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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549

Form 10-KSB

(Mark One)

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|   | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December31, 2004 |

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|   | TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For thetransition period from                              to                                 |

333-96257

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Commissionfile number

TAG ENTERTAINMENT CORP.

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(Exactname of small business issuer as specified in its charter)

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| Delaware                |  | 13-3851304                          |
| (Stateof incorporation) |  | (IRS Employer IdentificationNumber) |
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9916 South Santa MonicaBoulevard, 1st FloorBeverly Hills, CA 90212

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(Addressof principal executive office)

(310) 277-3700

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(Issuer'stelephone number)

Securities registered under Section12(b) of the Exchange Act:**None**

Securities registeredunder Section 12(g) of the Exchange Act: **None**

Checkwhether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (orfor such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. **Yes  No**

Check if there isno disclosure of delinquent filers in response to Item 405 ofRegulation S-B is not contained in this form, and no disclosure will becontained, to the best of the registrant's knowledge, indefinitive proxy or information statements incorporated by reference inPart III of this Form 10-KSB or any amendment to this Form 10-KSB.****[Not applicable]

The issuer hadrevenues of $2,059,440 for the fiscal year ended December 31, 2004.

The aggregate market value of the voting stock held bynon-affiliates on March 31, 2005 was approximately $39,435,294.80 basedon the average bid and asked prices of the issuer's common stockon such date.

As of April 14, 2005, the issuer had 21,081,800shares of common stock outstanding.

DOCUMENTS INCORPORATED BYREFERENCE

NONE

TransitionalSmall Business Disclosure Format: **Yes  No**

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PARTI

Item 1.    Description of Business

ForwardLooking Statements

This Report contains statements whichconstitute forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and the Securities Exchange Act of1934.   These statements are based on many assumptions andestimates and are not guarantees of future performance.   Ouractual results may differ materially from those projected in anyforward-looking statements, as they will depend on many factors aboutwhich we are unsure, including many factors which are beyond ourcontrol.   The words "may,""would," "could,""will," "expect,""anticipate,""believe,""intend," "plan,"and "estimate," as well as similarexpressions, are meant to identify such forward-lookingstatements.   Potential risks and uncertainties include, but arenot limited to those described below under "RiskFactors."

As used in this Report, referencesto the "we," "us,""our" refer to TAG Entertainment Corp. unlessthe context indicates otherwise. TAG Entertainment Corp. may bereferred to herein as "TAG." Our wholly-ownedsubsidiary, TAG Entertainment USA, Inc. (formerly known as TAGEntertainment, Inc.) will be referred to herein as "TAGUSA." TAG and TAG USA may be collectively referred to inthis Annual Report as "TAG."

Overview

TAG Entertainment Corp. and its wholly-ownedsubsidiary, TAG Entertainment USA, Inc. are engaged in the independentproduction of family oriented feature films, television programming andother entertainment products for theatrical, television and home videodistribution. We also seek to acquire rights to other entertainmentproperties and film libraries. To date, we have produced a total offive feature length motion pictures, possess the exclusive, worldwidedistribution rights to seven additional feature films produced bycertain limited partnerships and have acquired certain rights toadditional feature length motion pictures of varying quality andcommercial potential. In 2004, we also produced 21 episodes of thetelevision series Arizona Highways: The Television Series forlocal broadcast. We are currently seeking financing (as discussedbelow) to produce additional feature films, purchase other family filmsand entertainment assets. We also intend to acquire certain limitedpartnerships, including the seven which granted us the exclusive,worldwide distribution rights to their films, five of which areassociated with Steve Austin, our Chief Executive Officer. TAG USA wasfounded in 1999 by Steve Austin, our Chairman and Chief ExecutiveOfficer.

Our strategy is to produce family orientedentertainment products (primarily feature motion pictures) appealing toa wide segment of the United States and the international theatricaland television audience. We believe that this target group is morepredictable in their entertainment preferences than other segments ofthe entertainment consumer market, and"evergreen" in that younger children are notas likely to reject a motion picture as dated or lacking well known,contemporary stars. Family films are less likely to generatecontroversy that might adversely reflect on us and harm the prospectsfor a successful distribution. These factors also allow us to produce,market and distribute feature length films with relatively modestbudgets as compared to mainstream motion pictures directed towards anolder, more mature audience.

Corporate History andRecent Acquisition

We were formerly known as Power Marketing,Inc., which was originally incorporated under the laws of the State ofDelaware on August 1, 1995. On November 22, 2004, we consummated amerger with TAG USA in which TAG USA merged with a wholly-ownedsubsidiary that we established for the purposes of the merger. As aresult of the merger, TAG USA became a wholly owned subsidiary of PowerMarketing and TAG USA common stockholders and warrant holders receivedapproximately 21,450,000 shares of Power Marketing common stock (andwarrants) in exchange for 

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the shares of the TAG USA common stock (andwarrants) that they owned. Shareholders of TAG USA owned approximately90% of our outstanding shares of common stock immediately afterthe merger. The holders of approximately 1,122,000 shares of commonstock of TAG USA that did not consent in writing to our acquisition ofTAG USA are entitled to exercise appraisal rights under CaliforniaCorporations Code. In the event such holders elect to exercise theserights, we would be required to purchase the shares of common stock ofTAG USA held by them in lieu of issuing shares of our common stock atthe exchange ratio applicable to the transaction.

In connectionwith the merger, we changed our corporate name to TAG EntertainmentCorp., all of our then-current officers and directors resigned and Mr.Austin, who was the majority shareholder, Chief Executive Officer andsole director of TAG USA became our Chief Executive Officer, ChiefFinancial Officer and sole director. We are currently seekingadditional qualified individuals to satisfy open officer and directorpositions. It is anticipated that Mr. Raymond J. Skiptunis will joinTAG as its Chief Operating Officer and Interim Chief Financial Officerduring the fiscal quarter ending June 30, 2005.

RecentEvents

Bridge Financing

On March 30, 2005, weentered into a Securities Purchase Agreement with Satellite StrategicFinance Associates, LLC and an affiliated investor under which weissued $1.0 million in aggregate principal amount of Senior SecuredNotes and Warrants to purchase 500,000 shares of our common stock in aprivate placement to accredited investors under Regulation D of theSecurities Act of 1933, as amended. We received gross proceeds of$1,000,000 which are intended to be used for the production anddistribution of films, including acquisition of additional productand/or distribution assets and for general working capital. We alsoentered into a Registration Rights Agreement and a Security Agreementwith the investors and TAG USA co-signed the Security Agreement andagreed to guaranty our obligations pursuant to the financingagreements.

The Notes mature on March 30, 2006 and are soonerpayable in full in the event we consummate a subsequent financingevent, with certain exceptions, or upon the occurrence of an event ofdefault. We also have the right to prepay the Notes in whole or in partat any time. The aggregate principal amount of Notes issued is$1,150,000 with a 15% yield funded as original issuancediscount. No additional interest is payable unless an event of defaultoccurs, in which event interest at the default interest rate of12% shall accrue. Pursuant to the Security Agreement, we grantedthe investors a first priority lien on all of our assets, other thancertain previously issued liens, in order to secure our obligations.The warrants are exercisable at $1.00 per share, subject to adjustmentupon certain events, including as a result of our sale of equitysecurities at a price below the exercise price.  The warrants areexercisable at any time on or before March 30, 2010.

Additionalinformation regarding this transaction is provided under the caption"Recent Sales of UnregisteredSecurities".

Letter of Intent with MyriadPictures

On March 30, 2005, we entered into a Letter of Intentto acquire a privately held company, Myriad Pictures, Inc., which isengaged in the film production and distribution business. The Letter ofIntent provides for a purchase price of approximately $4,000,000,including an earnout payment of up to $2,000,000 which will benegotiated by the parties prior to closing of the transaction. Theearnout may be paid in cash or in shares of our common stock, at ouroption. In addition, we intend to use an additional $750,000 to provideMyriad with working capital and debt repayment after the closing. Ofthe purchase price, $1,000,000 will be payable by a promissory notepayable over 12 months following the closing.

Under the proposedterms, Myriad will become our wholly-owned subsidiary. The principal ofMyriad, Mr. Kirk D'Amico, will remain with Myriad and continue tomanage its operations following 

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the closing as the President of Myriad. Theparties also expect that Jon Shiffman, the chief financial officer ofMyriad, will continue with Myriad after the closing. The parties willnegotiate the definitive terms of an employment agreement for Mr.D'Amico and Mr. Shiffman prior to closing.

In connectionwith the execution of the Letter of Intent, we provided Myriad with ashort term loan of $250,000, bearing interest at the rate of 3%per annum, which Myriad will use for working capital and to pay for itsacquisition costs pending the closing. In the event the transaction iscompleted, the loan will be an intercompany debt and thereafter beconverted into additional equity in Myriad. The loan is secured by alien on the assets of Myriad.

The parties have agreed to usetheir best efforts to complete the transaction on or before July 1,2005, unless such date is extended by the parties. Closing of thetransaction is subject to numerous conditions, including: (i)negotiation and execution of a definitive acquisition agreement, aswell as ancillary agreements such as employment agreements for Messrs.D'Amico and Shiffman and the definitive terms of the $2,000,000earnout payment; (ii) completion of due diligence by the parties as totheir respective operations and financial condition; and (iii)completion of financial statements for Myriad in accordance with SECrequirements. There can be no assurance that the transaction will becompleted, or if it is completed that it will be on the terms asdescribed above

Interests in Limited Partnerships

In addition to feature films produced directly by TAG USA and fourlimited partnerships for which it acts as general partner, our ChiefExecutive Officer has formed five other limited partnerships andlimited liability companies that have engaged TAG USA to produce anddistribute five additional feature length films. These companies areeach managed by Mr. Austin through separate affiliated companies. TAGUSA also acts as the exclusive, worldwide distributor for twoadditional films produced by two unaffiliated limited partnerships. Weare considering offering to acquire each of these limited partnerships(including the partnerships where TAG USA is general partner) forshares of our common stock. No letter of intent for these acquisitionshas been signed and the terms of the proposed acquisitions have notbeen determined, and there can be no assurance we will be successful incompleting the acquisitions. Furthermore, we may determine to acquireless than all of the limited partnerships and the structure of anyparticular acquisition has not been determined. However, in the eventthe acquisitions are completed, the interests of our shareholders willbe diluted. The following table lists each of the limited partnershipsthat we intend to acquire, the title of the motion picture it producedand the identity of its general partner.

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|-------------------------------|--|----------------------|--|----------------------------------|--|--|--|--|--|--|
| LimitedPartnership            |  | Motion Picture       |  | GeneralPartner                   |
| Majestic Film Partners LP     |  | CastleRock           |  | TAG USA                          |
| Majestic Film Partners IILP   |  | No Place Like Home   |  | TAGUSA                           |
| Majestic Film Partners III LP |  | DumbLuck             |  | TAG USA                          |
| Majestic Film Partners IVLP   |  | Hansel & Gretel  |  | TAGUSA                           |
| Animal Partners LP            |  | MiracleDogs          |  | Steve Austin Productions, LLC    |
| FamilyFilm Partners VI, LP    |  | The Santa Trap       |  | Austin FamilyEntertainment, Inc  |
| Fairy Tale Partners III,LP    |  | Red Riding Hood      |  | Austin Family Entertainment,Inc  |
| Motocross Kids LP             |  | Moto XKids           |  | Austin Family Entertainment,Inc  |
| Downtown the MovieLP          |  | Popstar              |  | American Film Ventures,LLC       |
| Supercross The MovieLP        |  | Supercross           |  | Enriching Entertainment,LLC      |
| American Black Beauty LP      |  | American BlackBeauty |  | Austin Family Entertainment, Inc |
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Adescription of these feature films produced is included below under thecaption "Films Produced and Distributed byTAG."

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Industry Overview

MotionPictures

 According to the Motion Picture Association ofAmerica (the "MPAA"), the average cost toproduce and distribute a major studio film in 2003 was $102.8million, including $63.8  million of production costs and$39.0  million of distribution and marketing expenses. Incomparison, films released by independent studios typically cost lessthan $40.0  million to produce and market. We have limited ourproduction costs to a maximum of $10 million for each of our motionpictures. Despite the limited resources generally available toindependent studios, independent films have gained wider marketapproval and increased share of overall box office receipts in recentyears. The motion picture industry consists of two principalactivities: production and distribution. Production involves thedevelopment, financing and production of feature-length motionpictures. Distribution involves the promotion and exploitation ofmotion pictures throughout the world in a variety of media, includingtheatrical exhibition, home entertainment, television and otherancillary markets.

The MPAA has also found, in its 2004 MPAMarket Statistics for the U.S. Entertainment Industry, that the motionpicture industry is continuing its growth, both domestically andinternationally. Since 1991, box office receipts have been steadilyincreasing and has grown by almost $6 billion over the past 20 years.The MPAA found that box office receipts increased 13.2% in 2002as compared to 2001 to $9.52 billion and that in 2004, this growthcontinued, to an amount of $9.54 billion. We believe this industryperformance and growth potential will enable us to successfully competein this industry.

Television Programming

We believethat television programming also constitutes a growth market for us.The continued growth of the cable and satellite television markets, hasincreased demand for television programming in general. According toindustry data, spending on cable and satellite television increased10.2% to $76.9  billion in 2002. Cable and satellitetelevision has been one of the most consistently fast-growing mediasegments over the past five years and spending is expected to increasethrough the near term. Based on such data, we believe that theincreased capacity for channels on upgraded digital cable systems andsatellite television has led to the launch of numerous new networksseeking programming to compete with traditional broadcast networks. Webelieve this will enable us to will enable us to successfully competein this industry.

Competition

Motion picture productionand distribution are highly competitive businesses. We face competitionfrom companies within the entertainment business, as well asalternative forms of leisure entertainment. We compete with the othermajor studios, numerous independent motion picture and televisionproduction companies, television networks and pay television systemsfor the acquisition of literary properties, the services of performingartists, directors, producers and other creative and technicalpersonnel and production financing. Numerous organizations with whichwe compete in the motion picture industry have significantly greaterfinancial and other resources than us.

The U.S. motion pictureindustry can be divided into major studios and independent companies,with the major studios accounting for a large majority of the number oftheatrical releases. The major studios are MGM (including UA Films andOrion), The Walt Disney Company (including Buena Vista, Touchstone andMiramax Films), Paramount Pictures Corporation, Sony PicturesEntertainment, Inc. (including Columbia Pictures), Twentieth CenturyFox Film Corp., Vivendi Universal Entertainment LLP (includingUniversal Studios and Universal Focus) and Warner Bros. (includingTurner, New Line Cinema and Castle Rock Entertainment). The majorstudios are typically large diversified corporations that have strongrelationships with creative talent, exhibitors and others involved inthe entertainment industry, and have global film production anddistribution capabilities.

Historically, the majorstudios have produced and distributed the majority of high grossingtheatrical motion pictures released annually in the United States. Inaddition, most of the studios have 

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created or accumulated substantial andvaluable motion picture libraries that generate significant revenues.These revenues can provide the major studios with a stable source ofearnings that partially offset the variations in the financialperformance of their current motion picture releases and other aspectsof their motion picture operations.

