**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM
      10-QSB**


(Mark
      One)





x QUARTERLY
      REPORT
      UNDER SECTION 13 OR 15(d) OF
      THE
      SECURITIES EXCHANGE ACT OF 1934


For
      the
      quarterly period ended March 31, 2007




OR





o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d)
      OF
      THE SECURITIES EXCHANGE ACT OF 1934





For
      the
      transition period from to





Commission
      file number 000-30785









**CAMELOT
      ENTERTAINMENT GROUP, INC.**





(Exact
      name of registrant as specified in its charter)






Delaware
      52-2195605





(State
      or other jurisdiction of (I.R.S. Employer


incorporation
      or organization) Identification No.)








2020
      Main
      Street #990


Irvine,
      CA 92614





(Address
      of principal executive offices (zip code))





(949)
      777-1090





(Registrant's
      telephone number, including area code)





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


Yes x No o








As
      of
      March 31, 2007, the Registrant had outstanding 111,655,743 shares of Common
      Stock, $0.001 par value.









1


**CAMELOT
      ENTERTAINMENT GROUP, INC.**


**INDEX
      TO FORM 10-QSB**





**PART
                I. FINANCIAL INFORMATION**Item
                1. Financial Statements (Unaudited)
            4Balance
                Sheets as of March 31, 2007
            4Statements
                of Operation for the three months ended March 31, 2007 and
                2006
            4Statements
                of Changes in Stockholders’ Equity (Deficit)for the three months ended
                March 31, 2007
            6
                -
                7Statements
                of Cash Flows for the three months ended, March 31, 2007 and
                2006
            8Notes
                to Financial Statements
            9
                -
                11Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            12Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            18Item
                4. Controls and Procedures
            18**PART
                II. OTHER INFORMATION**
            19Item
                1. Legal Proceedings
            19Item
                2. Changes in Securities and Use of Proceeds
            19Item
                3. Defaults Upon Senior Securities
            19Item
                4. Submissions of Matters to a Vote of Security Holders
            19Item
                5. Other Information
            19Item
                6. Exhibits and Reports on Form 8-K
            19Signatures:
            20























2


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




































































































3
 
 **PART
          I. FINANCIAL INFORMATION**
  Item
            1.
            Financial Statements (Unaudited)


**Camelot
                      Entertainment Group, Inc.**Balance
                      Sheets
                    Unaudited**ASSETS**March
                      31,
                  
                  
                  December
                      31,2007
                  
                  
                  2006Current
                      AssetsCash
                  
                  $
                  819
                  
                  $
                  435,533Prepaid
                      Expenses
                  
                  
                  6,424
                  
                  
                  6,424Total
                      Current Assets
                  
                  
                  7,243
                  
                  
                  441,957Deferred
                      Financing Costs
                  
                  
                  68,974
                  
                  
                  74,744Loan
                      Receivable
                  
                  
                  17,500
                  
                  
                  17,500Scripts
                      Costs
                  
                  
                  79,700
                  
                  
                  75,800Deposit
                      for potential business acquistion
                  
                  
                  50,000
                  
                  
                  10,000Total
                      other assets
                  
                  
                  216,174
                  
                  
                  178,044Total
                      Assets
                  
                  $
                  223,417
                  
                  
                  620,001**LIABILITIES
                      AND STOCKHOLDERS' EQUITY(DEFICT)**Current
                      LiabilitiesAccounts
                      Payable and accured liabilities
                  
                  $
                  299,844
                  
                  $
                  140,625Note
                      Payable - Scorpion Bay, LLC
                  
                  
                  250,000
                  
                  
                  250,000Stockholder
                      advances
                  
                  
                  34,223
                  
                  
                  186,000Total
                      Current Liabilities
                  
                  
                  584,067
                  
                  
                  576,625Long
                      Term LiabilitiesSecured
                      Note Payable - NIR Fairhill, net of unamortized discount of
                      $564,169
                  
                  
                  35,831
                  
                  
                  1,521Derivative
                      Liability - Compound
                  
                  
                  521,293
                  
                  
                  538,890Derivative
                      Liability - Warrant
                  
                  
                  931,241
                  
                  
                  698,390Total
                      Long Term Liabilities
                  
                  
                  1,488,365
                  
                  
                  1,238,801Total
                      Liabilities
                  
                  
                  2,072,432
                  
                  
                  1,815,426Stockholders'
                      Equity (Deficit)Common
                      Stock; Par Value $.001 Per Share; Authorized  150,000,000
                      Shares;
                    144,655,743
                      Shares Issued and 111,655,743 Outstanding.
                  
                  
                  111,656
                  
                  
                  106,656Class
                      A Convertible Preferred Stock; Par Value $.01 per share Authorized,
                    issued
                      and outstanding 5,100,000 shares
                  
                  
                  5,100
                  
                  
                  5,100Class
                      B Convertible Preferred Stock; Par Value $.01 per share Authorized,
                    issued
                      and outstanding 5,100,000 shares
                  
                  
                  5,100
                  
                  
                  5,100Subscription
                      Receivable
                  
                  
                  (758,072
                  )
                  
                  (258,072
                  )Capital
                      in Excess of Par Value
                  
                  
                  13,615,236
                  
                  
                  13,119,002Deficit
                      Accumulated During the Development Stage
                  
                  
                  (14,828,035
                  )
                  
                  (14,173,211
                  )Total
                      Stockholders' Equity (Deficit)
                  
                  
                  (1,849,015
                  )
                  
                  (1,195,425
                  )Total
                      Liabilities and Stockholders' Equity (Deficit)
                  
                  $
                  223,417
                  
                  $
                  620,001The
                      accompanying notes are an integal part of theses financial
                      statements.
 4


**Camelot
                    Entertainment Group, Inc.**Statements
                    of OperationsUnauditedFromInception
                    onApril
                    21, 1999For
                    the Quarter Ended,
                
                throughMarch
                    31,
                
                
                March
                    31,
                
                
                March
                    31,2007
                
                
                2006
                
                
                2007REVENUE
                
                $
                -
                
                $
                -
                
                $
                58,568EXPENSESCosts
                    of services
                
                
                
                
                
                
                
                
                95,700Sales
                    and Marketing
                
                
                
                
                
                
                
                
                53,959Research
                    & Development
                
                
                
                
                
                
                
