SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




(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, 2008




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
              incorporation or
      organization)
            (I.R.S.
      Employer
              Identification
      No.)




130
Vantis, Suite 130


Aliso Viejo, California 92656


(Address
of principal executive offices (zip code))





(949) 334 - 2950


(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




Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.  See the definition
of "large accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.




Large Accelerated
      Filer
            o
            Accelerated
      Filer
            oNon-Accelerated
      Filer
            o
            Smaller Reporting
      Company
            x




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




Yes oNo x




As of May
12, 2008, the Registrant had outstanding 247,006,332 shares of Common Stock,
$0.001 par value.




The
registrant had outstanding 29,402,047 shares of Preferred Stock series A and B,
par value $0.001





1





CAMELOT ENTERTAINMENT GROUP,
INC.


INDEX
TO FORM 10-Q





PART
      I. FINANCIAL INFORMATIONItem
      1. Financial Statements (Unaudited)
            4Balance
      Sheets as of March 31, 2008 and December 31, 2007
            4Statements
      of Operation for the three months ended March 31, 2008 and
      2007
            4Statements
      of Cash Flows for the three months ended March 31, 2008 and
      2007
            6Notes
      to Financial Statements
            7 -
      10Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
            11Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk
            17Item
      4. Controls and Procedures
            19PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
            20Item
      2. Changes in Securities and Use of Proceeds
            20Item
      3. Defaults Upon Senior Securities
            20Item
      4. Submissions of Matters to a Vote of Security
    Holders
            20Item
      5. Other Information
            20Item
      6. Exhibits and Reports on Form 8-K
            20Signatures:
            21




















2





THIS
REPORT ON FORM 10-Q 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


Camelot
      Entertainment Group, Inc.(A
      Development Stage Company)
              Balance
      Sheets
              (Unaudited)ASSETSMarch
      31,
            
            
            December
      31,2008
            
            
            2007Current
      Assets:Cash
            
            $
            18,671
            
            
            $
            122Prepaid
      expenses
            
            
            6,424
            
            
            
            6,424Total
      Current Assets
            
            
            25,095
            
            
            
            6,546Deferred
      financing costs
            
            
            47,564
            
            
            
            54,984Scripts
      costs
            
            
            79,700
            
            
            
            79,700Deposit
      for studio project
            
            
            50,000
            
            
            
            50,000Total
      other assets
            
            
            177,264
            
            
            
            184,684Total
      Assets
            
            $
            202,359
            
            
            $
            191,230LIABILITIES AND
      STOCKHOLDERS' DEFICTCurrent
      Liabilities:Accounts
      payable and accrued liabilities
            
            $
            152,049
            
            
            $
            176,999Accrued
      salaries to related parties
            
            
            477,000
            
            
            
            350,000Note
      payable to related party
            
            
            304,500
            
            
            
            300,000Stockholder
      advances
            
            
            58,338
            
            
            
            134,757Total
      Current Liabilities
            
            
            991,887
            
            
            
            961,756Long
      Term Liabilities:Secured
      convertible notes payable, net of discount of $579,316 and $647,762,
      respectively
            
            
            355,016
            
            
            
            295,970Derivative
      liabilities – Series A and B convertible preferred stock conversion
      feature
            
            
            402,230
            
            
            
            726,223Derivative
      liability – conversion feature
            
            
            489,294
            
            
            
            542,661Derivative
      liability – warrants
            
            
            25,947
            
            
            
            50,759Total
      Long Term Liabilities
            
            
            1,272,487
            
            
            
            1,615,613Total
      Liabilities
            
            
            2,264,374
            
            
            
            2,577,369Series
      A and B Convertible Preferred Stock; par value $0.001 per share
      35,000,000;shares authorized; 29,402,047 and 28,152,047 shares issued
      and outstanding at March 31, 2008
              and
      December 31, 2007, respectively
            
            
            29,402
            
            
            
            28,152Stockholders'
      Deficit:Common
      Stock; par value $0.001; 500,000,000 shares authorized;
              231,006,332
      and 224,506,006 shares issued and outstanding at March 31,
      2008
              and
      December 31, 2007, respectively
            
            
            231,006
            
            
            
            224,506Additional
      paid-in capital
            
            
            13,650,475
            
            
            
            13,637,649Deficit
      accumulated during the development stage
            
            
            (15,972,898
            )
            
            
            (16,276,446
            )Total
      Stockholders' Deficit
            
            
            (2,091,417
            )
            
            
            (2,414,291
            )Total
      Liabilities and Stockholders' Deficit
            
            $
            202,359
            
            
            $
            191,230The
      accompanying notes are an integral part of theses financial
      statements.




4











Camelot
      Entertainment Group, Inc.
              (A
      Development Stage Company)Statements
      of Operations(Unaudited)FromInception
      onApril
      21, 1999For the Three Months
      Ended,
            
            
            ThroughMarch
      31,
            
            
            March
      31,
            
            
            March
      31,2008
            
            
            2007
            
            
            2008Revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            58,568Operating
      expenses:Costs
      of services
            
            
            -
            
            
            
            -
            
            
            
            95,700Sales
      and marketing
            
            
            -
            
            
            
            -
            
            
            
            53,959Research
      and development
            
            
            -
            
            
            
            -
            
            
            
            252,550General
      and administrative
            
            
            236,220
            
            
            
            386,420
            
            
            
            12,247,871Impairment
      of assets
            
            
            -
            
            
            
            -
            
            
            
            2,402,338Impairment
      of investments in other companies
            
            
            -
            
            
            
            -
            
            
            
            710,868Total
      Expenses
            
            
            236,220
            
            
            
            386,420
            
            
            
            15,763,286Operating
      loss
            
            
            (236,220
            )
            
            
            (386,420
            )
            
            
            (15,704,718
            )Other
      income (expense):Gain
      on sale of interest in CDG
            
            
            200,000
            
            
            
            -
            
            
            
            200,000Interest
      expense
            
            
            (81,230
            )
            
            
            (53,150
            )
            
            
            (1,630,986
            )Gain
      (loss) on derivative liabilities
            
            
            420,998
            
            
            
            (215,254
            )
            
            
            907,306Gain
      on extinguishment of debt
            
            
            -
            
            
            
            -
            
            
            
            255,500Total
      other income (expenses)
            
            
            539,768
            
            
            
            (268,404
            )
            
            
            (268,180
            )Net
      income (loss)
            
            $
            303,548
            
            
            $
            (654,824
            )
            
            $
            (15,972,898
            )Basic
      income (loss) per common share
            
            $
            0.00
            
            
            $
            (0.01
            )Diluted
      income (loss) per common share
            
            $
            0.00
            
            
            $
            (0.01
            )Weighted
      average number of shares outstanding:Basic
            
            
            226,845,221
            
            
            
            107,433,521Diluted
            
            
            500,000,000
            
            
            
            107,433,521The
      accompanying notes are an integral part of these financial
      statements.






