

     Independent  television stations and cable networks,  during both prime and
non-prime time, produce their own programs and telecast  off-network programs or
first-run   programs   acquired  from  independent   producers  or  syndicators.
Syndicators generally are companies that sell to independent television stations
and network  affiliates  programming  produced or acquired by the syndicator for
distribution.


                                       6
<PAGE>

     Another key element to the  distribution of film and television  properties
in the television  industry is the barter of select titles with the broadcast or
cable operator. The market for barter syndication exists because of the need for
programming  and  the  operator  may  find  it  more  palatable  to  barter  its
advertisement  slots to obtain such programs.

Business Strategy

     Our mission is to become a global provider of nostalgic film and television
entertainment to network and independent  stations,  cable and satellite systems
and directly to consumers through the Internet and on-demand ordering.

     Distribution and marketing of our films

     Our library currently consists of over 996 film and television  properties.
Additionally,  we have the right to purchase 70 film and television  properties,
of which we intend to exercise this option upon the completion of this offering.
We intend  to  market  and  distribute  these  properties  through  home  video,
broadcast direct response  television,  and barter  syndication to over-the-air,
cable and  independent  television  stations.  We intend to  operate  similar to
conventional  distributors,  however,  we will own the properties in our library
(including  public domain film masters) as opposed to many distributors who only
have the right to sell the property  with a percentage  of the revenue  going to
the owner.


                                       7
<PAGE>

     We intend to utilize our library for the home video  distribution  business
with a focus on the direct and retail sell-through  markets.  Products we intend
to market for consumer  purchase  will  primarily  consist of select titles from
library  on  videocassettes  and  DVDs.  Typical  suggested  retail  prices  for
videocassettes  to be marketed as  sell-through  will range from $5.99 to $19.95
per program.  Suggested retail prices on DVDs may range from $6.99 to $29.98 per
program.

     Licensing of our films

     We intend to market and license  our  library in domestic  markets to major
network and independent  television stations,  satellite networks,  pay-per-view
and  cable  system   operators.   We  intend  to  outsource  all   international
distribution and marketing of our library.

     We  intend  to enter  license  agreements  with  customers  that  grant the
customer a license  to either  (1)  exhibit  or  distribute  a specific  film or
television  program for a specified  term,  territory and medium,  or (2) in the
case of a license to a pay television channel or a broadcast or cable television
operator,  the  right to  exhibit  the  property  a  specified  number of times.
Typically, upon the execution of a license agreement, we would deliver a copy of
a sub-master of the film or television program.

     In  consideration  for the  granting of the  license to a specific  film or
television  program  to  retail  or  wholesale  distributors  or a  pay-per-view
television  exhibitors,  we will  receive a fee which  will be a  percentage  of
revenues from the licensee's  distribution or exhibition of the property and may
include an advance of the fee which is then recoupable from what otherwise would
have been  payable to Mac  Filmworks.  The fee will range from 10% to 20% of the
revenues  the licensee  generates,  which may range from  approximately  $100 to
several  thousand  dollars,  depending upon several  factors,  including but not
limited to the film's  genre,  cast,  commercial  success  and  popularity,  and
whether the film is copyrighted or a public domain title.

     In the case of a  license  we grant  directly  to a  broadcast  network  or
station or pay or basic cable television operator, we plan to charge a licensing
fee that will vary in range from  several  hundred  dollars to several  thousand
dollars.  The fee will vary depending on the title, the number of times the film
may be  broadcast,  whether it is being  licensed to a network,  independent  or
cable television station, and when it will broadcast. In cases where the network
or station offers barter arrangements, we may accept advertising time during the
broadcast of the film that has been  licensed  instead of a cash license fee. If
we accept a barter arrangement,  we may then sell that time to advertisers or we
will use it to promote and advertise our products.

Marketing Strategy

     Home video market

     We intend to  distribute  DVDs and  videocassettes  of feature films to the
domestic  home  video  rental  market  primarily  by selling  them to  wholesale
distributors,  who then sell the videocassettes and DVDs to rental outlets, such
as video rental chains,  individual video rental stores,  and  supermarkets.  We
have not begun the process of transferring  films from our video masters to DVDs
or  videocassettes,  nor have we  contacted  companies  with  whom we  intend to
outsource such reproduction. We have not contacted any wholesale distributors or
other companies which we hope to eventually sell and distribute our products.

     We believe that the  packaging  and art work for the video boxes,  posters,
advertisements  and other selling materials  relating to the films we distribute
to the United States home video rental and sell-through  markets are key factors
in  determining  the amount of sales.  We plan to be involved with the design of
the  promotional  campaign for all properties we release.  While some of the art
works for  packaging,  advertisements,  trade show  displays  and posters may be
created  in-house,  we plan to commission  outside  parties to assist in the art
work for these materials.  We then plan to arrange for the printing,  production
and  distribution of all promotional  materials.  Although we have contacts with
such companies, we have not contacted any advertising companies to design and/or
produce our promotional materials, nor have we begun the design or production of
any promotional materials that we may intend to complete in-house.


                                       8
<PAGE>

     We intend to market films and television  programs directly to consumers by
the following means:

        o   selling to distributors and rack-jobbers who then sell the  products
            to large retail outlets, convenience stores, or mass merchants;
        o   direct  response  advertisements  appearing as  trailers on our home
            videocassettes and at the end of broadcasts of some of our programs;
            and
        o   direct response  advertisements  appearing as trailers on our home
            videocassettes and at the end of broadcasts of some of our programs;
            and
        o   sales  to specialty  retail outlets such as  governmental  agencies,
            gift stores,  libraries,  museums, Radio  Shack,  The Sharper Image,
            General Nutrition Centers, and Home Depot.

     In  addition,  we intend to market our  properties  directly  to  consumers
through their  inclusion in catalogs  produced by Mac  Filmworks and others.  We
have not created a catalog of our films,  nor have we contacted  other companies
for the inclusion of our films in their catalogs.  We intend to use a portion of
the proceeds from this offering to fund various  marketing  expenses,  including
but not limited to the transfer of films to DVD and videocassette and the design
and production of marketing and promotional materials and catalogs.

     Broadcast and cable television

     In connection with our  distribution  and licensing of films and television
programming to the United States  television  market, we intend to emphasize the
development, marketing and distribution of our films in the pay, basic cable and
over-the-air  broadcasting  markets.  We intend to  implement  this  strategy by
concentrating   our  resources  on  developing  a  strong  market  presence  and
relationship with local independent  stations that serve small to middle markets
and whose bulk of  advertising  revenues  are  generated  from local or regional
advertisers.  We intend to enter into license  agreements with exhibitors,  such
as,  television  networks,  television  stations and cable and satellite systems
operators, as well as sub-distributors. We intend to outsource all international
distribution, if any.

     We have not begun to develop,  market or distribute  any of our products to
broadcast or cable  television  markets,  nor have we contacted  any networks or
exhibitors, or licensed any of our products.

Competition

     In marketing  films and television  programs,  we compete against the major
studios, such as AOL Time Warner, The Walt Disney Company, MCA, Paramount,  Fox,
and  Sony/Columbia,  as well  as  smaller  distribution  companies  owning  film
catalogs/libraries  or  syndicated  television  programs.  Since we will  expend
significantly  less on product  acquisitions  than many of these  competitors we
believe we can produce profits from even modest sales volume.

     As a company that acts  primarily as its own  distributor,  we compete with
other  distributors for wholesalers,  retailers and consumers and for home video
rights with  products  they do not  produce.  This  competition,  in the case of
distribution,  is influenced by box office success,  advertising,  publicity and
other factors.

Employees

     We currently  have two employees,  one of which is part-time.  No employees
are covered by a collective bargaining agreement. Management considers relations
with its employees to be satisfactory.

Facilities

     We sublease the facilities  located at 9464 Mansfield  Road,  Suite A-1 and
Suite C, Shreveport,  Louisiana,  which consists of  approximately  1,726 square
feet, from Jim McCullough  Productions,  a sole  proprietorship.  We believe our
lease rates to be  competitive  in the market.  At the present time, we consider
this space to be adequate to meet our needs.

Legal Proceedings

     As of the date of this prospectus,  there are no legal proceedings  pending
or, to our knowledge, threatened against us or to which we are a party.

                                       9
<PAGE>

Copyrights

     Of the  996  films  we have  purchased,  93,  or 9%,  are  under  copyright
protection.  Of the approximately 1,600 films and over 100 television serials in
a particular  library in which we have the right to select 70 additional titles,
none are under copyright protection.  Of the 70 films under option, 62 films are
under  copyright  protection.  We intend to renew all copyrights in which we are
able.

     Those  films not under  copyright  protection  have  fallen into the public
domain. A film enters the public domain when (1) the initial  copyright  expired
without  renewal  for a second  term,  or both  terms  have  expired  or (2) the
copyright notice was defective or missing from the work and no efforts were made
to cure the  omission.  In  connection  with our films that have fallen into the
public domain, we do not have copyright protection.  However, new copyrights can
be granted to public domain properties if certain  modifications are made to the
film, including changing the musical score, color, new openings.

     In connection  with the public  domain  properties we own, we are unable to
assert our exclusive  right to license or distribute  the films and we will have
no recourse against others who also own the public domain properties.

Risk Factors

     The  following  factors  affect our  business  and the industry in which it
operates.  The risks and uncertainties  described below are not the only ones we
face.  Additional  risks  and  uncertainties  not  presently  known  or  that we
currently  consider  immaterial may also have an adverse effect on our business.
If any of the matters discussed in the following risk factors were to occur, our
business,  financial condition,  results of operations, cash flows, or prospects
could be materially adversely affected.

     You will have to make your  investment  decision on this limited  operating
history, which may not be representative of our future operations.

     We were  incorporated  in November 1994.  Since inception we have conducted
minimal operations. Thus, we have a limited operating history for you to analyze
or to aid you in  making  an  informed  judgment  concerning  the  merits  of an
investment  in our  securities.  We may  not be able  to  successfully  generate
revenues,  operate  profitably,  or make any distributions to the holders of our
securities.  Any investment in our  securities  should be considered a high risk
investment  because you will be placing funds at risk in an unseasoned  start-up
company with unforeseen costs, expenses, competition and other problems to which
start-up ventures are often subject.

     We will be dependent on our ability to raise additional  capital. If we are
unable  to  raise  additional  capital,  we will  not be  able  to  fund  future
operations and may have to cease operations.

     To execute our business strategy, we require more capital than we currently
have or that we may raise through this offering. As of December 31, 2004, we had
cash reserves of approximately $158 and have generated nominal revenues.  We can
provide no assurance  that we will be able to generate  revenues  sufficient  to
fund operations. With limited cash reserves and nominal revenues, we have had to
limit our operations to maintaining our office and films and attempting to raise
additional capital.