                
                252,550General
                    & Administrative
                
                
                386,420
                
                
                190,762
                
                
                10,533,893Impairment
                    of assets
                
                
                
                
                
                
                
                
                2,402,338Impairment
                    of investments inother
                    companies
                
                
                
                
                
                
                
                
                710,868Total
                    Expenses
                
                
                386,420
                
                
                190,762
                
                
                14,049,308NET
                    OPERATING LOSS
                
                
                (386,420
                )
                
                (190,762
                )
                
                (13,990,740
                )OTHER
                    INCOME (EXPENSES)Interest
                    (Expense)
                
                
                (53,150
                )
                
                -
                
                
                (885,369
                )Gain
                    (loss) on derivative liability
                
                
                (215,254
                )
                
                -
                
                
                (207,426
                )Gain
                    on extinguishment of debt
                
                
                -
                
                
                -
                
                
                255,500Total
                    Other Income (Expenses)
                
                
                (268,404
                )
                
                -
                
                
                (837,295
                )NET
                    LOSS
                
                
                (654,824
                )
                
                (90,762
                )
                $
                (14,828,035
                )BASIC
                    LOSS PER COMMON SHARE
                
                
                (0.0060
                )
                
                (0.00
                )
                $
                (0.29
                )WEIGHTED
                    AVERAGE NUMBER OFSHARES
                    OUTSTANDING
                
                
                107,433,521
                
                
                93,649,589
                
                
                50,135,678The
                    accompanying notes are an integral part of these financial
                    statements.






5




**Camelot
                  Entertainment Group, Inc.****STATEMENTS
                  OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT**(unaudited)(Deficit)AccumulatedCommon
                  Stock
              Preferred
                  Stock
              
              Additional
              
              
              DuringPaid-In
              
              
              Development
              
              
              SubscriptionShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Stage
              
              
              Receivable
              
              
              TotalBalance
                  at January 1, 2004
              
              
              33,856,433
              
              
              33,857
              
              
              -
              
              
              -
              
              
              5,464,539
              
              
              (6,059,442
              )
              
              -
              
              
              (561,046
              )Shares
                  issued for services
              
              
              100,000
              
              
              100
              
              
              
              
              
              
              
              
              2,900
              
              
              
              
              
              
              
              
              3,000Shares
                  issued for financing
              
              
              6,791,287
              
              
              6,791
              
              
              
              
              
              
              
              
              196,948
              
              
              
              
              
              
              
              
              203,739Subscriptions
                  receivable for financing agreement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (116,069
              )
              
              (116,069
              )Net
                  (loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (131,681
              )
              
              
              
              
              (131,681
              )Balance
                  at March 31, 2004
              
              
              40,747,720
              
              $
              40,748
              
              $
              -
              
              $
              -
              
              $
              5,664,387
              
              
              (6,191,123.00
              )
              
              ($116,069
              )
              $
              (602,057
              )Share
                  issued for services
              
              
              24,009,000
              
              
              24,009
              
              
              
              
              
              
              
              
              1,085,500
              
              
              
              
              
              
              
              
              1,109,509Share
                  issued for financing
              
              
              7,604,562
              
              
              7,605
              
              
              
              
              
              
              
              
              221,460
              
              
              
              
              
              (316,003
              )
              
              (86,938
              )Advances
                  offset sub a/r
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              174,000
              
              
              174,000Shares
                  issued for debt
              
              
              1,000,000
              
              
              1,000
              
              
              
              
              
              
              
              
              39,000
              
              
              
              
              
              
              
              
              40,000Shares
                  issued for amt due
              
              
              1,589,927
              
              
              1,590
              
              
              
              
              
              
              
              
              47,000
              
              
              
              
              
              
              
              
              48,590Value
                  of option exercised
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              351,000
              
              
              
              
              
              
              
              
              351,000Net
                  (loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,161,756
              )
              
              
              
              
              (1,161,756
              )Balance
                  as of December 31, 2004
              
              
              74,951,209
              
              
              74952
              
              
              -
              
              
              -
              
              
              7408347
              
              
              (7,324,719
              )
              
              (258,072
              )
              
              (99,492
              )Net
                  (loss) 1st quarter
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (117,096
              )
              
              
              
              
              (117,096
              )**Balance
                  at March 31, 2005**
              
              
              **74,951,209**
              
              
              **74,952**
              
              **$**
              **-**
              
              **$**
              **-**
              
              
              **7,408,347**
              
              
              **(7,441,815**
              **)**
              ****
              **(258,072**
              **)**
              ****
              **(216,588**
              **)**Shares
                  issued for
              
              
              4,000,000
              
              
              4,000
              
              
              
              
              
              
              
              
              216,000
              
              
              
              
              
              
              
              
              220,000consulting
                  servicesShares
                  issued for
              
              
              2,276,033
              
              
              2,276
              
              
              
              
              
              
              
              
              187,568
              
              
              
              
              
              
              
              
              189,844officers
                  salariesShares
                  issued to
              
              
              1,848,723
              
              
              1,849
              
              
              
              
              
              
              
              
              79,078
              
              
              
              
              
              
              
              
              80,927Eagle
                  for expenses paidNet
                  Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (486,174
              )
              
              
              
              
              (486,174
              )**Balance
                  at June 30, 2005**
              
              
              **83,075,965**
              
              
              **83,076**
              
              
              **-**
              
              
              **-**
              
              
              **7,890,993**
              
              
              (7,927,989
              )
              
              (258,072
              )
              
              (211,991
              )Net
                  Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (127,024
              )
              
              
              
              $
              (127,024
              )**Balance
                  at Sept 30, 2005**
              
              
              83,075,965
              
              
              83,076
              
              
              -
              
              
              -
              
              
              7,890,993
              
              $
              (8,055,013
              )
              
              ($258,072
              )
              
              (339,015
              )




6


**STATEMENTS
        OF CHANGES IN STOCKHOLDERS' EQUITY - continued**


**Balance
                    at Sept 30, 2005**
                
                
                83,075,965
                
                
                83,076
                
                
                -
                
                
                -
                
                
                7,890,993
                
                $
                (8,055,013
                )
                
                ($258,072
                )
                
                (339,015
                )Shares
                    issued for
                
                
                233,547
                
                
                233
                
                
                
                
                
                
                
                
                9,767
                
                
                
                
                
                
                