Theindependent companies generally have more limited production anddistribution capabilities than do the major studios. While certainindependent companies may produce as many films as a major studio inany year, independent motion pictures typically have lower negativecosts and are not as widely released as motion pictures produced anddistributed by the major studios. Additionally, the independentcompanies may have limited or no internal distribution capability andmay rely on the major studios for distribution and financing. Thesecompanies include Lions Gate Entertainment Corp., Dreamworks SKG andNewmarket Films.

In addition, our motion pictures compete foraudience acceptance and exhibition outlets with motion picturesproduced and distributed by other companies. As a result, the successof any of our motion pictures is dependent not only on the quality andacceptance of a particular picture, but also on the quality andacceptance of other competing motion pictures released into themarketplace at or near the same time. The number of films released byour competitors, particularly the other major film studios, in anygiven period may create an oversupply of product in the market, therebypotentially reducing our share of gross box office admissions andmaking it more difficult for our films to succeed.

Competitionis also intense within the television industry. There are numeroussuppliers of television programming, including the networks, thetelevision production divisions of the major studios and independentproducers, all of which compete actively for the limited number ofavailable broadcast hours. Our programming competes with first-runprogramming, network reruns and programs produced by local televisionstations. Competition is also intense in supplying motion pictures andother programming for the pay television and home video markets.Numerous organizations with which we compete in the television industryhave significantly greater financial and other resources than us.

Our Competitive Strengths and Strategy

Our strategy is toproduce family oriented entertainment products (primarily featurelength motion pictures intended for initial theatrical distribution)appealing to a wide segment of the United States and the internationaltheatrical and television audience. We believe that the familyentertainment market has consistently accounted for a large percentageof the annual gross revenues produced by motion pictures. According tothe MPAA's 2004 MPA Market Statistics, since 1968, nine of thetop 10 grossing movies (based on U.S. Box Office figures) were allrated PG-13, PG or G. Sixteen of the top 20 grossing movies during sameperiod were rated PG-13 or lower. In 2004, the top three domestic boxoffice films were, "Spider-Man 2,""Shrek 2" and "HarryPotter: Prisoner Azkaban" all of which are familyoriented movies, though each is notably the product of major studioswith budgets in excess of one hundred million dollars ($100 Million).Overall, according to the MPA, 17 of the top 20 grossing films of 2004were rated PG-13 or lower. This trend, exhibiting a preference forfamily oriented films, is also manifested in the sale of home videodevices, such as DVDs and videocassettes, where 16 of the top 20highest grossing sales of such devices in 2004 are for films which wererated PG-13 or lower for gross sales of approximately $3.45 billion ona combined 14.55 million units sold.

We also believe that ourtarget group is more predictable in their entertainment preferencesthan other segments of the entertainment consumer market, and"evergreen" in that younger children are notas likely to reject a motion picture as dated or lacking well known,contemporary stars. Family films are less likely to generatecontroversy that might adversely reflect on us and harm the prospectsfor a film's successful distribution. These factors also allow usto produce, market and distribute feature length films with relativelymodest budgets as compared to mainstream motion pictures directedtowards an older, more mature audience.

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We plan to build and capitalize on our filmand television library by:

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| •  | Producingnew motion pictures and television series; |

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| •  | Aggressively marketing and repackaging ourlibrary's titles; |

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| •  | Developing newdistribution channels; |

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| •  | Acquiringadditional motion pictures and televisionseries; |

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| •  | Capitalizing on developments intechnology; and |

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| •  | Exploitinginternational markets. |

We believe our proposed acquisition ofMyriad Pictures will assist us in executing on our plan to grow ourcontent library as well as enable us to benefit from new production anddistribution channels.

Production and Financing

MotionPictures

The production of a motion picture requires thefinancing of the direct costs and indirect overhead costs ofdevelopment, production and production related services. Directproduction and production related service costs include film studiorental, cinematography, post-production costs and the compensation ofcreative, services and other production personnel. Distribution costs(including costs of advertising and release prints) are not included indirect production costs. The following general description is asimplified overview of the complex process of producing anddistributing motion pictures and is intended to aid in understandingthe motion picture business. This overview is provided forinformational purposes only and does not describe what will necessarilyoccur in the production of a motion picture by us. During thefilm-making process, which may take, on the average, approximately 12to 24 months from the start of the development phase to theatricalrelease, a film progresses through several stages. The four generalstages of motion picture production are development, pre-production,principal photography and post-production. A brief summary of each ofthe four general movie production stages follows:

Development

In the development stage,underlying literary material for a motion picture project is acquired,either outright, through an option to acquire such rights or byengaging a writer to create original literary material. If the literarymaterial is not in script form, a writer must be engaged to create ascript. The script must be sufficiently detailed to provide theproduction company and others participating in the financing of amotion picture with enough information to estimate the cost ofproducing the motion picture. Projects in development do not alwaysbecome completed motion pictures for a wide variety of reasons.

Pre-Production

During the pre-productionstage, the production company usually selects a director, actors andother key creative and technical personnel, prepares a budget andsecures the necessary financing. In cases involving unique or desiredtalent, commitments (sometimes known as "pay orplay" commitments, under which talent must be paid certainfixed compensation, whether or not a picture is actually produced) mustbe made to keep performers available for the picture. Somepre-production activities may occur during development.

Principal Photography

Principal photographyis the process of filming a motion picture and is the most costly stageof the production of a motion picture. Principal photography may takeup to twelve weeks to complete for some projects. Bad weather atlocations, the illness of a cast or crew member, disputes with localauthorities or labor unions, a director's or producer'sdecision to re-shoot scenes for artistic reasons 

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and other often unpredictable events canmaterially delay the scheduled completion of principal photography andsubstantially increase its costs. Once a motion picture reaches theprincipal photography stage, it usually will be completed, unless theproducer is shooting in increments as funds are available, a practiceborn out of necessity existing in the independent feature film world tosome degree. The cost of assuring its completion can sometimes beinsured by means of a bonding instrument commonly known as a completionbond. Completion bonds however will add substantially to the cost ofproducing a motion picture.

Post-Production

During the post-production stage, the editing of the raw footage andthe scoring and mixing of spoken-word dialogue, music and sound effectstracks take place, and negative and positive master printing elementsare prepared. Production costs incurred in connection with motionpicture production are typically divided between above-the-line costsand below-the-line costs. Above-the-line costs include story rights andscreenplay, fees to the producer and director and major members of thecast. Below-the-line costs include fees to creative personnel includingthe director of photography, production designer and casting director,production facilities (sound stage, film lab, editing room) andlocation rentals, equipment rentals, raw materials (raw film stock, setconstruction) and other costs incurred in principal photography andpost-production costs, including the creation of special effects andmusic.

Financing

Independent productioncompanies generally finance their production activities on apicture-by-picture basis. Sources of funds for independent producersinclude bank loans, "pre-licensing" ofdistribution rights in exchange for minimum guarantees, motion pictureparticipation interests, joint ventures and public motion picturesupport programs which include tax funds, tax credit provisions, andother governmental sources of capital for the motion pictureindustry.

Independent production companies generally attempt toobtain all or a substantial portion of their financing for a motionpicture prior to commencement of principal photography, at which pointproduction costs begin to be incurred. Obtaining license agreementswith a distributor or distributors prior to completion of a motionpicture which provide for payment of a minimum guarantee (oftenreferred to as the "pre-licensing" or"pre-selling" of motion picture rights), mayenable the producer to obtain financing for its project by using thecontractual commitment of the distributor to pay the minimum guaranteeas collateral to borrow production funding. Independent productioncompanies typically finance production of their motion picturespursuant to financing arrangements with banks and other lenders inwhich the lender receives an assignment of the productioncompany's right to payments of minimum guarantees by itsdistributors upon the delivery of the completed motion picture. Thelenders are granted a security interest in the motion picture until thefinancing has been repaid. The independent production company may alsobe able to acquire additional production funds through"gap financing", whereby a lender loans aportion of the production costs based on the company's estimateof the value of certain distribution rights. When the motion picture isdelivered, the independent production company collects the minimumguarantees and uses them to repay the lender. In addition, theindependent production company receives a production fee and generallyretains a participation in net revenues from distribution of the motionpicture.

As part of obtaining motion picture financing,independent production companies may be required by their lenders anddistributors who advance production costs to obtain a completion bondfrom an acceptable completion guarantor which names the lenders,distributors and other parties who advance production costs asbeneficiaries. The guarantor guarantees the completion and delivery ofthe particular motion picture by a certain date and within an agreedbudget and contingency and if the motion picture cannot be completedfor the agreed upon budgeted cost, the completion guarantor isobligated to pay the additional costs necessary to complete and deliverthe motion picture by the agreed upon delivery date. If the completionguarantor fails to complete and deliver such motion picture on time,the completion guarantor is required to pay the financiers anddistributors, if applicable, an amount equal to the aggregate amountthe financiers and distributors have loaned or advanced to theindependent producer.

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Television Production

Theproduction of television series programming involves the development ofa format based on a creative concept or literary property into atelevision script, the hiring of talent, the filming or taping of theprogram and the technical and post-production work necessary to producea finished program. Television producers may originate projectsinternally or acquire them from others. If a concept is deemed suitablefor development, the studio, network or other producer typicallycommissions and pays for a script. Once a script is ordered, licenseagreements are negotiated with the potential broadcasters of suchprogram. A pilot episode usually is ordered prior to the determinationof whether a series will be produced.

Televisionproduction can generally be divided into two distinct markets: (a)network production, consisting of production for the broadcast networks(i.e., ABC, CBS, NBC, FOX, UPN and WB) and made-for-cable networks(i.e., pay and basic cable networks) and (b) first-run syndicationproduction. In broadcast network and made-for-cable network production,a network generally orders a minimum number of initial episodes(approximately six to 13 episodes if produced for a broadcast networkand approximately 13 to 22 episodes if produced for a cable network) ofeach new series for a license fee equal to a percentage of theprogram's cost. The balance of the production cost for such shows(which is customarily lower for made-for-cable productions than forproductions made for broadcast networks) is recouped throughinternational sales and, if a series is successful, throughsyndication, second run domestic basic cable, and home entertainmentsales. However, it may take up to four years until all the productioncosts are recouped. In the first-run syndication production business, aproducer seeking to launch a new series, commits to produce a minimumnumber of episodes if the producer can"clear" the series by selling to individualtelevision stations in sufficient markets throughout the country(generally comprising at least 75 percent of U.S. televisionhouseholds). Once produced, the episodes are immediately available forlicensing to international broadcasters as well and can subsequently belicensed to a domestic basic cable network. This approach generallyinvolves a lower production cost risk and earlier return on investmentthan the network production business; however, first-run syndicatedprogramming generally reduces the potential total return on investmentas compared to successful network production.

Feature Films andTelevision Series We Have Produced and Financed

Since itsinception, TAG USA has produced and/or distributed a total of 12 filmsand 21 episodes of the Arizona Highways television series. TAGUSA has produced these films either independently, while serving as thegeneral partner of limited partnerships or on a contract basis onbehalf of other limited partnerships, including entities owned orcontrolled by our Chief Executive Officer. In each case, the limitedpartnership was created specifically for the purpose of serving as avehicle to finance each particular film. Arizona Highways wasproduced directly by TAG USA for the Robin Sewell Communications, whichretained the distribution rights to the content. As described in detailbelow, TAG USA has typically financed its films through the sale (tounaffiliated investors) of limited partnerships interests in theselimited partnerships and in certain cases, has received advances fromfilm distributors. We have also raised capital for production coststhrough sales of equity or debt securities to accredited and orinstitutional investors in private placements pursuant to the exemptionfrom registration provided by Regulation D under the Securities Act of1933. In addition, we have been able to obtain substantial advancesfrom our distributors for the production of certain of our motionpictures.

TAG USA produced one film, "TheRetrievers" directly and produced four films through thefour consolidated limited partnerships (each of the Majestic FilmPartners entities) for which it serves as general partner and isentitled to receive a distribution for serving as general partner. Ofthe seven films produced by limited partnership entities that TAG USAdoes not control, five are for limited partnerships for which SteveAustin, through an affiliated entity, serves as general partner. Theremainder are limited partnerships that have an unaffiliated generalpartner. General partner fees are paid to the general partner, asdescribed below. With respect to these seven motion pictures, TAG USAhas entered into a formal representation agreement with the generalpartner. TAG USA 

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includes these projects in its library offamily oriented feature films, which we present to distributioncompanies. We have, however, no ownership interests in these films.

With respect to each of the 12 films referred to above, TAG USAserves as the producer and exclusive worldwide distributor for each andseeks to arrange distributions with sub-licensees for the commercialexploitation of these films. Revenues received from the distributionand exploitation of these films are received directly by TAG USA. TAGUSA has entered into distribution agreements with each of the limitedpartnerships for the worldwide distribution of the motion pictures byor on behalf of such limited partnerships, as described in the tableset forth below under the heading "Films Produced andDistributed by TAG." TAG USA will be paid normal andcustomary industry fees if and in the event it succeeds in arrangingfor distribution of these films.

Limited PartnershipArrangements

TAG USA has typically financed its films throughthe sale (to unaffiliated investors) of limited partnerships interestsin limited partnerships that have been created as vehicles to financeeach particular film. The limited partnership interests in the limitedpartnerships are offered by private placement to accredited investorswho subscribe to the interests through a subscription agreement. Inthese instances we have relied on exemptions granted under Regulation Das promulgated under the Securities Act of 1933 to offer securities toaccredited investors in the future.

Investors who subscribe tothe limited partnership interests are entitled to recoup theirinvestment and then share in the profits with TAG USA, depending onseveral factors. With respect to the limited partnership for which TAGUSA is general partner, in the event that the project succeeds inreturning proceeds to the partnership from the commercial exploitationof the film, and to the extent funds are available, the limitedpartners are entitled to receive their money back out of 100% ofthe distributable cash of the limited partnership. With respect to theother limited partnerships, the general partner is entitled to aninitial percentage of the distributable cash, along with the limitedpartners. The percentage to which such general partners are entitledranges from 10%-25% of the distributable cash.Distributable cash is the gross partnership revenue minus the limitedpartnership operating expenses (including fees paid to thedistributor), necessary reserves, all costs of the production of thefilm not paid by the partnership (such as loans) and any deferments orpoints entitlements. In each case, after (and if) the limited partnersreceive their capital contributions in full, plus interest (as may beapplicable) distributable cash is then payable forty percent(40%) to the limited partners and sixty percent (60%) tothe general partner. The general partner may further distribute thepercentage entitlement to other third parties. As described above, weintend to make an offer to acquire each of these limited partnershipsfor shares of our common stock. However, no letter of intent for theseacquisitions has been signed, the terms of the proposed acquisitionshave not been determined, and there can be no assurance we will besuccessful in completing the acquisitions.