     We  believe we will need a minimum of  approximately  $75,000  per month to
market and  distribute our films,  make  principal and interest  payments on our
outstanding  debts and to fund general  working capital  expenses.  Because this
amount is  significantly  more  than we are  attempting  to raise in our  public
offering  and  because  we  may  not  close  on  the  sale  of  films  to  Amity
Entertainment,  we  initially  intend  to limit  our  operations  to  marketing,
distributing,  and licensing select titles from our library which we believe are
our most marketable films.

     As of December 31, 2004, we had cash reserves of $158 and a working capital
deficit of  $1,244,528.  As of the date hereof,  we are unable to fund marketing
and working capital  expenses to operate our business.  Without internal sources
of  financing  generated  through  operations,  we are  forced to seek  external
sources of financing  and/or sell our assets.  There is no assurance  that funds
through  other  sources of  financing  will be  available  or,  even if they are
available,  that they will be available on terms that will be  acceptable to us.
If we are unable to raise additional  funds, we may have to limit our operations
to an extent not presently determinable by management, but which may include the
sale of any assets owned or our ceasing to conduct business.

                                       10
<PAGE>

     We have issued promissory notes with payments due in August 2005 and August
2006. We have not created a sinking fund for the  repayment of those notes,  and
if we are unable to generate  significant revenues or raise additional proceeds,
we will  likely  default  on the  payment  of the notes and lose our rights to a
significant number of films in our library.

     In August and September 1997, we issued five promissory notes in connection
with the  purchase of our film  libraries  for  aggregate  principal  balance of
$544,500. As of December 31, 2004, we will owe $859,952 in principal and accrued
interest.  We have not created a sinking fund for the  repayment of these notes.
We have made minimal payments on the notes in order to extend the maturity dates
of the notes.  We are  required to make  principal  payments  of  $441,940  plus
accrued  interest in August 2005 and $271,000  plus  accrued  interest in August
2006.

     Furthermore,  as of December 31, 2004,  we have not generated any revenues.
If we are unable to generate  substantial  revenues or raise additional capital,
we will be unable to make payments due in August 2005. We do not believe that we
will be able to  generate  sufficient  cash flows to repay the notes  within the
next twelve months and will be required to raise additional capital.

     If we are unable to make the payments due in August 2005 or to negotiate an
extension  to the  maturity  date of each of the notes,  we will  default on the
notes and we will lose our  rights  to 896 of the 996 films in our  library.  In
addition,  we may be  required  to cease  operations  and/or file for Chapter 11
bankruptcy protection.  Although we are legally obligated to make payment on the
notes, there is no assurance that we will be financially able to do so.

     We depend on the  services of Jim  McCullough  and the loss of his services
could have a material adverse effect on our ability to continue operations.

     Our success is dependent  upon,  among other  things,  the  experience  and
abilities  of Jim  McCullough,  Sr. Mr.  McCullough  has  extensive  experience,
business  contacts,  and  knowledge  of the  film  production  and  distribution
industry.  Mr.  McCullough  is our  chairman,  chief  executive  officer,  chief
accounting  officer  and is solely  responsible  for our  sales,  marketing  and
product  development.  Mr.  McCullough  is currently 76 years of age. In January
2001, we entered into a three-year  employment agreement with Mr McCullough.  In
January 2004, we renewed the employment  agreement  under the same terms.  We do
not maintain  key-man life insurance on Mr.  McCullough's  life. The loss of Mr.
McCullough's services for any reason could have a material adverse effect on our
ability to continue operations.

     Members of our  management  team may have  conflicts  of interest  with Mac
Filmworks.  If Mr.  McCullough  does not  disclose a conflict of interest to Mac
Filmworks and a business opportunity is taken from us, our business may suffer.

     Our  strategy to  distribute  and market our  entertainment  libraries  and
acquire  additional  film  libraries may raise  potential  conflicts of interest
between Mac  Filmworks  and our  president  and  chairman,  Jim  McCullough.  In
addition to being an officer and director of Mac Filmworks,  he is the president
and principal  shareholder of Triad Family Media,  Inc., a business  involved in
the licensing and distribution of motion picture films.

     From time to time,  Mr.  McCullough  may  become  aware of  investment  and
business opportunities and may be faced with the issue of whether to involve Mac
Filmworks in such a transaction.  Mr. McCullough may have conflicts in the event
that Triad  actively  seeks the  acquisition of properties and business that are
identical or similar to those that Mac Filmworks  might seek. If at any time Mac
Filmworks  and Triad are  simultaneously  seeking  business  opportunities,  Mr.
McCullough  may face the  conflict  of  whether to submit a  potential  business
acquisition to Mac Filmworks or to Triad.

     We have not  established  formal  guidelines  or  procedures  for resolving
potential  conflicts between Mac Filmworks and our management,  except to impose
an affirmative  obligation to disclose any conflicts to our shareholders and the
board  of  directors,  and to  contractually  limit  his  involvement  in  other
competitive businesses to no more than ten percent of his daily involvement. His
failure to resolve conflicts of interest in favor of Mac Filmworks may result in
his being liable to Mac Filmworks.

     We are in a  competitive  industry  with  several  companies  with  greater
financial  and  technical  resources,  which may affect our  ability to generate
revenue.

                                       11
<PAGE>

     We compete in a highly  competitive  industry which is dominated by several
large  media  companies,  such as AOL Time  Warner,  Walt  Disney  Company,  and
Sony/Columbia, among others. In addition, we will compete with many smaller film
and  television   distribution   companies  who  own  and/or   distribute  their
properties.  Both  our  larger  competitors  as  well  as  most  of the  smaller
competitors have significantly greater financial, technical, marketing and human
resources  than we do,  which will make it  difficult  for us to compete.  These
competitors are able to devote greater resources than we can to the development,
promotion and distribution  sale of their products and respond more quickly than
we can to new  technologies  or changes in customer  preferences.  Though we may
never be able to compete  with our largest  competitors,  our ability to compete
with  the  smaller  competitors  will  depend  on our  ability  to  quickly  and
efficiently  develop,  market and distribute  our products.  If we are unable to
effectively  execute this strategy,  we may have difficulty  generating  revenue
sufficient  to support our  operations  and creating and  establishing  a market
presence in our industry.

     Our  entertainment  library  may not  appeal to mass  audiences,  which may
negatively affect our ability to generate revenue.

     We  currently  own 93  copyrighted  films  and  903  public  domain  films,
made-for-television  movies,  animated features and cartoons in our library.  Of
the 996 titles in our library, approximately 70% were released prior to 1948.

     Dependence on our  entertainment  library  poses a significant  risk in the
event problems are encountered with respect to the audience tastes,  cost of the
product, or other competitive  products that reduce demand for our products.  We
can provide no assurance  successfully  instituting our marketing plan will lead
to market  acceptance.  If our films and television  properties do not appeal to
consumers'  tastes,  we may not  generate  sufficient  revenue to cover  related
expenses,  which may have a material  adverse effect on our business and on your
investment.

     If consumers spend less on entertainment-related goods and services, we may
have difficulty generating revenues or becoming profitable.

     Our  business  opportunities  are  directly  dependent  upon  the  level of
consumer spending on home entertainment  products and other related products,  a
discretionary  spending item. In addition,  our success depends upon a number of
factors  relating to consumer  spending,  including  future economic  conditions
affecting  disposable consumer income such as employment,  business  conditions,
interest rates, and tax rates.  Consumer  spending in general or spending in the
home entertainment  market in particular may decline,  which would likely have a
direct effect on our ability to generate revenue.

     Our  entertainment  library may be damaged or  destroyed if we or any other
company which maintains custody of portions of our library fail to properly care
for and preserve our properties.

     Film  negatives,  often referred to as masters,  must be properly cared for
and  stored  at the  appropriate  conditions.  Of the 996 films to which we have
title, approximately 130, or 13% of our films are at our facility in Shreveport.
The remaining  films are being cared for and are in the custody of the companies
from which we purchased the films.  These  companies have agreed to care for and
provide  adequate  storage  conditions  for our  films.  We do not have  general
liability  insurance  to cover the loss or damage on any of our  films,  whether
stored at our  facility  or at others'  facilities.  Any errors or  failures  to
properly  care  for  any of our  films  could  result  in the  loss,  damage  or
destruction to those properties, which may have a material adverse effect on our
operations.

     Our  ability  to  generate  revenues  on public  domain  properties  may be
adversely effected if third parties market and distribute these properties.

     Of the 996 properties we own, 93 properties are  copyrighted and 903 are in
the public domain. In addition, of the 70 films we have the option to acquire, 8
are public domain films and 62 films are  copyrighted.  A film enters the public
domain when (1) the initial copyright expires without renewal for a second term,
or both terms have expired or (2) the copyright  notice was defective or missing
from the work and no efforts were made to cure the omission.  It is possible and
likely that several of our public domain properties that we decide to market and
distribute  are either  currently  being  distributed  by or will  eventually be
distributed by third parties. Although we have valid title and own public domain
masters,  our ownership  rights as to these  properties will not be exclusive by
definition.

     In connection  with the public domain  properties we have title,  we do not
have  copyright  protection  and are  unable to assert  our  exclusive  right to
license or distribute these properties. While we may market, distribute and sell
the public  domain  titles in which we have title,  we will be unable to prevent
third parties from exploiting the same titles. If third parties are able to more
effectively  market any public  domain  titles,  we may not be able to  generate
revenues  sufficient  to make the  marketing  and  distribution  of those titles
profitable.

                                       12
<PAGE>

     Penny  stock  rules  could  make it hard to resell  your  shares and impose
significant restrictions on broker-dealers.

            The "penny stock" rules limit  trading of  securities  not traded on
NASDAQ or a recognized  stock  exchange,  or securities  which do not trade at a
price of $5.00 or higher, in that brokers making trades in those securities must
make a special  suitability  determination  for purchasers of the security,  and
obtain the purchaser's consent prior to sale. The application of these rules may
make it difficult for purchasers in this offering to resell their shares.

     If our common stock is not approved for listing on a trading  market or the
OTC  Bulletin  Board,  your  ability  to sell Mac  Filmworks  securities  may be
limited.

     Our common  stock does not meet the  listing  requirements  for any trading
market other than the OTC Bulletin Board. The OTC Bulletin Board may not approve
our listing.  Consequently,  the liquidity of our securities  could be impaired,
not only in the number of  securities  which could be bought and sold,  but also
through delays in the timing of  transactions,  reduction in security  analysts'
and the news  media's  coverage  of Mac  Filmworks,  and  lower  prices  for Mac
Filmworks' securities than might otherwise be attained.