5
  Camelot
      Entertainment Group, Inc.(A
      Development Stage Company)Statements
      of Cash Flows(unaudited)FromInception
      onApril
      21, 1999For
      Three Months Ended
              
              
              throughMarch 31,
              
              
              March
      31,
              
              
              March
      31,2008
              
              
              2007
              
              
              2008Cash
      Flows From Operating Activities:Net
      income (loss)  for the period
              
              $
              303,548
              
              
              $
              (654,824
              )
              
              $
              (15,972,898
              )Adjustments
      to reconcile net (loss) to cash provided (used) by operating
      activities:Amortization
      of deferred financing costs and discounts on notes payable
              
              
              75,868
              
              
              
              40,080
              
              
              
              372,092Imputed
      interest on note payable
              
              
              4,500
              
              
              
              1,234
              
              
              
              25,984Common
      stock issued for interest expenses
              
              
              -
              
              
              
              -
              
              
              
              565,459Common
      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
              
              
              30,000
              
              
              
              -
              
              
              
              3,221,429Loss
      or (Gain) on derivative liability
              
              
              (420,998
              )
              
              
              215,254
              
              
              
              (262,197
              )Common
      stock issued for expense reimbursement
              
              
              -
              
              
              
              -
              
              
              
              22,000Common
      stock issued for technology
              
              
              -
              
              
              
              -
              
              
              
              19,167Impairment
      of investments in other companies
              
              
              -
              
              
              
              -
              
              
              
              710,868Impairment
      of assets
              
              
              -
              
              
              
              -
              
              
              
              2,628,360Impairment
      of note receivable
              
              
              -
              
              
              
              -
              
              
              
              17,500Prepaid
      services expensed
              
              
              -
              
              
              
              -
              
              
              
              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 and accrued liabilities
              
              
              (24,950
              )
              
              
              159,219
              
              
              
              359,190Increase
      (decrease) in due to officers
              
              
              127,000
              
              
              
              -
              
              
              
              477,000Net
      Cash provided by (used) in operating activities
              
              
              94,968
              
              
              
              (239,037
              )
              
              
              (1,865,129
              )Cash
      flows from investing activities:Purchase
      of fixed assets
              
              
              -
              
              
              
              -
              
              
              
              (6,689
              )Purchase
      of scripts and deposits
              
              
              -
              
              
              
              (43,900
              )
              
              
              (129,700
              )Cash
      provided (used) from investing activities
              
              
              -
              
              
              
              (43,900
              )
              
              
              (136,389
              )Cash
      flows from financing activities:Contributed
      capital
              
              
              -
              
              
              
              -
              
              
              
              25,500Proceeds
      from related party notes payable
              
              
              -
              
              
              
              -
              
              
              
              1,316,613Payments
      on notes payable
              
              
              -
              
              
              
              -
              
              
              
              (254,477
              )Proceeds
      from notes payable
              
              
              -
              
              
              
              -
              
              
              
              1,167,998Payments
      on related party notes payable
              
              
              -
              
              
              
              -
              
              
              
              (125,000
              )Advances from
      shareholder advances
              
              
              15,395
              
              
              
              32,144
              
              
              
              250,520Payments
      from shareholder advances
              
              
              (91,814
              )
              
              
              (183,921
              )
              
              
              (362,105
              )Cash
      provided by (used) in financing activities
              
              
              (76,419
              )
              
              
              (151,777
              )
              
              
              2,019,049Increase
      (decrease) in cash
              
              
              18,549
              
              
              
              (434,714
              )
              
              
              17,531Cash
      at beginning of period
              
              
              122
              
              
              
              435,533
              
              
              
              1,140Cash
      at the end of the period
              
              $
              18,671
              
              
              $
              819
              
              
              $
              18,671Supplemental
      Cash Flow Information:Non
      - cash investing and financing transactions:Stock
      issued for related party debt
              
              
              -
              
              
              
              -
              
              
              
              248,581Creation
      of additional debt discount
              
              
              -
              
              
              
              -
              
              
              
              920,315Accelerated
      amortization of disount on N/P
              
              
              -
              
              
              
              -
              
              
              
              23,460Stock
      issued for debt conversion
              
              
              9,400
              
              
              
              -
              
              
              
              65,848Stock
      issued per financing agreement
              
              
              -
              
              
              
              500,000
              
              
              
              500,000Derivative
      liability relieved by conversion
              
              
              4,924
              
              
              
              -
              
              
              
              53,323The
      accompanying notes are an integral part of these financial
      statements.


6
 
 Camelot
Entertainment Group, Inc.
 Notes
to Financial Statements
 (Unaudited)


1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





Organization
 
 Camelot
Entertainment Group, Inc. (the “Company” or “Camelot”), a Delaware corporation,
is a development stage film, television, digital media and entertainment
company. The Company classifies its businesses into the following three major
divisions:
 
 ·
                Camelot
      Film Group, consisting principally of feature film, television, home
      video, and digital media production and
  distribution;
 
 ·
                Camelot
      Studio Group, consisting principally of site acquisition, design,
      development and operation of Camelot Studio locations domestically and
      internationally;
 
 ·
                Camelot
      Production Services Group, consisting principally of consulting,
      education, finance, production support and technology
      services.
 
 At March
31, 2008, the Company had a total of three (3) employees and approximately
five (5) consultants, which provide services to the Company on an as needed
basis. The Company also retains independent contractors on a project by project
basis.
 
 Basis of
Presentation
 
 Camelot
is considered to be a development stage enterprise as defined in Statement of
Financial Accounting Standards (“SFAS”) 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, 2008. The Company has not
presented the statement of stockholders’ deficit as there have been
insignificant changes during the three months ended March 31, 2008.
 
 The
accompanying unaudited financial statements as of March 31, 2008 and for the
three months ended March 31, 2008 and 2007, respectively, have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information, pursuant to the rules of the regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for audited financial statements. The notes to the financial
statements which would substantially duplicate the disclosures contained in the
audited financial statements for the most recent fiscal year 2007 as
reported in the Company's Form 10-KSB have been omitted.  The results of
operations for the three months ended March 31, 2008 and 2007 are not
necessarily indicative of the results to be expected for the full year. 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 financial statements and related notes thereto which are part of the
Company’s Annual Report on Form 10-KSB for the year ended December 31,
2007.
 