Under thedistribution agreements between TAG USA and each limited partnership,TAG USA will pay each of the limited partnerships 70% of all thegross receipts actually received by TAG USA in connection with therental and exhibition of the movies in theatres, homes and television,which amount is reducible by amounts paid to third parties in the formof deferrals and deferments. Additionally, TAG USA will receiveroyalties on the sale of each of the movies in DVD or other home videoformat, including videocassettes on the following terms:

|              |                                                                                                                                                                                                                         |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | where the video devices are manufacturedand distributed by TAG USA, TAG USA will retain twenty-five percent(25%) of all of the gross receipts received on the sale of suchvideo devices which are sold and notreturned; |

|              |                                                                                                                                                                                                                                                                                                                    |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | where the video devices aredistributed by TAG USA pursuant to a sublicense agreement between TAGUSA and an affiliated entity (where TAG USA is more than 50%owner), then TAG USA will earn royalties equal to twenty-five percent(25%) of the affiliated entity's gross receipts from thesublicensed distribution; |

|              |                                                                                                                                                                            |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | where thevideo devices are distributed by TAG USA pursuant to a sublicenseagreement between TAG USA and a party other than an affiliated entity(where TAG USA is more than |

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|        |                                                                                                                                                                                                                                                                              |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 50% owner), then TAG USA will earnroyalties equal to seventy-five percent (75%) of thethird-party's gross receipts from the sublicensed distributionexclusive of manufacturing charges and out-of-pocket expenses incurredin connection with the grant of the sublicense;and |

|              |                                                                                                                                                                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | where TAG USA markets the videodevices directly to consumers then the royalties for such sales will beequal to the amounts of video devices sold and not returned multipliedby the average wholesale royalty (defined term in each contract) ofvideo devices containing the picture. |

Our Films and TelevisionSeries

Films Produced and Distributed byTAG

The films that we produce and/or distribute aresummarized below with principal talent and a brief synopsis for eachproduction.

|                                            |  |                   |  |                 |  |        |  |                                                                                                                                           |  |          |                                                                                                                                      |        |  |  |  |  |  |  |  |  |  |  |
|--------------------------------------------|--|-------------------|--|-----------------|--|--------|--|-------------------------------------------------------------------------------------------------------------------------------------------|--|----------|--------------------------------------------------------------------------------------------------------------------------------------|--------|--|--|--|--|--|--|--|--|--|--|
| GeneralPartner/Limited Partnership         |  | MotionPicture     |  | Production Date |  | Rating |  | Cast andDirector                                                                                                                          |  | Synopsis |
| TAGUSA / Majestic Film Partners LP (1)     |  | CastleRock        |  | 1999            |  | G      |  | Cast: Ernest Borgnine, FrankGorshin, Pamela Bach, Wolf Larson, Alana Austin and RobertVelascoDirector: Craig Clyde                        |  |     | An unruly teenage girland a young drifter, running from the law, findthemselves thrown together in a harrowing struggle forsurvival. |   |
|                                       |  |              |  |            |  |   |  |                                                                                                                                      |  |     |                                                                                                                                 |   |
| TAGUSA / Majestic Film Partners II LP (1)  |  | No Place LikeHome |  | 2000            |  | G      |  | Cast: Judge Reinhold, JoannaPacula, Bruce Weitz, Richard Moll, Adrienne Barbeau, Alana Austin andClayton TaylorDirector: Craig Clyde      |  |     | After witnessinga celestial collision, two brothers stumble upon astrange youngvisitor.                                              |   |
|                                       |  |              |  |            |  |   |  |                                                                                                                                      |  |     |                                                                                                                                 |   |
| TAGUSA / Majestic Film Partners III LP (1) |  | DumbLuck          |  | 2000            |  | G      |  | Cast: Scott Baio, Tracy Nelson,Richard Moll, Hal Linden, Eileen Brennan, Joey Miyashima, Todd Bridgesand Bobby EdnerDirector: Craig Clyde |  |     | A simple blinddate plunges a father and son headlong into a mysteryfull of lies, half-truths anddeceptions.                          |   |
|                                       |  |              |  |            |  |   |  |                                                                                                                                      |  |     |                                                                                                                                 |   |
|                                            |

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|                                                                   |  |                    |  |                 |  |        |  |                                                                                                                                                                                 |  |          |                                                                                                                                       |        |  |  |  |  |  |  |  |  |  |  |
|-------------------------------------------------------------------|--|--------------------|--|-----------------|--|--------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|----------|---------------------------------------------------------------------------------------------------------------------------------------|--------|--|--|--|--|--|--|--|--|--|--|
| GeneralPartner/Limited Partnership                                |  | MotionPicture      |  | Production Date |  | Rating |  | Cast andDirector                                                                                                                                                                |  | Synopsis |
| TAG USA / Majestic FilmPartners IV LP (1)                         |  | Hansel &Gretel |  | 2001            |  | PG     |  | Cast: Lynn Redgrave, HowieMandel, Delta Burke, Gerald McRaney, Bobcat Goldthwait, Dakota Fanning,Alana Austin, Sinbad, Tom Arnold and Taylor MomsenDirector: GaryJ. Tunnicliffe |  |     | A fractured version of the popularfairy taleclassic.                                                                                  |   |
|                                                              |  |               |  |            |  |   |  |                                                                                                                                                                            |  |     |                                                                                                                                  |   |
| N/AFilmproduced directly by TAG USA                               |  | TheRetrievers      |  | 2001            |  | G      |  | Cast: Robert Hays, MelHarris, Alan Rachins, Alana Austin, Taylor Emerson, Betty White andRobert WagnerDirector: Paul Schneider                                                  |  |     | A golden retrieveris pregnant and leads its human family on an adventurethat shows what it means to be afamily.                       |   |
|                                                              |  |               |  |            |  |   |  |                                                                                                                                                                            |  |     |                                                                                                                                  |   |
| SteveAustin Productions, LLC / Animal Partners LP (2)             |  | MiracleDogs        |  | 2002            |  | G      |  | Cast: Kate Jackson, Ted Shakelford,Stacy Keach, Rue McClanahan, Daniel Roebuck, Alana Austin, WayneRogersDirector: Craig Clyde                                                  |  |     | Four puppies, recentlyabandoned in town, are in need of adoptive homes. Thelittle dogs have a healing effect on people withillnesses. |   |
|                                                              |  |               |  |            |  |   |  |                                                                                                                                                                            |  |     |                                                                                                                                  |   |
| AustinFamily Entertainment, Inc. / Family Film Partners VI, LP(2) |  | The Santa Trap     |  | 2002            |  | G      |  | Cast: ShelleyLong, Robert Hays, Dick van Patten, Corbin Bernsen, Stacy Keach, AmandaPays, Adrienne BarbeauDirector: John Shepphird                                              |  |     | It isChristmas Eve and in a case of mistaken identity, SantaClaus is thrown in jail and must be freed in order tosaveChristmas.       |   |
|                                                              |  |               |  |            |  |   |  |                                                                                                                                                                            |  |     |                                                                                                                                  |   |
| AustinFamily Entertainment, Inc. / Fairy Tale Partners III, LP(1) |  | Red Riding Hood    |  | 2005            |  | G      |  | Cast: LainieKazan, Joey Fatone, Deb Mazar, Daniel Roebuck, HenryCavillDirector: Randal Kleiser                                                                                  |  |     | A contemporary musicalversion of the classicfairytale.                                                                                |   |
|                                                              |  |               |  |            |  |   |  |                                                                                                                                                                            |  |     |                                                                                                                                  |   |
| AustinFamily Entertainment, Inc. / Motocross Kids LP (3)          |  | Moto XKids         |  | 2003            |  | PG     |  | Cast: Lorenzo Lamas, JoshHutcherson, Gary Busey, Alana AustinDirector: RichardGabai                                                                                             |  |     | Evan Hanson needs to save a local dirt trackfrom a motorcyclegang.                                                                    |   |
|                                                              |  |               |  |            |  |   |  |                                                                                                                                                                            |  |     |                                                                                                                                  |   |
|                                                                   |

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|                                                                |  |                       |  |                 |  |        |  |                                                                                                                                            |  |          |                                                                                                                                                                          |        |  |  |  |  |  |  |  |  |  |  |
|----------------------------------------------------------------|--|-----------------------|--|-----------------|--|--------|--|--------------------------------------------------------------------------------------------------------------------------------------------|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--|--|--|--|--|--|--|--|--|--|
| GeneralPartner/Limited Partnership                             |  | MotionPicture         |  | Production Date |  | Rating |  | Cast andDirector                                                                                                                           |  | Synopsis |
| American Film Ventures /Downtown the Movie LP(5)               |  | Popstar               |  | 2005            |  | PG     |  | Cast: Aaron Carter,Alana Austin, Kimberly Kevon Williams, David Cassidy, Leif Garrett,Rick Overton, Tom BosleyDirector: Richard Gabai      |  |     | Teenpopstar J.C. McQueen gets caught playing strip pokerwith his attractive personal teacher and his parentssend him back to "regular"school.                            |   |
|                                                           |  |                  |  |            |  |   |  |                                                                                                                                       |  |     |                                                                                                                                                                     |   |
| EnrichingEntertainment / Supercross The Movie LP(4)            |  | Supercross            |  | 2005            |  | PG-13  |  | Cast: AaronCarter, Steve Howey, Sophia Bush, Mike Vogel, Cameron Richardson,Darryl Hannah, Dan Roebuck, Jeremy McGrathDirector: SteveBoyum |  |     | "Supercross" tells thestory of two brothers who must overcome a series ofemotional and physical obstacles to achieve success inthe world of supercross motorcycleracing. |   |
|                                                           |  |                  |  |            |  |   |  |                                                                                                                                       |  |     |                                                                                                                                                                     |   |
| AustinFamily Entertainment, Inc. / American Black Beauty LP(3) |  | American Black Beauty |  | 2005            |  | G      |  | Cast:Dean Stockwell, Peter Jason, Leah Lail, Danielle Keaton, Chris Hunter,Ryan LockeDirector: Sam Pillsbury                               |  |     | Life changesdramatically when Cheryl meets Black Beauty, abeautiful, fast and slightly temperamental younghorse.                                                         |   |
|                                                                |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                  |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | TAGUSA will receive fees and royalties for acting as the distributor, asdescribed above, and it (or the general partner) will also receive adistribution from the limited partnership for its service as generalpartner, as described above under the caption "LimitedPartnership Arrangements." |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | TAG USA will receive fees androyalties for acting as the distributor, as described above. Thegeneral partner of the limited partnership will receive an initialdistribution from the limited partnership equal to 25% of thedistributable cash as well as a 60% distribution after thelimited partners receive 100% of their capital contribution, asdescribed above under the caption "Limited PartnershipArrangements." |

|     |                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | TAG USA will receive fees androyalties for acting as the distributor, as described above. Thegeneral partner of the limited partnership will receive an initialdistribution from the limited partnership equal to 10% as wellas a 50% distribution after the limited partners receive100% of their capital contribution, except in certaincircumstance as applicable to the limited partners in thisentity. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | TAG USA will receivefees and royalties for acting as the distributor, as described above,of 30% of the gross receipts generated by the film plus aproducer fee of 30% of the gross receipts of the film. TAG USAwill also be entitled to receive distributions pari passu withthe limited partners, in proportion to its investment in the entity.After the limited partners receive 100% of their capitalcontribution, TAG USA and the general partner of the limitedpartnership will share equally all subsequent revenues unless TAGexercises its option to purchase the film outright. |

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | TAG USAwill receive fees and royalties for acting as the distributor, asdescribed above, of 30% of the gross receipts generated by thefilm plus a producer fee of 30% of the gross receipts of thefilm. The general partner of the limited partnership will receive aninitial distribution from the limited partnership equal to 25%of the distributable cash as well as a 60% distribution afterthe limited partners receive 100% of their capital contribution,as described above under the caption "Limited PartnershipArrangements." |

Feature Film RightsAcquired

In September 2002, TAG USA entered into anagreement with Faber International Films, Inc. to acquire certainrights to certain motion pictures that at one time comprised what waspreviously known as the Hemdale Pictures Library. Although the HemdalePictures Library, as acquired by TAG USA, does not includeHemdale's most successful motion pictures such as"The Terminator","Platoon" or "The LastEmperor" (the latter two of which won AcademyAwards®), it consists of more than sixty-four feature length motionpictures of varying ages, histories, qualities and commercialpotential. Among the rights which TAG USA acquired under the FaberAgreement, are the rights to distribute and exploit certain filmstheatrically, non-theatrically, by means of various forms of televisionand/or home video.

However, TAG USA did not acquire all rightsin all media (and for all methods of distribution) to all of the motionpictures in the Hemdale Pictures Library. We have, however, re-acquiredand/or extended some rights respecting motion pictures previouslyincluded in the Hemdale Pictures Library directly from the holders.Further, we are currently in negotiations with the producers of anumber of other films that were originally within the scope of ouragreement with Faber. We have typically agreed to revenue-sharingarrangements with the producer or grantor of the acquired motionpicture regarding the proceeds derived from the successful distributionof these films.

The following table lists the motion picturesand their related rights which we acquired from third parties as wellas the status of any distribution arrangements we have entered into inconnection with these films.

|                              |  |                                                             |  |                                                |  |                          |  |  |  |  |  |  |  |  |
|------------------------------|--|-------------------------------------------------------------|--|------------------------------------------------|--|--------------------------|--|--|--|--|--|--|--|--|
| MotionPicture Title          |  | AcquiredRights/Limitations                                  |  | Producer/Grantor                               |  | DistributionArrangements |
| The Princess & theGoblin |  | Rights to all media in the U.S. 7 yearterm.                 |  | Pennaeth Gwerthiant Rhaglenni/S4CInternational |  | UAV Corp.                |
| Wrangler                     |  | Television and home entertainmentin the U.S. in perpetuity. |  | Hemdale Pictures Corp.                         |  | UAVCorp.                 |
| The Polar Bear King          |  | Televisionand home entertainment in the U.S. 7 year term.   |  | ScreenMedia Ventures LLC                       |  | UAV Corp.                |
| Shergar                      |  | Home entertainment in the U.S.7 year term.                  |  | Blue Rider Entertainment, Inc.                 |  | UAVCorp.                 |
| The Littlest Viking          |  | Rights toall media in the U.S. 7 year term.                 |  | OdysseyPictures                                |  | N/A                      |
| Mosquito                     |  | Rights to allmedia in the U.S. 7 year term.                 |  | Icebound,Inc.                                  |  | N/A                      |
| The Story ofChristmas        |  | Rights to all media in the U.S. 7 yearterm.                 |  | Hemdale Communications Inc.                    |  | UAV Corp.                |
|                              |

Television Series

In 2004, TAG USA produced and delivered 21 episodes of thetelevision series Arizona Highways: The Television Series. Weproduced this series for Robin Sewell Communications and it is

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being exhibited through local televisionbroadcasts. This production takes viewers to Arizona's mostspectacular destinations, exploring its landscape, history, culture andpeople. Each episode features vital information for tourists, includinglodging, restaurants and activities for visitors. Our production ofthis series was undertaken on a work for hire basis and we recorded atotal $404,000 in revenue from this arrangement.

Distribution

Motion Pictures

Distributionof a motion picture involves commercial exploitation in the U.S. andinternational licensing of the picturefor:

|              |                       |
|--------------|-----------------------|
| •  | theatricalexhibition, |

|              |                                      |
|--------------|--------------------------------------|
| •  | videocassettes, laser discsand DVDs, |

|              |                                                                                                                                                                                                                |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | presentation on television,including pay-per-view, pay, network, syndication and basic cable,merchandising of the other rights in the motion picture, which mayinclude books, soundtracks, and video games,and |

|              |                                                                                                     |
|--------------|-----------------------------------------------------------------------------------------------------|
| •  | non-theatrical exhibition, whichincludes airlines, cruise ships, hotels and armed forcesfacilities. |

Production companies with distribution divisions,such as the major studios, typically distribute their motion picturesthemselves. Production companies without distribution divisionstypically retain the services of sales agents or distributors toexploit the motion pictures produced by them in various media andterritories, or in all media and territories. Distribution companiesmay directly exploit distribution rights licensed to, or otherwiseacquired by them, for example, by booking motion pictures withtheatrical exhibitors or selling videocassettes to video retailers.Alternatively, they may grant sub-licenses to U.S. or foreignsub-distributors to exploit completed motion pictures.