                
                10,000consulting
                    servicesShares
                    issued for
                
                
                3,538,263
                
                
                3,538
                
                
                
                
                
                
                
                
                171,462
                
                
                
                
                
                
                
                
                175,000officers
                    salariesShares
                    issued to
                
                
                1,452,662
                
                
                1,453
                
                
                
                
                
                
                
                
                118,219
                
                
                
                
                
                
                
                
                119,672Eagle
                    for expenses paidShares
                    issued to Eagle
                
                
                1,762,271
                
                
                1,762
                
                
                
                
                
                
                
                
                120,991
                
                
                
                
                
                
                
                
                122,75320%
                    of shares issuedShares
                    issued for
                
                
                3,586,881
                
                
                3,587
                
                
                
                
                
                
                
                
                256,354
                
                
                
                
                
                
                
                
                259,941Shareholder
                    loans 2005Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (3,769,845
                )
                
                
                
                $
                (3,769,845
                )Class
                    A Preferred Stock issued
                
                
                
                
                
                
                
                
                5,100,000
                
                
                5,100
                
                
                555,900
                
                
                
                
                
                
                
                
                561,000Class
                    B Preferred Stock issued
                
                
                
                
                
                
                
                
                5,100,000
                
                
                5,100
                
                
                2,799,900
                
                
                
                
                
                
                
                
                2,805,000**Balance
                    at Dec 31, 2005**
                
                
                **93,649,589**
                
                
                **93,649**
                
                
                **10,200,000**
                
                
                **10,200**
                
                
                **11,923,586**
                
                
                (11,824,860
                )
                
                (258,072
                )
                
                (55,496
                )Shares
                    issued for
                
                
                5,191,538
                
                
                5,192
                
                
                
                
                
                
                
                
                464,808
                
                
                
                
                
                
                
                
                470,000officers
                    salariesShares
                    issued to Consultants
                
                
                2,009,787
                
                
                2,010
                
                
                
                
                
                
                
                
                179,078
                
                
                
                
                
                
                
                
                181,088Shares
                    issued to Eaglefor
                    expenses paid
                
                
                1,201,329
                
                
                1,201
                
                
                
                
                
                
                
                
                113,120
                
                
                
                
                
                
                
                
                114,321Shares
                    issued to Eagle
                
                
                1,270,772
                
                
                1,271
                
                
                
                
                
                
                
                
                116,911
                
                
                
                
                
                
                
                
                118,182Shareholder
                    loansShares
                    issued to Eagle
                
                
                1,832,728
                
                
                1,833
                
                
                
                
                
                
                
                
                168,611
                
                
                
                
                
                
                
                
                170,444per
                    agreement 20%Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,348,351
                )
                
                
                
                
                (2,348,351
                )Shares
                    issued to Scorpion Bay
                
                
                1,500,000
                
                
                1,500
                
                
                
                
                
                
                
                
                133,650
                
                
                
                
                
                
                
                
                135,150Imputed
                    interest on shareholder loan
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                19,238
                
                
                
                
                
                
                
                
                19,238**Balance
                    at Dec 31, 2006**
                
                
                **106,655,743**
                
                
                **106,656**
                
                
                **10,200,000**
                
                
                **10,200**
                
                
                **13,119,002**
                
                
                (14,173,211
                )
                
                (258,072
                )
                
                (1,195,425
                )Shares
                    issued for advance on financing arrangement
                
                
                5,000,000
                
                
                5,000
                
                
                
                
                
                
                
                
                495,000
                
                
                
                
                
                (500,000
                )
                
                -Imputed
                    interest on shareholder loan
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,234
                
                
                
                
                
                
                
                
                1,234Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (654,824
                )
                
                
                
                
                (654,824
                )Balance
                    at March 31, 2007
                
                
                **111,655,743**
                
                
                **111,656**
                
                
                **10,200,000**
                
                
                **10,200**
                
                
                **13,615,236**
                
                
                (14,,828,035
                )
                
                (758,072
                )
                
                (1,849,015
                )
 
  The
          accompanying notes are an integral part of these financial
          statements.




7


**Camelot
                    Entertainment Group, Inc.**Statement
                    of Cash Flows
                  UnauditedFromInception
                    onApril
                    21, 1999For
                    the Quarter ended
                
                throughMarch
                    31,
                
                
                March
                    31,
                
                
                March
                    31,2007
                
                
                2006
                
                
                2007OPERATING
                    ACTIVITIESNet
                    (loss) income for the period
                
                $
                (654,824
                )
                $
                (190,762
                )
                $
                (14,828,035
                )Adjustments
                    to reconcile net (loss) to cash provided (used) by operating
                    activities:Amortization
                    of deferred financing cost
                
                
                5,770
                
                
                -
                
                
                6,026Amortization
                    of discount associated with notes payable
                
                
                34,310
                
                
                -
                
                
                35,831Imputed
                    interest on shareholder loan
                
                
                1,234
                
                
                -
                
                
                20,472Loss
                    on derivative liability
                
                
                232,851
                
                
                -
                
                
                899,612Gain
                    on derivative liability
                
                
                (17,597
                )
                
                -
                
                
                (47,077
                )Common
                    stock issued for interest expense
                
                
                -
                
                
                -
                
                
                135,150Common
                    stock issued per dilution agreement
                
                
                -
                
                
                -
                
                
                368,508Value
                    of options expensed
                
                
                -
                
                
                -
                
                
                351,000Gain
                    on extinguishment of debt
                
                
                -
                
                
                -
                
                
                (255,500
                )Depreciation
                
                
                
                
                
                
                
                
                3,997Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                1,538,927Common
                    Stock issued for services
                
                
                -
                
                
                -
                
                
                2,533,935Common
                    Stock issued for expense reimbursement
                
                
                -
                
                
                
                
                
                22,000Common
                    Stock issued for technology
                
                
                
                
                
                
                
                
                19,167Impairment
                    of investments in other companies
                
                
                -
                
                
                
                
                
                710,868Impairment
                    of assets
                
                
                
                
                
                
                
                
                2,628,360Prepaid
                    services expensed
                
                
                -
                
                
                1,200
                
                
                530,000Expenses
                    paid through notes payable proceeds
                
                
                -
                
                
                -
                
                
                66,489Loss
                    on disposal of property and equipment
                
                
                
                
                
                
                
