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 1934For the fiscal year ended December 31, 2006





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




800 Spring Street, Suite 104, Shreveport,
              Louisiana
            71101





(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 is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
      for
      such shorter period that the registrant was required to file such reports)
      and
      (2) has been subject to such filing requirements for the past 90 days. Yes
x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B 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. o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No
x





Issuer's
      revenues for the fiscal year ended December 31, 2006: $0.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the Issuer as of March 31, 2007, was zero based on the shares
      of common stock not being publicly traded.





The
      Registrant's common stock outstanding as of December 31, 2006, was 10,804,658
      shares.





Documents
      incorporated by reference: None.











Transitional
      Small Business Disclosure Format (Check One): Yes o No x









Mac
      Filmworks, Inc.




INDEX


Page
                  No.Part
                  I
              Item
                  1.
              Description
                  of Business
              3Item
                  2.
              Description
                  of Property
              9Item
                  3.
              Legal
                  Proceedings
              9Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              9Part
                  II
              Item
                  5.
              Market
                  for Registrant's Common Equity and Related Stockholder
                  Matters
              10Item
                  6.
              Management's
                  Discussion and Analysis
              10Item
                  7.
              Financial
                  Statements
              13Item
                  8.
              Changes
                  in and Disagreements with Accountants onAccounting
                  and Financial Disclosure
              23Item
                  8A.
              Controls
                  and Procedures
              24Item
                  8B.
              Other
                  Information
              24Part
                  III
              Item
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons;
                  Compliancewith
                  Section 16(a) of the Exchange
              24Item
                  10.
              Executive
                  Compensation
              25Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners andManagement
                  and Related Stockholder Matters
              26Item
                  12.
              Certain
                  Relationships and Related Transactions
              27Item
                  13.
              Exhibits
              27Item
                  14.
              Principal
                  Accountant Fees and Services
              27




2




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 the loss of Jim McCullough as a key employee, failure
      to
      compete in an industry with companies with greater financial and technical
      resources, failure of our film library to appeal to mass audiences, failure
      of
      consumers to spend on entertainment-related goods and services lack of funding,
      litigation and other risks to which we are subject.





PART
      I





ITEM
      1.DESCRIPTION
      OF BUSINESS





**Overview**





We
      are an
      entertainment company that is engaged in the development of our existing and
      to-be-acquired nostalgic content entertainment library of:





·
            Full
                length motion pictures or feature
                films;


·
            Television
                series; and


·
            Made-for
                television movies.





We
      market, sell and distribute our library in domestic markets through traditional
      distribution channels, which include wholesale distributors of home
      videocassettes and DVDs. We intend to expand our distribution channels to
      include major network and independent television stations, satellite networks,
      pay-per-view and cable system operators. 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 1036 films, of which 28 are copyrighted and 1008
      are
      public domain titles. The film libraries, number of films purchased, and the
      net
      purchase price for the libraries acquired are as follows:




**Film
                  Library**
              **Number
                  of Films**
              **Net
                  Purchase Price**Delta
                  Equities
              132
              $33,000
                  cash &
                5,280
                  shares of common stockDurbin
                  Entertainment
              100
              $13,000
                  cashMcCullough
                  Productions
              1*
              70,000
                  shares of common stockRAMM
              200
              $83,000
                  cash &
                52,000
                  shares of common stockBerliner
                  Holdings
              276
              $12,167
                  cash &
                100,000
                  shares of common stockSaturn
                  Productions I
              300
              $105,000
                  cash &
                29,000
                  shares of common stock
  3
 Saturn
                  Productions II
              27*
              100,000
                  shares of common stockTota
                  Films/Purchase Price
              1036
              $246,167
                  cash&
                356,280
                  shares of common stock


___________________________


*
      These
      films are copyrighted.





In
      addition to the above films, the Company owns copyrights to 46 various drama,
      action, suspense, horror, and comedy films.





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
      own
      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, Louisiana. Approximately 192 properties are being stored by Sure
      Save Self Storage in Palm Desert, California for a monthly storage fee of $107.
      The remainder of our film and television properties is currently being held
      by
      their previous owners until we specify a delivery date and
      location.





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:





·  Film
      noir;


·  Classics;


·  Cult
      movies;


·  Martial
      arts;


·  Comedies;
      and


·  Television
      programs.





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





·  Abraham
      Lincoln (1930) (public domain or "PD");


·  At
      War
      with the Army (1950 PD) (Dean Martin, Jerry Lewis);


·  How
      Awful
      about Allan (1970 copyright) (Anthony Perkins, Julie Harris);


·  Paco
      (1975 copyright) (Jose Ferrer);


·  Planet
      of
      the Dinosaurs (1980 PD); and


·  Vengeance
      Valley (1951 PD) (Burt Lancaster).





Some
      of
      the films in the Durbin Entertainment library, all of which are public domain,
      include:





·
            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.





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





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




4




·
            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:





·
            The
                Adventures of Robin Hood (80)


·
            The
                Adventures of Ozzie & Harriet
                (90)


·
            The
                Andy Griffith Show (13)


·
            Beverly
                Hillbillies (55)


·
            Bonanza
                (31)


·
            George
                Burns & Gracie Allen (12)


·
            The
                Cisco Kid (35)


·
            The
                Danny Thomas Show (13)


·
            The
                Dick Van Dyke Show (6)


·
            Dragnet
                (28)


·
            The
                Jack Benny Show (20)


·
            The
                Lone Ranger (17)


·
            The
                Milton Berle Show (10)


·
            You
                Bet Your Life (12)





**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, sales 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:





·  Network
      programming;


·  Off-network
      programming;


·  First-run
      programming--programming produced for distribution on a syndicated basis;
      and


·  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.





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.




5




**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*





We
      currently own 1036 films, 28 of which are copyrighted films and 1008 of which
      are public domain films and television programs. 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 operate similar to conventional distributors, however,
      we 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.