Employees

     We currently  have two employees,  one of which is part-time.  No employees
are covered by a collective bargaining agreement. Management considers relations
with its employees to be satisfactory.

     The following table sets forth certain information  regarding the Company's
current directors and executive officers.


          Name            Age                  Position

Jim McCullough, Sr.....    76    Chairman, president, chief executive officer,
                                 chief financial officer, and chief accounting
                                 officer

Richard Mann...........    51    Director


ITEM 2.  DESCRIPTION OF PROPERTY

     Our principal executive offices are located located at 9464 Mansfield Road,
Suite A-1 and Suite C,  Shreveport,  Louisiana,  which consists of approximately
1,726 square feet. We lease these facilities from Jim McCullough Productions,  a
sole proprietorship. We believe our lease rates to be competitive in the market.
At the present time, we consider this space to be adequate to meet our needs.

     The lease provides that we pay Jim McCullough  Productions $1,000 per month
for office and warehouse space. Upon expiration of the lease, we intend to enter
a similar lease or rent the space on a month-to-month basis.

ITEM 3.  LEGAL PROCEEDINGS

     We are not currently a party to any material legal proceedings.

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

      No matters  were  submitted  to a vote of  shareholders  during the period
covered in this report.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

     At present,  our securities are not traded publicly.  There is no assurance
that a trading market will develop, or, if developed, that it will be sustained.
Our stockholders may, therefore, find it difficult to resell their securities.

                                       13
<PAGE>

     We are  currently  undertaking  a public  offering  of a maximum of 250,000
units at a price of $1.00 per unit, for an aggregate offering of up to $250,000,
excluding  commissions and offering related  expenses.  This public offering was
registered  with the SEC  pursuant  to a  registration  statement  on Form SB-2.
Subsequent to the year end, on February 7, 2005, our registration  statement was
declared  "effective"  by the SEC. The commission  file number  assigned to this
registration statement is 333-70526.

     We  commenced  our public  offering  in  February  2005.  The units will be
offered and sold through One Financial Securities,  Ltd., our managing placement
agent,  and through our officers and directors.  As of the date hereof,  we have
sold no units.

     We have  agreed  to pay a  placement  agent  fees of up to 13% of the gross
proceeds raised in the offering.

Holders of Record

     As of December 31, 2004, we had 172 shareholders of record.

Cash Dividends

     We have not  declared  dividends on our common stock in the last two fiscal
years or during  the  current  fiscal  year.  There are no  restrictions  on the
company's  ability  to pay cash  dividends,  other  than  state  law that may be
applicable;  those limit the ability to pay out all earnings as  dividends.  The
Board of Directors  does not,  however,  anticipate  paying any dividends in the
foreseeable future; it intends to retain the earnings that could be distributed,
if any, for the operations, expansion and development of its business.

Recent Sales of Unregistered Securities

     In October 2003, we issued 100,000 shares to Saturn  Productions as part of
the purchase  price for 70 films.  In July 2001, we issued  2,000,000  shares of
common  stock to three  consultants  for  services  rendered  and services to be
rendered.  In July  2001,  we  issued  100,000  shares  of  common  stock to one
accredited investor for $10,000 cash. In May 2001, we issued 1,000,000 shares of
common stock to our chief executive officer as a bonus for services rendered.

     In each of the transactions  described above, each investor acknowledged in
writing that they were an  accredited  investor,  as that term is defined in the
Securities Act.

     The above  transactions  were  completed  pursuant  to Section  4(2) of the
Securities  Act and did not  involve  any  public  offering  and were  sold to a
limited group of persons.  Each recipient either received  adequate  information
about the Company or had access,  through employment or other relationships,  to
such  information,  and the  Company  determined  that each  recipient  had such
knowledge and  experience in financial and business  matters that they were able
to evaluate the merits and risks of an investment in the Company.

     Except as otherwise noted, all sales of the Company's  securities were made
by officers of the Company who received no commission or other  remuneration for
the  solicitation  of any  person in  connection  with the  respective  sales of
securities  described  above.  The  recipients of securities  represented  their
intention to acquire the securities  for investment  only and not with a view to
or for sale in connection with any distribution  thereof and appropriate legends
were  affixed to the share  certificates  and other  instruments  issued in such
transactions.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

     The  following  discussion  of  our  financial  condition  and  results  of
operations  should  be read  in  conjunction  with  the  accompanying  financial
statements and the related footnotes thereto.

Overview

                                       14
<PAGE>

     We are an  entertainment  company and our business  strategy is to acquire,
license and distribute classic movies, TV serials and other film products. Since
our  inception on November 22, 1994,  we have  operated as a  development  stage
company.

Critical Accounting Policies

     General

     The Consolidated  Financial Statements and Notes to Consolidated  Financial
Statements contain information that is pertinent to this management's discussion
and  analysis.  The  preparation  of financial  statements  in  conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of any contingent  assets and liabilities.
Management  believes  these  accounting  policies  involve  judgment  due to the
sensitivity of the methods,  assumptions and estimates  necessary in determining
the related asset and liability  amounts.  Management  believes it has exercised
proper  judgment  in  determining   these  estimates  based  on  the  facts  and
circumstances  available to its  management at the time the estimates were made.
The  significant  accounting  policies are described in the Company's  financial
statements (See Note 1 in the Notes to Consolidated Financial Statements).

     Use of Estimates

     Preparing  financial  statements  requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.

     Cash

     Cash includes demand deposit bank accounts.  Mac Filmworks' policy for cash
and cash  equivalents  includes  any highly  liquid  investments  with  original
maturities of three months or less.

     Revenue Recognition

     We recognize  revenue in accordance  with Statement of Accounting  Position
00-2  "Accounting by Producers or Distributors of Films".  Revenue is recognized
from a sale or licensing  arrangement  of a film when  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 begins its  exploitation,  exhibition or
sale;  the  arrangement  fee is fixed or  determinable;  and  collection  of the
arrangement fee is reasonably assured.

     Property and Equipment

     Property  and  equipment  is valued at cost.  The  costs of  additions  and
betterments  are  capitalized and maintenance and repairs are charged to expense
as  incurred.  Gains and losses on  disposition  of equipment  are  reflected in
operations.

     Impairment of Long-Lived Assets

     Films are reviewed for impairment on a film-by-film  basis whenever  events
or changes in circumstances indicate that the historical  cost-carrying value of
each film may not be recoverable.  Mac Filmworks assesses  recoverability of the
carrying  value of each film by estimating the future net cash flows expected to
result from the film,  including  eventual  disposition.  If the future net cash
flows  are less  than the  carrying  value of the film,  an  impairment  loss is
recorded  equal to the  difference  between the film's  carrying  value and fair
value.  Other assets are reviewed  for  impairment  by asset group for which the
lowest level of  independent  cash flows can be  identified  and impaired in the
same manner as films.

     Basic and Diluted Net Loss Per Share

     Basic  and  diluted  net loss  per  share  calculations  are  presented  in
accordance with Financial Accounting Standards Statement 128, and are calculated
on the basis of the weighted average number of common shares  outstanding during
the year. They include the dilutive effect of common stock  equivalents in years
with net income. Basic and diluted loss per share is the same due to the absence
of common stock equivalents.

                                       15
<PAGE>

     Income Taxes

     Mac  Filmworks  recognizes  deferred  tax assets and  liabilities  based on
differences  between  the  financial  reporting  and tax  bases  of  assets  and
liabilities  using the  enacted  tax rates and laws that are  expected  to be in
effect when the differences are expected to be recovered. Mac Filmworks provides
a valuation  allowance  for  deferred  tax assets for which it does not consider
realization of such assets to be more likely than not.

     Recently Issued Accounting Pronouncements

     Mac Filmworks  does not expect the adoption of recently  issued  accounting
pronouncements  to  have a  significant  impact  on  Mac  Filmworks  results  of
operations, financial position or cash flow.


Plan of Operation

     Our  independent  auditors  have  indicated in a footnote to our  financial
statements  that we have not yet  established  revenues  sufficient to cover our
operating  costs and to allow us to continue as a going concern.  Our ability to
continue as a going  concern is dependent on us  obtaining  adequate  capital to
fund  operating  losses until we become  profitable.  If we are unable to obtain
adequate funding, we could be forced to cease operations.

     Since inception,  we have generated limited revenues.  Our sole revenue has
been derived from an option sold in June 2002 to distribute one of our films. We
have no revenues from the distribution of our properties  because we do not have
the capital necessary to prepare our films for distribution and market them. Our
operating  expenses were cut to a minimum  during 2001 due to our lack of funds.
We had to postpone stock registration,  marketing and distribution  efforts, and
extend existing debt obligations this past year because we have had limited cash
reserves.  Our  operating  expenses have risen and fallen based on our available
cash.  Our  future  level  of  operations  will  be  dependent  on  future  cash
availability.

     Since inception,  we have raised approximately $471,720 through the sale of
common  stock.  As of  December  31,  2004,  we had cash  reserves of $158 and a
working capital  deficit of  approximately  $1,244,528.  In order to develop our
business plan as intended,  we will require working capital in excess of what we
would  raise upon  completion  of the  public  offering,  assuming  we raise the
maximum amount.

     As of December 31, 2004, we owed approximately $859,952 on promissory notes
issued in connection with the purchase of our film libraries,  of which payments
are due in August 2005 and August  2006.  We have not set up a sinking  fund for
the  repayment of the notes.  As of December  31, 2004,  we had only cash in the
amount of $158 and no revenues. To pay the principal and accrued interest of the
notes,  we must raise capital through our public offering or the sale of certain
assets.  As of the date hereof,  we have not sold any of our  securities  in the
offering nor have we completed the sale of any of our assets. Unless we are able
to raise capital or extend the maturity  dates of the notes,  we will default on
note payments for our film libraries.  Our current commercial commitments are as
follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
      Commitment                 Description                                  Payments Due by Period
--------------------------------------------------------------------------------------------------------------------
                                                                 Through              Through             Through
                                                              Dec. 31, 2005        Dec. 31, 2006       Dec. 30, 2007
----------------------------------------------------------- ---------------------------------------------------------
<S>                   <C>                                    <C>                 <C>                       <C>
Employment Agreement  We have renewed a three-year
with Jim McCullough   employment agreement with Mr.
                      McCullough  which  provided  that
                      he will be paid an annual  salary          $520,000            $604,000               --
                      of $84,000. As of  December  31,
                      2004, we have accrued Mr. McCullough's
                      salary  in the  amount of  $520,000.
                      This agreement will expire in
                      January 2007.
--------------------------------------------------------------------------------------------------------------------
Promissory Notes      As of December 31, 2004,  we will
                      owe an  aggregate  of $859,952 in
                      principal  and  accrued  interest          $441,940            $466,327               --
                      on notes issued in  consideration      (due August 2005)    (due August 2006)
                      of   the    purchase    of   film
                      libraries.    These   notes   are
                      non-recourse   notes  and  if  we
                      default  on the  notes,  we  will
                      lose our rights to  approximately
                      896 of the 996 films.
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       16
<PAGE>

     The  Company  intends on funding  operations  through  external  sources of
financing  and/or selling of certain assets.  We are attempting to raise capital
through a public  offering of units  consisting  of  consisting  of one share of
common stock and seven redeemable warrants, each to purchase one share of common
stock at various exercise  prices,  on a best efforts basis with a minimum gross
offering of $100,000 and a maximum gross  offering of $250,000.  In the event we
are  successful,  we have committed to pay a placement agent of up to 13% of the
gross proceeds raised.  There is no guarantee and we give no assurance that this
offering will close. Additionally,  we have entered into an agreement with Amity
Entertainment  for the  purchase  of 98 of our films for a purchase  price up to
$1,850,000.  We are in the due diligence stage of this transaction,  and we give
no  assurance  that this  sale will  close.  As of the date  hereof,  we have no
arrangements  for  debt  financing  nor  do we  anticipate  entering  into  such
arrangements in the near future.