 Earnings (Loss) per
Share
 
 Basic
earnings (loss) per share is based on the weighted average number of shares of
common stock outstanding during the period.  Diluted earnings (loss)
per share also includes the effect of stock options, other common stock
equivalents outstanding during the during the period, and assumes the conversion
of the Company’s Series A and B preferred stock and conversion of convertible
notes payable for the period of time such stock and notes were outstanding, if
such preferred stock and convertible notes are dilutive.  For the
three months ended March 31, 2008, dilutive securities on a fully converted
basis would cause the Company to be in excess of their authorized shares of
500,000,000. Thus, the dilutive earnings per share for the three months ended
March 31, 2008 is limited to the amount of common stock authorized by the
Company’s stockholders.
 
 The
following table sets forth the computation of the numerator and of basic and
diluted income (loss) per share for the three months ended March 31, 2008 and
2007. There were no adjustments to the denominator.






March 31,
      2008
            
            
            March 31,
      2007Weighted
      average common shares outstandingused in
      calculating basic earnings (loss) per share
            
            
            231,006,334
            
            
            
            111,655,743Effect of
      dilutive convertible preferred stock and notes
            
            
            268,993,666
            
            
            
            -Weighted
      average common shares outstanding used incalculating
      diluted earnings (loss) per share
            
            
            500,000,000
            
            
            
            111,655,743




As of
March 31, 2008, the Company has only 500,000,000 shares authorized, thus the
effects of convertible preferred stock and notes into common stock are limited
to the amount authorized by the Company’s stockholders.
   7
 Camelot
Entertainment Group, Inc.
 Notes
to Financial Statements
 (Unaudited)
  1. BASIS OF PRESENTATION
AND SIGNIFICANT ACCOUNTING POLICIES-
continued
  Recent Accounting
Pronouncements
 
 In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141(R), “Business Combinations” (“SFAS 141(R)”), which replaces FAS 141. SFAS
141(R) establishes principles and requirements for how an acquirer in a business
combination recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any controlling interest;
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. FAS 141(R) is to be applied prospectively
to business combinations.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”), which addresses the accounting and reporting framework for minority
interests by a parent company. SFAS 160 also addresses disclosure requirements
to distinguish between interests of the parent and interests of the
noncontrolling owners of a subsidiary. SFAS 160 will become effective beginning
with our first quarter of 2009. The Company is currently evaluating the impact
of this standard on our financial statements.
 
 2.  GOING
CONCERN
 
 The
accompanying financial statements have been prepared assuming that Camelot will
continue as a going concern. During the three months ended March 31, 2008,
Camelot had no revenue producing operations, at March 31, 2008 a negative
working capital of $966,792 and an accumulated deficit from Inception of
$15,972,898. These conditions raise substantial doubt about Camelot’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 consists of restructuring its debt
and seeking additional financial resources from its existing investors, it’s CEO
Robert Atwell and the sale of up to 30% interest in Camelot Development Group,
LLC to Camelot Studio Investors.  During the three months ended March
31, 2008, the Company sold 2% of its interest in CDG for $200,000 and this money
was used fund Camelot Entertainment Group’s operating expenses and used to
reduce related-party payables.
 
 3.  INVESTMENT
 
 On
November 5, 2007, Camelot Development Group, LLC (“CDG”), which on that date was
owned 100% by Camelot, entered into an Operating Agreement known as Camelot
Development Tustin (“CDT”) with Janez Investments XI Tustin, LLC (“Janez”), for
the purpose of master developing the Advanced Technology and Education Park
(“ATEP”) in Tustin, California and the subsequent acquisition of real property
through a ground lease with the South Orange County Community College District
(“SOCCCD”) in order to develop and build Camelot’s first major studio complex
which is planned to be located at ATEP campus (“Project”). Under the terms of
the Operating Agreement, Camelot has been credited with an initial investment of
$1,500,000 into the Project, representing previous expenditures made by Camelot.
Janez will contribute cash to CDT in the sum of $1,500,000 as and when necessary
to pay for predevelopment costs or acquisition expenses as set forth in the
Business Plan for the Project.  In addition, Camelot will be
responsible for one half of future expenditures once Janez $1,500,000
contribution has been extinguished.
  The
Company accounts for the investment under the equity method of
accounting.  The Company did not record an initial investment in CDG
as the intangible asset transferred could not be stepped up in basis because it
did not have an ascertainable value nor can it be guaranteed that the asset will
be ultimately recovered. In addition, the Company and Janez will be paid for
their services from CDG.  Total development costs by CDG during the
three months ended March 31, 2008, were $304,277 of which $146,053 was
attributable to the Company. Due to the zero basis in the investment, the
Company did not record any of the losses in the accompanying statement of
operations in 2008. As of March 31, 2008, Janez has expended approximately
$304,277 in development costs. As of March 31, 2008, CDG did not have any
significant assets or liabilities.
 
 In
January 2008, we agreed to sell up to 30% of our interest in CDG to Camelot
Studio Investors, LLC (“CSI”) for up to $3,000,000 on an as needed
basis.   In addition, CSI receives 100,000 shares of our $0.001
par value Series C Convertible Preferred Stock for each one half of one percent
(.05%) of CDG purchased by CSI, no shares were issued during the quarter ending,
March 31, 2008.  Under this agreement 400,000 common shares were to be
issued resulting in an estimated liability at March 31, 2008.  The
managing member of CSI is Scorpion Bay, LLC, which is managed by Timothy
Wilson, one of our directors. The proceeds from the sale will be utilized to
retire debt and to fund operations. During the three months ended March 31,
2008, the Company sold 2% of its interest for $200,000. At March 31, 2008, the
Company owns approximately 48% of CDG.
  8
 
 Camelot
Entertainment Group, Inc.
 Notes
to Financial Statements
 (Unaudited)
  4.  CONVERTIBLE
NOTES PAYABLE
 
 On
December 27, 2006, Camelot issued a callable secured convertible note payable
for $1,000,000 to various holders. Camelot received the proceeds in two
tranches: $600,000 gross proceeds were received in December 2006 and $400,000 in
gross proceeds was received in June 2007 when the required registration
statement was deemed effective. The note payable provided for annual interest at
8%, was secured by all of the assets of the Company, and matures 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 and the placement agent were issued seven year warrants
to purchase 10,582,609 common shares at an exercise price of $0.15 per share.
The warrants were issued in connection with the first tranche
received.
 
 At
Camelot’s 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 $0.25 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 $0.25, we may prepay a portion of the outstanding principal amount of the
notes equal to 101% of the principal amount hereof divided by 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.
 
 Camelot
evaluated the notes and warrants under SFAS 133 “Accounting for Derivative
Instruments and Hedging Activities” and EITF 00-19 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock”and determined that the 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-furcation from the note instrument and required an estimate
of its fair market value. 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
the Black Scholes model.
 