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





*Licensing
      of our films*





We
      market
      and license our library in domestic markets through wholesale distributors
      of
      home videocassettes and DVDs. We intend to expand our market to include 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.





*Selling
      of our Films*





We
      believe the market for DVDs has expanded rapidly over the past few years and
      provides a business opportunity. We have a library consisting of public domain
      and copyrighted films. We have copied a few select movie titles from our martial
      arts film library onto DVDs and marketed the films at certain conventions.
      We
      discovered the market is interested in our martial arts film library, so we
      intend to seek financing to create more DVD masters and mass produce copies
      of
      the DVDs for sale. We also plan to copy public domain films, along with our
      copyrighted films, onto DVDs to sell to the public. We believe including several
      public domain films along with a copyrighted film onto DVDs will help make
      the
      DVDs more marketable. In addition to the films we have on-hand in our film
      library, we intend to obtain masters to the 46 films to which we own copyrights,
      and copy those films onto DVDs for sale. All of the films we copy to DVD format
      are in English or Spanish dialogue or subtitles. Our target market for the
      sales
      of our DVDs is the U.S. and international markets. We began marketing our DVDs
      in January 2007, but due to the high cost of creating DVD masters, we will
      only
      market a few of our titles until additional funding becomes available. However,
      there is no guaranty, and we provide no assurance, that we will be able to
      sell
      any of our films at a profit.




6




**Marketing
      Strategy**





*Home
      video market*





We
      are
      distributing 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 begun the process
      of
      transferring films from our video masters to DVDs or videocassettes, and we
      have
      contacted companies with whom we intend to outsource such reproduction. We
      have
      contracted with wholesale distributors or other companies, including Ingram
      and
      Baker Taylor, which will 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. Most of the art works
      for packaging, advertisements, trade show displays and posters are created
      in-house by an artist employed by the Company. We intend to outsource the
      printing, production and distribution of all promotional materials to outside
      companies. Although we have contacts with such companies, we have not yet made
      arrangements for such companies to help produce our promotional materials.
      We
      are in the final stages of completing our website.





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





·
            Selling
                to distributors and rack-jobbers who then sell the products to large
                retail outlets, convenience stores, or mass merchants such as Wal-Mart,
                Best Buy, and Video I.





·
            Direct
                response advertisements appearing as trailers on our home videocassettes
                and at the end of broadcasts of some of our programs;
                and





·
            Sales
                to specialty retail outlets such as governmental agencies, gift stores,
                libraries, museums, Radio Shack, The Sharper Image, General Nutrition
                Centers, and Home Depot. We recently signed a contact with
                NetFlix.





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
      the 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.




7




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 eight employees, four of which are part-time and four of which
      are full-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.
              78
              Chairman,
                  President, Chief Executive Officer, Chief Financial Officer, and
                  Chief
                  Accounting OfficerRichard
                  Mann
              53
              Director




**Facilities**





We
      sublease the facilities located at 800 Spring Street, Suite 104, Shreveport,
      Louisiana 71101, 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.





We
      are
      temporarily renting storage space from "Amazing Space." We entered into a rental
      agreement in June 2005. The lease is cancelable at any time upon 30 days notice.
      Our monthly rental fee is $180.





**Legal
      Proceedings**





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





**Copyrights**





Of
      the
      1036 films we have purchased, 28 are under copyright protection. We also own
      copyrights (but no masters) to 46 various drama, action, suspense, horror and
      comedy films.





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.





**Organizational
      History and Background**





We
      are a
      development stage company with a limited operating history organized as a
      Delaware corporation in September 1997. In October 1997, we entered a
      reorganization agreement with Mac Filmworks, Inc. ("Company"), a Texas
      corporation, 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..





8


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 (Reg. No. 333-70526). 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.





In
      May
      2005, we completed a sale of 89 of our films to Amity Entertainment of which
      we
      received cash proceeds of $1,100,000 and $500,000 in the form of two secured
      notes each in the amount of $250,000, with the first maturing in May 2006 and
      the last maturing in May 2007.





In
      May
      2005, Western International failed to deliver certain films to the Company
      pursuant to purchase contracts executed in July and August 1997. Under the
      contracts, the Company paid a total of $19,990, issued an aggregate of 67,400
      shares of common stock and issued two notes in the aggregate principal amount
      of
      $287,000, for the purchase of the films. To settle potential claims against
      Western International and for receipt of $20,000, Western International agreed
      to cancel the two notes and return 50,000 shares of common stock.





In
      May
      2005, Ramm Films and Video ("Ramm Films") agreed to accept payment of $78,000
      in
      exchange for settlement in full of a note in the principal amount of $100,000.
      The Company issued the $100,000 note, paid $5,000 and issued 50,000 shares
      of
      common stock to Ramm Films in July 1997 for the purchase of 175
      films.





In
      May
      2005, Ramm Films was unable to deliver 96 films under a purchase agreement
      executed in September 1997. Under the purchase agreement, the Company issued
      a
      $8,000 note, paid $6,000 cash and issued 2,000 shares of common stock to Ramm
      Films. To settle claims against Ramm Films and for receipt of $5,000, it agreed
      to cancel the $8,000 note and deliver 25 other films. Additionally, the parties
      agreed Ramm Films would keep 2,000 shares of common stock previously issued
      to
      it under the purchase agreement.





In
      June
      2005, Saturn Productions agreed to accept payment of $105,000 in exchange for
      settlement in full of a note in the principal amount of $145,000. The Company
      issued the $145,000 note, paid $10,000 cash and issued 29,000 shares of common
      stock to Saturn Productions in July 1997 for the purchase of 300 films.
      Additionally, Saturn Productions agreed to amend the purchase price of our
      option to acquire 70 films by waiving a $10,000 cash fee and canceling a note
      in
      the principal amount of $5,000. We agreed to allow Saturn Productions to keep
      100,000 shares of common stock previously issued to it, and we paid an
      additional $100,000 for related DVD rights.