     We  believe we will need a minimum of  approximately  $75,000  per month to
market and  distribute our films,  make  principal and interest  payments on our
outstanding  debts and to fund general  working capital  expenses.  Because this
amount is  significantly  more  than we are  attempting  to raise in our  public
offering  and  because  we  may  not  close  on  the  sale  of  films  to  Amity
Entertainment,  we  initially  intend  to limit  our  operations  to  marketing,
distributing,  and licensing select titles from our library which we believe are
our most marketable films.

     As of December 31, 2004, we had cash reserves of $158 and a working capital
deficit of  $1,244,528.  As of the date hereof,  we are unable to fund marketing
and working capital  expenses to operate our business.  Without internal sources
of  financing  generated  through  operations,  we are  forced to seek  external
sources of financing  and/or sell our assets.  There is no assurance  that funds
through  other  sources of  financing  will be  available  or,  even if they are
available,  that they will be available on terms that will be  acceptable to us.
If we are unable to raise additional  funds, we may have to limit our operations
to an extent not presently determinable by management, but which may include the
sale of any assets owned or our ceasing to conduct business.


Off-Balance Sheet Arrangements

     As of December 31, 2004, the Company had no off-balance sheet arrangements.

Recent Accounting Pronouncements

      In December  2004,  the  Financial  Accounting  Standards  Board  ("FASB")
enacted  Statement of Financial  Accounting  Standards  123--revised 2004 ("SFAS
123R"),  Share-Based Payments,  which replaces Statement of Financial Accounting
Standards No. 123 ("SFAS 123"),  Accounting for  Stock-Based  Compensation,  and
supersedes  APB  Opinion  No. 25 ("APB  25"),  Accounting  for  Stock  Issued to
Employees.  SFAS 123R  requires  the  measurement  of all  employee  share-based
payments to  employees,  including  grants of employee  stock  options,  using a
fair-value-based  method and the  recording of such expense in the  consolidated
statements of income.

     The  accounting  provisions  of SFAS 123R will be effective for the Company
for reporting  periods  beginning after July 1, 2005. The pro forma  disclosures
previously  permitted  under  SFAS  123 no  longer  will  be an  alternative  to
financial  statement  recognition.  See  Note 1 of  the  Notes  to  Consolidated
Financial  Statements  for the pro forma net  income  and net  income  per share
amounts,  for Fiscal  2003  through  Fiscal  2004,  as if the Company had used a
fair-value-based  method  similar  to the  methods  required  under SFAS 123R to
measure compensation expense for employee stock incentive awards. The Company is
evaluating  the terms and structure of its current share based payments and does
not  expect  the  adoption  to  have  a  significant,   adverse  impact  on  the
consolidated  statements  of income  and net  income  per share as it relates to
current granted options and warrants as of the date of the adoption.

                                       17
<PAGE>

     In January  2003,  the FASB  issued  Interpretation  No.  46(R) ("FIN 46"),
Consolidation of Variable Interest Entities.  FIN 46 addresses  consolidation by
business  enterprises of variable  interest  entities  (formerly special purpose
entities). In general, a variable interest entity is a corporation, partnership,
trust or any other legal  structure  used for business  purposes that either (a)
does not have equity  investors  with voting rights or (b) has equity  investors
that do not provide sufficient financial resources for the entity to support its
activities.  The  objective  of FIN 46 is not to  restrict  the use of  variable
interest entities, but to improve financial reporting by companies involved with
variable  interest  entities.  FIN 46 requires a variable  interest entity to be
consolidated  by a company if that  company is subject to a majority of the risk
of loss from the variable interest entity's  activities or entitled to receive a
majority  of  the  entity's   residual   returns  or  both.  The   consolidation
requirements  are effective for the first period that ends after March 15, 2004;
the Company elected to adopt the requirements effective for the reporting period
ending  December  31,  2004.  The  adoption  of  FIN 46  had  no  effect  on the
consolidated financial statements.




                                       18
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
   Mac Filmworks, Inc.
   (A Development Stage Company)
   Shreveport, Louisiana

We have  audited  the  accompanying  balance  sheet of Mac  Filmworks,  Inc.  (A
Development  Stage Company) as of December 31, 2004, and the related  statements
of  expenses,  stockholders'  deficit,  and cash flows for each of the two years
then  ended,  and for the period from  November  22,  1994  (Inception)  through
December 31, 2004.  These  financial  statements are the  responsibility  of Mac
Filmworks'  management.  Our  responsibility  is to  express an opinion on these
financial statements based on our audits.

We  conducted  our audit in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  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 that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Mac  Filmworks,  Inc. as of
December 31, 2004, and the results of its operations and its cash flows for each
of the two  years  then  ended,  and for  the  period  from  November  22,  1994
(Inception) through December 31, 2004, in conformity with accounting  principles
generally accepted in the United States of America.

The accompanying  financial  statements have been prepared assuming that the Mac
Filmworks  will  continue  as a going  concern.  As  discussed  in Note 2 to the
financial statements, the deficiency in working capital at December 31, 2004 and
the operating  losses raise  substantial  doubt about Mac  Filmworks  ability to
continue as a going concern.  Management's  plans  concerning  these matters are
also  described  in  Note  2.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of these uncertainties.


Malone & Bailey, PC
Houston, Texas
www.malone-bailey.com

April 8, 2005


                                       19
<PAGE>


                               MAC FILMWORKS, INC
                          (A Development Stage Company)
                                  BALANCE SHEET
                                December 31, 2004


          Assets
Current Assets
    Cash                                                           $       158
    Loan extension fees                                                  1,741
                                                                   -----------
Total Assets                                                             1,899
                                                                   ===========

          Liabilities and Stockholders' Deficit
Current Liabilities
    Current portion of notes payable for film
       library purchases, including accrued interest               $   441,940
    Due to related parties                                             269,228
    Accrued officer salary                                             520,000
    Accounts payable                                                     9,818
    Notes payable                                                        4,691
    Deferred revenue                                                       750
                                                                   -----------
       Total Current Liabilities                                     1,246,427

Long-term portion of notes payable                                      418,012
                                                                   -----------
          Total Liabilities                                          1,664,439
                                                                   -----------
Contingencies

Stockholders' Deficit
    Preferred stock, $.0001 par, 10,000,000 shares
       authorized, no shares issued or outstanding
    Common stock, $.0001 par, 50,000,000 shares
       authorized, 10,754,658 shares issued
       and outstanding                                                  1,075
    Paid-in capital                                                 1,390,121
    Deficit accumulated during the development stage                (3,053,736)
                                                                   -----------
       Total Stockholder's Deficit                                  (1,662,540)
                                                                   -----------
          Total Liabilities and Stockholders' Deficit              $     1,899
                                                                   ===========


                 See accompanying summary of accounting policies
                       and notes to financial statements.

                                       20
<PAGE>

                               MAC FILMWORKS, INC.
                          (A Development Stage Company)
                             STATEMENTS OF EXPENSES
                     Years Ended December 31, 2004 and 2003,
       and Period from November 22, 1994 (Inception) to December 31, 2004



<TABLE>
<CAPTION>
                                                                    Inception to
                                              2004          2003        2004
                                           ---------    ---------   ------------
<S>                                       <C>          <C>          <C>
Revenues                                   $      --    $   5,505   $   25,505

Operating Expenses
   General and administrative                 91,548      103,151    1,967,911
   Imputed film storage rental costs           7,200        7,200       50,400
   Depreciation                                   --        1,088       14,029
   Gain on disposition of assets                  --           --       (5,925)
   Impairment expense                             --       15,000      698,801
   Interest expense                           50,284       46,115      381,525
   Debt forgiveness                               --           --      (27,500)
                                           ---------    ---------   -----------
Net Loss                                   $(149,032)   $(167,049)  $(3,053,736)
                                           =========    =========   ===========

Basic and diluted net loss
     per common share                          $(.01)       $(.02)
Weighted average shares outstanding       10,754,658   10,687,991
</TABLE>

                 See accompanying summary of accounting policies
                       and notes to financial statements.

                                       21
<PAGE>

                               MAC FILMWORKS, INC.
                          (A Development Stage Company)
                       STATEMENTS OF STOCKHOLDERS' DEFICIT
         Period from November 22, 1994 (Inception) to December 31, 2004


<TABLE>
<CAPTION>
                                               Common Stock           Paid-In      Accumulated
                                            Shares      Amount        Capital         Deficit          Totals
                                          ------------  ------       ---------     -----------       -----------
<S>                                       <C>           <C>             <C>          <C>               <C>
Issuance of stock to
    founders at inception                       10,000  $    1       $     999                     $     1,000
Cancellation of stock
    issued to one of
    original founders                           (1,000)
Issuances of common stock in:
    1997 to other
       original founders                     3,991,000     399            (399)
    1997 for services                          150,528      14          75,249                          75,264
    1997 for film library
       acquisitions                            247,680      25         123,815                         123,840
    1997 in a private
       offering for cash                       400,000      40         199,960                         200,000
    1997 in a private
       offering for cash                        37,500       4          37,496                          37,500
    1997 for services
       related to the private
       offering                                100,000      10             (10)
    1997 for public
       shell purchase                        1,340,000     134            (134)
Issuances of common stock in:
    1998 in a private
       offering for cash                        40,000       4          29,996                          30,000
    1998 in a private
       offering for cash                       100,750      10         100,740                         100,750
    1998 for services                          320,700      32         320,668                         320,700
Imputed film storage
    rental costs                                                         7,200                           7,200
Issuances of common stock in:
    1999 for services                           70,000       7          52,494                          52,500
    1999 in a private
       offering for cash                       147,000      15          36,035                          36,050
Imputed film storage
    rental costs                                                         7,200                           7,200
Issuance of common stock
    in 2000 for cash                           226,880      23          56,697                          56,720
    in 2000 for services                       142,500      14          35,611                          35,625
    in March for payment
       of prior year account
       payable                                  45,000       5          20,995                          21,000
    in July for
       computer equipment                       26,120       2           6,528                           6,530
    in September for
       public shell purchase
       price adjustment                        160,000      16            ( 16)
Imputed film storage
    rental costs                                                         7,200                           7,200
Net loss - period from
    Inception through
    Dec. 31, 2000                                                                    (1,612,537)    (1,612,537)
                                          ------------  ------      ----------      ------------    -----------
(Restated) Balances,
    December 31, 2000                        7,554,658     755       1,118,324       (1,612,537)      (493,458)
                                          ------------  ------      ----------      ------------    -----------
</TABLE>


                            (continued on next page)


                 See accompanying summary of accounting policies
                       and notes to financial statements.