A salesagent does not generally acquire distribution rights from the produceror other owner of rights in a motion picture or other content, butinstead acts as an agent on behalf of the production company or rightsowner to license distribution rights to such motion picture toterritorial distributors in exchange for a sales agency fee, typicallycomputed as a percentage of gross revenues from licenses arranged bythe sales agent.

A territorial distributor generally licensesand takes a grant of distribution rights to the motion picture for aspecified term in a particular territory and media, in exchange for adistribution fee calculated as a percentage of gross revenues generatedfrom exploitation of the motion picture by the distributor. Theterritorial distributor often agrees to pay the rights owner of thecontent a certain advance or minimum guarantee upon the delivery of thecompleted motion picture, which amount is recouped by the territorialdistributor out of revenues generated from the exploitation of thecontent in particular media or territories. After receiving its ongoingdistribution fee and recouping the advance or minimum guarantee plusits direct release costs (primarily print and advertising costs), theterritorial distributor pays all or a substantial portion of theremainder of revenues to the producer of such motion picture or therights owner (commonly referred to as overages).

In addition toobtaining distribution rights in a motion picture for a limitedduration, a distributor may also acquire all or a portion of thecopyright in such motion picture or program or license certaindistribution rights in perpetuity. Both major studios and independentmotion picture companies often acquire motion pictures for distributionthrough a customary industry arrangement known as a"negative pickup." Under a"negative pickup", the studio or independentmotion picture company agrees to pay a specified minimum guaranteedamount to a production company upon completion of production anddelivery of the motion picture in exchange for all rights to the motionpicture.

Distribution expenses, which consist primarily of thecosts of advertising and preparing release prints, are not included inproduction costs. These distribution expenses vary widely dependingupon the extent of the release and the nature of the promotionalactivities.

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In connection with the production anddistribution of a motion picture, major studios and independentproduction companies generally grant contractual rights to actors,directors, screenwriters, owners of underlying rights and othercreative and financial contributors to share in revenues from aparticular motion picture. Except for the most sought-after talent,these third-party participations are generally payable after alldistribution fees, distribution expenses, direct production costs andfinancing costs are recouped in full.

DistributionCycle

Concurrently with their initial release in the U.S.,motion pictures are generally released in Canada and may also bereleased in one or more other international markets. As a generalmatter, a motion picture that is released theatrically is typicallyavailable for distribution in other media during its initialdistribution cycle asfollows:

|                                           |  |                                                         |  |  |  |  |
|-------------------------------------------|--|---------------------------------------------------------|--|--|--|--|
| Marketplace/ Media                        |  | Number of Months Following Initial US TheatricalRelease |
|                                      |  |                                                    |
| USTheatrical                              |  |                                                    |
|                                      |  |                                                    |
| InternationalTheatrical                   |  | 0 – 4months                                       |
| U.S. Home Video (initial release)         |  | 4– 6 months                                       |
| U.S. Pay-per-view                         |  | 6 –9 months                                       |
| International Home Video (initialrelease) |  | 6 – 12 months                                     |
| U.S. PayTelevision                        |  | 10 – 12months                                     |
| International Television (pay orfree)     |  | 18 – 24 months                                    |
| U.S. FreeTelevision*                      |  | 24 – 36months                                     |
|                                           |

|  |
|--|
|  |  |
|  |

|   |                                               |
|---|-----------------------------------------------|
| * | Includes network,syndication and basic cable. |

The release periods set forthabove represent standard "holdback periods."A holdback period with respect to a certain media in which the motionpicture is being released represents a set period of time during whichrelease of the motion picture in other media is prevented. This"holdback" is designed to allow the motionpicture to maximize its revenues in the media in which it is currentlybeing released. Holdback periods are often specifically negotiated withvarious distributors on a media-by-media basis; however the periods setforth above represent our estimate of customary current holdbackperiods in the motion picture industry.

A substantial portion ofa motion picture's total revenues is generated in a motionpicture's initial distribution cycle (generally the first five toseven years after the motion picture's initial U.S. release),which typically includes theatrical, video, and pay and freetelevision. However, commercially successful motion pictures generallycontinue to generate revenues from the re-licensing of distributionrights in certain media, including television and home video, and fromthe licensing of distribution rights with respect to new media and inemerging markets, in addition to the creation of derivative works basedon the motion picture such as remakes, sequels and televisionseries.

Although there has been a substantial increase over thepast fifteen years in the revenues generated from the licensing ofrights in media other than U.S. theatrical, such as home video, cableand pay-per-view, the theatrical success of a motion picture remainsthe most significant factor in generating revenues in foreign marketsand in other media such as television and videocassettes. For example,retail video stores have been purchasing fewer copies of home videos ofmotion pictures that have not been theatrically released, andpurchasing more copies of major studio theatrical successes.

Television Distribution

The U.S. television marketis served by network affiliated stations, independent stations andcable systems, although the number of independent stations hasdecreased as many formerly independent stations have become affiliatedwith new networks in recent years. During "primetime" hours, network affiliates primarily broadcastprogramming produced for the network. In non-prime time, 

15

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network affiliates broadcast networkprogramming, off-network programming, programming produced fordistribution on a syndicated basis and programming produced by thelocal stations themselves. Independent television stations and cablenetworks, during both prime and non-prime time, produce their ownprograms and telecast off-network programs or first-run programsacquired from independent producers or syndicators. Syndicatorsgenerally are companies that sell programming to independent televisionstations and network affiliates that was produced or acquired by thesyndicator for distribution. In addition to producing directly fortelevision, we seek to license our current theatrical motion picturesfor television exhibition through agreements pursuant to which ourfilms will be distributed through television outlets.

Televisiondistribution can occur through the following: domestic pay or freetelevision, international pay or free television and cable andsatellite channels.

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OurDistribution Agreements

We license motion picture distributionrights to territorial distributors that offer our movies worldwide. Weseek to continue to position ourselves as a supplier of family themedmovies to U.S. domestic and international distributors. We believe thatour reputation and that of our management enhances our competitiveposition in the global market for feature motion pictures. As discussedabove, we produced the Arizona Highways television series forRobin Sewell Communications, which retained the distributionrights.

The terms of our license agreements with territorialdistributors vary depending on the territory involved and whether theagreement relates to the licensing of a single motion picture orseveral motion pictures pursuant to an"output" or multi-picture arrangement.Generally, our distributors are entitled to royalties based on anegotiated percentage of the revenues derived from the exploitation ofour motion pictures and to recoup advances that they may have providedto us for production. A list of our principal distributors andindividual distribution terms are summarizedbelow:

|                   |  |                              |  |                                                                                         |  |                                                      |  |                                        |  |  |  |  |  |  |  |  |  |  |
|-------------------|--|------------------------------|--|-----------------------------------------------------------------------------------------|--|------------------------------------------------------|--|----------------------------------------|--|--|--|--|--|--|--|--|--|--|
| Movie             |  | Distributor                  |  | Territories                                                                             |  | RightsMedia                                          |  | Term ofAgreement                       |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
| CastleRock        |  | Litton Syndication (1)       |  | US andTerritories                                                                       |  | Television – basic and cable                   |  | 3 yearssubject to certainconditions    |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
|              |  | SandstarFamily Entertainment |  | US and territories in English, Spanish,and French languages and English speaking Canada |  | DirectResponse – DVD and Video Cassettes sales |  | 10years                                |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
|              |  | UAVCorporation (2)           |  | North America – EnglishSpeaking                                                   |  | DVD/Home Video                                       |  | 7 years with 6 month sell-offperiod    |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
|              |  | FirstLook Media (3)          |  | International, excludingCanada                                                          |  | Cinematic, Television and Video                      |  | 8 years fromdate of delivery ofpicture |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
| DumbLuck          |  | Litton Syndication (1)       |  | US andTerritories                                                                       |  | Television – basic and cable                   |  | 3 yearssubject to certainconditions    |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
|              |  | UAVCorporation (2)           |  | North America – EnglishSpeaking                                                   |  | DVD/Home Video                                       |  | 7years                                 |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
|              |  | FirstLook Media (3)          |  | International, excludingCanada                                                          |  | Cinematic, Television and Video                      |  | 8 years fromdate of delivery ofpicture |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
| NoPlace Like Home |  | Litton Syndication (1)       |  | US andTerritories                                                                       |  | Television – basic and cable                   |  | 3 yearssubject to certainconditions    |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
|              |  | SandstarFamily Entertainment |  | US and territories in English, Spanish,and French languages and English speaking Canada |  | DirectResponse – DVD and Video Cassettes sales |  | 10years                                |
|              |  |                         |  |                                                                                    |  |                                                 |  |                                   |
|              |  | UAVCorporation (2)           |  | North America – EnglishSpeaking                                                   |  | DVD/Home Video                                       |  | 7 years                                |
|                   |

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|                    |  |                                                     |  |                                                                                         |  |                                                          |  |                                        |  |  |  |  |  |  |  |  |  |  |
|--------------------|--|-----------------------------------------------------|--|-----------------------------------------------------------------------------------------|--|----------------------------------------------------------|--|----------------------------------------|--|--|--|--|--|--|--|--|--|--|
| Movie              |  | Distributor                                         |  | Territories                                                                             |  | RightsMedia                                              |  | Term ofAgreement                       |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | FirstLook Media (3)                                 |  | International, excludingCanada                                                          |  | Cinematic, Television and Video                          |  | 8 years fromdate of delivery ofpicture |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
| TheRetrievers      |  | Discovery Channel / AnimalPlanet                    |  | US and Caribbean                                                                        |  | Exhibit, market, sub-license,distribute film on Cable TV |  | 5years                                 |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | SandstarFamily Entertainment                        |  | US and territories in English, Spanish,and French languages and English speaking Canada |  | DirectResponse – DVD and Video Cassettes sales     |  | 10years                                |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | UAVCorporation (2)                                  |  | North America – EnglishSpeaking                                                   |  | DVD/Home Video                                           |  | 7years                                 |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | FirstLook Media (3)                                 |  | International, excludingCanada                                                          |  | Cinematic, Television and Video                          |  | 8 years fromdate of delivery ofpicture |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | FeatureFilms for Families, f/k/a Rekab Sudskany LLC |  | US andEnglish speaking Canada                                                           |  | DVD and Videocassettes                                   |  | 7years                                 |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | LittonSyndication (1)                               |  | US and Territories                                                                      |  | Television –basic and cable                        |  | 3 years subject to certainconditions   |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
| Hansel& Gretel |  | Innovation Film Group                               |  | U.S.only                                                                                |  | Theatrical                                               |  | 1 year(expired)                        |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | WarnerBrothers Home Video (6)                       |  | US and Canada and theirterritories                                                      |  | Television, Home Video and Online                        |  | 10years                                |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | HelkonInternational                                 |  | International                                                                           |  |                                                     |  | 15years                                |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
| MiracleDogs        |  | Discovery Channel                                   |  | US andCaribbean                                                                         |  | Exhibit, market, sub-license, distribute film onCable TV |  | 2years                                 |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | SandstarFamily Entertainment                        |  | US and territories in English, Spanish,and French languages and English speaking Canada |  | DirectResponse – DVD and Video Cassettes sales     |  | 10years                                |
|               |  |                                                |  |                                                                                    |  |                                                     |  |                                   |
|               |  | UAVCorporation (2)                                  |  | North America – EnglishSpeaking                                                   |  | DVD/Home Video                                           |  | 7 years                                |
|                    |

18

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|                |  |                                                     |  |                                       |  |                                                      |  |                                           |  |  |  |  |  |  |  |  |  |  |
|----------------|--|-----------------------------------------------------|--|---------------------------------------|--|------------------------------------------------------|--|-------------------------------------------|--|--|--|--|--|--|--|--|--|--|
| Movie          |  | Distributor                                         |  | Territories                           |  | RightsMedia                                          |  | Term ofAgreement                          |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | RigelUSA, Inc.                                      |  | International, excluding Canada       |  | Cinematic,Television and Video                       |  | 15years                                   |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
| TheSanta Trap  |  | PAX Entertainment                                   |  | US andTerritories                     |  | Television                                           |  | Perpetuity                                |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | FeatureFilms for Families, f/k/a Rekab Sudskany LLC |  | US andCanada                          |  | Direct Response – DVD and Video Cassettessales |  | 3years                                    |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | UAVCorporation (2)                                  |  | North America – EnglishSpeaking |  | DVD/Home Video                                       |  | 7years                                    |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | SoloEntertainment                                   |  | International, excludingCanada        |  | Cinematic, Television and Video                      |  | 10years                                   |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
| RedRiding Hood |  | 20th Century Fox Home Entertainment(4)              |  | US and Canada                         |  | Theatrical (Test Release) and DVD /Home Video        |  | 7years                                    |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | SoloEntertainment                                   |  | International                         |  | All rights.                                          |  | 20years                                   |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
| MotoX Kids     |  | 20th Century Fox Home Entertainment(4)              |  | US and Canada                         |  | DVD / Home Video                                     |  | 7years                                    |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | LoewsCineplex                                       |  | US and Canada                         |  | Limited Theatrical                                   |  | 3years                                    |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | WarnerBros. Domestic Cable                          |  | US and Canada                         |  | TV rights for pay,free and basic                     |  | 20years                                   |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | ArtistView                                          |  | International, excluding Canada       |  | Theatrical,Television and Video                      |  | 2 year with a conditional option toextend |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
| Popstar        |  | WarnerBros. Domestic Cable                          |  | US and Canada                         |  | TV rights for pay,free and basic                     |  | 20years                                   |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | 7Arts International                                 |  | International, excludingCanada        |  | Cinematic, Television and Video                      |  | 10 years withoption toextend              |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
| Supercross     |  | 20thCentury Fox                                     |  | U.S. and Canada                       |  | All Media                                            |  | 20years                                   |
|           |  |                                                |  |                                  |  |                                                 |  |                                      |
|           |  | 7Arts International                                 |  | International, excludingCanada        |  | Theatrical, Television and Video                     |  | 15 years withoption to extend             |
|                |

19

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|               |  |                     |  |                                       |  |                |  |                  |  |  |  |  |  |  |  |  |  |  |
|---------------|--|---------------------|--|---------------------------------------|--|----------------|--|------------------|--|--|--|--|--|--|--|--|--|--|
| Movie         |  | Distributor         |  | Territories                           |  | RightsMedia    |  | Term ofAgreement |
|          |  |                |  |                                  |  |           |  |             |
| Shergar       |  | UAVCorporation      |  | North America – EnglishSpeaking |  | DVD/Home Video |  | 7years           |
|          |  |                |  |                                  |  |           |  |             |
| HemdaleTitles |  | UAV Corporation (5) |  | North America –English Speaking |  | DVD/Home Video |  | 7years           |
|               |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Litton Syndicationhas the right to distribute, exhibit, exploit the following pictures,Castle Rock, Dumb Luck, No Place Like Home and the Retrievers on allpay television, free television and basic cable television. |

|     |                                                                                                                                                                                                                            |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | UAV Corporation obtained the right to manufacture,distribute, promote, advertise and sell video devices for the followingfilms: Miracle Dogs, The Retrievers, The Santa Trap, No Place LikeHome, Castle Rock and Dumb Luck |

|     |                                                                                                                                                                                                                                                |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | First LookMedia has the exclusive right to distribute, exhibit, sell, lease,license and otherwise exploit in foreign markets, excluding the U.S.and Canada the following movies: The Retrievers, Dumb Luck, No PlaceLike Home and Castle Rock. |

|     |                                                                                                                                                                              |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | 20thCentury Fox Home Entertainment, Inc., ("Fox")has the right and license under copyright to all rights to home videodistribution and home video exhibition of the picture. |

|     |                                                                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | UAV obtained the right to manufacture, distribute,promote, advertise, sell and otherwise exploit video devices showing acatalog of four movie titles. See table on page 13 above. |

|     |                                                                                           |
|-----|-------------------------------------------------------------------------------------------|
| (6) | Time Warner Home Video was granted home video,television and online rights for this film. |

TheatricalExhibition Market

The theatrical distribution of a motionpicture, whether in the U.S. or internationally, involves the licensingand booking of the motion picture to theatrical exhibitors (movietheaters), the promotion of the motion picture through advertising andpublicity campaigns and the manufacture of release prints from themotion picture negative. Expenditures on these activities, particularlyon promotion and advertising, are often substantial and may have asignificant impact on the ultimate success of the motionpicture's theatrical release.