In
      August
      2005, our public offering of units expired because the minimum number of units
      in the offering was not raised.





In
      August
      2005, the Company paid $12,167 and issued 100,000 shares of common stock to
      Berliner Holdings for the purchase of 276 martial arts feature
      films.





ITEM
      2. DESCRIPTION
      OF PROPERTY





Our
      principal executive office is located at 800 Spring Street, Suite 104,
      Shreveport, Louisiana 71101, 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.
      Our
      telephone number is (318) 687-8785.





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.





9


PART
      II




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





**Market
      Information**





Our
      common stock trades on the OTC Bulletin Board under the symbol “MFWO.” The
      market for our common stock on the OTC Bulletin Board is limited, sporadic
      and
      highly volatile. The following table sets forth the approximately high and
      low
      closing sales prices per share as reported on the OTC Bulletin Board for our
      common stock for the last two fiscal years. Our common stock commenced trading
      on the OTC Bulletin Board on January 24, 2004. The quotations reflect
      inter-dealer prices, without retail markups, markdowns, or commissions and
      may
      not represent actual transactions.





**High**
              **Low***Year
                  2006*
              **--**
              **--**Quarter
                  ended December 31
              **--**
              **--**Quarter
                  ended September 30
              **--**
              **--**Quarter
                  ended June 30
              **--**
              **--**Quarter
                  ended March 31
              **--**
              **--***Year
                  2005*
              **--**
              **--**Quarter
                  ended December 31
              **--**
              **--**Quarter
                  ended September 30
              **--**
              **--**Quarter
                  ended June 30
              **--**
              **--**Quarter
                  ended March 31
              **--**
              **--**




**Equity
      Compensation Plan Information**





We
      have
      adopted a compensation plan to date, but we have not issued any options to
      date.





**Holders
      of Record**





As
      of
      February 20, 2007, we had 184 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.





**Repurchases**





We
      made
      no repurchases of our common stock during fiscal 2006.





**Recent
      Sales of Unregistered Securities**





There
      were no issuances of common stock by the issuer during fiscal 2006.





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**





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




10




**Critical
      Accounting Policies**





The
      Financial Statements and Notes to 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
      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.
      Impairment expense of $319,399 was recorded in fiscal 2006. Impairment
      expense of $1,018,200 has been recorded from inception.





**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**




11




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**





Since
      inception, we have generated little revenues. Our sole revenue has been derived
      from an option sold in June 2002 to distribute one of our films. We had no
      revenues during fiscal 2005 or 2006. As of December 31, 2006, we had total
      current assets of $160,280 and total current liabilities of $640,750. Our
      current assets include $160,280 in cash. Our current liabilities include
      liabilities due to related parties in the amount of $268,683 and accrued officer
      salary of $344,928. Assuming that we can postpone the payment of accrued officer
      salary and related party debt, we believe we have sufficient cash to fund
      operations through the end of fiscal 2007. In the event the related parties
      demand payment in 2007, we may be unable to pay. If we do have sufficient cash
      to pay the related parties, we will likely have insufficient resources to
      sustain operations and we will be forced to seek external sources of financing
      or sell assets to fund operations. There is presently no commitment for such
      sources of financing (debt or equity), and we provide no assurance that we
      will
      be able to obtain such financing. If we sell our assets to pay liabilities,
      we
      may not have enough films to market, sell and distribute and thus, may not
      be
      able to generate future revenue. Accordingly, we need to obtain financing to
      pay
      our liabilities. Failure to receive financing sufficient to pay our current
      liabilities for working capital needs will result in the curtailment of
      operations or the ceasing of operations.





In
      June
      2006, a payment of $175,000 was made on a secured note with the principal
      balance of $250,000. The balance of $75,000 is due to the Company from Amity
      Entertainment. There is a secured note due in the principal amount of $250,000
      due in May, 2007 from Amity Entertainment. There is no assurance, however,
      that
      Amity will honor its debt obligation to us or that it will not offset some
      or
      all of the principal balance for any potential claims it may assert against
      us
      related to the sale of our films to Amity in May 2005. Although the notes are
      secured by the films we sold to Amity, there is no assurance that we will obtain
      these films or, if we do, that we will be able to sell them and receive proceeds
      equal to the principal amount of the note. The Company has therefore impaired
      the entire amount due. Failure to receive the $250,000 in May 2007 could force
      the Company to curtail or cease operations unless we obtain other sources of
      financing or we generate internal sources of revenue.





**Contractual
      Commitments**





Our
      current contractual commitments are as follows:




**Commitment**
              **Description**
              **Payment
                  due by Period**Through
                Dec.
                  31, 2006
              Through
                Dec.
                  31, 2007
              Through
                Dec.
                  30, 2008Employment
                  Agreement with Jim McCullough
              We
                  have renewed a three-year employment agreement with Mr. McCullough
                  which
                  provided that he will be paid an annual salary of $84,000. As of
                  June 30,
                  2005, we have accrued Mr. McCullough's salary in the amount of
                  $321,923.
                  This agreement will expire in January 2007.
              $84,000
              $84,000
              --




**Off-Balance
      Sheet Arrangements**





As
      of
      December 31, 2006, the Company had no off-balance sheet
      arrangements.





12




ITEM
      7.FINANCIAL
      STATEMENTS


REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
 To
        the Board of DirectorsMac Filmworks, Inc.
 (A
        Development Stage Company)Shreveport, Louisiana
 
 We
        have audited the accompanying balance sheets of Mac Filmworks, Inc. (A
        Development Stage Company) as of December 31, 2006, and the related statements
        of operations, 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, 2006. 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 audits 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, 2006, 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, 2006, in conformity with accounting principles generally
        accepted in the United States of America.
 