                                       22
<PAGE>

                               MAC FILMWORKS, INC.
                          (A Development Stage Company)
                 STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
         Period from November 22, 1994 (Inception) to December 31, 2004


<TABLE>
<CAPTION>
                                              Common Stock        Paid-In   Accumulated
                                          Shares      Amount      Capital     Deficit        Totals
                                        ----------    ------    ----------  -----------    -----------
<S>                                     <C>           <C>       <C>         <C>            <C>
(Restated) Balances,
    December 31, 2000                    7,554,658       755     1,118,324   (1,612,537)      (493,458)

Issuance of common stock in:
    2001 for services                    1,200,000       120       119,880                     120,000
    2001 for cash                          100,000        10         9,990                      10,000
    2001 for payment of
    accounts payable                     1,800,000       180        94,197                      94,377
Imputed film storage
    rental costs                                                     7,200                       7,200

Net loss                                                                       (973,944)      (973,944)
                                        ----------    ------    ----------  -----------    -----------
(Restated) Balances,
    December 31, 2001                   10,654,658     1,065     1,349,591   (2,586,481)    (1,235,825)

Imputed film storage
    rental costs                                                     7,200                       7,200

Contributions to capital                                             8,940                       8,940

Net loss                                                                       (151,174)      (151,174)
                                        ----------    ------    ----------  -----------    -----------
(Restated) Balances,
    December 31, 2002                   10,654,658     1,065     1,365,731   (2,737,655)    (1,370,859)

Imputed film storage
    rental costs                                                     7,200                       7,200

Shares issued for
    film purchase                          100,000        10         9,990                      10,000

Net loss                                                                       (167,049)      (167,049)
                                        ----------    ------    ----------  -----------    -----------
Balances,
    December 31, 2003                   10,754,658     1,075     1,382,921   (2,904,704)    (1,520,708)

Imputed film storage
    rental costs                                                     7,200                       7,200

Net loss                                                                       (149,032)      (149,032)
                                        ----------    ------    ----------  -----------    -----------
Balances,
    December 31, 2004                   10,754,658    $1,075    $1,390,121  $(3,053,736)   $(1,622,540)
                                        ==========    ======    ==========  ===========    ===========
</TABLE>

                 See accompanying summary of accounting policies
                       and notes to financial statements.


                                       23
<PAGE>

                               MAC FILMWORKS, INC.
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2004 and 2003,
       and Period from November 22, 1994 (Inception) to December 31, 2004

<TABLE>
<CAPTION>
                                                                                      Inception to
                                                                 2004        2003     Dec. 31, 2004
                                                              ---------  ----------   ------------
<S>                                                           <C>        <C>          <C>
Cash Flows From Operating Activities
    Net loss                                                  $(149,032) $ (167,049)  $(3,053,736)
    Adjustments to reconcile net loss to
       net cash used in operating activities:
    Amortization of loan extension fees                             759          --           759
    Shares issued for services                                       --          --       605,089
    Imputed film storage rental costs                             7,200       7,200        50,400
    Forgiveness of debt                                              --          --       (27,500)
    Depreciation                                                     --       1,089        14,029
    Gain on disposition of assets                                    --          --        (5,925)
    Impairment expense                                               --      15,000       698,801
    Changes in:
       Accounts payable                                           3,569       5,530        81,123
       Accrued officer salary                                    84,000      84,000       520,000
       Accrued interest                                          49,163      46,115       371,381
       Deferred revenue                                              --          --           750
                                                              ---------  ----------   -----------
Net Cash Used In Operating Activities                            (4,341)     (8,115)     (744,829)
                                                              ---------  ----------   -----------
Cash Flows From Investing Activities
    Purchase of motion picture film libraries                        --          --       (60,390)
    Purchase of motion picture film library
       purchase rights                                               --          --       (16,000)
                                                              ---------  ----------   -----------
Net Cash Used In Investing Activities                                --          --       (76,390)
                                                              ---------  ----------   -----------
Cash Flows From Financing Activities
    Proceeds from loans from stockholders                         9,440      16,177       361,577
    Loan extension fees                                          (2,500)         --        (2,500)
    Payments on loans from stockholders                            (600)     (5,455)      (22,349)
    Proceeds from bank loans                                        827          --       104,257
    Payments on bank loans                                       (2,717)     (2,679)      (99,567)
    Proceeds from sales of common stock                              --          --       471,020
    Contributions to capital                                         --          --         8,940
                                                              --------- -----------   -----------
Net Cash Provided By Financing Activities                         4,450       8,043       821,378
                                                              --------- -----------   -----------
Net change in cash                                                  109         (72)          159

Cash at beginning of period                                                  50 122             0
                                                              --------- -----------   -----------
Cash at end of period                                         $     159 $        50   $       159
                                                              ========= ===========   ===========
Supplemental Disclosures:
    Interest paid                                             $       0 $         0   $         0
    Income taxes paid                                                 0           0             0
</TABLE>

                 See accompanying summary of accounting policies
                       and notes to financial statements.



                                       24
<PAGE>


                                                               B&P DRAFT 4/13/05

                               MAC FILMWORKS, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Business.  Mac Filmworks,  Inc. ("Mac  Filmworks") was  incorporated in Texas on
November 22, 1994, to acquire, license and distribute classic movies, TV serials
and other film products.  During the development stage, Mac Filmworks is and has
been attempting to raise sufficient cash to begin marketing efforts.  In October
1997,  Mac Filmworks  acquired  Keystone  Entertainment,  Inc.  ("Keystone"),  a
Delaware  corporation,  in a transaction  accounted  for as a  recapitalization.
Keystone issued  4,747,680  shares of stock for the 4,747,680  shares or 100% of
the then outstanding shares of Mac Filmworks. Before that issuance, Keystone had
1,340,000 shares  outstanding,  which is shown on the Statement of Stockholders'
Deficit as the  purchase  price of Keystone by Mac  Filmworks.  The October 1997
agreement  was amended  November  21, 2000 to increase the  1,340,000  shares to
1,500,000 shares paid for Keystone.

Use of Estimates.  Preparing  financial  statements  requires management to make
estimates  and  assumptions   that  affect  the  reported   amounts  of  assets,
liabilities,  revenues,  and  expenses.  Actual  results could differ from those
estimates.

Cash includes demand deposit bank accounts.  Mac Filmworks'  policy for cash and
cash equivalents includes any highly liquid investments with original maturities
of three months or less.

Property and equipment is valued at cost. The costs of additions and betterments
are  capitalized and maintenance and repairs are charged to expense as incurred.
Gains and losses on disposition of equipment are reflected in operations.

Impairment  of  Long-Lived  Assets.  Films  are  reviewed  for  impairment  on a
film-by-film basis whenever events or changes in circumstances indicate that the
historical  cost-carrying  value  of  each  film  may  not be  recoverable.  Mac
Filmworks  assesses  recoverability  of the  carrying  value  of  each  film  by
estimating the future net cash flows expected to result from the film, including
eventual  disposition.  If the future net cash flows are less than the  carrying
value of the  film,  an  impairment  loss is  recorded  equal to the  difference
between the film's carrying value and fair value.  Other assets are reviewed for
impairment by asset group for which the lowest level of  independent  cash flows
can be identified and impaired in the same manner as films.  Impairment  expense
of $15,000 and $683,801 was recorded in 2003 and 2001, respectively.  See Note 3
and Note 4.

Basic and diluted net loss per share  calculations  are  presented in accordance
with  Financial  Accounting  Standards  Statement 128, and are calculated on the
basis of the weighted  average  number of common shares  outstanding  during the
year. They include the dilutive effect of common stock equivalents in years with
net income.  Basic and diluted  loss per share is the same due to the absence of
common stock equivalents.

Revenue  Recognition.  Mac  Filmworks  recognizes  revenue  in  accordance  with
Statement of Accounting  Position 00-2  "Accounting by Producers or Distributors
of Films".  Revenue is recognized from a sale or licensing arrangement of a film
when  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
begins its  exploitation,  exhibition or sale; the  arrangement  fee is fixed or
determinable; and collection of the arrangement fee is reasonably assured.

                                       25
<PAGE>

Income taxes. Mac Filmworks recognizes deferred tax assets and liabilities based
on  differences  between  the  financial  reporting  and tax bases of assets and
liabilities  using the  enacted  tax rates and laws that are  expected  to be in
effect when the differences are expected to be recovered. Mac Filmworks provides
a valuation  allowance  for  deferred  tax assets for which it does not consider
realization of such assets to be more likely than not.

Recently  issued  accounting  pronouncements.  Mac Filmworks does not expect the
adoption of recently  issued  accounting  pronouncements  to have a  significant
impact on Mac Filmworks results of operations, financial position or cash flow.


NOTE 2 - GOING CONCERN

The  accompanying  financial  statements  have been  prepared  assuming that Mac
Filmworks will continue as a going  concern.  Mac Filmworks  incurred  losses of
$149,032 and $167,049 in 2004 and 2003, respectively,  and has a working capital
deficit of $1,244,528  as of December 31, 2004.  Accordingly,  these  conditions
create  an  uncertainty  as to Mac  Filmworks  ability  to  continue  as a going
concern.  To date, Mac Filmworks has generated  limited  revenues.  Assuming Mac
Filmworks  raises  the  maximum  amount  in the  initial  public  offering,  Mac
Filmworks  expects to have sufficient  working capital for  approximately  eight
months of  operations.  However,  Mac Filmworks may need  operating  funds at an
earlier  date  if the  maximum  amount  in the  offering  is not  raised,  or if
operating  expenses  are  greater  than  anticipated.  Mac  Filmworks  does  not
anticipate  generating  sufficient revenues to fund working capital requirements
during the initial period and will be dependent upon external sources of capital
until such time. Mac Filmworks  intends to conduct  additional  capital  raising
efforts immediately  subsequent to the close of the initial public offering. The
financial  statements do not include any adjustments  that might be necessary if
Mac Filmworks is unable to continue as a going concern.