                
                5,854Preferred
                    Stock issued to shareholder
                
                
                -
                
                
                -
                
                
                3,366,000Change
                    in assets and liabilities:(increase)
                    decrease in other current assets
                
                
                -
                
                
                -
                
                
                (24,358
                )Increase
                    (decrease) in accounts payable & other a/p
                
                
                159,219
                
                
                98,832
                
                
                506,985Increase
                    (decrease) in due to officers**Net
                    Cash provided (used) by operating activities**
                
                $
                (239,037
                )
                $
                (90,730
                )
                $
                (1,405,789
                )Cash
                    flows from investing activities:Purchase
                    of fixed assets
                
                
                
                
                
                
                
                
                (6,689
                )Purchase
                    of assets-Script Costs/business deposits
                
                
                (43,900
                )
                
                (5,000
                )
                
                (129,700
                )Cash
                    provided (used) from investing activities
                
                $
                (43,900
                )
                $
                (5,000
                )
                $
                (136,389
                )Cash
                    flows from financing activities:Contributed
                    capital
                
                
                
                
                
                
                
                
                25,500Borrowings
                    on related party debt
                
                
                32,144
                
                
                92,962
                
                
                1,048,757Payments
                    on related party debt
                
                
                (183,921
                )
                
                -
                
                
                (308,921
                )Borrowings
                    on debt
                
                
                -
                
                
                -
                
                
                855,998Deferred
                    financing cost
                
                
                -
                
                
                -
                
                
                (75,000
                )Principal
                    payments on long term debt
                
                
                -
                
                
                -
                
                
                (4,477
                )**Cash
                    provided (used) in financing activities**
                
                $
                (151,777
                )
                $
                92,962
                
                $
                1,541,857Increase
                    (decrease) in cash
                
                $
                (434,714
                )
                $
                (2,768
                )
                $
                (321
                )Cash
                    at beginning of period
                
                $
                435,533
                
                $
                3,023
                
                $
                1,140Cash
                    at the end of the period
                
                $
                819
                
                $
                255
                
                $
                819Supplemental
                    cash flow information:Noncash
                    investing and financial activities:Creation
                    of debt discount
                
                
                -
                
                
                -
                
                $
                600,000Stock
                    issued for related party debt
                
                
                -
                
                
                -
                
                $
                232,503Stock
                    issued in advance of financing arrangement
                
                $
                500,000
                
                
                -
                
                $
                500,000


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


8




**CAMELOT
      ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED, MARCH 31,
      2007**







**1.****BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
      POLICIES**


Organization:


Camelot
        Entertainment Group, Inc, a Delaware Corporation, which develops, produces,
        markets and distributes motion pictures, was originally incorporated with
        the
        intention of providing services and resources to entrepreneurs looking to
        launch
        novel products and ventures worldwide in exchange for an interest in the
        startup
        ventures. Camelot’s activities since inception have consisted of raising
        capital, recruiting a management team and entering into ventures and alliances
        with affiliates. The Company has substantially relied on issuing stock to
        officers, directors, professional service providers and other parties in
        exchange for services and technology. As of December 31, 2002 the Company
        had
        written-off all of its investments due to impairments in the carrying value
        of
        the assets.


Basis
      of Presentation :


Management
      has determined that the Company is considered to be a development stage
      enterprise as defined in Statement of Financial Accounting Standards No. 7,
      “Accounting and Reporting by Development Stage Enterprises.” Consequently,
      Camelot has presented these financial statements in accordance with that
      Statement, including losses incurred from April 21, 1999 (Inception) to March
      31, 2007.


The
        accompanying unaudited financial statements as of March 31, 2007 and for
        the
        three months ended March 31, 2007 and 2006, respectively, have been prepared
        in
        accordance with generally accepted accounting principles for interim financial
        information. Accordingly, they do not include all of the information and
        footnotes required by generally accepted accounting principles for audited
        financial statements. In the opinion of Camelot’s management, the interim
        information includes all adjustments, consisting only of normal recurring
        adjustments, necessary for a fair presentation of the results for the interim
        periods. The footnote disclosures related to the interim financial information
        included herein are also unaudited. Such financial information should be
        read in
        conjunction with the consolidated financial statements and related notes
        thereto
        as of December 31, 2006 and for the year then ended included in Camelot’s annual
        report on Form 10-KSB/A for the fiscal year ended December 31, 2006,
        amended
        as of May 11,2007.


Recently
        Issued Accounting Standards
 In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments - An Amendment of FASB Statements No. 133 and 140.” SFAS
        No. 155 simplifies the accounting for certain hybrid financial instruments,
        eliminates the interim FASB guidance which provides that beneficial interests in
        securitized financial assets are not subject to the provisions of SFAS No.
        133,
“Accounting for Derivative Instruments and Hedging Activities,” and eliminates
        the restriction on the passive derivative instruments that a qualifying
        special-purpose entity may hold. Effective January 1, 2007, we adopted the
        provisions of SFAS No. 155 prospectively for all financial instruments acquired
        or issued on or after January 1, 2007. Adoption of this statement will not
        have
        a significant effect on our consolidated results of operations, financial
        position or cash flows.




9


**CAMELOT
        ENTERTAINMENT GROUP, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED, MARCH 31,
        2007**


**2. 
      GOING CONCERN**


The
      accompanying financial statements have been prepared assuming that Camelot
      will
      continue as a going concern. Camelot has had minimal revenues, has experienced
      an accumulated deficit of $14,828,035 and has a stockholders’ deficit. These
      conditions, the loss of financial support from affiliates, and the failure
      to
      secure a successful source of additional financial resources raise substantial
      doubt about the Company’s ability to continue as a going concern. The financial
      statements do not include any adjustments to reflect the possible future effects
      on the classification of liabilities that may result from the outcome of this
      uncertainty.


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




**3. 
        COMMITMENTS AND CONTINGENCIES**


During
        the quarter ended March 31, 2007, the Camelot recorded $32,144 in advances
        by an
        affiliate on behalf of Camelot, compared to $92,962 for quarter ended March
        31,
        2006. The affiliate has not received any shares of common stock for repayment
        of
        expense advances on behalf of Camelot.