 The
        accompanying financial statements have been prepared assuming that 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, 2006 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, PCHouston, Texaswww.malone-bailey.com
 
 April
        13, 2007
 
 13
  
 2006AssetsCurrent
                  AssetsCash
              
              $
              160,280Total
                  Current Assets
              
              
              160,280Film
                  library, net of net of accumulatedamortization
                  of $4,526
              
              
              17,641Total
                  Assets
              
              $
              177,921Liabilities
                  and Stockholders' DeficitCurrent
                  LiabilitiesDue
                  to related parties
              
              $
              268,683Accrued
                  officer salary
              
              
              344,928Accounts
                  payable
              
              
              6,389Deferred
                  revenue
              
              
              20,750Total
                  Current Liabilities
              
              
              640,750Contingencies
              
              
              --Stockholders'
                  DeficitPreferred
                  stock, $.0001 par, 10,000,000 sharesauthorized,
                  no shares issued or outstanding
              
              
              --Common
                  stock, $.0001 par, 50,000,000 sharesauthorized,
                  10,804,658 shares issued andoutstanding
              
              
              1,080Paid-in
                  capital
              
              
              1,437,719Deficit
                  accumulated during the development stage
              
              
              (1,901,628Total
                  Stockholder's Deficit
              
              
              (462,829Total
                  Liabilities and Stockholders' Deficit
              
              $
              177,921
 
 See
        accompanying summary of accounting policies and notes to financial
        statements.
  14
  
 Inception
                  to2006
              
              2005
              
              2006Revenues
              
              $
              --
              
              $
              --
              
              $
              25,505Operating
                  ExpensesGeneral
                  and administrative
              
              
              392,893
              
              
              245,040
              
              
              2,605,742Imputed
                  film storage rental costs
              
              
              7,200
              
              
              7,200
              
              
              64,800Depreciation
                  and amortization
              
              
              4,433
              
              
              92
              
              
              18,554Impairment
                  expense
              
              
              317,399
              
              
              --
              
              
              1,016,200Debt
                  forgiveness
              
              
              --
              
              
              --
              
              
              (27,500
              )Total
                  operating expenses
              
              
              721,925
              
              
              252,332
              
              
              3,677,796Loss
                  from operations
              
              
              (791,925
              )
              
              (252,332
              )
              
              (3,652,291
              )OTHER
                  INCOME (EXPENSE):Amortization
                  of discount
              
              
              25,981
              
              
              18,724
              
              
              44,603Interest
                  expense
              
              
              (18,808
              )
              
              (14,417
              )
              
              (414,750
              )Gain
                  on disposition of assets
              
              
              --
              
              
              1,530,257
              
              
              1,536,182Gain
                  from debt extinguishment
              
              
              --
              
              
              584,628
              
              
              584,628Income/(Loss)
                  before income taxes
              
              
              (714,752
              )
              
              1,866,860
              
              
              (1,901,628
              )Income
                  tax expense (benefit)
              
              
              (22,961
              )
              
              22,961
              
              
              --Net
                  Income (Loss)
              
              $
              (691,791
              )
              $
              1,843,899
              
              $
              (1,901,628
              )Basic
                  and diluted net income (loss)per
                  common share
              
              $
              (0.06
              )
              $
              0.17Weighted
                  average shares outstanding
              
              
              10,804,658
              
              
              10,759,616
 
 See
        accompanying summary of accounting policies and notes to financial
        statements.
  15
  
 
 Common
                    StockShares
                
                Amount
                
                Paid-InCapital
                
                Accumulated
                    Deficit
                
                TotalsIssuance
                    of stock to founders atinception
                
                
                10,000
                
                $
                1
                
                $
                999
                
                $
                --
                
                $
                1,000Cancellation
                    of stockissued
                    to one oforiginal
                    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
                
                
                --
                
                
                75,2641997
                    for film library acquisitions
                
                
                247,680
                
                
                25
                
                
                123,815
                
                
                --
                
                
                123,8401997
                    in a private offering for cash
                
                
                400,000
                
                
                40
                
                
                199,960
                
                
                --
                
                
                200,0001997
                    in a private offering for cash
                
                
                37,500
                
                
                4
                
                
                37,496
                
                
                --
                
                
                37,5001997
                    for services related to theprivate
                    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
                
                
                --
                
                
                30,0001998
                    in a private offering for cash
                
                
                100,750
                
                
                10
                
                
                100,740
                
                
                --
                
                
                100,7501998
                    for services
                
                
                320,700
                
                
                32
                
                
                320,668
                
                
                --
                
                
                320,700Imputed
                    film storage rental costs
                
                
                --
                
                
                --
                
                
                7,200
                
                
                --
                
                
                7,200Issuances
                    of common stock in:1999
                    for services
                
                
                70,000
                
                
                7
                
                
                52,494
                
                
                --
                
                
                52,5001999
                    in a private offering for cash
                
                
                147,000
                
                
                15
                
                
                36,035
                
                
                --
                
                
                36,050Imputed
                    film storage rental costs
                
                
                --
                
                
                --
                
                
                7,200
                
                
                --
                
                
                7,200Issuance
                    of common stockin
                    2000 for cash
                
                
                226,880
                
                
                23
                
                
                56,697
                
                
                --
                
                
                56,720in
                    2000 for services
                
                
                142,500
                
                
                14
                
                
                35,611
                
                
                --
                
                
                35,625in
                    March for payment of prioryear
                    account payable
                
                
                45,000
                
                
                5
                
                
                20,995
                
                
                --
                
                
                21,000in
                    July for computer equipment
                
                
                26,120
                
                
                2
                
                
                6,528
                
                
                --
                
                
                6,530in
                    September for public shellpurchase
                    price adjustment
                
                
                160,000
                
                
                16
                
                
                (16
                )
                