NOTE 3 - ACQUISITION OF FILM LIBRARY AND SUBSEQUENT IMPAIRMENT

During 1997, Mac Filmworks purchased 7 private libraries  containing 996 classic
films,  made-for-television  movies,  animated  features and cartoons  from five
individuals. A summary of the purchase price is as follows:

       Cash                                                   $ 60,390
       Discounted value of notes payable                       483,571
       223,680 shares of stock at $.50 per share               111,840
                                                              --------
         Motion Picture Film Library                          $655,801
                                                              ========


                                       26
<PAGE>

Of the 996 films, 93 films are copyrighted and 903 are in the public domain.  In
addition,  of the 70 films Mac Filmworks has the option to acquire, 8 are public
domain films and 62 films are copyrighted.  A film enters the public domain when
(1) the initial  copyright  expires  without  renewal for a second term, or both
terms have expired or (2) the copyright notice was defective or missing from the
work and no efforts  were made to cure the  omission.  It is possible and likely
that  several  public  domain  films  that Mac  Filmworks  decides to market and
distribute  are either  currently  being  distributed  by or will  eventually be
distributed  by third  parties.  Although Mac Filmworks has valid title and owns
public domain masters,  ownership rights as to these films will not be exclusive
by definition.

In  connection  with the  public  domain  films Mac  Filmworks  has  title,  Mac
Filmworks does not have copyright  protection and is unable to assert  exclusive
right to license or  distribute  these films.  While Mac  Filmworks  may market,
distribute  and sell the public  domain titles in which Mac Filmworks has title,
Mac Filmworks  will be unable to prevent third parties from  exploiting the same
titles.  If third parties are able to more effectively  market any public domain
titles,  Mac Filmworks may not be able to generate  revenues  sufficient to make
the marketing and distribution of those titles profitable.

If Mac Filmworks  continues to default on the notes payable  associated with the
film libraries and cannot  continue to obtain  extensions,  Mac Filmworks  could
lose their rights to approximately 896 of the 996 films.

Mac Filmworks has not yet examined all properties purchased,  but each agreement
contains a right to substitute  clause should any films be of inferior  quality.
All but about 100 films are being held by the library sellers.  Mac Filmworks is
paying $150 per month as storage to one seller. Mac Filmworks estimates the cost
of storage for the other  films would be $600 per month if all the sellers  were
charging a fair rate for this  service.  This amount is $7,200 per year which is
being imputed as an expense and a shareholder capital contribution.

Annually,  each seller  re-confirms  the  transaction by extending the amount of
time in writing to Mac Filmworks to pay off the purchase note. Mac Filmworks has
full  title to these  films,  as the  purchase  contracts  do not state that the
seller retains possession of the films until the purchase price is paid.

As of December 31, 2001, it was determined that estimated  future net cash flows
were less than the  carrying  value of the film  library,  and  accordingly,  an
impairment loss of $655,801 was recorded for the year ended December 31, 2001.


NOTE 4 - ADDITIONAL FILMS PURCHASE OPTION

In 1997, Mac Filmworks paid $16,000 cash and 24,000 shares valued at $12,000 for
the right to  purchase  an  additional  library  of 700 films for an  additional
$104,000. The option expired in August 2003.

As of December 31, 2001, it was determined that estimated  future net cash flows
were less than the carrying value of the film purchase option,  and accordingly,
an impairment loss of $28,000 was recorded for the year ended December 31, 2001.

                                       27
<PAGE>

NOTE 5 - NOTES PAYABLE FOR FILM LIBRARY PURCHASES

Mac Filmworks  agreed to purchase five film libraries for promissory  notes as a
portion of the purchase price. The balances a of December 31, 2004:


                                                    2004
                                                   --------
     (1)   Western International, Inc.             $ 87,000
     (2)   RAMM Film Video, Inc.                    100,000
     (3)   RAMM Film Video, Inc.                      8,000
     (4)   Saturn Productions, Inc.                 145,000
     (5)   Western International, Inc.              200,000
     (6)   Saturn                                     5,000
           Contractual down payments on
               the above not yet paid                 4,500
                                                   --------
           Total principal                          549,500

           Add: imputed and accrued interest        310,452
                                                   --------
                                                   $859,952
                                                   ========

Principal payments are due as follows:

                                    2005           $278,500
                                    2006            271,000
                                                   --------
                                                   $549,500
                                                   ========

Interest was imputed at 15% so the original  recorded  notes payable of $483,571
were recorded when purchased in 1997 at their net present values.

Collateral for each note payable are the underlying films being purchased.


(1)      This $87,000 note originated on July 30, 1997, with 6 percent  interest
         compounded  monthly.  Original  terms  required  $43,500  plus  accrued
         interest  due August 31, 1998 and the  remaining  $43,500  plus accrued
         interest due August 31, 1999. Mac Filmworks obtained yearly extensions,
         the most recent extension  requiring  $43,500 plus accrued interest due
         August 31, 2005 and the  remaining  $43,500 plus  accrued  interest due
         August 31, 2006. The effective interest rate was 6.2% in 2004 and 2003.

(2)      This $100,000 note originated on July 1, 1997, with 6 percent  interest
         compounded  monthly.  Original  terms  required  $50,000  plus  accrued
         interest  due August 31, 1998 and the  remaining  $50,000  plus accrued
         interest due August 31, 1999. Mac Filmworks obtained yearly extensions,
         the most recent extension  requiring  $50,000 plus accrued interest due
         August 31, 2005 and the  remaining  $50,000 plus  accrued  interest due
         August 31, 2006. The effective interest rate was 6.2% in 2004 and 2003.

                                       28
<PAGE>

(3)      This  $8,000  note  originated  on  September  1, 1997,  with 6 percent
         interest  compounded  monthly.  Original  terms  required  $8,000  plus
         accrued interest due September 30, 1998. Mac Filmworks  obtained yearly
         extensions,  the most recent  extension  requiring  $8,000 plus accrued
         interest due September 30, 2005.  The effective  interest rate was 6.2%
         in 2004 and 2003.

(4)      This $145,000 note originated on July 30, 1997, with 6 percent interest
         compounded  monthly.  Original  terms  required  $72,500  plus  accrued
         interest  due August 31, 1998 and the  remaining  $72,500  plus accrued
         interest due August 31, 1999. Mac Filmworks obtained yearly extensions,
         the most recent extension  requiring  $72,500 plus accrued interest due
         August 31, 2005 and the  remaining  $72,500 plus  accrued  interest due
         August 31, 2006. The effective interest rate was 6.2% in 2004 and 2003.

(5)      This  $200,000  note  originated  on August  30,  1997,  with 6 percent
         interest  compounded  monthly.  Original terms  required  $100,000 plus
         accrued  interest due August 31, 1998 and the  remaining  $100,000 plus
         accrued  interest due August 31, 1999.  Mac Filmworks  obtained  yearly
         extensions,  the most recent extension  requiring $100,000 plus accrued
         interest due August 31, 2005 and the  remaining  $100,000  plus accrued
         interest due August 31, 2006.  The effective  interest rate was 6.2% in
         2004 and 2003.

(6)      This  $5,000  note  originated  on  September  5, 2003,  with 6 percent
         interest compounded  monthly.  Principal and interest is due August 31,
         2006. The effective interest rate was 6.0% in 2003 and 6.2% in 2004.


NOTE 6 - DUE TO RELATED PARTIES

Several  shareholders  loaned Mac Filmworks money to fund ongoing  operations as
well as pay  expenses  on  behalf  of Mac  Filmworks.  From  time to  time,  Mac
Filmworks pays these  shareholders  back by paying expenses on their behalf.  In
2004,  shareholders loaned Mac Filmworks $9,440 and paid bank loans on behalf of
Mac Filmworks of $2,717.  In 2004,  Mac Filmworks  repaid  shareholder  loans by
paying $600 of expenses on behalf of shareholders.  Although  shareholders  have
funded  operations  in the past,  they are under no  obligation  to do so in the
future.


NOTE 7 - ACCRUED OFFICER SALARY

On January 1, 2001,  Mac Filmworks  agreed to pay the president an annual salary
of $84,000.  The contract expires December 31, 2005. Until funding is available,
the amount is being accrued.


NOTE 8 - NOTES PAYABLE TO BANKS

The bank credit card is held in the name of the  founding  shareholder  and is a
revolving  credit  line with  interest  at 19%.  This loan is  unsecured  and is
guaranteed by the founding shareholder.

                                       29
<PAGE>

NOTE 9 - DEFERRED REVENUE

In July 2002, Mac Filmworks  agreed to license one of Mac Filmworks  films to an
independent  distributor of  entertainment  products.  Mac Filmworks  received a
$10,000  royalty  advance in the third quarter of 2002 and $10,000 in the fourth
quarter of 2002.  The agreement  expires two years after release of the movie by
the  distributor.  Upon release,  Mac Filmworks  will receive a 20% royalty from
sales of the movie  after the  $20,000  advance  is  recovered.  Sales  began in
September  2002.  In  accordance  with  Statement of  Accounting  Position  00-2
"Accounting by Producers or  Distributors  of Films",  $10,000 was recognized in
the third quarter of 2002 and $10,000 in the fourth quarter of 2002.

In July 2002, Mac Filmworks  agreed to license one of Mac Filmworks  films to an
independent distributor of entertainment products. Mac Filmworks received a $750
deposit. The license expires ten years after the closing of the agreement.  Upon
approval for import from the  purchaser's  government,  closing of the agreement
will occur and the balance of $4,875 will be paid to Mac Filmworks.  As of April
8, 2005,  approval had not been  granted.  Revenue was not  recognized  for this
transaction  because  governmental  approval has not been  granted,  the license
period  of the  arrangement  has not begun  and the  customer  has not begun its
exploitation,  exhibition or sale of the film.  Revenue will be recognized  when
these conditions occur.


NOTE 10 - SALES OF COMMON STOCK

In 1997,  Mac Filmworks  sold 400,000  shares of common stock for $.50 per share
for $200,000 and 37,500 shares for $1 per share for $37,500.  In July 1998,  Mac
Filmworks  sold 40,000 shares for $.75 per share for $30,000 and 100,750  shares
for $1 per share for $100,750.  In September 1999,  147,000 shares were sold for
$.25 per share for $36,050.  In 2000, Mac Filmworks sold 226,880 shares for $.25
per share for $56,720. In July 2001, Mac Filmworks sold 100,000 shares of common
stock for $.10 per share for $10,000.