**4.****NOTES
      PAYABLE**





On
        December 27, 2006, Camelot issued a callable secured convertible note payable
        for $600,000 to various holders. The note payable provided for annual interest
        at 8%, was secured by all of the assets of the Company, and matured on April
        27,
        2009. The principle and accrued interest of the note is convertible into
        Camelot’s common stock at a variable conversion price, which is 50% of the
        average market price of the common stock of the lowest three trading days
        prior
        to the date of conversion. In addition, these notes have registration rights
        agreements, which call for liquidated damages in the event an effective
        registration statement is not filed within a timely basis. In addition, the
        holders of these notes were issued 7-year warrants to purchase 10,582,609
        common
        shares at an exercise price of $0.15 per share.


Of
        the
        proceeds of $600,000 Camelot recognized $75,000 in deferred financing costs
        related to cost of securing the debt. The deferred financing cost will be
        amortized over the life of the notes payable. $5,770 and $256 of the deferred
        financing cost was amortized as of March 31, 2007 and December 31, 2006,
        respectively, and included in interest expense.





Camelot
      evaluated the convertible notes and warrants under Statement of Financial
      Accounting Standards No. 133, “Accounting for Derivative Instruments” and
      Emerging Issues Task Force 00-19 and determined that the Convertible notes
      contained compound embedded derivative liabilities. The warrants were also
      determined to be liabilities under SFAS 133 and EITF 00-19. Camelot determined
      that the compound embedded conversion features required bi furcating from the
      note instrument and required an estimate of its fair market value. Camelot
      hired
      an independent valuation expert to determine the fair market value of both
      the
      compound embedded derivative and the warrants. The fair market value of the
      compound embedded derivative was estimated using a lattice model incorporating
      weighted average probability cash flow. The fair market value of the warrants
      was estimated using Black Scholes with the major assumptions of (1) calculated
      volatility of 150%; (2) expected term of 7 years; (3) risk free rate of 4.64%
      and (4) expected dividends of zero.




10


**CAMELOT
      ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED, MARCH 31,
      2007**





**4. 
NOTES
        PAYABLE  - continued**
 
 At
          March
          31, 2007, Camelot estimated the fair value of the derivative liabilities
          to be a
          total of $1,452,534 resulting in a loss on derivative liability presented
          in the
          statement of operations of $215,254. In addition, Camelot amortized $34,310
          of
          the discount on the note payable and this amount is included in interest
          expense.
 
 In
          November 2006, Camelot issued note payable to Scorpion Bay LLC for $250,000,
          which matured on March 22, 2007. This note is in default and is recorded
          at its
          full face value at December 31, 2006. In connection with this note, Camelot
          issued 1,500,000 of common stock with a market value of $135,150. As this
          note has matured, this total amount was considered to be interest expense.
  5.  DUE
        TO
        OFFICERS In
          the
          quarter ended March 31, 2007 Camelot had accrued $117.500 in compensation
          to its
          officers. Total due to officers as of March 31, 2007 was
          $127,500.


**6. 
RELATED
      PARTY
      TRANSACTIONS**




During
      the quarters ended March 31, 2007 and 2006, Camelot entered into related party
      transactions with Board members, officers and affiliated entities owned by
      the
      CEO of the Company. Camelot plans to issue shares of common stock for services
      rendered, cash advances, and payment of expenses on Camelot’s behalf.




**7.
       COMMON STOCK**


Camelot
          issued 5,000,000 to Nucore Industries, Inc. on March 16, 2007, as a good
          faith
          non-refundable deposit for a potential financing to be funded by Nucore,
          and it
          has been presented as a subscription receivable at March 31, 2007.
 
 As
        a
        result of our agreement with the affiliated company owned by the CEO of Camelot,
        the affiliate receives 20% of the Company’s common stock on an
        anti-dilutive basis in return for services and cash advances. The anti-dilutive
        provisions are in force through March 28, 2008. In addition, the affiliate
        has
        the option to receive 2,000,000 cashless options to purchase common shares
        at
        $0.03 per share. For each one dollar ($1) increase in the price of the Company’s
        stock, the affiliate shall be entitled to receive an additional two million
        options throughout the term of the agreement between the affiliate and the
        Company, which expires on March 28, 2008. In addition, the Company shall
        have
        the first right of refusal to purchase the options from the affiliate for
        the
        current market value once the affiliate notifies the Company that it intends
        to
        exercise the options. In the event the Company elects not to exercise this
        first
        right of refusal, and subject to applicable laws, the affiliate shall be
        entitled to exercise the sale of shares or options immediately thereafter.
        As of
        March 31, 2007, the affiliate has not exercised its right to receive the
        options
        and therefore no options have been granted. The affiliate’s right to receive the
        options and to exercise those options expires on March 28, 2008. No shares
        were
        issued during the quarter for this agreement.





**8.
       SUBSEQUENT EVENTS**





On
        April
        30, 2007, Camelot increased the number of authorized shares from 150,000,000
        to
        300,000,000 shares of common stock and preferred shares from 15,000,000 to
        30,000,000 shares.


On
        May
        11, 2007, Camelot filed a registration statement on Form
        SB-2/A.


11




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





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





**Critical
      Accounting Estimates**





The
      preparation of our financial statements in conformity with accounting principles
      generally accepted in the United States of America requires our management
      to
      make certain estimates and assumptions that affect the reported amounts of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. As such, in accordance with the use of
      accounting principles generally accepted in the United States of America, our
      actual realized results may differ from management’s initial estimates as
      reported. A summary of our significant accounting policies is detailed in the
      notes to the financial statements, which are an integral component of this
      filing.




Management
      evaluates the probability of the utilization of the deferred income tax asset
      related to the net operating loss carry forwards. The Company has estimated
      a
      $2,450,000 deferred income tax asset related to net operating loss carry
      forwards and other book/tax differences at March 31, 2007 to $5,510,000.
      Management determined that because the Company has yet to generate taxable
      income, and that the generation of taxable income in the short term is
      uncertain, it was appropriate to provide a valuation allowance for the total
      deferred income tax asset.




We
      had
      acquired certain technology and licenses. Prior to January 1, 2004, the Company
      determined that the value of these acquired assets was impaired and has provided
      an impairment allowance for the full purchase price of these assets. The
      impairment amount charged to operations in prior years was
      $3,113,206.