                --
                
                
                --Imputed
                    film storage rental costs
                
                
                --
                
                
                --
                
                
                7,200
                
                
                --
                
                
                7,200Net
                    loss - period from Inceptionthrough
                    Dec. 31, 2000
                
                
                --
                
                
                --
                
                
                --
                
                
                (1,612,537
                )
                
                (1,612,537
                )Balances,
                    December 31, 2000
                
                
                7,554,658
                
                
                755
                
                
                1,118,324
                
                
                (1,612,537
                )
                
                (493,458
                )
  (continued
        on next page)
  See
        accompanying summary of accounting policies and notes to financial statements.
  16


Common
                  StockShares
              
              Amount
              
              Paid-InCapital
              
              Accumulated
                  Deficit
              
              TotalsBalances,
                  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
              
              
              --
              
              
              120,0002001
                  for cash
              
              
              100,000
              
              
              10
              
              
              9,990
              
              
              --
              
              
              10,0002001
                  for payment of accounts payable
              
              
              1,800,000
              
              
              180
              
              
              94,197
              
              
              --
              
              
              94,377Imputed
                  film storage rental costs
              
              
              --
              
              
              --
              
              
              7,200
              
              
              --
              
              
              7,200Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              (973,944
              )
              
              (973,944
              )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
              
              
              --
              
              
              7,200Contributions
                  to capital
              
              
              --
              
              
              --
              
              
              8,940
              
              
              --
              
              
              8,940Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              (151,174
              )
              
              (151,174
              )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
              
              
              --
              
              
              7,200Shares
                  issued for film purchase
              
              
              100,000
              
              
              10
              
              
              9,990
              
              
              --
              
              
              10,000Net
                  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
              
              
              --
              
              
              7,200Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              (149,032
              )
              
              (149,032
              )Balances,
                  December 31, 2004
              
              
              10,754,658
              
              
              1,075
              
              $
              1,390,121
              
              
              (3,053,736
              )
              
              (1,622,540
              )Shares
                  issued for film purchase
              
              
              100,000
              
              
              10
              
              
              9,990
              
              
              --
              
              
              10,000Shares
                  cancelled as part ofsettlement
                  of notes payable
              
              
              (50,000
              )
              
              (5
              )
              
              5
              
              
              --
              
              
              --Contributed
                  capital
              
              
              --
              
              
              --
              
              
              4,395
              
              
              --
              
              
              4,395Imputed
                  film storage rental costs
              
              
              --
              
              
              --
              
              
              7,200
              
              
              --
              
              
              7,200Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              1,843,899
              
              
              1,843,899Balances,
                  December 31, 2005
              
              
              10,804,658
              
              
              1,080
              
              
              1,411,711
              
              
              (1,209,837
              )
              
              202,954Imputed
                  film storage rental costs
              
              
              --
              
              
              --
              
              
              7,200
              
              
              --
              
              
              7,200Imputed
                  interest - related party debt
              
              
              --
              
              
              --
              
              
              18,808
              
              
              --
              
              
              18,808Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              (691,791
              )
              
              (691,791
              )Balances,
                  December 31, 2006
              
              
              10,804,658
              
              $
              1,080
              
              $
              1,437,719
              
              $
              (1,901,628
              )
              
              (462,829
              )
 See
        accompanying summary of accounting policies and notes to financial
        statements.


17
   
    2006
              
              2005
              
              Inception
                  toDec. 31, 2006Cash
                  Flows From Operating ActivitiesNet
                  income (loss)
              
              $
              (691,791
              )
              $
              1,843,899
              
              $
              (1,901,628
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operating activities:Amortization
                  of notes receivable discount
              
              
              (23,102
              )
              
              (18,723
              )
              
              (41,825
              )Amortization
                  of loan extension fees
              
              
              --
              
              
              1,740
              
              
              2,499Shares
                  issued for services
              
              
              --
              
              
              --
              
              
              605,089Imputed
                  film storage rental costs
              
              
              7,200
              
              
              7,200
              
              
              64,800Imputed
                  interest on related party debt
              
              
              18,808
              
              
              --
              
              
              18,808Forgiveness
                  of debt
              
              
              --
              
              
              --
              
              
              (27,500
              )Depreciation
                  and amortization
              
              
              4,433
              
              
              92
              
              
              18,554Gain
                  on disposition of assets
              
              
              --
              
              
              (1,530,257
              )
              
              (1,536,182
              )Gain
                  from debt extinguishment
              
              
              --
              
              
              (584,628
              )
              
              (584,628
              )Impairment
                  expense
              
              
              317,399
              
              
              --
              
              
              1,016,200Changes
                  in:Accounts
                  payable
              
              
              1,606
              
              
              (638
              )
              
              82,091Accrued
                  officer salary
              
              
              22,489
              
              
              (197,561
              )
              
              344,928Accrued
                  interest
              
              
              --
              
              
              12,676
              
              
              384,057Accrued
                  income taxes
              
              
              (22,961
              )
              
              22,961
              
              
              --Deferred
                  revenue
              
              
              --
              
              
              20,000
              
              
              20,750Net
                  Cash Used In Operating Activities
              
              
              (365,919
              )
              
              (423,239
              )
              
              (1,533,987
              )Cash
                  Flows From Investing ActivitiesPurchase
                  of motion picture film libraries
              
              
              --
              
              
              (32,485
              )
              
              (92,875
              )Purchase
                  of motion picture film librarypurchase
                  rights
              
              
              --
              
              
              --
              
              
              (16,000
              )Proceeds
                  from notes receivable
              
              
              175,000
              
              
              --
              
              
              175,000Proceeds
                  from sale of assets
              
              
              --
              
              
              1,100,000
              
              
              1,100,000Net
                  Cash Provided by Investing Activities
              
              
              175,000
              
              
              1,067,515
              
              
              1,166,125Cash
                  Flows From Financing ActivitiesProceeds
                  from loans from stockholders
              