 As of
March 31, 2008, Camelot estimated the fair value of the derivatives liabilities
to be a total of $515,241 resulting in gain on derivative liability presented in
the statement of operations for the three months ended March 31, 2008 of
$73,254.  In addition, Camelot amortized $68,448 of the discount on
the convertible note payable to interest expense. As of March 31, 2008, the
principal balance of the notes was $934,332.
  At March
31, 2008, the fair market value of the compound embedded derivative was
estimated using a lattice model incorporating weighted average probability cash
flow. The valuation was calculated using a lattice model with the following
assumptions: the stock price would increase in the short term at the cost of
equity with a 150% volatility, there was a 95% probability the Company would not
be in default of its registration requirements, assuming an event of default
occurring 5% of the time increasing .10% per month, reset events projected to
occur 5% of the time at an exercise price of $0.004, the holder would
automatically convert at a stock price of $0.20 if the registration was
effective and the Company was not in default, the Company would trigger
redemption of the note when available at a stock price of $0.10 or higher,
alternative financing would be initially available to redeem the note and start
to increase monthly by 10% of the notes to a maximum of 75% and the trading
volume would increase at 1% per month. At March 31, 2008, the fair market value
of the warrants was estimated using Black Scholes with the major assumptions of
(1) calculated volatility of 200%; (2) expected term of six years; (3) risk free
rate of 3.45% and (4) expected dividends of zero.
 
 During
the three months ended March 31, 2008, the holders of convertible notes
converted $9,400 resulting in the issuance of 5,500,000 shares of common stock.
Upon conversion, the Company reclassed approximately $4,924 of the compound
derivative to additional paid-in capital.
 
 In the
event of full conversion of the aggregate principal amount of the notes of
$934,332 as of March 31, 2008, we would have to issue a total of 507,382,796
shares of common stock, which exceeds our authorized shares of 500,000,000.
However, due to contractual limitations, the most that could be converted in any
singular conversion is approximately 11,527,000 shares, or 4.99% of the
outstanding. In addition, there are contractual limitations that could be
imposed by Camelot that would result in the inability of the note holders to
convert during any given 30 day period. There is no limit to the number of
shares that Camelot may be required to issue upon conversion of the notes as it
is dependent upon Camelot’s share price, which varies from day to day. This
could cause significant downward pressure on the price of Camelot’s common
stock.
 
 In
connection with the convertible note, Camelot recorded $47,564 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. During the three
months ended March 31, 2008 and 2007, the Company amortized $7,420 and $5,770 of
the deferred financing costs to interest expense, respectively.
   9
 Camelot
Entertainment Group, Inc.
 Notes
to Financial Statements
 (Unaudited)
 
 5.  RELATED
PARTY TRANSACTIONS
 
 Accrued
Salaries
 
 At March
31, 2008, the Company has accrued $477,000 in compensation to its current
officers.  The amount due to officers include: Robert Atwell, $355,000
and George Jackson, $122,000.
 
 Advances
from Affiliates
 
 During
the three months ended March 31, 2008, the Company received $15,395 in advances
from an affiliate owned by the CEO, compared to $32,169 in advances for three
months ended March 31, 2007.  During the three months ended March 31,
2008, the Company paid $91,814 of these amounts, leaving a balance due of
$58,338 at March 31, 2008.  Imputed interest recorded during the three
months ended March 31, 2008, related to the advances by the affiliate were
$862.
 
 Robert
Atwell
 
 In
October 2007, the $300,000 note payable due to the Scorpion Bay, LLC was
transferred to property owned by Robert Atwell in which secured the note
payable. The note is due on demand and incurs interest at 6%. During the three
months ended March 31, 2008, the Company accrued $4,500 in interest
expense.
 
 Scorpion Bay,
LLC
 
 Timothy
Wilson (“Wilson”), one of our directors and a major stockholder of the Company,
is the managing member of Scorpion Bay, LLC (“Scorpion”), which owns 50% of
JIT. Wilson is also the managing member of CSI and PSP. See Note 3 and 6 for
transactions.
  6.  PREFERRED
STOCK
 
 During
the three months ended March 31, 2008, 1,250,000 shares of Series A convertible
preferred stock were issued to Scorpion Bay, LLC for services rendered in
connection with the studio project. The shares were valued at $25,000 based on
the estimated fair value of the Series A convertible preferred stock on the date
of issuance and expensed. Scorpion Bay, LLC did not have any additional
performance commitments related to the shares. At the time of issuance of the
Series A convertible preferred stock, the Company did not have enough authorized
shares on a fully diluted basis due to the conversion feature of the convertible
notes, which caused the Series A convertible preferred stock to be tainted, and
more akin to debt. In addition, management determined that the Series A
convertible preferred contained compound embedded derivative liabilities under
SFAS 133 and EITF 00-19, because of the classification of these securities as
liabilities. The Company determined that the compound embedded conversion
features required bifurcation from the remaining Series A convertible preferred
and required an estimate of its fair market value. The fair market value of
the compound embedded derivative was estimated using a lattice model
incorporating weighted average probability cash flow.
 
 On the
date of the issuance, the fair market value of the compound embedded derivative
associated with the Series A convertible preferred stock was estimated to be
$49,124 and resulted in the Series A convertible preferred stock being
discounted to its par value. Due to the excess fair value of the compound
embedded derivative over the proceeds of $25,374, the Company recorded an
immediate charge to derivative gain (loss).
 
 As of
March 31, 2008, there were 8,650,957 shares outstanding of our $0.001 par value
Series B Convertible Preferred Stock. The Series B Preferred converts to 10
shares of common stock for every one share of Series B Preferred Stock. Each
share of Series B Preferred Stock is entitled to 1,000 votes. Series B Preferred
ranks superior to all other classes of stock.
 
 As of
March 31, 2008, there were 20,751,090 shares outstanding of our $0.001 par value
Series A Convertible Preferred Stock. The Series A Preferred converts to four
shares of common stock for every one share of Series A Preferred Stock. Each
share of Series A Preferred Stock is entitled to 50 votes. Series A Preferred
ranks superior to our common stock and ranks junior to our Series B Preferred
Stock.
 
 As of
March 31, 2008, the Company estimated the fair value of the preferred stock
derivative liabilities to be a total of $402,230 resulting in a gain on
derivative liability presented in the statement of operations of $347,744. At
March 31, 2008, the fair market value of the conversion feature derivative
related to the Series A and B Convertible Preferred stock was estimated using a
lattice model incorporating weighted average probability cash flow. The
valuation was calculated using a lattice model with the following assumptions:
the stock price would increase in the short term at the cost of equity with a
190% volatility and there was a 100% probability the Company would not be in
default of its registration requirements as there were none.
  On
January 8, 2008, Camelot established a Series C Convertible Preferred Class of
stock of which 10,000,000 shares were authorized. The Series C Convertible
Preferred converts to one share of common stock for every one share of Series C
Convertible Preferred Stock. Each share of Series C Preferred Stock is entitled
to one vote. The Company’s Series A and B are superior to the Series C
Convertible Preferred. To date no Series C Convertible Preferred shares have
been issued. Because the authorized common shares are potentially unavailable,
any issuance of the Series C Convertible Preferred shares will tainted until
such time the Company obtains shareholder approval.
 