**Critical
      Accounting Policies**





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





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





12





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





*Accounting
        for Motion Picture Costs*





In
      accordance with accounting principles generally accepted in the United States
      and industry practice, we amortize the costs of production, including
      capitalized interest and overhead, as well as participations and talent
      residuals, for feature films using the individual-film-forecast method under
      which such costs are amortized for each film in the ratio that revenue earned
      in
      the current period for such title bears to management’s estimate of the total
      revenues to be realized from all media and markets for such title. All
      exploitation costs, including advertising and marketing costs, are expensed
      as
      incurred. Theatrical print costs are amortized over the periods of theatrical
      release of the respective territories.




Management
      plans to regularly review, and revise when necessary, our total revenue
      estimates on a title-by-title basis, which may result in a change in the rate
      of
      amortization and/or a write-down of the film asset to estimated fair value.
      These revisions can result in significant quarter-to-quarter and year-to-year
      fluctuations in film write-downs and amortization. A typical film recognizes
      a
      substantial portion of its ultimate revenues within the first two years of
      release. By then, a film has been exploited in the domestic and international
      theatrical markets and the domestic and international home video markets, as
      well as the domestic and international pay television and pay-per-view markets.
      A similar portion of the film’s capitalized costs should be expected to be
      amortized accordingly, assuming the film or television program is profitable.




The
      commercial potential of individual motion pictures varies dramatically, and
      is
      not directly correlated with production or acquisition costs. Therefore, it
      is
      difficult to predict or project a trend of our income or loss. However, the
      likelihood that we would report losses, particularly in the year of a motion
      picture’s release, is increased by the industry’s method of accounting, which
      requires the immediate recognition of the entire loss (through increased
      amortization) in instances where it is estimated the ultimate revenues of a
      motion picture could not recover our capitalized costs. On the other hand,
      the
      profit of a profitable motion picture must be deferred and recognized over
      the
      entire revenue stream generated by that motion picture. This method of
      accounting may also result in significant fluctuations in reported income or
      loss, particularly on a quarterly basis, depending on our release schedule,
      the
      timing of advertising campaigns and the relative performance of individual
      motion pictures.





*Accounting
        for Films*
 
 In
        June
        2000, the Accounting Standards Executive Committee of the American Institute
        of
        Certified Public Accountants issued Statement of Position 00-2 “Accounting by
        Producers or Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes new
        accounting standards for producers or distributors of films, including changes
        in revenue recognition, capitalization and amortization of costs of acquiring
        films and accounting for exploitation costs, including advertising and marketing
        expenses. We elected adoption of SoP 00-2 effective as of April 1, 2004.
 
 The
        principal changes as a result of applying SoP 00-2 are as follows:
 
 Advertising
        and marketing costs, which were previously capitalized to investment in films
        on
        the balance sheet and amortized using the individual film forecast method,
        are
        now expensed the first time the advertising takes place.





13





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




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





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





*Capital
      Structure*




The
      Company has adopted Statement of Financial Accounting Standards No. 129,
      "Disclosure of Information about Capital Structure" ("SFAS 129"), which requires
      companies to disclose all relevant information regarding their capital
      structure. The Company reached an agreement with Eagle Consulting Group, Inc.
      on
      March 28, 2003 to provide operational funding for the Company. In exchange
      for
      twenty percent (20%)of the Company’s outstanding common stock on an
      anti-dilutive, continuing basis until the Company could secure additional
      financing from another source, Eagle agreed to provide funding for the Company’s
      annual audit, quarterly filings, accounts payable and other ongoing expenses
      including office, phones, business development, legal and accounting fees.
      Eagle
      advances from January 1, 2007 to March 31 total $32,144. In accordance with
      the
      anti-dilutive provision, the amount of stock due Eagle is calculated on a
      quarterly basis. This anti-dilution provision to the agreement could have a
      material adverse effect on our shareholders as it might continue for a
      substantial period of time and as a result the dilutive effect to the
      shareholders cannot be fully determined until the funding from Eagle
      ceases.





*Going
      Concern Uncertainties*




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




The
          Company's continued existence is dependent upon its ability to generate
          operating revenues and/or obtain additional equity financing.
 
 The
          Company entered into an agreement with Eagle Consulting Group, Inc., a
          Nevada
          corporation ("Eagle"), to provide equity financing. Eagle has advanced
          the
          Company an amount of funds in the first quarter of 2007, and it appears
          unlikely
          that such funding should be enough to meet all of the Company's cash
          requirements for the remaining quarters in 2007. However, the Company must
          find
          additional sources of financing in order to remain a going concern in the
          future. The financial statements do not include any adjustments that might
          result from the outcome of this uncertainty.
 
 We
          have incurred losses in each operating period since our inception on October
          12,
          1999. Operating losses may continue, which could adversely affect financial
          results from operations and stockholder value, and there is a risk that
          we may
          never become profitable.
 
 As
          of March 31, 2007, we have an accumulated deficit of $14,828,035 all of
          which
          related to our previous activities as a business development organization,
          Dstage.com, and none of which relate to our current activities as a motion
          picture production, marketing and distribution entity. There can be no
          assurance
          that our management will be successful in managing the Company as a motion
          picture production, distribution and marketing concern.





14





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




*Derivative
        Instruments*
 
 In
        June
        1998, the Financial Accounting Standards Board issued Statement of Financial
        Accounting Standards No. 133, *“Accounting
        for Derivative Instruments and Hedging Activities,”* as
        amended by Statement of Financial Accounting Standards No. 137, *“Accounting
        for Derivative Instruments and Hedging Activities - Deferral of the Effective
        Date of Financial Accounting Standards Board No. 133,”* and
        by
        Statement of Financial Accounting Standards No. 138, *“Accounting
        for Certain Derivative Instruments and Certain Hedging Activities - an Amendment
        of Financial Accounting Standards Board Statement No. 133,”* which
        is
        effective for all quarters of fiscal years beginning after June 15, 2000.
        This
        statement establishes accounting and reporting standards for derivative
        instruments, including certain derivative instruments embedded in other
        contracts, and for hedging activities. We adopted Statement of Financial
        Accounting Standards No. 133 beginning January 1, 2004. The adoption of
        Statement of Financial Accounting Standards No. 133 did materially impact
        our
        results of operations with our convertible notes payable entered into in
        December 2006