In addition, suchexpenditures can vary significantly depending upon the markets andregions where the motion picture is distributed, the media used topromote the motion picture (newspaper, television and radio), thenumber of screens on which the motion picture is to be exhibited andthe ability to exhibit motion pictures during peak exhibitionseasons.

With a release by a major studio, the vast majority ofthese costs (primarily advertising costs) are incurred prior to thefirst weekend of the motion picture's U.S. theatrical release, sothere is not necessarily an ability to correlate these costs and themotion picture's ultimate box office performance. In addition,the ability to distribute a picture during peak exhibition seasons,including the summer months and the Thanksgiving and Christmasholidays, and in the most popular theaters may affect the theatricalsuccess of a motion picture.

While arrangements for theexhibition of a motion picture vary greatly, there are certainfinancial relationships generally applicable to theatricaldistribution. Theater owners retain a portion of the admissions paid atthe box office, generally referred to as "gross box officereceipts." The share of the gross box office receiptsretained by them generally includes a fixed amount per week (in part tocover overhead), plus a percentage of receipts that generally escalatesover time. The balance, generally referred to as "grossfilm rentals," is remitted to the distributor.

Asindicated in the table appearing under the caption "OurDistribution Agreements," we have entered intodistribution arrangements for the theatrical exhibition of thefollowing films in the United 

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States: Hansel & Gretel, RedRiding Hood (on a test basis), Moto X Kids (on a limitedbasis) and Supercross. The theatrical release date forSupercross has been scheduled for August 17, 2005.

Wehave also entered into distribution arrangements for the theatricalexhibition of the following films internationally: Castle Rock, DumbLuck, No Place Like Home, The Retrievers, Miracle Dogs, The Santa Trap,Red Riding Hood, Moto X Kids, Popstar and Supercross.

DVD and Video Markets

Home video distribution consists ofthe promotion and sale of DVDs and videocassettes to local, regionaland national video retailers that rent or sell DVDs and videocassettesto consumers primarily for home viewing. Most motion pictures areinitially made available at wholesale prices primarily to DVD and videorental stores that rent or sell the DVDs or the cassettes toconsumers.

It is now common practice in the U.S. domestic marketfor major releases with broad appeal to be initially offered to retailchains at a price designed for sell-through rather than rental. Thisoccurs only when it is believed that the ownership demand by consumerswill result in a sufficient level of sales to justify the reducedmargin on each cassette sold. In the past, owners of motion picturesdid not share in rental income. However, distributors have recentlybegun to enter into revenue sharing arrangements with certain retailstores. Under such arrangements, videocassettes are sold at a reducedprice to retail stores (usually $6 to $10 per videocassette) and apercentage of the rental revenue is then shared with the owners (orlicensors) of the motion pictures. Home video arrangements ininternational territories are generally similar to those in the U.S.except that the wholesale prices may differ.

As indicated in thetable appearing under the caption "Our DistributionAgreements," we have entered into home video distributionarrangements for all of our titles other than Hansel & Greteland Popstar.

Television Market

Televisionrights for motion pictures initially released theatrically are, if suchmotion pictures have broad appeal, generally licensed first topay-per-view television for an exhibition period following initialvideo release, then to pay television, thereafter in certain cases tonetwork television for an exhibition period, and then, in certaincases, to pay television again. These motion pictures are thensyndicated to either independent stations or basic cable outlets.

Pay-per-view allows subscribers to pay for individual programs. Paytelevision allows cable television subscribers to view such services asHBO, Showtime, Starz/Encore, Canal+, BSkyB, Premiere, Telepiu, JSB orothers offered by their cable system operators for a monthlysubscription fee. Pay-per-view and pay television is now delivered notonly by cable, but also by satellite transmission, and motion picturesare generally licensed in both such media.

Motion pictures areoften packaged and licensed as a group for exhibition on televisionover a period of time and, therefore, revenues from these televisionlicensing "packages" may be received over aperiod that extends beyond five years from the initial U.S. theatricalrelease of a particular motion picture. Motion pictures are alsolicensed and "packaged" by producers anddistributors for television broadcast in international markets bygovernment owned or privately owned television networks.

Asindicated in the table appearing under the caption "OurDistribution Agreements," we have entered into televisiondistribution arrangements for all of our titles other than RedRiding Hood, Shergar and the titles we acquired fromHemdale.

The Internet

The continuing and improvingcapability to transmit large files through the internet via fastbroadband connections either through cable, satellite or DSLconnections will permit both the sales solicitation and eventually theactual delivery of motion pictures to licensees around the world. This

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model of efficiency expressed both in termsof the time required to effectuate sales presentations and the deliveryof the physical elements comprising entertainment properties, theirpackaging as well as related publicity, advertising, promotion andmarketing materials, will optimize the ability of movie companies toeffectuate foreign sales on a basis that it not only cost efficient butone which enables them to eliminate the traditional intermediaries whootherwise may receive as much as thirty five percent (35%) toforty percent (40%) of the gross revenues after a deduction oftraditional distribution costs. A digital means of delivery is by nomeans universally embraced and this methodology may not be ubiquitousfor an undetermined period yet to come. However, it is clearly a formof delivery that motion picture companies would seek to embrace (dueits efficiency and cost effectiveness) and utilize in the future bothto enhance revenues and to decrease dependence on third party serviceproviders. To date, we have not yet engaged in distributionarrangements for the exploitation of our films over the internet.

Non-Theatrical and Other Rights

Motion pictures may belicensed for use by airlines, schools, public libraries, communitygroups, the armed services, correctional facilities, ships and others.Music contained in a motion picture may be licensed for soundrecording, public performance and sheet music publication. Rights inmotion pictures may be licensed to merchandisers for the manufacture ofproducts such as toys, T-shirts, posters and other merchandise. Rightsmay also be licensed to create novels from a screenplay and to generateother related book publications, as well as interactive games on suchplatforms as CD-ROM, CD-I or other proprietary platforms. To date, wehave not derived substantial revenue from arrangements described inthis paragraph.

Intellectual Property

We are currentlyusing the trademark "TAG Entertainment" inconnection with films that we produce and distribute or license, bothdomestically and internationally. We regard our trademark as valuableassets and believe that our trademark is an important factor inmarketing our products. We own the copyright and all motion picturesthat we produce. In order to protect our intellectual property rightswe rely on a combination of copyright and trademark laws, contract law,and other methods, such as the careful management of our licensing anddistribution arrangements with third parties.

GovernmentRegulation

Distribution rights to motion pictures are grantedlegal protection under the copyright laws of the United States and mostforeign countries. These laws provide substantial civil and criminalsanctions for unauthorized duplication and exhibition of motionpictures. Motion pictures, musical works, sound recordings, art work,still photography and motion picture properties are separate workssubject to copyright under most copyright laws, including the UnitedStates Copyright Act of 1976, as amended. We are aware of reports ofextensive unauthorized misappropriation of videocassette rights tomotion pictures which may include motion pictures distributed by us.Motion picture piracy is an industry-wide problem. The Motion PictureAssociation of America, an industry trade association, operates apiracy hotline and investigates all reports of such piracy. Dependingupon the results of investigations, appropriate legal action may bebrought by the owner of the rights. Depending upon the extent of thepiracy, the Federal Bureau of Investigation may assist in theseinvestigations and related criminal prosecutions.

Motion picturepiracy is also an international problem. Motion picture piracy isextensive in many parts of the world, including South America, Asiaincluding Korea, China and Taiwan, the countries of the former SovietUnion and other former Eastern bloc countries. In addition to theMotion Picture Association, the Motion Picture Export Association, theAmerican Film Marketing Association and the American Film ExportAssociation monitor the progress and efforts made by various countriesto limit or prevent piracy. In the past, these various tradeassociations have enacted voluntary embargoes of motion picture exportsto certain countries in order to pressure the 

22

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governments of those countries to become moreaggressive in preventing motion picture piracy. In addition, the UnitedStates government has publicly considered trade sanctions againstspecific countries that do not prevent copyright infringement of UnitedStates produced motion pictures. We cannot assure you that voluntaryindustry embargoes or United States government trade sanctions will beenacted. If enacted, these actions could impact the amount of revenuethat we realize from the international exploitation of motion picturesdepending upon the countries subject to and the duration of suchaction. If not enacted or if other measures are not taken, the motionpicture industry as a whole, and our business in particular, maycontinue to lose an indeterminate amount of revenues as a result ofmotion picture piracy.

The Code and Ratings Administration ofthe Motion Picture Association assigns ratings indicating age-groupsuitability for theatrical distribution of motion pictures. We plan tosubmit our motion pictures for these ratings. In certain circumstances,motion pictures that we plan to submit for rating might receiverestrictive ratings, including, in some circumstances, the mostrestrictive rating which prohibits theatrical attendance by personsbelow the age of seventeen. Unrated motion pictures, or motion picturesreceiving the most restrictive rating, may not be exhibited in certainmovie theaters or in certain locales, thereby potentially reducing thetotal revenues generated by these films. United States televisionstations and networks, as well as foreign governments, imposeadditional restrictions on the content of motion pictures which mayrestrict in whole or in part theatrical or television exhibition inparticular territories. In 1997, the major broadcast networks and themajor television production companies implemented a system to ratetelevision programs. This television rating system has not had amaterial adverse effect on the motion pictures distributed by us.However, the possibility exists that the sale of theatrical motionpictures for broadcast on domestic free television may become moredifficult because of potential advertiser unwillingness to purchaseadvertising time on television programs that are rated for limitedaudiences. We cannot assure you that current and future restrictions onthe content of motion pictures may not limit or adversely affect ourability to exploit certain motion pictures in particular territoriesand media.

United States television stations andnetworks as well as foreign governments impose content restrictions onmotion pictures that may restrict in whole or in part exhibition ontelevision or theaters in a particular territory. There can be noassurance that such restrictions will not limit or alter our ability toexhibit certain motion pictures in such media or markets or that thecost to edit a particular motion picture would be prohibitive, therebyeliminating a possible revenue source for the motion picture.

Industry Compensation Arrangements

Most of the creative andproduction personnel that work on a movie are short-term employees or"for hire" contractors who are compensatedfor their services at a predetermined rate. It is also customary in themotion picture industry to pay contingent compensation over and abovethese fees to certain key employees and contractors. Customarycontingent compensation arrangements in the industryinclude:

|              |                 |
|--------------|-----------------|
| •  | fixeddeferrals; |

|              |                       |
|--------------|-----------------------|
| •  | residual payments;and |

|              |                                    |
|--------------|------------------------------------|
| •  | gross or net profitparticipations. |

Fixed Deferrals.    Key creativepersonnel, including the director, producer, writer and actors, oftennegotiate fixed deferral payments of flat fees tied to a film'sfinancial returns. We have not granted any fixed deferrals and have noplans to do so.

Residual Payments.    The principalcollective bargaining organizations for personnel within the movieindustry are: the Directors Guild of America, or DGA; theWriter's Guild of America, or WGA; the Screen Actors Guild, orSAG; the American Federation of Musicians, or AFM; and theInternational Alliance of Theatrical Stage Employees, or IATSE. When amovie producer involves members of these organizations in a film, theyare required to comply with certain residual payment obligations. Theseobligations are set forth in agreements between these organizations andthe 

23

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Alliance of Motion Picture and TelevisionProducers ("AMPTP") (which represents themajor studios) and provide that a percentage of a film's grossrevenues in certain markets must be paid to these organizations for thebenefit of their members. As an example, SAG currently requires paymentof between 4.5% and 5.4% of the gross revenueattributable to videocassette exploitation and 3.6% oftelevision exploitation, with no residuals due for theatricalexploitation.

We may be required to accrue and pay standardresidual payments based on the collective bargaining agreementsassociated with our creative team. These residual payments are basedupon gross revenues in certain markets and may therefore, dependingupon our distribution arrangements, reduce our revenues in variousmarkets and release windows. It is difficult to predict the specificimpact on our overall returns as we have no way of predicting whichrelease windows and which markets will achieve what relative levels ofrevenues, nor can we predict whether our arrangements with distributorsmight provide for flat fees or advance payments which would reduce oreliminate the impact of these residual obligations.

ProfitParticipations.    The last form of contingent compensation is a"profit participation," which entitles therecipient to additional compensation based on the financial performanceof a particular motion picture. Granting profit participation tocertain key creative personnel is common for both larger studio filmsas well as smaller independent films. For independent movies, this formof contingent compensation is critical to attract quality creativepersonnel who work for less upfront compensation than they otherwisemight receive on a larger, more costly movie. By paying this contingentcompensation, producers are able to attract these high quality creativepersonnel while simultaneously reducing the upfront costs.

Profit participations are typically"gross" or "net."Gross profit participation, granted in extremely rare cases where theimportance of the actor or director is critical, is calculated based ongross revenues before any costs (such as, distribution fees, financingcosts and other corporate costs) are deducted. Net profit participationis far more common, and is the arrangement we will be using to paycontingent compensation. Net profit participation is calculated basedon net revenues after deducting certain costs of a film, includingdistribution fees, financing costs and general corporate expenses.Thus, a gross profit participation receives a percentage of the firstdollar received by a film before any costs are deducted, while a netprofit participation receives a percentage of revenue remaining aftercertain costs are deducted.

Employees

As of December31, 2004 we had three full-time employees. As is typical in motionpicture production, we use short-term employees and independentcontractors to produce our film. We plan to retain most of theseshort-term employees and independent contractors after we beginproduction, and most of our agreements with these employees andcontractors will end by the time production is completed. We intend onhiring on a full-time basis a number of individuals to provideaccounting, operational and other management services, including afull-time Chief Financial Officer.

Most of the unions and guildswithin the movie industry that represent creative talent and necessaryproduction personnel are parties to collective bargaining agreementswith the AMPTP, which represents the major studios. Although we are nota member of the AMPTP, and therefore are not a party to any of theAMPTP's collective bargaining agreements, these agreements serveas a reference point during our negotiations with unions, guilds andmembers of the production staff for any particular film.