 On
February 18, 2008, the Company’s board of directors increased the authorized
shares of common stock to 500,000,000.
  7.
 STOCKHOLDERS’ DEFICIT
 
 Common
Stock Issued for Services
 
 On
February 24, 2008, the Company issued 1,000,000 shares of common shares public
relations firm for professional services rendered in connection with the Tustin
Studio project.  The shares were valued at $0.005 per share, totaling
$5,000. The shares were valued based on the closing market price of the
Company’s common stock on the date of issuance and expensed immediately as there
were no future performance requirements.
  10
  ITEM 2. - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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.
 
 Off-Balance Sheet
Arrangements
 
 We do not
have any off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
 
 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 are detailed in the
notes to the financial statements which are an integral component of this
filing.  At March 31, 2008, significant accounting estimates relate to
the fair value of the Company’s derivative liabilities.
  Critical
Accounting Policies
 
 The
Company has defined a critical accounting policy as one that is both important
to the portrayal of the Company's financial condition and results of operations;
and requires the management of the Company to make difficult, subjective or
complex judgments. Estimates and assumptions about future events and their
effects cannot be perceived with certainty. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments. These estimates may change as new events occur, as more
experience is acquired, as additional information is obtained and as the
Company's operating environment changes.
 
 We have
identified certain policies as critical to our business operations and the
understanding of our results of operations, see our annual report on Form 10-KSB
for these policies. 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.
   11
  ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION-
continued
  Going
Concern Uncertainties
 
 The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles accepted in the United States, which
contemplate continuation of Camelot as a going concern. However, Camelot has
experienced recurring operating losses and negative cash flows from
operations.  This is due in part to Camelot’s focus on developing
Camelot Studios at ATEP, which has necessitated considerable monetary and time
commitments from Camelot in lieu of Camelot pursuing revenue generating
opportunities either through its Camelot Film Group or Camelot Production
Services Group divisions. Camelot’s Board of Directors made the decision to have
Camelot focus on the studio project due to the long term importance of the
studio and the impact successful completion of that project will have on Camelot
Studio Group and Camelot overall. As a result, Camelot has had to delay several
revenue generating projects which it will implement once the basic entitlement
phase has been concluded for Camelot Studios at ATEP.
 
 Camelot’s
continued existence is dependent upon its ability to increase operating revenues
and/or obtain additional equity financing. As part of our ongoing efforts to
obtain additional financing, in January 2008 Camelot agreed to sell up to 30% of
its interest in Camelot Development Group, LLC (“CDG”) to Camelot Studio
Investors (“CSI”) for up to $3,000,000 on an as needed basis. Proceeds from the
sale will be used to retire debt, provide operating expenses for Camelot and
establish a reserve for contingency expenditures related to the Camelot Studios
at ATEP project and Camelot Studio Group. To date, Camelot has sold a 2%
interest for proceeds of $200,000
 
 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”). This transaction is referred to
also as the “NIR Funding”.
 
 We
entered into an agreement with Eagle Consulting Group, Inc. (“Eagle”) on March
28, 2003, to provide operational funding for the Company, which expires on March
28, 2008. 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 provided funding for the
Company’s annual audit, quarterly filings, accounts payable and other ongoing
expenses including office, phones, business development, legal and accounting
fees. On June 5, 2007, the Company completed its funding transaction with NIR
and its note holders, whereby the note holders have invested monies into the
Company, thereby ending the agreement with Eagle.
 
 In
addition, during 2006 and 2007 we also reached agreement with Scorpion Bay,
LLC (“Scorpion”), to provide short term loans to Camelot on an as needed basis.
To date, all of these loans have been repaid. Further, The Atwell Group has
provided advances for certain Camelot expenses when necessary. It appears likely
that such funding and financial arrangements with CSI, Scorpion and our officers
and directors should continue to be enough to meet all of the Company's cash
requirements in 2008. 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.
  New
Accounting Pronouncements
 
 In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141(R), “Business Combinations” (“SFAS 141(R)”), which replaces FAS 141. SFAS
141(R) establishes principles and requirements for how an acquirer in a business
combination recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any controlling interest;
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. FAS 141(R) is to be applied prospectively
to business combinations.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”), which addresses the accounting and reporting framework for minority
interests by a parent company. SFAS 160 also addresses disclosure requirements
to distinguish between interests of the parent and interests of the
noncontrolling owners of a subsidiary. SFAS 160 will become effective beginning
with our first quarter of 2009. The Company is currently evaluating the impact
of this standard on our financial statements.
   12
  ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION- continued
  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 issued no shares in 2002 due to conversion, exercises or contingent
issuances. In 2003, the Company issued 20,000,000 shares due to the conversion
of notes payable retiring principal and accrued interest totaling $224,296. We
reached an agreement with Eagle Consulting Group, Inc. on March 28, 2003 to
provide operational funding for Camelot. In exchange for twenty percent (20%)of
the Company’s outstanding common stock on an anti-dilutive, continuing basis
until Camelot could secure additional financing from another source, Eagle
agreed to provide funding for Camelot’s annual audit, quarterly filings,
accounts payable and other ongoing expenses including office, phones, business
development, legal and accounting fees. In 2004, Eagle advanced $127,341 and in
2005 Eagle advanced $125,288. 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.
 
 On
January 5, 2005, the Company designated two classes of preferred stock, Class A
Convertible Preferred Stock and Class B Convertible Preferred Stock. Both
classes have a par value of $.001 and 10,000,000 shares authorized. The Series A
is reserved for employees, consultants and other professionals retained by the
Company and the Series B is reserved for the Board of Directors. On June 30,
2005, the Company issued 5,100,000 shares of each Class A Convertible and Class
B Convertible Preferred Stock to Robert Atwell. The Company recorded expense of
$3,366,000 in connection with the Preferred Stock issuances.
  On
October 25, 2007, the Company entered into a Share Issuance Agreement (“SIA”)
with Zuckerman, Kocmur and Scorpion (“JJT”). According to the terms and
conditions of the SIA, as additional consideration for Janez becoming a joint
venture partner with CDG, and in consideration for additional business
development and consulting efforts provided by JJT, JJT received 80,000,000
shares of our common stock. 20,000,000 shares were issued to Zuckerman,
20,000,000 shares were issued to Kocmur, these shares were valued at the market
price at the date of issue $0.006 and recorded as professional services in the
amount of $240,000. The 40,000,000 shares were issued to Scorpion in Preferred
Series A and B stock were recorded at the market price at the date of issue and
recorded as professional services in the amount of $307,276.   In
addition, Zuckerman, Wilson and Joseph Petrucelli were nominated to serve on our
Board of Directors. The parties also agreed on a common stock structure which
provides JTT and Robert P. Atwell, our Chairman (“Atwell”) with anti-dilution
protection. Further, the SIA directs the Company to seek stockholder approval to
increase the authorized shares of the common stock to 400,000,000 and increase
the Board of Directors from five to seven members.
 On March
31, 2008, there were 8,650,957 shares outstanding of our $0.001 par value Series
B Convertible Preferred Stock. The Series B Preferred converts to 10 shares of
common stock for every one share of Series B Preferred Stock. Each share of
Series B Preferred Stock is entitled to 1,000 votes. Series B Preferred ranks
superior to all other classes of stock.
 