**Plan
      of Operations**





**Overview**





We
      were
      incorporated in Delaware on October 12, 1999. During May 2004 we changed our
      name to Camelot Entertainment Group, Inc. and changed our business model from
      pursuing a new approach to venture formation (the Dstage.com Model) to the
      “Camelot Studio Model” (or “CSM”), which provides for the development,
      production, marketing and distribution of motion pictures. The CSM attempts
      to
      combine the efficiencies realized by studios of the early 1900’s, with the
      artistic focus and diversity of today’s independent productions. Using this
      approach, we believe the risk-reward relationship facing the typical film
      project can be dramatically shifted. For example, whereas a typical film pushes
      artists and directors to rush development and production in hopes of conserving
      cash, the CSM extends the pre-production cycle substantially to reduce costs
      while simultaneously increasing quality. Similarly, whereas a low-budget picture
      is severely limited by the types of postproduction technology used, due to
      budget constraints, we intend to invest directly in top of the line technology,
      spreading the costs over a targeted minimum of 12 original motion pictures
      each
      year. The goal of the CSM is to develop the ability to consistently produce
      films with the look, feel and artistic content of multi-million dollar pictures,
      for a fraction of the cost.





We
      have
      no history of operations as a film production and distribution company. Our
      historical operations, as Dstage.com, Inc., consisted primarily of attempting
      to
      provide support, organization and restructuring services to other development
      stage companies. We believe that due to the complete and drastic change in
      our
      business focus, period-to-period comparisons of our operating results are not
      necessarily meaningful and should not be relied on as an indication of future
      performance. However, it is still important that you review the audited
      financial statements, the unaudited interim financial statements and the related
      notes in addition to thoroughly reading our current plan of
      operations.





Our
      Financial Statements have been prepared on a going concern basis, which
      contemplates the realization of assets and liabilities and commitments in the
      normal course of business. In the near term, we expect operating costs to
      continue to exceed funds generated from operations. As a result, we expect
      to
      continue to incur operating losses and we may not have sufficient funds to
      grow
      our business in the future. We can give no assurance that we will achieve
      profitability or be capable of sustaining profitable operations. As a result,
      operations in the near future are expected to continue to use working capital.





Our
        current cash requirements are provided principally through our financing
        agreement with Eagle Consulting Group, Inc. (“Eagle”). We entered into an
        agreement with Eagle on March 28, 2003, to provide operational funding for
        the
        Company. In exchange for twenty percent (20%)of the Company’s outstanding common
        stock on a non-dilutive, continuing basis until the Company can secure
        additional financing from another source, Eagle has agreed to provide funding
        for the Company’s annual audit, quarterly filings, accounts payable and other
        ongoing expenses including office, phones, business development, legal and
        accounting fees. For the first quarter of 2007, Eagle has advanced the Company
        a
        total, including interest, of $32,144, which with the financing received
        in
        December 2006, covered all of our operating expenses for
        2007.





To
      successfully grow the individual segments of our business, we must decrease
      our
      cash burn rate, improve our cash position and the revenue base of each segment,
      and succeed in our ability to raise additional capital through a combination
      of
      primarily public or private equity offering or strategic alliances.







15





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




As
      more
      fully discussed below, we recently secured additional financing from 4 investors
      for the purpose of funding our initial slate of pictures. It is our goal to
      use
      this funding to have between 10 and 12 motion pictures in various stages of
      development or production within the next 12 months. In the event we are unable
      to receive the entire funding, we may have to delay our slate until such time
      as
      the necessary funding is acquired.





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








**Recent
      Financing**





On
      December 27, 2006, we entered into a Securities Purchase Agreement with AJW
      Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and
      New
      Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase
      Agreement, the Investors purchased an aggregate of (i) $1,000,000 in Callable
      Secured Convertible Notes (the “Notes”) and (ii) warrants to purchase 10,000,000
      shares of our common stock (the “Warrants”).





Pursuant
      to the Securities Purchase Agreement, the Investors will purchase the Notes
      and
      Warrants in two tranches as set forth below:





1.
            At
                closing on December 27, 2006 (“Closing”), the Investors purchased Notes
                aggregating $600,000 and Warrants to purchase 10,000,000 shares of
                CMEG
                common stock;





2.
            Upon
                effectiveness of the Registration Statement, the Investors will purchase
                Notes aggregating $400,000.





The
      Notes
      carry an interest rate of 8% per annum and a maturity date of December 27,
      2009.
      The notes are convertible into CMEG common shares at the applicable percentage
      of the average of the lowest three (3) trading prices for CMEG shares of common
      stock during the twenty (20) trading day period prior to conversion. The
“Applicable Percentage” means 50%; provided, however, that the Applicable
      Percentage shall be increased to (i) 55% in the event that a Registration
      Statement is filed within thirty (30) days of the closing.





At
      our
      option, we may prepay the Notes in the event that no event of default exists,
      there are a sufficient number of shares available for conversion of the Notes
      and the market price is at or below $.25 per share. In addition, in the event
      that the average daily price of the common stock, as reported by the reporting
      service, for each day of the month ending on any determination date is below
      $.25, we may prepay a portion of the outstanding principal amount of the Notes
      equal to 101% of the principal amount hereof divided by thirty-six (36) plus
      one
      month's interest. Exercise of this option will stay all conversions for the
      following month. The full principal amount of the Notes is due upon default
      under the terms of Notes. In addition, we have granted the Investors a security
      interest in substantially all of our assets and intellectual property as well
      as
      registration rights.





**RESULTS
      OF OPERATIONS**





*General*





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





16





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





**QUARTER
      ENDED MARCH 31, 2007, COMPARED TO QUARTER ENDED MARCH 31,
      2006:**




The
      Company did not generate any revenue during the three months ended, March
      31, 2007.





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





The
        Company has incurred $ 10,533,893 of general and administrative expenses
        since
        its inception. General and administrative expenses were $ 386,420 for
        the three months ended March 31, 2007, respectively, compared to $190,762
        for the three months ended March 31, 2006. Increase in expenses primarily
        due to increase professional fees, rent, insurance and payroll
        expenses.
 
 The
        general and general administrative expenses for the quarter were comprised
        of
        $127,500 of officers salaries and $175,622 of professional services and fees.
        Other costs, $8,100 for marketing, seminars, telephone costs $2,912, rent
        $22,418, payroll expenses $22,500, insurance costs $12,251 and $15,117 other
        administrative costs These expenses were related to the pursuit of the Company’s
        plan of operation to produce and distribute motion pictures.
  Total
        General and Administrative expenses of $386,420 are for the three months
        ended March 31, 2006.