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RISK FACTORS

Aninvestment in shares of our common stock involves a high degree ofrisk. You should carefully consider the following information whichsummarizes all material risks, together with the other informationcontained in this Annual Report, before you decide to buy our commonstock. If any of the following risks actually occur, our business wouldlikely suffer. In these circumstances, the market price of our commonstock could decline, and you may lose all or part of yourinvestment.

Risks Related To Our Business AndIndustry

We have limited working capital and will need toraise additional capital in the future and our independentauditors have included a "going concern"opinion in their report.

At December 31, 2004,our cash and cash equivalents were minimal and we are in immediate needof additional capital. Although we raised $1.0 million in a recentlycompleted private placement of our securities, we will need additionalfunds to satisfy our expected cash needs for working capital andcapital expenditures. Management believes that approximately $4.0million will be required to cover our operating expenses and workingcapital requirements, including, but not limited to, marketing, sales,film productions, and operations, during the next twelve months.

Accordingly, we need substantial additional debt or equity financingand we intend to either undertake private placements of our securities,either as a self-offering or with the assistance of registeredbroker-dealers, or negotiate a private sale of our securities to one ormore institutional investors. However, we currently have no firmagreements with any third-parties for such transactions and noassurances can be given that we will be successful in raisingsufficient capital from any of these proposed financings. Further, wecannot assure you that any additional financing will be available or,even if it is available that it will be on terms acceptable to us. Ifadditional funds are raised though the issuance of equity or debtsecurities, such additional securities may have powers, designations,preferences or rights senior to our currently outstanding securitiesand, in the case of additional equity securities, the ownership of ourexisting shareholders will be diluted. Any inability to obtain requiredfinancing on sufficiently favorable terms could have a material adverseeffect on our business, results of operations and financial condition.If we are unsuccessful in raising additional capital and increasingrevenues from operations, we will need to reduce costs and operationssubstantially. Further, if expenditures required to achieve our plansare greater than projected or if revenues are less than, or aregenerated more slowly than, projected, we will need to raise a greateramount of funds than currently expected. Our independent auditors haveincluded a "going concern" explanatoryparagraph in their report to our financial statements for the yearended December 31, 2004, citing recurring losses and negative cashflows from operations. Our capital needs in the future will depend uponfactors such as market acceptance of our films and any other new filmswe release, the success of our independent distributors and ourproduction, marketing and sales costs. None of these factors can bepredicted with certainty.

We face substantial capitalrequirements since our business requires a substantial investment ofcapital.

The production, acquisition and distributionof motion pictures require a significant amount of capital. Asignificant amount of time may elapse between our expenditure of fundsand the receipt of commercial revenues from or other contributions toour motion pictures. This time lapse requires us to fund a significantportion of our capital requirements from various financing sources.Although we intend to continue to reduce the risks of our productionexposure through financial contributions from distributors and industryprograms and other studios, we cannot assure you that we will continueto implement successfully these arrangements or that we will not besubject to substantial financial risks relating to the production,acquisition, completion and release of future motion pictures. If weincrease (through internal growth or acquisition) our production slateor our production budgets, we may be required to increase overheadand/or make larger up-front payments to talent and consequently beargreater financial risks. Any of the foregoing could have a materialadverse effect on our business, results of operations and financialcondition.

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Failure to increase our revenue and keepour expenses consistent with revenues could prevent us from achievingand maintaining profitability.

We incurred losses of $3,871,029and $1,124,879 for the fiscal years ended December 31, 2004 and 2003,respectively. We have expended, and will continue to be required toexpend, substantial funds to pursue our business plan of producing anddistributing feature-length motion pictures and other programming andenhancing marketing and sales efforts for these titles. In addition, weexpect our general and administrative expenses in operating ourbusiness to increase in connection with our new obligations as areporting company under the Securities Exchange Act of 1934. Therefore,we will need to generate higher revenue from our motion pictures andother programming to achieve and maintain profitability and cannotassure you that we will be profitable in any future period. We havegenerated limited revenues since our inception, and do not expect togenerate significant revenues within the next fiscal year. For thefiscal year ended December 31, 2004 and the fiscal year ended December31, 2003, we had total revenue of $2,059,440 and $1,121,090,respectively. Our prospects should be considered in light of thedifficulties frequently encountered in operating as a independentproducer and distributor in the motion picture industry and thesubstantial costs that are required for any company to successfullycompete in this industry. Accordingly, there can be no assurance thatwe will be able to achieve profitable operations in future operatingperiods.

Our recent secured note financing arrangement containscertain covenants that limit the way we conduct business andwe granted a lien on all of our assets to the investors.

Ourrecently completed secured note financing arrangement includes variouscovenants limiting our ability to incur or guarantee additionalindebtedness, pay dividends and make other distributions, pre-pay anysubordinated indebtedness, make certain restricted payments, and sellassets. These covenants may limit us in raising additional capital,competing effectively or taking advantage of new businessopportunities. If we do not comply with these covenants, it couldresult in a default under our secured note arrangement, and unless weare able to negotiate an amendment, forbearance or waiver, we could berequired to repay all amounts then outstanding, which could have amaterial adverse effect on our business, results of operations andfinancial condition.

Further, the debt incurred through thisfinancing arrangement is secured by liens on all of our assets and theassets of our subsidiaries. If we are in default under thisarrangement, the lenders could foreclose upon all or substantially allof our assets and the assets of our subsidiaries. We cannot assure youthat we will generate sufficient cash flow to repay our indebtedness,and we further cannot assure you that, if the need arises, we will beable to obtain additional financing or to refinance our indebtedness onterms acceptable to us, if at all. Any such failure to obtain financingcould have a material adverse effect on our business, results ofoperations and financial condition.

Budget overruns andinherent risks in our business may adversely affect our financialcondition.

We need to be efficient in the production of ourmotion pictures and television programming. Actual motion picture andtelevision production costs often exceed their budgets, sometimessignificantly. The production, completion and distribution of motionpictures and other programming are subject to a number ofuncertainties, including delays and increased expenditures due tocreative differences among key cast members and other key creativepersonnel or other disruptions or events beyond our control. Risks suchas death or disability of star performers, technical complications withspecial effects or other aspects of production, shortages of necessaryequipment, damage to film negatives, master tapes and recordings oradverse weather conditions may cause cost overruns and delay orfrustrate completion of a production. If a motion picture or televisionprogram incurs substantial budget overruns, we may have to seekadditional financing from outside sources to complete production. Wecannot make assurances regarding the availability of such financing onterms acceptable to us, and the lack of such financing could have amaterial adverse effect on our business, results of operations andfinancial condition.

In addition, if a motion picture ortelevision program incurs substantial budget overruns, we cannot assureyou that we will recoup these costs, which could have a materialadverse effect on our 

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business, results of operations andfinancial condition. Increased costs incurred with respect to aparticular film may result in any such film not being ready for releaseat the intended time and the postponement to a potentially lessfavorable time, all of which could cause a decline in box officeperformance, and thus the overall financial success of such film.Budget overruns could also prevent a picture or program from beingcompleted or released. Any of the foregoing could have a materialadverse effect on our business, results of operations and financialcondition. Production costs and marketing costs are rising at a fasterrate than increases in either domestic admissions to movie theatres oradmission ticket prices, leaving us more dependent on other media, suchas home video, television and foreign markets, and new media. If wecannot successfully exploit these other media, it could have a materialadverse effect on our business, results of operations and financialcondition.

Our letter of intent with Myriad Pictures ispreliminary and there is no assurance that a transaction will beconsummated.

On April 5, 2005, we announced that we enteredinto a letter of intent with Myriad Pictures, Inc. for a merger orother combination of the companies. Myriad is involved in financing,production and worldwide sales of major motion pictures and televisionprogramming and is based in California. The letter of intent is subjectto numerous conditions, including: satisfactory completion of duediligence, finalization of the terms of the combination and structureof the transaction; negotiation, preparation and execution ofdefinitive transaction documents, compliance with state and federalsecurities laws and regulations, and corporate, shareholder andregulatory approvals. As a result of the foregoing uncertainties, noassurances can be given that the transaction will be consummated.

Even if a transaction with Myriad Pictures is consummated, we maynot realize the financial and strategic goals that arecontemplated by such transaction.

Even if a merger or othercombination between us and Myriad is consummated, the financial andstrategic goals that are contemplated by such transaction may not berealized. In addition, such transaction could be dilutive to earnings,and we could overpay for such transaction. Additionally, we may not besuccessful in our efforts to integrate the companies. Integration ofthe companies will divert management and other resources from otherimportant matters, and we could experience delays or unusual expensesin the integration process. Further, we may become responsible forliabilities associated with Myriad's business to the extent theyare not covered by indemnification or by insurance.

Revenuesand results of operations are difficult to predict and depend on avariety of factors.

The economic success of any motion pictureor television program that we produce is, and our revenues and resultsof operations are, uncertain since the revenues derived from thedistribution of a motion picture or television program (which do notnecessarily cover production or distribution costs incurred) dependprimarily upon its acceptance by the public. There can be no assurancethat we will continually or consistently produce commerciallysuccessful motion pictures. Accordingly, our revenues and results ofoperations may fluctuate significantly from period to period, and theresults of any one period may not be indicative of the results for anyfuture periods. Any inability to achieve such commercial success couldhave a material adverse effect on our business, results of operationsand financial condition. Commercial success of a motion picture ortelevision program is dependent on a variety of factors, includingcritical reviews and public tastes, which we cannot anticipate withcertainty. In addition, our revenues and results of operations dependsignificantly upon the timing of our releases, which we do not controland which are subject to a number of uncertainties. We can give noassurance that its production and release goals will be met in anyperiod or that completion will occur in accordance with the anticipatedschedule or budget. Therefore, it is difficult to predict the quartersin which motion pictures or other programs will be completed, and inturn, are available for release by a particular distributor. Dependingon the ultimate timing and manner of release of motion pictures andtelevision programs produced or co-financed by us, future revenues andresults of operations may fluctuate significantly from period toperiod.

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Accounting practices used in ourindustry may accentuate fluctuations in operating results.

Inaddition to the cyclical nature of the entertainment industry, ouraccounting practices (which are standard for the industry) mayaccentuate fluctuations in our operating results. In accordance withU.S. generally accepted accounting principles and industry practice, weamortize film costs using the"individual-film-forecast" method. Under thisaccounting method, we amortize film costs for each film based on thefollowing ratio: Revenue earned by title in the currentperiod/Estimated total revenues by title. We must review, and revisewhen necessary, our total revenue estimates on a title-by-title basis.This review may result in a change in the rate of amortization and/or awrite-down of the motion picture asset to its estimated fair value.Results of operations in future years depend upon our amortization ofour motion picture costs. Periodic adjustments in amortization ratesmay significantly affect these results. In addition, we are required toexpense film advertising costs as incurred, but are also required torecognize the revenue from any motion picture over the entire revenuestream expected to be generated by the individual picture or televisionprogram. As a result, in the event our initial total revenue estimatesfor a title were too high, under the industry's accountingmethod, we would immediately recognize the entire loss in instanceswhere we expect that a motion picture will not recover our investment.Comparatively, the profit of a successful motion picture must bedeferred and recognized over the entire revenue stream generated by theindividual picture. Accordingly, our revenues and results of operationsmay fluctuate significantly from period to period, and the results ofany one period may not be indicative of the results for any futureperiod.

We face substantial competition in all aspects of ourbusiness.

We are smaller and less diversified thanmany of our competitors.    As an independent distributor andproducer, we constantly compete with major U.S. and internationalstudios. Most of the major U.S. studios are part of large diversifiedcorporate groups with a variety of other operations, includingtelevision networks and cable channels, that can provide both the meansof distributing their products and stable sources of earnings that mayallow them better to offset fluctuations in the financial performanceof their motion picture and television operations. In addition, themajor studios have more resources with which to compete for ideas,storylines and scripts created by third parties as well as for actors,directors and other personnel required for production. The resources ofthe major studios may also give them an advantage in acquiring otherbusinesses or assets, including film and television content libraries,that we might also be interested in acquiring. Our inability to competesuccessfully could have a material adverse effect on our business,results of operations and financial condition.

These competitorsinclude Universal Pictures, Warner Bros. (which includes New LineCinema and Castle Rock Entertainment), Twentieth Century Fox, SonyPictures Entertainment (which includes Columbia Pictures and TriStarPictures), Paramount Pictures, the Walt Disney Company (which includesBuena Vista Pictures Distribution, Touchstone Hollywood Pictures andMiramax) and MGM (which includes Metro Goldwyn Mayer Pictures andUnited Artist Pictures). We also compete with independent producers anddistributors, including, among others, Lions Gate Entertainment, NewRegency, Imagine Entertainment, Village Roadshow, Icon Productions,Jersey Films and Mandalay Pictures. Many of these companies have avariety of operations in addition to the production of motion picturesincluding television network libraries and cable channels which canprovide a means of distributing their products and providing a stablesource of revenues to offset fluctuations in the financial performanceof their motion picture operations. We rely almost exclusively on ourmotion picture operations for our revenues.

The risks ofcompetition exist in all stages of motion picture production anddistribution.    Motion picture and television programacquisition, production and distribution are highly competitivebusinesses, and we cannot assure you that we will continue to competeeffectively in these businesses. If we are unable to competeeffectively, it will have an adverse effect on our business as a whole.In the production phase, competition will affect our ability to obtainthe services of preferred performers and other creative personnel,including script writers and designers. We also compete with others forfinancing of production efforts. We will be competing with theproducers of other films and programs in arranging for distribution inthe domestic theatrical marketplace and in other markets and media

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and obtaining advertising space and time. Inthe distribution phase, competition will limit the availability ofrelease dates and theaters required for the successful distribution ofa film. A potential film or television series will be competingdirectly with other motion pictures and television series andindirectly with other forms of public entertainment. We will competewith numerous larger motion picture and television program productioncompanies and distribution companies that have substantially greaterresources, larger and more experienced production and distributionstaff and established histories of successful production anddistribution of motion pictures and television programs.

Themotion picture industry is highly competitive and at times may createan oversupply of motion pictures in the market.    The number ofmotion pictures released by our competitors, particularly the majorU.S. studios, may create an oversupply of product in the market, reduceour share of box office receipts and make it more difficult for ourfilms to succeed commercially. Oversupply may become most pronouncedduring peak release times, such as school holidays and nationalholidays, when theatre attendance is expected to be highest. If werelease our films during peak release times, our potential revenues fora particular release may be reduced and we cannot guarantee that we canrelease our films during more advantageous times. In addition toproduction or other delays that might cause us to alter our releaseschedule, a change in the schedule of a major studio may force us toalter the release date of a film because we cannot always compete witha major studio's larger promotion campaign. Any such change couldadversely impact a film's financial performance. In addition, ifwe cannot change our schedule after such a change by a major studiobecause we are too close to the release date, the major studio'srelease and its typically larger promotion budget may adversely impactthe financial performance of our film. The foregoing could have amaterial adverse effect on our business, results of operations andfinancial condition.