              
              1,880
              
              
              --
              
              
              363,457Loan
                  extension fees
              
              
              --
              
              
              --
              
              
              (2,500
              )Payments
                  on loans from stockholders
              
              
              (627
              )
              
              (1,798
              )
              
              (24,774
              )Proceeds
                  from bank loans
              
              
              --
              
              
              --
              
              
              104,257Payments
                  on bank loans
              
              
              --
              
              
              (4,691
              )
              
              (104,258
              )Payments
                  on library purchase loans
              
              
              --
              
              
              (288,000
              )
              
              (288,000
              )Proceeds
                  from sales of common stock
              
              
              --
              
              
              --
              
              
              471,020Contributions
                  to capital
              
              
              --
              
              
              --
              
              
              8,940Net
                  Cash Provided By (Used in) Financing Activities
              
              
              1,253
              
              
              (294,489
              )
              
              528,142Net
                  change in cash
              
              
              (189,666
              )
              
              349,787
              
              
              160,280Cash
                  at beginning of period
              
              
              349,946
              
              
              159
              
              
              --Cash
                  at end of period
              
              $
              160,280
              
              $
              349,946
              
              $
              160,280
 Supplemental
          Disclosures:
 
 See
          Note 3
  See
        accompanying summary of accounting policies and notes to financial
        statements.
  18
  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 -- The preparation of these financial statements is in conformity
        with accounting principles generally accepted in the United States of America
        and requires management to make estimates and assumptions that affect the
        reported amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements and the reported
        amount
        of revenues and expenses during the reporting period. Actual results could
        differ from those estimates.
 
 Cash
        -- For purposes of the statement of cash flows, Mac Filmworks considers all
        highly liquid investments purchased with an original maturity of three months
        or
        less to be cash equivalents. There were no cash equivalents as of December
        31,
        2006.
 
 Property
        and Equipment -- Property and equipment is carried 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.
 
 Earnings
        per Share -- The basic net loss per common share is computed by dividing
        the net
        loss by the weighted average number of common shares outstanding. Diluted
        net
        loss per common share is computed by dividing the net loss adjusted on an
        "as if
        converted" basis, by the weighted average number of common shares outstanding
        plus potential dilutive securities. For the years ended December 31, 2006
        and
        2005, there were no dilutive securities outstanding.
  19
  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.
 
 Income
        Taxes -- Mac Filmworks recognizes deferred tax assets and liabilities for
        the
        tax effect of 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.
 
 Share-Based
        Compensation -- On January 1, 2006, Mac Filmworks adopted SFAS No. 123 (R),
        “Share-Based Payment.” SFAS 123(R) replaced SFAS No. 123 and supersedes APB
        Opinion No. 25. SFAS 123(R) requires all share-based payments to employees,
        including grants of employee stock options, to be recognized in the financial
        statements based on their fair values. The pro forma disclosures previously
        permitted under SFAS 123 are no longer an alternative to financial statement
        recognition. Mac Filmworks adopted SFAS 123(R) using the modified prospective
        method which requires the application of the accounting standard as of January
        1, 2006. The consolidated financial statements as of and for the year ended
        December 31, 2006 reflect the impact of adopting SFAS 123(R). In accordance
        with
        the modified prospective method, the consolidated financial statements for
        prior
        periods have not been restated to reflect, and do not include, the impact
        of
        SFAS 123(R). Since Mac Filmworks has not granted options during the year
        ended
        December 31, 2006 or during any period prior to January 1, 2006, the adoption
        of
        SFAS 123(R) had no impact.
 
 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 from operations
        of $791,925 and $252,332 in 2006 and 2005, respectively, and has negative
        cash
        flows from operations of $365,919 and $423,239 in 2006 and 2005, respectively.
        This has created 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 three
        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. The financial statements do not include any adjustments
        that
        might be necessary if Mac Filmworks is unable to continue as a going concern.
  20
  NOTE
          3 - SUPPLEMENTAL CASH FLOW DISCLOSURES
 The
          following table sets forth supplemental cash flow disclosures for the years
          ended
          December 31, 2006 and 2005.
 2006
                  
                  2005Interest
                      paid
                  
                  $
                  --
                  
                  $
                  --Income
                      taxes paid
                  
                  
                  --
                  
                  
                  --Non-Cash
                      Investing and Financing Activities:Debt
                      extinguishment by negotiation
                  
                  $
                  --
                  
                  $
                  200,571Extinguishment
                      of accrued interest
                  
                  
                  --
                  
                  
                  384,071Capital
                      contributed from accounts payable
                  
                  
                  --
                  
                  
                  4,395Notes
                      receivable from sale of films
                  
                  
                  --
                  
                  
                  500,000Stock
                      issued for film library
                  
                  
                  --
                  
                  
                  10,000
 NOTE
            4 - 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
              
              $
              60,390Discounted
                  value of notes payable
              
              
              483,571223,680
                  shares of stock at $.50 per share
              
              
              111,840Motion
                  Picture Film Library
              
              $
              655,801
 
 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 to which 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.
  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.
  21
 
 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
        5 - RELATED PARTY TRANSACTIONS
 
 Several
        shareholders loaned Mac Filmworks money to fund ongoing operations and paid
        expenses on behalf of Mac Filmworks. From time to time, Mac Filmworks has
        paid
        these shareholders back by paying expenses on their behalf. In 2006 and 2005,
        expenses of $1,881 and $815 were paid for Mac Filmworks. During the same
        period,
        Mac Filmworks paid $1,135 and $2,614 for these related parties. Although
        shareholders have funded operations in the past, they are under no obligation
        to
        do so in the future. Amounts are due on demand and unsecured. Interest is
        being
        imputed at a rate of 7%.
 
 Mac
        Filmworks leases facilities from Jim McCullough Productions, a company owned
        by
        Mac Filmworks’ president, at a rate of $1,000 per month.
 