NOTE 11 - STOCK ISSUED FOR SERVICES & EQUIPMENT

In 2000, Mac Filmworks issued 142,500 shares to various individuals for services
performed valued at $.25 per share, or $35,625.

In 2000,  Mac Filmworks  issued 160,000  shares to G/O  International,  Inc. for
payment of previously  disputed  services in connection  with the original shell
acquisition.

In 2000, Mac Filmworks issued 26,120 shares in exchange for computer  equipment.
The shares were valued at $.25 per share,  or $6,530 total.  Mac Filmworks  also
issued  45,000  shares in  payment  of a prior year  account  payable  listed at
$21,000.

In May 2001, Mac Filmworks issued  1,000,000 shares to the founding  shareholder
as a bonus for past  services  valued  at $.10 per  share  for a total  value of
$100,000.

In July 2001,  Mac  Filmworks  issued  200,000  shares to a vendor for  services
valued at $.10 per share for a total charge to legal expense of $20,000.

In July  2001,  Mac  Filmworks  issued  1,800,000  shares in  payment of certain
accounts payable listed at $94,377.

                                       30
<PAGE>

NOTE 12 - STOCK OPTION PLANS

Mac Filmworks  adopted its 1998 Incentive Stock Option Plan to provide incentive
stock  options  within  the  meaning of that term under  Internal  Revenue  Code
Section  422.  Such  share  options  would be issued  to  current  officers  and
employees at prices at or above current stock fair market value.  500,000 shares
were  reserved for issuance  under the plan. As of December 31, 2004, no options
had been granted.


NOTE 13 - INCOME TAXES

                  Deferred tax assets                       $ 530,251
                  Less: valuation allowance                   (530,251)
                                                            ---------
                  Net deferred taxes                        $       0
                                                            =========

Mac Filmworks has a net operating loss carryforward of approximately  $1,559,561
at December 31, 2004, which expires in the years 2009 through 2024.


NOTE 14 - CONTINGENT ASSET & LIABILITY

On July 15,  2000,  Mac  Filmworks  agreed to purchase 70 films in exchange  for
100,000 shares of common stock, if the Initial Public Offering  ("IPO") opens at
$5.00 per  share;  The final  number of  shares  will be  prorated  based on the
opening  price of the IPO.  The total  number is based on a ceiling of $7.50 per
share and a floor of $2.50.  In addition to the shares,  Mac Filmworks  must pay
$20,000 on the date of funding from the IPO. As of March 9, 2004, there has been
no IPO, Mac  Filmworks  has not issued these shares nor taken  possession of the
films.  The seller  still  possesses  them and is still  willing to complete the
transaction.  The  contract  requires  specific  performance  from  the  Seller,
although  no time  frame  for the IPO was  specified.  Management  believes  the
contract is  enforceable  and it is obligated to purchase the films when the IPO
occurs.  Damages  due  for  non-performance  by  management,  if  any,  are  not
estimable.

On  September  5, 2003,  Mac  Filmworks  amended its July 15, 2000  agreement to
purchase 70 films in exchange for 100,000 shares of common stock, if the Initial
Public  Offering  ("IPO") opened at $5.00 per share;  The final number of shares
would have been prorated based on the opening price of the IPO. The total number
would have been  based on a ceiling of $7.50 per share and a floor of $2.50.  In
addition to the shares,  Mac  Filmworks  would have paid  $20,000 on the date of
funding from the IPO. The amendment requires 100,000 shares of common stock upon
signing, $10,000 upon receipt of net proceeds from the IPO and a promissory note
for $5,000 bearing 6 percent interest with principal and interest due August 31,
2004.  The value of the stock issued was estimated at $.10 per share or $10,000.
Mac Filmworks  concluded the films were impaired when  purchased and  recognized
$15,000 of impairment expense immediately.


NOTE 15 - SALES CONTRACT

Mac Filmworks  entered into an agreement  with Passion  Music Corp.  ("Passion")
whereby  Passion agreed to purchase 120 films from Mac Filmworks.  30 films were
delivered  in  January  2003 and 30 films  each  month  until all 120 films were
delivered.  Mac Filmworks received $500 non-refundable advance upon signing. The
advance was  credited  $10 per film for the first 50 films.  The fee per film is
$300 less a 7 1/2 percent  commission to AR Brown for a net fee to Mac Filmworks
of $277.50 per film.  Mac  Filmworks  agreed to reduce the price by $60 per film
for each film that was not in the  public  domain or was  registered  to someone
else.


                                       31
<PAGE>

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

     Not applicable.

ITEM 8A.  CONTROLS AND PROCEDURES

Controls and Procedures

     The Company's Chief Executive Officer/Chief Financial Officer has evaluated
the  effectiveness  of the  Company's  disclosure  controls and  procedures  (as
defined in Rule  13a-15(e) or Rule  15d-15(e)  under the Exchange Act) as of the
end of our  fourth  fiscal  quarter  in  2004.  Based on such  evaluation,  such
officers have  concluded that the Company's  disclosure  controls and procedures
are effective.

Changes in Internal Controls

     There has been no change in the Company's  internal  control over financial
reporting  identified in connection with our evaluation that occurred during our
last fiscal quarter ended December 31, 2004, that has materially affected, or is
reasonably  likely to materially  affect,  the Company's  internal controls over
financial reporting.


ITEM 8B.  OTHER INFORMATION

     Not Applicable.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

       The  following  table sets for the names,  ages and positions of our sole
executive  officer and directors.  Set forth below is a fried description of the
business experience and background of each person named in the table

-----------------------------------------------------------------------------
Name                       Age         Title
-----------------------------------------------------------------------------
Jim McCullough, Sr.        76          Chairman, president, chief executive
                                       officer, chief financial officer,
                                       and chief accounting officer
                                       office
-----------------------------------------------------------------------------
Richard C. Mann            51          Director
-----------------------------------------------------------------------------

                                       32
<PAGE>

     Jim McCullough,  Sr. has been our president,  chief  executive  officer and
chairman since inception.  Since 1975, Mr. McCullough has served as president of
Jim McCullough Productions,  a sole proprietorship,  which is in the business of
developing new film and television productions. Mr. McCullough has been involved
in virtually every aspect of the film industry since 1972,  including  creation,
production and distribution of feature films.  Additionally,  Mr.  McCullough is
the president,  chief executive  officer of Triad Family Media,  Inc., a company
that  distributes  and  licenses   several  films.  He  has  attained   national
recognition  as a result  of his  acclaimed  productions  of Where  the Red Fern
Grows, Part I and Part II and The St. Tammanay Miracle.

     Richard C. Mann has been a director since  February  2000.  Since 1993, Mr.
Mann has been the president of New Standard Post, LLC, Richard Mann Group, Inc.,
and Prosperity  Pictures,  LLC. He has produced  and/or directed over 100 films,
television programs, music videos, and over 200 television commercials.

Board of Directors

     All directors hold office until the next annual meeting of shareholders and
until  their  successors  have been duly  elected  and  qualified.  There are no
agreements  with respect to the election of directors.  We have not  compensated
directors for service on the board of  directors,  but directors are entitled to
be  reimbursed  for expenses  incurred for  attendance at meetings of the board.
However,  due to our lack of funds,  the directors will defer their expenses and
any compensation  until such time as business warrants such expenses.  As of the
date hereof, no directors has accrued any expenses or compensation. Officers are
appointed  annually  by the  board  and each  executive  officer  serves  at the
discretion of the board. We do not have any standing committees.


Significant Employees

     None.

Family Relationships

     There are no family relationships among any of our officers and directors.

Involvement in Certain Legal Proceedings

     No director,  executive officer, promoter or control person has, within the
past five years,  filed any bankruptcy  petition,  been convicted in or been the
subject of any pending criminal  proceedings,  or is any such person the subject
to any  order,  judgment,  or decree  involving  the  violation  of any state or
federal securities laws.

Board Committees

     Our board of directors  does not have a standing  audit  committee  and our
board as a whole performs all audit committee functions,  including oversight of
our independent registered public accountants and oversight of our management on
matters  relating to accounting,  financial  reporting and disclosure,  internal
controls and compliance with laws, regulations and corporate policies.  There is
currently  no plan to establish  such  committees.  The board of  directors  has
determined  that it does not  have an  "audit  committee  financial  expert"  as
defined by the SEC.

Compliance with Section 16(a) of the Exchange Act.

     As of the date hereof,  Messrs.  McCullough and Mann have yet to file their
Form 3's after our registration statement on Form SB-2 was declared effective by
the SEC on February 7, 2005.

Code of Ethics

                                       33
<PAGE>

     We have  not yet  adopted  a code of  ethics  which  applies  to the  chief
executive officer,  or principal financial and accounting officer or controller,
or persons performing similar functions due to several factors. The company is a
development  stage reporting  company whose  securities have not yet traded.  We
will pursue adopting a written code of ethics. To date, the board of directs has
conducted  the  affairs  of the  company  consistent  with  applicable  laws and
regulations of the United States and the states.

ITEM 10.  EXECUTIVE COMPENSATION.

     The following  table  contains  compensation  data for our named  executive
officer for the fiscal years ended December 31, 2004, 2003 and 2002.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>

                                                 ANNUAL               LONG TERM
                                               COMPENSATION       COMPENSATION AWARDS
                                               ------------       ---------------------
                                                                      Securities Underlying     ALL OTHER
              NAME AND                             Salary   Bonus(3)         Options           COMPENSATION
         PRINCIPAL POSITIONS             YEAR       ($)(2)   ($)              (#)                  ($)
         -------------------             ----    ---------    ---     ---------------------    ------------
<S>                                      <C>      <C>         <C>             <C>                  <C>
         Jim McCullough  (1)             2004     $84,000     -0-             -0-                  -0-
                                         2003     $84,000     -0-             -0-                  -0-
                                         2002     $84,000     -0-             -0-                  -0-
</TABLE>


(1)      Mr.  McCullough  serves as president,  chief executive  officer,  chief
         financial officer and chief accounting officer.
(2)      Mr.  McCullough's  salary for the fiscal years 2004,  2003 and 2002 has
         accrued and not been paid.
(3)      In May 2001, Mr.  McCullough  received a bonus  in the  form  of a
         restricted  stock  grant  in the  amount  of 1,000,000 shares valued at
         $.10 per share for a cash value of $100,000.