 The limited supply of motion picturescreens compounds this product oversupply problem. Currently, asubstantial majority of the motion picture screens in the U.S.typically are committed at any one time to only 10 to 15 filmsdistributed nationally by major studio distributors. In addition, as aresult of changes in the theatrical exhibition industry, includingreorganizations and consolidations and the fact that major studioreleases occupy more screens, the number of screens available to uswhen we want to release a picture may decrease. If the number of motionpicture screens decreases, box office receipts, and the correlatingfuture revenue streams, such as from home video and pay and freetelevision, of our motion pictures may also decrease, which could havea material adverse effect on our business, results of operations andfinancial condition.

Technological advances may reduce ourability to exploit our motion pictures and televisionseries.    The entertainment industry in general and the motionpicture industry in particular continue to undergo significanttechnological developments, including video-on-demand. This rapidgrowth of technology combined with shifting consumer tastes couldchange how consumers view our motion pictures and television series.For example, an increase in video-on-demand could decrease home videorentals. Other larger entertainment distribution companies will havelarger budgets to exploit these growing trends. We cannot predict howwe will financially participate in the exploitation of our motionpictures and other programming through these emerging technologies orwhether we have the right to do so for certain of our library titles.If we cannot successfully exploit these and other emergingtechnologies, it could have a material adverse effect on our business,results of operations and financial condition.

Protecting anddefending against intellectual property claims may have a materialadverse effect on our business.

 Our intellectualproperty rights are critically important to our business. We rely on acombination of copyright, trademark and trade secret laws, contractlaw, and other methods to protect our content, license rights,proprietary technology and information but there can be no assurancethat such laws will provide sufficient protection to us.  Ourability to compete depends, in part, upon successful protection of ourintellectual property. We do not have the financial resources toprotect our rights to the same extent as major studios and our effortsto protect our intellectual property may not be adequate. We alsoattempt to protect proprietary and intellectual property rights to ourproductions 

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by licensing and distribution arrangementswith reputable international companies in specific territories andmedia for limited durations. Despite these precautions, existingcopyright and trademark laws afford only limited practical protectionin certain countries. We may also distribute our products in othercountries in which there is only limited copyright or trademarkprotection. As a result, it may be possible for unauthorized thirdparties to copy and distribute our productions or certain portions orapplications of our intended productions, which could have a materialadverse effect on our business, results of operations and financialcondition.

 There also can be no assurance that thirdparties will not copy or otherwise obtain and use our content or otherintellectual property rights without our authorization or that we willbe able to continue to maintain rights to our intellectual property.The failure to protect our intellectual property rights may have amaterial adverse effect on our business, results of operations, andfinancial condition.  Litigation may also be necessary in thefuture to enforce our intellectual property rights, to protect ourtrade secrets, or to determine the validity and scope of theproprietary rights of others or to defend against claims ofinfringement or invalidity. Any such litigation, regardless of thevalidity or the success of the claims, could result in substantialcosts and the diversion of resources and could have a material adverseeffect on our business, results of operations and financial condition.We cannot assure you that infringement or invalidity claims will notmaterially adversely affect our business, results of operations andfinancial condition. Finally, there can be no assurance that suchactions will result in the successful protection of our rights.

Piracy of motion pictures, including digital and internet piracy,may reduce the gross receipts from the exploitation of our films.

 Motion picture piracy is extensive in many parts of theworld, including South America, Asia, the countries of the formerSoviet Union and other former Eastern bloc countries. Additionally, asmotion pictures begin to be digitally distributed using emergingtechnologies such as the internet and online services, piracy couldbecome more prevalent, including in the U.S., because digital formatsare easier to copy. As a result, users can download and distributeunauthorized copies of copyrighted motion pictures over the internet.In addition, there could be increased use of devices capable of makingunauthorized copies of motion pictures. As long as pirated content isavailable to download digitally, many consumers may choose to downloadsuch pirated motion pictures rather than pay to view motion pictures.Piracy of our films may adversely impact the gross receipts receivedfrom the exploitation of these films, which could have a materialadverse effect on our business, results of operations and financialcondition. See also the discussion above under the caption"Government Regulation."

We rely uponkey vendors and suppliers.

We currently have only a limitednumber of employees and we outsource almost all of our requirementssuch as production, post-production and distribution services tounaffiliated third parties. Therefore, we are reliant upon these thirdparties' successful execution of these critical services. To theextent that these providers fail to perform or are unable to meetunexpected requirements (such as rapid growth), substantial damage toour brand, reputation and future business prospects could result.

We have a limited operating history and unproven businessmodel.

Due to the relatively early stage of our operations, itis difficult to evaluate the business and our prospects. Our revenuepotential is unproven and the business model is evolving. TAG USA hasonly been in business since 1999 and has a limited operating history.Further, the scope of the business proposed by TAG is more extensivethan our historical operations, including operating as a publiccompany, and therefore encompass a great degree of execution risk.Accordingly, investors have only limited operating and financialinformation relating to our business to evaluate our performance andfuture prospects.

Our success depends on external factors inour industries.

Our success depends on the commercialsuccess of motion pictures and television series, which isunpredictable.    Operating in the motion picture and televisionindustries involves a substantial degree 

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of risk. Each motion picture or televisionprogram is an individual artistic work, and inherently unpredictableaudience reactions primarily determine commercial success. Generally,the popularity of our motion pictures and programs depends on manyfactors, including the critical acclaim they receive, the format oftheir initial release, for example, theatrical or direct-to-video, theactors and other key talent, their genre and their specific subjectmatter. The commercial success of our motion pictures also depends uponthe quality and acceptance of motion pictures that our competitorsrelease into the marketplace at or near the same time, criticalreviews, the availability of alternative forms of entertainment andleisure activities, general economic conditions and other tangible andintangible factors, many of which we do not control and all of whichmay change. We cannot predict the future effects of these factors withcertainty, any of which factors could have a material adverse effect onour business, results of operations and financial condition.

 In addition, because a motion picture's performance inancillary markets, such as home video and pay and free television, isoften directly related to its box office performance, poor box officeresults or poor television ratings may negatively affect future revenuestreams. Our success will depend on the experience and judgment of ourmanagement to select and develop new investment and productionopportunities. We cannot make assurances that our motion pictures willobtain favorable reviews or ratings, that our motion pictures willperform well at the box office or in ancillary markets. The failure toachieve any of the foregoing could have a material adverse effect onour business, results of operations and financial condition.

Our distributors' failure to promote our films and programsmay adversely affect our business.    The profitable distributionof a motion picture or television program depends in large part on theavailability of one or more capable distributors who are able toarrange for appropriate advertising and promotion, proper release datesand bookings in first-run and other theaters. The decisions of ourdistributors regarding the timing of release and promotional support ofour motion pictures and programs are important in determining theirsuccess. We do not control the timing and manner in which our licenseddistributors distribute our motion pictures or programs. Any decisionby those distributors not to distribute or promote one of our motionpictures or to promote our competitors' motion pictures, to agreater extent than they promote ours could have a material adverseeffect on our business, results of operations and financial condition.Moreover, we cannot assure that profitable distribution arrangementswill be obtained for our films or programs or that they can or will bedistributed profitably. If we attempt to self-distribute our films(arrange for our own theater bookings and other releases), there is noassurance that theaters or other venues will be available to exhibit orsell the motion picture or that the agreements reached with suchtheaters would meet our pre-agreement expectations.

We couldbe adversely affected by strikes or other union jobactions.    We are directly or indirectly dependent upon highlyspecialized union members who are essential to the production of motionpictures and television programs. A strike by, or a lockout of, one ormore of the unions that provide personnel essential to the productionof motion pictures and television programs could delay or halt ourongoing production activities. Such a halt or delay, depending on thelength of time, could cause a delay or interruption in our release ofnew motion pictures or programs which could have a material adverseeffect on our business, results of operations and financialcondition.

We will need to manage our growth.

We have alimited operating history and will to need expand our operationsrapidly to implement our business plans. This growth has and willcontinue to place significant strain on our managerial, operational,financial, and other resources. To the extent that available resourcesare unable to meet demand, we may be required to make additionalmaterial investments in its infrastructure and personnel to do so.

Failure to achieve and maintain effective internal controls inaccordance with Section  404 of the Sarbanes-Oxley Act could havea material adverse effect on our ability to report our financialresults timely and accurately.

Section  404 of theSarbanes-Oxley Act requires management's ongoing review andevaluation of our internal controls, and will require management toreport on our internal controls and our 

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independent auditors to attest to theeffectiveness of our internal controls. In connection with the mergerof Power Marketing and TAG USA in November 2004, we have adoptedcertain measures in connection with our ongoing efforts to improve ourcontrol processes and corporate governance and intend to adopt andimplement additional measures that may be required. These changes arerequired to effect the transition of our company from a privately-heldcorporation to a public company that files period reports under theSecurities Exchange Act of 1934. As a private company, TAG USA was notrequired to adopt the types of internal control procedures that apublic company must adopt and maintain. Accordingly, since the merger,we have begun implementing various measures to enhance existingpolicies, or implement new ones, so as to have an effective system ofinternal controls over financial reporting. We are incurring, and willcontinue to incur, substantial additional expense and diversion ofmanagement's time as a result of performing the internal controlsystems evaluation, testing and remediation required in order to complywith the requirements of Section  404 of the Sarbanes-OxleyAct.

We intend to undertake a comprehensive effort to complyfully with these requirements. This effort includes documenting,evaluating the design of and testing the effectiveness of our internalcontrols over financial reporting. During this process, we may identifydeficiencies in our system of internal controls over financialreporting that may require remediation. As described in Item 8 of thisAnnual Report on Form 10-KSB, our former independent auditing firm,Grobstein, Horwath & Co, LLP, in its resignation letter to us, madestatements indicating the existence of weaknesses in our internalcontrol over financial reporting. Due to the ongoing improvement,evaluation and testing of our internal controls, there can be noassurance that any deficiencies identified may not be materialweaknesses that we would be required to report. Readers should reviewthis risk factor within the context of the discussion regarding ourchange of independent accountants and auditors in Item 8 of this AnnualReport on Form 10-KSB.

If we are unable to conclude that ourinternal controls over financial reporting are effective, our abilityto obtain additional financing on favorable terms and our access tocapital markets could be materially and adversely affected, which couldmaterially and adversely affect our business and financial condition.In addition, if we are unable to conclude our internal controls ordisclosure controls are effective, current and potential stockholderscould lose confidence in our financial reporting and our stock pricecould be negatively impacted.

We are dependent upon thecontinued employment of our founder.

For the foreseeablefuture, we will be largely dependent upon the personal efforts andabilities of our Chief Executive Officer, Steve Austin, to coordinate,implement and manage our business plans and programs. Our loss orunavailability of his services would likely have a material adverseaffect on our business, operations and prospects. Although we arecurrently negotiating the terms of an employment agreement with Mr.Austin, we do not currently have an employment agreement with him andno assurances can be given that we will enter into an employmentagreement with him. Therefore, Mr. Austin may terminate hisrelationship with us at any time with or without cause or prior notice.In the event Mr. Austin's employment with us ends, we may need tocease operation.

Mr. Austin has extensive control over us.

At the present time, our Chief Executive Officer, Steve Austin, ownsmore than 50% of our outstanding common stock. Mr. Austin isalso currently our only executive officer and director. This positiongives Mr. Austin extensive control over the company and the right todetermine who will serve as our officers and directors in the future.Although we intend to constitute a Board of Directors with a majorityof independent directors and hire other persons to serve in anexecutive capacity, readers should consider Mr. Austin's equityownership in us and position of control in determining whether toinvest in us. These factors should be considered in the context of ournegotiation of an employment agreement with Mr. Austin. See"Employment Agreements."

Mr. Austinowns and controls certain limited partnerships which we mayacquire.

Mr. Austin controls the entity which is the generalpartner of certain limited partnerships that we have proposed toacquire. Mr. Austin receives compensation from the limited partnershipsfor services 

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he renders to each of them and may benefitfrom our consummation of the proposed acquisitions of the limitedpartnerships. This concentration of control in Mr. Austin must beconsidered in determining whether to invest in us. The limited partnershave not currently agreed to be acquired by us and the terms of theacquisition are still being considered. There can be no assurance anyacquisition will be completed. In such an event, we will have acontinuing obligation to these limited partnerships.

Theinvestors in the limited partnerships are entitled to recoup theirinvestment before we receive meaningful earnings.

The featurefilms that we have produced to date, with one exception, were financedthrough the creation of limited partnerships with unaffiliatedinvestors. Generally, these investors are entitled to be repaid theentire principal amount of their investments before we share in anyprofits derived from each of the films, other than the distribution feeTAG USA is entitled to before remitting the proceeds to the limitedpartnership entity. After the limited partners recoup their investment,profits, if any, are divided 60% to TAG USA and 40% tothe limited partners. Earnings, therefore, may be insufficient to allowus to receive any distributions, and if we do receive a distribution,it be delayed for a significant period of time. We intend to financefuture feature films through a combination of bank, equity or debtfinancing.

We have limited the liability of our directors.

Our certificate of incorporation includes provisions eliminating thepersonal liability of its directors, except for breach of adirector's duty of loyalty to us or our shareholders, acts oromissions not in good faith or which involve intentional misconduct ora knowing violation of the law, and in respect of any transaction inwhich a director receives an improper personal benefit. Theseprovisions pertain only to breaches of duty by directors as such, andnot in any other corporate capacity, e.g., as an officer. As a resultof the inclusion of such provisions, neither we nor our shareholdersmay be able to recover monetary damages against directors for actionstaken by them which are ultimately found to have constituted negligenceor gross negligence, or which are ultimately found to have been inviolation of their fiduciary duties, although it may be possible toobtain injunctive or other equitable relief with respect to suchactions. If equitable remedies are found not to be available toshareholders in any particular case, shareholders may not have aneffective remedy against the challenged conduct. We believe that, basedupon recent developments in the market for directors' andofficers' liability insurance, such provisions are necessary toattract and retain qualified individuals to serve as directors. Inaddition, such provisions will allow directors to perform their dutiesin good faith without concern for the application of monetary liabilityon a retroactive basis in the event that a court determines theirconduct to have been negligent or grossly negligent. On the other hand,such provisions significantly limit the potential remedies available tous or a shareholder, and it is possible that the protection afforded bysuch provisions may reduce the level of diligence or care demonstratedby such directors.

Risks Related To Our Stock

Our common stock may be subject to the "PennyStock" rules of the SEC and the trading market in oursecurities is limited, which makes transactions in our stock cumbersomeand may reduce the value of an investment in our stock.

Sharesof our common stock may be considered to be "pennystocks" as defined in the Exchange Act, which are stockthat are traded in the over-the-counter market on the OTC BulletinBoard and have a price less than $5.00 per share, subject to certainexemptions. As a result, an investor may find it more difficult todispose of or obtain accurate quotations as to the price of the sharesof our common stock. In addition, the "pennystock" rules adopted by the Commission under the ExchangeAct subject the sale of the shares of common tock to certainregulations which impose sales practice requirements on broker-dealers.For example, broker-dealers selling such securities must, prior to

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effecting the transaction, provide theircustomers with a document that discloses the risks of investing in suchsecurities. Included in this document are the bid and offer pricequotes for the penny stock and the number of shares to which the quotedprices apply; the brokerage firm's compensation for the trade andthe compensation received by the individual salesperson for the trade.If the person purchasing the securities is someone other than anaccredited investor or an established customer of the broker-dealer,the broker-dealer must also approve the potential customer'saccount by obtaining information concerning the customer'sfinancial situation, investment experience and investment objectives.The broker-dealer must also make a determination whether thetransaction is suitable for the customer and whether the customer hassufficient knowledge and experience in financial matters to bereasonably expected to be capable of evaluating the risk oftransactions in such securities. Accordingly, the Commission'srules may limit the number of potential purchasers of shares of ourcommon tock. In addition, certain state securities laws imposerestrictions on transferring "penny stocks"and as a result, the ability of investors to sell their shares ofcommon stock may be impaired.