 NOTE
        6 - 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, 2009. Until 2005 when funding
        became
        available, the amount was being accrued. During 2005, Mac Filmworks paid
        its
        president the annual salary plus $197,561 of previously accrued salary. During
        2006, Mac Filmworks paid $28,782 and accrued the balance of the annual salary.
 
 NOTE
        7 - NOTES PAYABLE FOR FILM LIBRARY PURCHASES
 
 Mac
        Filmworks agreed to purchase five film libraries for promissory notes as
        a
        portion of the purchase price in 2004. In June 2005, $288,000 of the outstanding
        debt listed above was repaid. These payments were the culmination of
        negotiations that resulted in extinguishment of $200,571 of film library
        purchase debt and all of the interest of $384,057 that had accrued on these
        notes. A gain of $584,628 from debt extinguishment was recognized in 2005.
        In
        addition the remaining balance was eliminated by a vendor's inability to
        deliver
        films under its agreement.
 
 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.
 
 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 $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.
 
 In
        April 2005, Mac Filmwroks entered into an agreement with Amity Entertainment,
        Inc. for the exclusive distribution rights to a film titled "Creature From
        Black
        Lake" (the "Film") until April 29, 2011. The Company will receive money derived from
        distribution of the Film after Amity deducts the following fees: 1) a distribution
        fee of 35% of gross receipts from the exploitation and distribution of the
        Film;
        2) distribution costs; and 3) a $20,000 advance made to the Company on April
        29,
        2005. This advance has been recorded as Deferred Revenue until such time
        as
        Amity begins distribution of the Film.
 
 NOTE
        10 - SALE OF FILMS AND NOTES RECEIVABLE
 
 On
        May 3, 2005, Mac Film completed the sale of the its right, title and interest in
        89 films for $1,600,000. Of this amount, $500,000 was in the form of two secured,
        non-interest bearing notes for $250,000 each (one maturing in May 2006 and
        the
        other in May 2007). A deduction of $100,000 was made to make payment for
        certain
        library purchase obligations and a deduction of $20,000 was made to pay for
        the
        DVD rights to certain of the titles sold.
 
 22
  Because
            the notes are non-interest bearing, a discount was established to reflect
            the
            present value of the notes. This discount is being amortized over the
            term of
            the respective notes and recognized as interest income.
 
 Due
            to
            the fact that one of the notes is delinquent and the inability to determine
            the
            entity’s ability to pay the second note when due, Mac Filmworks has impaired
            the
            entire amount due.
 2006Total
                      of notes receivable
                  
                  $
                  325,000Less
                      discount
                  
                  
                  (30,703
                  )Net
                      amount of revenue and note recorded
                  
                  $
                  294,297Amortization
                      through December 31, 2006
                  
                  
                  23,102$
                  317,399Less
                      impairment
                  
                  
                  (317,399
                  )Notes
                      receivable, net
                  
                  
                  --
  NOTE
          11 - STOCK ISSUED FOR SERVICES & EQUIPMENT
 In
        April 2005, Mac Filmworks received back 50,000 shares of common stock from
        a
        film vendor because it was unable to deliver films as originally represented.
 
 In
        August 2005, Mac Filmworks arranged to purchase certain Chinese films for
        $12,167 and 100,000 common shares valued at $10,000.
 
 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, 2006, no options
        had been granted.
 
 NOTE
        13 - INCOME TAXES
  At
        December 31, 2006, deferred tax assets consisted of the following:
 2006Deferred
                    tax assets:NOL
                    carry forward
                
                $
                224,242Less:
                    valuation allowance
                
                
                (224,242
                )Net
                    deferred taxes
                
                $
                --
 Mac
          Filmworks had a net operating loss carryforward of approximately $659,535
          at
          December 31, 2006. The NOL will expire in 2026.




NOTE
        14 - SUBSEQUENT EVENT
  On
        March 23, 2007, the Company entered into a consulting agreement, pursuant
        to
        which the Company issued 1,000,000 shares of common stock as consideration
        for
        services to be rendered.


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





Not
      applicable.




23




ITEM
      8A. CONTROLS
      AND PROCEDURES





**Controls
      and Procedures**





Evaluation
      of Disclosure Controls and Procedures. As of the end of the period covered
      by
      this report, we conducted an evaluation, under the supervision and with the
      participation of our chief executive officer and chief financial officer of
      our
      disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule
      15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive
      officer and chief financial officer concluded that our disclosure controls
      and
      procedures were not effective to ensure that the information required to be
      disclosed by us in the reports that we file or submit under the Exchange Act
      is
      (i) recorded, processed, summarized and reported within the time periods
      specified in the Securities and Exchange Commission’s rules and forms, and (ii)
      is accumulated and communicated to our management, including our chief executive
      officer and chief financial officer, to allow timely decisions regarding
      required disclosure.





In
      connection with the completion of its audit of, and the issuance of its report
      on the financial statements of the Company for the year ended December 31,
      2006,
      Malone & Bailey, PC identified a deficiency in our internal controls
      primarily relating to the accrual of expenses and impairment of assets. The
      adjustments relating to these items were detected in the audit process and
      has
      been appropriately recorded and disclosed in this Form 10-KSB. We are in the
      process of improving our internal controls in an effort to remediate this
      deficiency. Additional effort is needed to fully remedy this deficiency and
      we
      are continuing our efforts to improve and strengthen our control processes
      and
      procedures. Our management and directors will continue to work with our auditors
      and other outside advisors to ensure that our controls and procedures are
      adequate and 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 year ended December 31, 2006, 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 description of the business
      experience and background of each person named in the table




**Name**
              **Age**
              **Title**Jim
                  McCullough, Sr.
              78
              Chairman
                  of the Board, President, Chief Executive Officer, Chief Financial
                  Officer
                  and Chief Accounting OfficerRichard
                  C. Mann
              53
              Director


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.