 On March
31, 2008, there were 20,751,090 shares outstanding of our $0.001 par value
Series A Convertible Preferred Stock. The Series A Preferred converts to four
shares of common stock for every one share of Series A Preferred Stock. Each
share of Series A Preferred Stock is entitled to 50 votes. Series A Preferred
ranks superior to our common stock and ranks junior to our Series B Preferred
Stock.
  Plan of
Operations
 
 Overview
 
 Camelot
Entertainment Group is working to become a fully integrated, broad based
entertainment company whose planned future global operations expect to encompass
motion picture production and distribution, television programming, production
and syndication, home video acquisition and distribution, digital media
production and distribution, development and operation of studio facilities,
development of new technologies, and distribution of filmed entertainment
worldwide. We are planning to become a global leader in the creation,
production, distribution, licensing and marketing of all form of creative
content and their related businesses across all current and emerging media and
platforms. If we are successful in implementing our business model, we could
lead the industry in every aspect from feature film, television and home
entertainment production and distribution to DVD, digital distribution,
licensing and entertainment related digital media.
 
 Our
Company is divided up into three major divisions, Camelot Film Group, Camelot
Studio Group and Camelot Production Services Group.
 
 During
fiscal year 2008, the Company’s focus will continue to be on two specific areas:
the ongoing development of Camelot Studios at ATEP under our Camelot Studio
Group division and the emergence of Camelot Film and Media Group as it prepares
to unveil its Camelot Production Model (“CPM”). In order to implement our plans
to become a global media and entertainment company, it is critical that we build
a solid foundation to build upon, and that begins with making sure that each
division is carefully structured and that their respective business models are
implemented in accordance with those designs.
 
 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.
  13
  ITEM 2. - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION- continued
  Liquidity
and Capital Resources
 
 We have a
limited history of operations as a film, television and digital media production
and distribution company. We believe that, due to the complex nature of our
business model and the ensuing long term sales cycles, 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 current
agreements with Camelot Studio Investors, LLC, Scorpion Bay, LLC and The
Atwell Group, Inc., which are discussed below under Recent Financing. During the
three months ended March 31, 2008, Camelot had no revenue producing operations,
at March 31, 2008 a negative working capital of $966,792 and an accumulated
deficit from Inception of $15,972,898. 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 Camelot’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 consists of restructuring its debt
and seeking additional financial resources from its existing investors, it’s CEO
Robert Atwell and sale of up to 30% interest in CDG to Camelot Studio
Investors.  During the three months ended March 31, 2008, the Company
sold 2% of its interest in CDG for $200,000 and this money was used fund Camelot
Entertainment Group’s operating expenses and to reduce related party
payables.
 
 Recent
Financing
 
 Camelot
Studio Investors
 
 In
January 2008, we agreed to sell up to 30% of our interest in Camelot Development
Group, LLC (“CDG”) to Camelot Studio Investors LLC (“CSI”) for up to $3,000,000
on an as needed basis. CDG, which is part of our Camelot Studio Group division,
is 50% joint venture partner with Janez Investments Tustin XI (“JIT”) in Camelot
Development Tustin, LLC (“CDT”). CDT is working with the South Orange County
Community College District (“SOCCCD”) to become the master developer for the
Advanced Technology and Education Park (“ATEP”) campus in Tustin,
California, which includes Camelot Studios at ATEP.
 
 CSI
receives 100,000 shares of our $0.001 par value Series C Convertible Preferred
Stock for each one half of one per cent (.05%) of CDG purchased by CSI. The
managing member of CSI is Scorpion Bay, LLC (“Scorpion”), which is managed
by Timothy Wilson, one of our at-large directors. The proceeds from the sale
will be utilized to retire debt, pay operating expenses and provide a
contingency reserve for Camelot Studio Group and the Camelot Studios at ATEP
project.  As
of March 31, 2008, the company received $200,000 from CSI and no shares were
issued.  Based on the formula above and company was to issue 400,000
common shares, which would have resulted in a liability of $2,200 as of March
31, 2008.
 
 NIR
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”). This transaction is referred to as
the “NIR Financing”.
 
 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, on June 5, 2007 the Investors purchased 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.
   14
  ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION -
continued




NIR Financing-
continued





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.





We
simultaneously issued to the Investors seven year warrants to purchase
10,000,000 shares of our common stock at an exercise price of
$0.15.





In
connection with the recent financing and pursuant to a Structuring Agreement, we
also issued to Lionheart Associates, LLC d/b/a Fairhills Capital (“Lionheart”)
warrants representing the right to purchase up to 582,609 shares of our common
under the same terms as the Warrants issued to the Investors.




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





As a
result of our SB-2 Registration, a total of 13,228,492 shares of common stock
were registered. They were all converted at various prices during 2007.




The
aggregate principal amount of the Notes is $943,732. The estimated conversion
price of the Notes is $0.0019 based on the following: $0.0031 was the average of
the lowest three (3) trading prices for our shares of common stock during the
twenty (20) trading days prior to March 31, 2008, less a 40% discount.
Thus, at a discounted price-per-share of $0.0019, 507,382,796 shares of the
Company's common stock would be issuable upon conversion of $943,732 into common
shares of the Company ("Conversion Shares"). However, due to contractual
limitations, the most that could be converted in any singular conversion is
approximately 11,527,000 shares, or 4.99% of the outstanding. In addition, there
are contractual limitations that could be imposed by Camelot that would result
in the inability of the note holders to convert during any given 30 day
period.





The
following table shows the effect on the number of shares issuable upon full
conversion, in the event the common stock price declines by 25%, 50% and 75%
from its the most recent trading price.