Stock Incentive Plan

     In January 1998, the board of directors and majority stockholders adopted a
stock option plan under which 500,000  shares of common stock have been reserved
for issuance. As of the date hereof, no options have been granted under the plan
and we have no present plans for the issuance thereof.  We do not have a defined
benefit plan or any retirement or long-term incentive plans.

Compensation of Directors

     We have no arrangements pursuant to which our directors are compensated for
any services provided as a director;  however,  our directors are entitled to be
reimbursed  for expenses  incurred for  attendance at meetings of the board.  No
expenses have accrued as of the date hereof.

Employment Agreement

     We entered into an employment agreement with Mr. McCullough, Sr. in January
2001 for a period of three years.  In January  2004 we renewed Mr.  McCullough's
employment  agreement which expires in January 2007. The agreement  provided for
an annual salary of $84,000, and contained a limitation on his ability to pursue
other business activities. Since Mr. McCullough owns and controls other entities
which are in similar  businesses  as Mac  Filmworks,  he has agreed to limit his
involvement  in  those  entities  to no  more  than  10% of his  daily  business
activity. As of December 31, 2004, the Company has accrued Mr. McCullough salary
in the amount of $520,000.

ITEM 11.  SECURITY OWNERSHIP OF BENEIFICAL OWNERS AND MANAGEMENT.

The table below sets forth, as of December 31, 2004, the beneficial ownership of
common stock of:

        o    our directors;
        o    our named executive officers;
        o    the holders of five  percent or more of our common  stock;  and C
             our officers and directors as a group.

                                       34
<PAGE>


                                  Number of shares of
Name of beneficial owners         common stock beneficially   Percentage of
                                  owned                       ownership
Jim McCullough, Sr.               3,070,000                        28.6%
Richard Mann                      10,000                           <1%
Ken O'Neal.                       1,600,000                        14.9%
Scott Thompson                    707,334                          6.6%
Brewer & Pritchard, P.C.          766,666                          7.1%
William Silvey                    735,000                          6.8%
All officers and directors
as a group, (2) persons           3,080,000                        28.6%


     Mr.  McCullough's  address is 9464 Mansfield Road,  Suite A-1,  Shreveport,
Louisiana 71118. Mr. Mann's address is 8665 Lookout Mt. Avenue, Los Angeles,  CA
90046.  Mr.  O'Neal's  address is 1214 Virginia Drive,  Kerrville TX 78028.  Mr.
Thompson's  address  is 6371  Richmond  Ave.,  Houston,  Texas  77057.  Brewer &
Pritchard's  address is Three Riverway,  Suite 1800,  Houston,  Texas 77056. Mr.
Silvey's address is 5227 Cripple Creek Ct., Houston, Texas 77017.

     Mr.  McCullough,  Sr.  beneficially  owns  2,800,000  shares  individually,
200,000  shares  held  by  his  spouse,   and  70,000  held  by  Jim  McCullough
Productions.  Ms. O'Neal  beneficially owns 5,000 shares individually and 45,000
shares  held by her  spouse.  Mr.  Thompson  beneficially  owns  275,000  shares
individually,  162,334 shares held by a limited liability company of which he is
a member, and 270,000 shares held by his spouse.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     We  currently  lease  our  facilities  in  Shreveport  from Jim  McCullough
Productions,  Inc. at a monthly rate of $1,000,  on a month-to-month  basis. Mr.
McCullough  is the majority  shareholder  of Jim  McCullough  Productions,  Inc.
McCullough  Productions,  Inc. has waived any accrued rents through December 31,
2004.

     As of December 31, 2004, Mr.  McCullough and his affiliates have loaned the
Company  approximately  $269,228.  This amount is payable on demand and does not
accrue  interest.  As of December 31, 2004,  Mac Filmworks  owed Mr.  McCullough
$520,000 in accrued and unpaid salary.

     In July 2001,  we issued to Brewer &  Pritchard,  P.C.,  666,666  shares of
common stock for services rendered and services to be rendered in the future. In
May 2001,  we issued to Mr.  McCullough as a bonus,  1,000,000  shares of common
stock valued at  $100,000.  In December  2000,  we issued to Brewer & Pritchard,
P.C., 100,000 shares of common stock for services rendered.

     Mac Filmworks,  Inc., a Delaware  corporation,  is the sole shareholder and
parent company of Mac Filmworks, Inc., a Texas corporation.

     In May 2004, Ken O'Neal purchased 1,600,000 shares of Mac Filmworks' common
stock from an unaffiliated third party for $25,000.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits. The following exhibits of the Company are included herein.


                                       35

<PAGE>
Exhibit No.                    Identification of Exhibit

1.1(1)    Form of Placement Agent Agreement
3.1(a)(1) Certificate of Incorporation of Keystone Entertainment, Inc.
3.1(b)(1) Certificate  of  Amendment  to the  Certificate  of  Incorporation  of
          Keystone Entertainment, Inc.
3.2(1)    Amended and Restated By-Laws of Mac Filmworks
4.1(1)    Form of Specimen of Common Stock
4.2(1)    Form of Class A Warrant Agreement
4.3(1)    Form of Class B Warrant Agreement
4.4(1)    Form of Class C Warrant Agreement
4.5(1)    Form of Class D  Warrant  Agreement
4.6(1)    Form of Class E Warrant Agreement
4.7(1)    Form of Class F Warrant Agreement
4.8(1)    Form of Class G Warrant Agreement
4.9(1)    Form of Warrant Exercise Fee Agreement with One Financial  Securities,
          Ltd.
10.1(1)   1998 Employee Stock Option Plan 10.2(1) Reorganization  Agreement,  as
          amended.
10.3(1)   Asset Purchase  Agreement with Western  International,  Inc.  (Cinevid
          library)
10.4(1)   Asset Purchase Agreement with Delta Equities Corporation
10.5(1)   Asset Purchase/Option Agreement with Durbin Entertainment, Inc.
10.6(1)   Asset Purchase  Agreement with RAMM Film Video,  Inc. for the purchase
          of 175 feature films
10.7(1)   Asset Purchase  Agreement with RAMM Film Video,  Inc. for the purchase
          of  91  cartoons   10.8(1)  Asset   Purchase   Agreement  with  Saturn
          Productions
10.9(1)   Asset Purchase Agreement with Western International, Inc.
10.10(1)  Employment Agreement with Jim McCullough, Sr.
10.11(1)  Asset Purchase Agreement with Jim McCullough Productions, Inc.
10.12(1)  Licensing Agreement with United American Video
10.13(1)  Licensing Contract with Hong Kong Audio Video Multimedia
10.14(1)  Financial Advisory Agreement with One Financial Securities, Ltd.
10.14(2)  Asset Purchase Agreement with Amity  Entertainment,  Inc. for the sale
          of 98  films  (incorporated  by  reference  to  Exhibit  10.1  to  the
          Company's Current Report on Form 8-K filed March 31, 2005)
31.1      Certification  of Chief Executive  Officer  Pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002
32.1      Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
          1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002


(1) Filed  previously  on the Company's  registration  on Form SB-2, as amended,
    file no.333-70526.
(2) Filed herewith.


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The  aggregate  fees billed by the  principal  accountant,  Malone & Bailey
PLLC, for the three quarterly  reviews and related audit services for the period
ending December 31, 2004 were $11,050.

     No other fees were billed for services by Malone & Bailey,  PLLC other than
those covered in the preceding  paragraph.  No professional fees were billed for
financial   information,   tax  advice  or  planning,   or  system   design  and
implementation.

                                       36
<PAGE>

                                   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
its behalf by the undersigned, thereunto duly authorized

                               MAC FILMWORKS, INC.

                               By: /s/ JIM MCCULLOUGH, SR.
                               Jim McCullough, Chief Executive Officer and
                               Chief Financial Officer

                               Date: April 15, 2005

         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/ JIM MCCULLOUGH           Chairman of the Board, President,    April 15, 2005
--------------------------
Jim McCullough               Chief Executive Officer, Chief
                             Financial Officer and Chief
                             Accounting Officer

/s/ RICHARD C. MANN          Director                             April 15, 2005
--------------------------
Richard C. Mann


                                    37
<PAGE>


                                  EXHIBIT INDEX

Exhibit No.                        Identification of Exhibit

1.1(1)     Form of Placement Agent Agreement
3.1(a)(1)  Certificate of Incorporation of Keystone Entertainment, Inc.
3.1(b)(1)  Certificate  of  Amendment to the  Certificate  of  Incorporation  of
           Keystone  Entertainment,  Inc.
3.2(1)     Amended  and  Restated  By-Laws  of  Mac Filmworks
4.1(1)     Form of Specimen of Common Stock
4.2(1)     Form of Class A Warrant Agreement
4.3(1)     Form of  Class B  Warrant  Agreement
4.4(1)     Form of Class C Warrant  Agreement
4.5(1)     Form of Class D Warrant Agreement
4.6(1)     Form of Class E Warrant  Agreement
4.7(1)     Form of Class F Warrant  Agreement
4.8(1)     Form of Class G Warrant Agreement
4.9(1)     Form of Warrant Exercise Fee Agreement with One Financial Securities,
           Ltd.
10.1(1)    1998 Employee Stock Option Plan
10.2(1)    Reorganization Agreement, as amended.
10.3(1)    Asset Purchase Agreement with Western International, Inc. (Cinevid
           library)
10.4(1)    Asset Purchase Agreement with Delta Equities Corporation
10.5(1)    Asset Purchase/Option Agreement with Durbin Entertainment, Inc.
10.6(1)    Asset Purchase Agreement with RAMM Film Video, Inc. for the purchase
           of 175 feature films
10.7(1)    Asset Purchase Agreement with RAMM Film Video, Inc. for the purchase
           of 91 cartoons
10.8(1)    Asset Purchase Agreement with Saturn Productions
10.9(1)    Asset Purchase Agreement with Western International, Inc.
10.10(1)   Employment Agreement with Jim McCullough, Sr.
10.11(1)   Asset Purchase Agreement with Jim McCullough Productions, Inc.
10.12(1)   Licensing Agreement with United American Video
10.13(1)   Licensing Contract with Hong Kong Audio Video Multimedia
10.14(1)   Financial Advisory Agreement with One Financial Securities,  Ltd.
10.14(2)   Asset Purchase Agreement with Amity Entertainment, Inc. for the sale
           of 98 films (incorporated by reference to Exhibit 10.1 to the
           Company's Current Report on Form 8-K filed March 31, 2005)
31.1       Certification of Chief Executive Officer Pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002
32.1       Certification of Chief Executive Officer Pursuant to 18 U.S.C.
           Section 1350, as Adopted Pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002


(1) Filed previously on the Company's registration on Form SB-2, as amended,
    file no.333-70526.
(2) Filed herewith.


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