**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      no history of operations as a film production and distribution company. We
      believe that, due to the complete and drastic change in our business focus,
      period-to-period comparisons of our operating results are not necessarily
      meaningful and should not be relied on as an indication of future performance.





Our
      current liquidity and capital resources are provided principally through our
      financing agreement with Eagle Consulting Group, Inc. (“Eagle”). We entered into
      an agreement with Eagle on March 28, 2003, to provide operational funding for
      the Company. In exchange for twenty percent (20%)of the Company’s outstanding
      common stock on a non-dilutive, continuing basis until the Company can secure
      additional financing from another source, Eagle has agreed to provide funding
      for the Company’s annual audit, quarterly filings, accounts payable and other
      ongoing expenses including office, phones, business development, legal and
      accounting fees. This quarter, Eagle has advanced the Company a total of
      $32,144. The funding commitment from Eagle may not be able cover all of our
      operating expenses for the remaining nine months of 2007.





Further,
      we have prepared an SB-2 registration statement for the purpose of funding
      our
      initial slate of pictures. If the anticipated funding is successful, it is
      our
      goal to have between 10 and 12 motion pictures in various stages of development
      or production within 12 months. In the event we are unable to complete the
      funding, we could have to delay our slate until such time as the necessary
      funding is acquired.





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





17


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





*We
      expect to have a need for Additional Financing*





As
      of
      March 31, 2007, we had a working capital deficit of $576,824. Our history
      of recurring losses from operations raises a substantial doubt about our ability
      to continue as a going concern. There can be no assurance that we will have
      adequate capital resources to fund planned operations or that any additional
      funds will be available to us when needed, or if available, will be available
      on
      favorable terms or in amounts required by us. If we are unable to obtain
      adequate capital resources to fund our motion picture operations, it may be
      required to delay, scale back or eliminate some or all of our operations, which
      may have a material adverse effect on our business, results of operations and
      ability to operate as a going concern.





Our
      business requires a substantial investment of capital. The production,
      acquisition and distribution of motion pictures require a significant amount
      of
      capital. A significant amount of time may elapse between our expenditure of
      funds and the receipt of commercial revenues from our motion pictures, if any.
      This time lapse requires us to fund a significant portion of our capital
      requirements from private parties, institutions, and other sources. Although
      we
      intend to reduce the risks of our production exposure through strict financial
      guidelines and financial contributions from broadcasters, sub-distributors,
      tax
      shelters, government and industry programs and studios, we cannot assure you
      that we will be able to implement successfully these arrangements or that we
      will not be subject to substantial financial risks relating to the production,
      acquisition, completion and release of future motion pictures. If we increase
      our production slate or our production budgets, we may be required to increase
      overhead, make larger up-front payments to talent and consequently bear greater
      financial risks. Any of the foregoing could have a material adverse effect
      on
      our business, results of operations or financial condition.




**ITEM
        3. Quantitative and Qualitative Disclosures about Market Risk**
 
 **FACTORS
        THAT MAY AFFECT FUTURE RESULTS**
 
 *We
        have an Accumulated Deficit and we have no History of Operations as a Motion
        Picture Company*
 
 We
        have incurred losses in each operating period since our inception on October
        12,
        1999. Operating losses may continue, which could adversely affect financial
        results from operations and stockholder value, and there is a risk that we
        may
        never become profitable.








**ITEM
      4. CONTROLS AND PROCEDURES**





In
        accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as
        amended (the “Exchange Act”), as of the end of the period covered by this
        Quarterly Report on Form 10-QSB, Camelot’s management evaluated, with the
        participation of Camelot’s principal executive officer and principal financial
        officer, the effectiveness of the design and operation of Camelot’s disclosure
        controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under
        the Exchange Act). Based on their evaluation of these disclosure controls
        and
        procedures, Camelot’s chief executive officer and Camelot’s chief financial
        officer have concluded that the disclosure controls and procedures were not
        effective as of the end of the period covered by this report. While
        conducting the review of the interim financial statements as of and for the
        period ended March 31, 2007, our independent auditors found numerous adjustments
        that indicated a material weakness in our controls over financial reporting.
        It
        is our plan with additional funding to devote more resources to this very
        critical function.
  There
        has
        been no change in Camelot’s internal control over financial reporting that
        occurred during the quarter covered by this report that has materially affected,
        or is reasonably likely to materially affect, Camelot’s internal control over
        financial reporting.
 
 It
        should
        be noted that any system of controls, however well designed and operated,
        can
        provide only reasonable, not absolute, assurance that the objectives of the
        system are met. In addition, the design of any control system is based in
        part
        upon certain assumptions about the likelihood of future events. Because of
        these
        and other inherent limitations of control systems, there can be no assurance
        that any design will succeed in achieving its stated goals under all potential
        future conditions, regardless how remote.


18


**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





None.





**ITEM
      2. CHANGE IN SECURITIES**





On
        March
        16, 2007, 5,000,000 common shares were issued to Nucore Industries, Inc.
        as a
        deposit for a funding deal for Camelot Entertainment Group, Inc, and it has
        been
        presented as a subscription receivable at March 31, 2007. As of April 30,
        2007,
        funding has no been received by the company.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





NONE





**ITEM
      4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS**





NONE




**ITEM
      5. OTHER INFORMATION**





Subsequent
      event: On April 30, 2007, the board of directors approved the increasing the
      number of authorized common and preferred shares of stock.





Authorized
      common shares were increased from 150,000,000 to 300,000,000 shares and number
      of authorized preferred shares were increased from 15,000,000 to 30,000,000.





**ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K**





a.
      Exhibits





31.1
      Certificate
      of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
      of
      1934 as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002





31.2
      Certificate
      of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
      of
      1934 as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002





32.1
      Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




32.2
Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





b.
      Reports on Form 8-K





NONE




















19


**SIGNATURES**





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






CAMELOT
              ENTERTAINMENT GROUP, INC.(Registrant)Date: May
              15,
              2007
            By:
            /s/ ROBERT
              P.
              ATWELLRobert
              P. AtwellTitle:
              Chief
              Executive Officer




Date: May
              15,
              2007
            By:
            /s/ GEORGE
              JACKSONGeorge
              JacksonTitle:
              Chief Financial Officer



















20