Price
      Decreases By3/31/2008
            
            
            
            25
            %
            
            
            50
            %
            
            
            75
            %Average
      Common Stock Price (as defined above)
            
            $
            0.0031
            
            
            $
            0.002325
            
            
            $
            0.001550
            
            
            $
            0.000775Conversion
      Price (40% Discount)
            
            $
            0.0019
            
            
            $
            0.001395
            
            
            $
            0.000930
            
            
            $
            0.000465100%
      Conversion Shares
            
            
            507,382,796
            
            
            
            676,510,394
            
            
            
            1,014,765,591
            
            
            
            2,029,531,183





There is
no limit to the number of shares that we may be required to issue upon
conversion of the Notes as it is dependent upon our share price, which varies
from day to day. This could cause significant downward pressure on the price of
our common stock.





Scorpion Bay
Loans





On June
15, 2007, we entered into a loan agreement with Scorpion Bay, LLC
(“Scorpion”), whereby Scorpion loaned Camelot $300,000 in three tranches of
$100,000 each on June 15, July 15 and August 15 2007. Interest on the loan was
in the form of 3,000,000 shares of our $0.001 par value common stock (“Shares”).
The loan was due and payable on November 15, 2007. The loan was secured with a
blanket note and second deed of trust on real property owned by Robert and
Tamara Atwell. Robert Atwell is the Chairman, President and CEO of Camelot
(“Atwell”). In the event the loan was not paid by the due date, the note could
be extended by Scorpion at a cost of 750,000 Shares for each 30 day extension.
On or about October 25, 2007, Scorpion agreed to release and/or transfer the
security interest provided by Atwell in reference to the $300,000 loan to the
Company by Scorpion on June 15, 2007 and the amount due to Scorpion was
transferred to real property owned by Atwell. As a result, Camelot will not
incur any additional interest charges and/or fees connected with the loan.
Scorpion received a total of 13,000,000 Shares (including 5,000,000 shares
issued to Dolphin Communities) in connection with the loan and events related
thereto.





On
November 21, 2006, we entered into a loan agreement with Scorpion, whereby
Scorpion loaned Camelot $250,000. Interest was paid in the form of 500,000
Shares. As additional consideration, Scorpion received a total of 1,500,000
Shares. The loan was due and payable on March 22, 2007. The loan was secured
with a blanket note and second deed of trust on real property owned by Robert
and Tamara Atwell. In the event the loan was not paid by the due date, the note
could be extended by Scorpion at a cost of 1,500,000 Shares for the first 30 day
extension, 2,000,000 Shares for the second 30 day extension, 2,500,000 Shares
for the third 30 day extension and so forth. The note was paid in full on June
5, 2007. As a result, Scorpion received a total of 8,000,000 Shares in
connection with the loan and events related thereto.





15




ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION -
continued




Additional
Scorpion Bay Loan





On
November 23, 2007, Scorpion entered into a loan agreement with Love Bug
Management Corp. (“Love Bug”), an entity owned by Atwell, whereby Scorpion
loaned Love Bug $100,000. The proceeds were used for Atwell and Camelot
expenses. As a result of this loan, Atwell paid approximately $36,000 in direct
Camelot expenses. The loan was secured with a blanket note and second deed of
trust on real property owned by Robert and Tamara Atwell. Scorpion received
4,700,000 Shares in connection with the loan and events related
thereto.





The
Atwell Group





During
the three months ended, March 31, 2008, The Atwell Group, Inc. has paid for
expenses on behalf of Camelot as needed. With the occurrence of other financial
resources becoming available, the amount of resources committed by The Atwell
Group has diminished when compared to prior years. The Atwell Group, Inc. is
owned by our Chairman, Robert Atwell.





RESULTS
OF OPERATIONS





General





Available
Information and Website





The
Company’s annual reports on Form 10-KSB, quarterly reports on
Form 10-QSB, current reports on Form 8-K and any amendments to such
reports filed with or furnished to the Securities and Exchange Commission
(“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), are available free of charge on the
Company’s website at www.camelotfilms.comas soon
as reasonably practicable after such reports are electronically filed with the
SEC.





Business
Development





Camelot
Films®, Inc., now a subsidiary of the Company, was originally founded in 1978 by
our current Chairman, Robert P. Atwell, as a feature film production and film
finance management company. Camelot Films was originally incorporated in
Delaware and had offices in London, England, Los Angeles, California and New
York, New York. Between 1978 and 1988, Camelot Films was actively involved in
the development, finance and production of independent feature films. Between
1988 and 2003, Camelot Films was primarily active in the development and
financial structuring of independent feature films and the ongoing development
of its Camelot Production Model (“CPM”). Beginning in 2003, Camelot became
active once again in the production and distribution of independent feature
films, along with its development and finance activities.





On
October 1, 1999, the Company’s predecessor corporate entity was incorporated in
Delaware as Dstage.com, Inc.





On March
31, 2003, the operations of Camelot Films were absorbed into the Company as part
of a corporate restructuring. As a result of this restructuring, the Company’s
new management team, headed by Mr. Atwell, adopted a new business model to
pursue the development, production, marketing and distribution of motion
pictures.





On April
16th, 2004, the Company officially changed its name to Camelot Entertainment
Group, Inc.





Our
initial business development plan was to become a vertically integrated media
enterprise that creatively conceptualizes, finances, produces, and distributes
original entertainment content across various media, including motion pictures,
television, interactive gaming, radio and a multitude of digital media
channels.  Through the absorption of Camelot Films and the
establishment of key operating divisions, including Camelot Distribution Group
Inc., a Nevada corporation, we began to implement our new business model of
acquiring, developing, producing, marketing and distributing motion pictures,
television and digital media on a limited basis.





During
2004 and 2005, we formally acquired our three Camelot Films subsidiaries,
Camelot Films, Inc., a Nevada corporation, Camelot Films, Inc., a California
corporation, and Camelot Films, Inc., a Delaware corporation. We established a
family film subsidiary, Ferris Wheel Films, Inc., a Nevada corporation. In
September 2005, we established Camelot Studio Group with the responsibility of
acquiring, designing, developing and operating our planned major studio
complexes. Also in September 2005, we began the process of assessing the
feasibility of an educational studio complex in Tustin, California. Designed to
be a state-of-the-art
education and technology campus with an emphasis on film, television and digital
media, the project known as the “Advanced Technology and Education Park”,
which will be the home for “Camelot Studios at ATEP”, is now in the entitlement
process.




16




ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION -
continued




Business Development-
continued





During
fiscal year 2006, with the emergence of our studio group operations, we decided
to implement a corporate structure that would feature the parent company,
Camelot Entertainment Group, Inc., and three subsidiaries, Camelot Film Group,
Camelot Studio Group and Camelot Production Services Group. By establishing
three top-level divisions, we expect to be able to streamline our management
efforts in the future, concentrate cost centers and expand revenue
potential.





During
fiscal year 2008, our efforts are focused on our first major studio complex
through our Camelot Studio Group division and on the continuing development of
projects through our Camelot Film Group division. We also continued to make
progress toward the planned launch of our various divisions described
herein.