24




**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.





**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**





Section
      16(a) of the Exchange Act requires the Company's directors and executive
      officers, and persons who own beneficially more than ten percent (10%) of the
      common stock, to file reports of ownership and changes of ownership with the
      Securities and Exchange Commission. Copies of all filed reports are required
      to
      be furnished to us. Based solely on the reports received and the representations
      of the reporting person, the Company believes that these persons have complied
      with all applicable filing requirements during the fiscal year ended December
      31, 2005, except Mr. McCullough has not filed his Form 3.





**Code
      of Ethics**





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 Directors
      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, 2006, 2005 and 2004.





SUMMARY
      COMPENSATION TABLE




Name
                  and
                Principal
                Position
              
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Stock
                Awards
                ($)
              
              Option
                  Awards
                ($)
              
              Non-Equity
                Incentive
                Plan
                  Compensation
                ($)
              
              Change
                  in
                Pension
                  Value
                and
                Nonqualified
                Deferred
                Compensation
                Earnings
                ($)
              
              All
                  Other Compensation
                ($)
              
              Total
                ($)Jim
                  McCullough(1)
              
              
              2006
              
              $
              84,000
              (2)
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              $
              84,0002005
              
              $
              84,000
              (2)
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              $
              84,0002004
              
              $
              84,000
              (2)
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              $
              84,000
  25


________________________





(1) Mr.
      McCullough serves as president, chief executive officer, chief financial officer
      and chief accounting officer.


(2) Paid
      pursuant to his employment agreement.





**Outstanding
      Equity Awards at Year-End**





No
      equity
      awards, either in the form of restricted stock grants or options, have been
      issued to the named executive officer during fiscal 2005 or 2006 and no awards
      are outstanding at December 31, 2006.





**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**





Directors
      are not 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 been accrued as of the date
      hereof.





**Option
      Grants in Fiscal Year Ending December 31, 2006**





No
      options were granted to the named executive officer during fiscal
      2006.





**Employment
      Agreement**





We
      entered into an employment agreement with Mr. McCullough, Sr. that expires
      in
      December 2009. The agreement provides 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, 2006, the
      Company has accrued Mr. McCullough salary in the amount of $344,928, of which
      $84,000 was accrued in fiscal 2006 and $61,511 was paid in fiscal 2006. There
      are
      no changes of control provisions in Mr. McCullough’s employment
      agreement.





ITEM
      11.SECURITY
      OWNERSHIP OF CERTAIN BENEIFICAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS.





The
      table
      below sets forth, as of December 31, 2006, the beneficial ownership of common
      stock of:





·  our
      directors;


·  our
      named
      executive officers;


·  the
      holders of five percent or more of our common stock; and


·  our
      officers and directors as a group.


**Name
                  of beneficial**
                **owners**
              **Number
                  of shares of common**
                **stock
                  beneficially owned**
              **Percentage
                  of**
                **ownership**Jim
                  McCullough, Sr.
              3,070,000
              28.7%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
              7.2%William
                  Silvey
              735,000
              6.9%All
                  officers and directors as a group, (2) persons
              3,080,000
              29.2%


26




Mr.
      McCullough's address is 800 Spring Street, Suite 104, Shreveport, Louisiana
      71101. 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. Messrs. Silvey and Thompson beneficially owns shares directly owned
      by
      family members and entities under their respective control.





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,
      2006.





As
      of
      December 31, 2006, Mr. McCullough and his affiliates have loaned the Company
      approximately $268,683. This amount is payable on demand and does not accrue
      interest. As of December 31, 2006, Mac Filmworks owed Mr. McCullough $344,928
      in
      accrued and unpaid salary.





ITEM
      13.EXHIBITS.





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




Exhibit
                  No.
              Identification
                  of Exhibit31.1
              Certification
                  of Chief Executive Officer Pursuant to Section 302of
                  the Sarbanes-Oxley Act of 200232.1
              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




ITEM
      14.PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Aggregate
      fees for professional services rendered by Malone & Bailey, P.C. ("Malone")
      for the fiscal years ended December 31, 2006 and 2005, were as
      follows:




**2006**
              **2005**Audit
                  fee
              $12,000
              $12,000Audit-related
                  fees
              $0
              $0Tax
                  fees
              $0
              $0All
                  other fees
              $0
              $0




Audit
      fees for the fiscal years ended December 31, 2006 and 2005 represent the
      aggregate fees billed for professional services rendered by Malone for the
      audit
      of our annual financial statements and review of financial statements included
      in our quarterly reports on Form 10-Q or services that are normally provided
      in
      connection with statutory and regulatory filings or engagements for those fiscal
      years.





**Audit
      Committee Pre-Approval Policies and Procedures**




27




The
      Board
      of Directors serves as the audit committee of the Company. The Board of
      Directors on an annual basis reviews audit and non-audit services performed
      by
      the independent auditor. All audit and non-audit services are pre-approved
      by
      the Board of Directors, which considers, among other things, the possible effect
      of the performance of such services on the auditors' independence. The Board
      of
      Directors has considered the role of Malone & Bailey, PC in providing
      services to us for the fiscal year ended December 31, 2006 and has concluded
      that such services are compatible with Malone & Bailey's independence as the
      Company's auditors.





28





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


Jim
      McCullough, Chief Executive Officer


and
      Chief
      Financial Officer





Date: April
      17, 2006





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
              Jim
                McCullough
            Chairman
                of the Board, President, Chief Executive Officer, Chief Financial
                Officer
                and Chief Accounting Officer
            April
                17, 2006/s/
                Richard Mann
              Richard
                C. Mann
            Director
            April
                17, 2006








EXHIBIT
      INDEX







Exhibit
                    No.
                Identification
                    of Exhibit31.1
                Certification
                    of Chief Executive Officer Pursuant to Section 302of
                    the Sarbanes-Oxley Act of 200232.1
                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


29