THREE
MONTH PERIOD MARCH 31, 2008, COMPARED TO PERIOD THREE MONTH PERIOD ENDED MARCH
31, 2007:




The
Company did not generate any revenue during the three months ended, March
31, 2008 or 2007.





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





The
Company has incurred $12,247,871 of general and administrative expenses since
its inception. General and administrative expenses were $ 236,220 for
the three months ended March 31, 2008, respectively, compared to $386,420
for the three months ended March 31, 2007. Decrease in expenses primarily
due to a reduction in professional fees and services primarily related to the
studio project.  The majority of these expenditures were paid by
Camelot Development, LLC during the three months ended March 31, 2008.
Previously, the Company incurred all the costs





The
general and general administrative expenses for the three-month period were
comprised of $130,000 of officers salaries and $43,645 of professional services,
rent $18,075, administrative costs and fees $26,250, insurance costs $6,859 and
$11,390 in other administrative costs.





Other
income (expense) for the period ended March 31, 2008, was $539,768, which
consisted of a $200,000 gain on sale of a 2% interest in CSI and a gain of
$420,998 from the change in the fair value of the Company’s derivative
liabilities on its convertible note and preferred stock.  During the
three months ended March 31, 2007, other income (expense) consisted mostly of a
loss on derivative liabilities of $215,254.






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.





Risk
Factors





Ability
to Achieve Profitable Operations





Our
operations to date have been limited. Our focus has been on our Camelot Studio
Group division, which has limited our ability to fully implement our other major
divisions. The development and implementation of our business model is a long
term process. The normal fiscal cycle of a feature film does not typically
generate revenues for 18 to 24 months. Subsequent to that, the fiscal life cycle
of a feature film is close to 7 years initially, with affiliate, residual and
syndication revenues continuing for years. As of December 31, 2007, we have only
one project in production. Our first studio facility, Camelot Studios at ATEP,
may break ground in April 2009 with occupancy in early 2011. As a result of our
long sales cycles, it is difficult to determine with any certainty how our short
term financial picture will evolve. 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 while we have resources available to grow
our business in 2008, 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
future could require a significant increase in the use of working
capital.





To
successfully grow the individual divisions of the business, we must begin to
devote the time necessary to fully implement their respective business models,
decrease our cash burn rate over time, begin to generate revenues in order to
improve our cash position and establish ongoing revenues in each division, and
succeed in our ability to raise additional capital through a combination of
primarily public or private equity offering or strategic alliances. We also
depend on certain consultants and our executives, and the loss of any of those
consultants or executives, may harm our business.




17




ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK-
continued




Risk Factors-
continued




We
have a limited operating history as a motion picture, television and digital
media company in which to evaluate our business





As
Camelot Entertainment Group, we have a limited operating history as a motion
picture, television and digital media company. To date, we have generated no
revenues and a limited operating history as a motion picture company upon which
an evaluation of our future success or failure can be made. Our primary focus
has been the development of Camelot Studios at ATEP and to a lesser scale
project development within Camelot Film Group. As a result, many of our planned
divisions are not operational or have very limited operations as of March 31,
2008. While current company assets and financial commitments are suitable for
the projected financial needs forecast during 2008, we do not know at this time
the outlook for 2009 and beyond. No assurances of any nature can be made to
investors that the company will be profitable. There can be no assurances that
our management will be successful in managing the Company as a motion picture,
television and digital media company.





We
will require additional funds to achieve our current business strategy and our
inability to obtain additional financing could cause us to cease our business
operations in the future if suitable funding is not secured





Even with
the proceeds from offerings and other resources in 2008, we will need to raise
additional funds through public or private debt or sale of equity to fully
achieve our business strategy. Such financing may not be available when needed.
Even if such financing is available, it may be on terms that are materially
adverse to your interests with respect to dilution of book value, dividend
preferences, liquidation preferences, or other terms.





Our
ability to grow our company through acquisitions, business combinations and
joint ventures, to maintain and expand our development, production and
distribution of motion pictures, television programming and digital media and to
fund our operating expenses will depend upon our ability to obtain funds through
equity financing, debt financing (including credit facilities) or the sale or
syndication of some or all of our interests in certain projects or other assets.
Our business plan 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.





If we are
unable to obtain financing in the future on reasonable terms, we could be forced
to delay, scale back or eliminate certain elements of our business model. In
addition, such inability to obtain financing in the future on reasonable terms
could have a material negative effect on our business, operating results, or
financial condition to such extent that could be forced to restructure, file for
bankruptcy, sell assets or cease operations, any of which could put our Company
and any investments into our Company at significant risk.





We
are subject to a working capital deficit, which means that our current assets at
March 31, 2008, were not sufficient to satisfy our current
liabilities





As of
March 31, 2008, we had a working capital deficit of $966,792, which means that
our current liabilities of $991,887 exceeded our current assets of $25,095 by
that amount on March 31, 2008. Current assets are assets that are expected to be
converted to cash within one year and, therefore, may be used to pay current
liabilities as they become due. Our working capital deficit means that our
current assets on March 31, 2008, were not sufficient to satisfy all of our
current liabilities on that date. We will have to raise additional capital or
debt to fund the deficit.











18






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 theendof
the period covered by this Quarterly Report on Form 10-Q, 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, 2008, 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.




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.





Changes
in Internal Control Over Financial Reporting




To the
best of our knowledge and belief, there has been no change in our internal
controls over financial reporting during the three months ended, March 31, 2008,
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reports.





Code of
Ethics





We have
adopted a Code of Business Conduct that applies to all our directors, officers
(including our principal executive officer and principal financial officer) and
employees. The Code of Business Conduct can be found on our website at www.camelotfilms.com.
We plan to also post on this section of our website any amendment to the Code of
Business Conduct, as well as any waivers that are required to be disclosed in
accordance with Securities and Exchange Commission or market
regulations.

















19




PART II. OTHER
INFORMATION





ITEM 1. LEGAL
PROCEEDINGS





None.







ITEM 2. CHANGE IN
SECURITIES





None







ITEM 3. DEFAULTS UPON SENIOR
SECURITIES





None







ITEM 4. SUBMISSION OF MATTERS TO VOTE
OF SECURITIES HOLDERS





None






ITEM
5. OTHER INFORMATION





On
February 18, 2008





Authorized
common shares were increased from 300,000,000 to 500,000,000
shares.







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
















20








SIGNATURES





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






CAMELOT
      ENTERTAINMENT GROUP, INC.(Registrant)Date: May
      15, 2008
            By:
            /s/ ROBERT
      P. ATWELLTitle:
      Chief Executive Officer




Date: May
      15, 2008
            By:
            /s/ GEORGE
      JACKSONTitle:
      Chief Financial Officer











































21