We have not paid dividends andinvestors may not receive a return on an investment in our stock.

We anticipate that for the foreseeable future, earnings will beretained for the development of our business. Accordingly, we do notanticipate paying dividends on our common stock in the foreseeablefuture. The payment of future dividends will be at the sole discretionof our Board of Directors and will depend on our general businesscondition.

There are outstanding a significant number of sharesavailable for future sales under Rule 144.

As of April 14,2005, there are 21,081,800 issued and outstanding shares of our commonstock, all of which, except for approximately 2.1 million shares, maybe deemed "restricted shares" and, in thefuture, may be sold in compliance with Rule 144 under the securitiesAct of 1933, as amended. However, of the 2.1 million shares which arenot restricted, approximately 1.2 million shares are subject to alock-up agreement expiring November 22, 2005. Rule 144 provides that aperson holding restricted securities for a period of one year may sellin brokerage transactions an amount equal to 1% of ouroutstanding common stock every three months. A person who is a"non-affiliate" of TAG and who has heldrestricted securities for over two years is not subject to theaforesaid volume limitations. Possible or actual sales of our commonstock by certain of our present shareholders under Rule 144 may, in thefuture, have a depressive effect on the price of our common stock inany market which may develop for such shares.

There are asignificant number of outstanding options and warrants, the exercise ofwhich may have a dilutive effect on the price of our common stock.

As of March 31, 2005, there were outstanding and immediatelyexercisable options to purchase 2,259,088 shares of common stock, at anaverage exercise price of $2.00 per share and warrants to purchase3,230,888 shares of common stock exercisable at average price ofapproximately $0.71 per share. The exercise of these securities willcause dilution to our shareholders and the sale of the underlyingcommon stock (or even the potential of such exercise or sale) may havea depressive effect on the market price of our securities. Moreover,the terms upon which we will be able to obtain additional equitycapital may be adversely affected, since the holders of the outstandingoptions and warrants can be expected to exercise them at a time when wewould, in all likelihood, be able to obtain any needed capital on termsmore favorable to it than the exercise terms provided by theoutstanding options and warrants.

Our common stock has lowtrading volume and any sale of a significant number of shares is likelyto depress the market price.

Our common stock is traded on theOTC Bulletin Board and the trading volume of our common stock has beenlimited. Because of this limited trading volume, shareholders may notbe able to quickly sell any significant number of their shares evenafter an exemption becomes available, and any attempted sale of a largenumber of our shares will likely have an adverse impact on the price ofour common stock. Because of the limited number of shares being traded,the per share price is subject to volatility and may continue to besubject to rapid price swings in the future.

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The price of our common stock may bevolatile, and a shareholder's investment in our common stockcould suffer a decline in value.

There has beensignificant volatility in the market price of our common stock, andthis volatility may continue in the future. In addition, there is agreater chance for market volatility for securities that trade on theOTC Bulletin Board as opposed to a national exchange or on the NasdaqStock Market. This volatility may be caused by a variety of factors,including generally lower trading volume. In addition to events andcircumstances beyond our control, the price of our common stock islikely to be subject to wide fluctuations in response to certainfactors, including, but not limited to, the following:

|              |                                                        |
|--------------|--------------------------------------------------------|
| •  | quarter to quarter variations in resultsof operations; |

|              |                                      |
|--------------|--------------------------------------|
| •  | announcements of newmotion pictures; |

|              |                                                   |
|--------------|---------------------------------------------------|
| •  | competitors'announcements of new motion pictures; |

|              |                                                  |
|--------------|--------------------------------------------------|
| •  | general conditions in the entertainmentindustry; |

|              |                            |
|--------------|----------------------------|
| •  | litigation involving us;or |

|              |                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | investor and customer perceptionsand expectations regarding our motion pictures, plans and strategicposition and those of our competitors and customers. |

Additionally, the public stock markets experience extreme price andtrading volume volatility. This volatility has significantly affectedthe market prices of securities of many companies for reasons oftenunrelated to the operating performance of the specific companies. Thesebroad market fluctuations may adversely affect the market price of ourcommon stock.

We have authorized shares of undesignatedpreferred stock.

Our certificate of incorporation authorizesthe issuance of up to 500,000 shares of "blankcheck" preferred stock, with such designation rights andpreferences as may be determined from time to time by the Board ofDirectors. Currently, no shares of preferred stock are issued andoutstanding. The Board of Directors is empowered, however, withoutshareholder approval, to issue shares of preferred stock with dividend,liquidation, conversion, voting or other rights which could adverselyaffect the voting power or other rights of the holders of our commonstock. In the event of such issuances, the preferred stock could beutilized, under certain circumstances, as a method of discouraging,delaying or preventing a change in control of TAG.

Item2.    Description of Property.

We do not own any realproperty. We currently lease 5,000 square feet of office space inBeverly Hills for use as our main corporate offices for a base rent of$12,000.00 per month pursuant to a three year lease which commencedOctober 1, 2004. Our base rent will increase to $12,750 in year two andto $13,500 in year three. We also lease additional office space in LaJolla, California pursuant to a three year lease expiring in May 2005.Under this lease, we pay a base rent of $5,057 per month whichincreases annually at a rate of 4%. We also lease an industrialcondominium of approximately 10,392 square feet for use as a productionstudio. The street address is 9615 Canoga Avenue, Chatsworth, CA 91311.The lease term is for three years (commencing on December 1, 2004) andthe lease rental is currently $9,000 per month through the balance ofthe term.

Item 3.    Legal Proceedings.

We are notcurrently a party to any lawsuit or proceeding which, in the opinion ofour management, is likely to have a material adverse effect on us,except as set forth below.

We were named in an administrativeproceedings with the securities regulatory agency in the state of Texasregarding a private placement of limited partnership interests ofSupercross the Movie, L.P. made to investors in that state bySupercross the Movie, L.P. On or about February 16, 2005, the

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Texas Securities Bureau and counsel for TAGand Supercross agreed that Supercross the Movie, L.P. would undertake arescission offer for the limited partnership interests of Supercrosssold in Texas and to make all the required filings in that state.Counsel for Supercross is in the process of drafting the rescissionoffer to the investors in Texas who subscribed for Supercross, theMovie L.P. interests.

In the matter of Billy Star v. TAGEntertainment, Inc. and Steve Austin (Case No. BC038984), we enteredinto a Settlement Agreement and Mutual Release dated November 23, 2004.Pursuant to that agreement, Star and TAG agreed to a settlement of apending litigation whereby we agreed to pay to Star an amount of$100,000 on December 1, 2004 and an additional amount of $50,000 on orbefore May 1, 2005. The initial payment of $100,000 was paid on ourbehalf by a third party, to whom we are indebted for such amount. Inconsideration of these payments, Star and TAG executed a mutual releaseof claims and Star agreed to surrender an aggregate of 33,033 shares ofcommon stock of TAG of which he is the current holder. In addition, theparties will agree to dismiss all claims against one another related tothis dispute.

An arbitration was filed on July 20, 2004;Philipson vs. Animal Partners, LP, et al, with the AmericanArbitration Association which named TAG USA as a respondent. Thearbitration (the "Petition") allegedly arisesout of the Petitioners' purchase of several units of the AnimalPartners Limited Partnership (the "LP"). Theallegation of the Petition is that "Respondents have neverfully reported any financial information to thePetitioners". TAG USA has sent the matter to its legalcounsel; however, TAG USA is neither a Limited Partner nor GeneralPartner of the "LP". TAG USA'sassociation with the "LP" is as distributorof the motion picture Miracle Dogs produced by the LP. The case wassettled in March 2005 and TAG USA was released from any claims. Inconnection with this arrangement, however, TAG USA, intends to purchasethe outstanding LP interests currently owned by the Philipsons for$200,000.

We are involved in various claims and other legalproceedings that arise from time to time in the ordinary course ofbusiness. We do not believe any of theses matters will have a materialadverse affect on our financial position or results of operations.Litigation is inherently unpredictable and excessive verdicts do occur.Although we believe we have valid defenses in these matters, we couldin the future incur judgments or enter into settlements of claims thatcould have a material adverse affect on our financial position orresults of operations in any particular period.

Item4.    Submission of Matters to a Vote of Security Holders.

OnNovember 22, 2004, the holders of 1,745,000 shares of our common stock,representing approximately 71% of our then outstanding shares ofcommon stock, authorized, ratified and approved in all respects theAgreement and Plan of Reorganization dated October 4, 2004, by andamong TAG USA, PMKT Subsidiary Corp., and Power Marketing, Inc.,whereby TAG USA merged with and into PMKT Subsidiary and TAG USA wasthe surviving entity pursuant to the laws of the State of Californiaand became our wholly-owned subsidiary, which contemporaneously changedits name to TAG Entertainment Corp. The approval by our shareholdersalso included the election of Steve Austin as the sole member of ourBoard of Directors. Further, the shareholders authorizing the mergerand related transactions, approved the adoption, on a pre-merger,basis, of the 2004 Employee Stock OptionPlan.

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PART II

Item 5.    Market for Common Equity and Related StockholderMatters.

Our common stock trades on the Over-the CounterBulletin Board, also called the OTCBB, under the trading symbol"TAGE.OB". On April 8, 2005, our common stockhad bid and offer prices of $4.25 and $4.90, respectively. At December30, 2004 our common stock had a closing price of $4.00 per share. Ourcertificate of incorporation authorizes 50,000,000 shares of commonstock, par value $.001 per share and 500,000 shares of preferred stock,par value $.001 per share. As of March 31, 2005, we had 21,081,800shares of common stock issued and outstanding and no shares ofpreferred stock issued and outstanding.

The following table setforth the quarterly high and low bid prices per share for our commonstock. The bid prices reflect inter-dealer prices, without retailmarkup, markdown, or commission and may not represent actualtransactions.

|                    |  |           |        |           |  |        |        |        |  |  |
|--------------------|--|-----------|--------|-----------|--|--------|--------|--------|--|--|
|               |  | HighBid   |        | LowBid    |
|               |  |      |   |      |  |   |   |   |
| **Fiscal2005**     |  |      |   |      |  |   |   |   |
|               |  |      |   |      |  |   |   |   |
| March31,2005       |  | $5.40     |        | $1.60     |
|               |  |      |        |      |
| **Fiscal2004**     |  |      |        |      |
|               |  |      |        |      |
| March31, 2004*     |  | $3.75     |        | $1.55     |
| June 30,2004*      |  | $4.20     |        | $2.00     |
| September 30,2004* |  | $5.05     |        | $2.75     |
| December 31,2004   |  | $6.40     |        | $3.00     |
|               |  |      |        |      |
| **Fiscal2003**     |  |      |        |      |
|               |  |      |        |      |
| March31, 2003*     |  | No quotes |        | No quotes |
| June30, 2003*      |  | No quotes |        | Noquotes  |
| September 30,2003* |  | $0.55     |        | $0.50     |
| December 31,2003*  |  | $3.25     |        | $1.10     |
|                    |

|  |
|--|
|  |  |
|  |

*Prices quoted are those of Power Marketing, Inc., the predecessor toTAG. See Business Description.

Number of RecordHolders

The approximate number of record holders of ourcommon stock as of March 31, 2005 was 304. Such number of recordholders was determined from our stockholder records, and does notinclude beneficial owners of our common stock whose shares are held inthe names of various security holders, dealers and clearingagencies.

Dividend Policy

We have not paid anydividends upon our common stock since our inception, and do not expectto pay any dividends upon our common stock in the foreseeable futureand plan to retain earnings, if any, to finance the development andexpansion of our business.

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Recent Sales of UnregisteredSecurities

Merger With TAG USA

Inconnection with the merger of TAG USA with Power Marketing, Inc., TAGUSA common stockholders and warrant holders were issued an aggregate of21,450,000 shares of common stock and warrants of Power Marketing inexchange for the shares of TAG USA common stock (and warrants) thatthey owned. In addition, an aggregate of 2,035,000 options of TAG USAwere exchanged for options to purchase shares of our common stock atthe exchange rate of 1.1101. The issuance of these securities wasexempt from the registration requirements of the Securities Act of1933, as amended, pursuant to Section 4(2), and/or Regulation D. Thesecurity holders receiving our securities were all existing securityholders of TAG USA.

In connection with the merger, we granted anaggregate of 300,000 shares of our common stock to Raymond J. Skiptunispursuant to a consulting agreement between us for professional servicesrendered in connection with the consummation of the merger. Thisissuance was made pursuant to the exemption provided by Section 4(2) ofthe Securities Act of 1933, as amended.

March BridgeFinancing

On March 30, 2005, we entered into a SecuritiesPurchase Agreement with Satellite Strategic Finance Associates, LLC andan affiliated investor under which we issued $1.0 million in aggregateprincipal amount of Senior Secured Notes and Warrants to purchase500,000 shares of our common stock in a private placement to accreditedinvestors under Regulation D of the Securities Act of 1933, as amended.We received gross proceeds of $1,000,000 which are intended to be usedfor the production and distribution of films, including acquisition ofadditional product and/or distribution assets and for general workingcapital. We also entered into a Registration Rights Agreement and aSecurity Agreement with the investors and TAG USA co-signed theSecurity Agreement and agreed to guaranty our obligations pursuant tothe financing agreements.

The Notes mature on March 30, 2006 andare sooner payable in full in the event we consummate a subsequentfinancing event, with certain exceptions, or upon the occurrence of anevent of default. We also have the right to prepay the Notes in wholeor in part at any time. The aggregate principal amount of the Notes is$1,150,000 with a 15% yield funded as original issuancediscount. No additional interest is payable unless an event of defaultoccurs, in which event interest at the default interest rate of12% shall accrue. Pursuant to the Security Agreement, we grantedthe investors a first priority lien on all of our assets, other thancertain previously issued liens, in order to secure our obligations.The warrants are exercisable at $1.00 per share, subject to adjustmentupon certain events, including as a result of our sale of equitysecurities at a price below the exercise price.  The warrants areexercisable at any time on or before March 30, 2010.

TheSecurities Purchase Agreement requires the consent of holder of theNotes for certain actions, including incurring additional debt,granting certain liens and making certain restricted payments. Pursuantto the Registration Rights Agreement, we have agreed to file with theSecurities and Exchange Commission a shelf registration statementcovering the resale of the shares of our common stock issuable uponexercise of the warrants within 90 days of the closing date and to useour best efforts to have the registration statement declared effectiveby the Commission 120 days following the closing date, or in the eventthe Commission reviews the registration statement, 150 days followingclosing. We will be required to make certain payments to the warrantholders if these deadlines are not met or the shelf registrationstatement is otherwise unavailable for the resale of thesecurities.

Stock Repurchases

During 2004, wedid not repurchase any shares of our common stock.

TransferAgent

The transfer agent for our common stock is InterWestTransfer Agency, Salt Lake City, UT.

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Item 6.    Management'sDiscussion and Analysis or Plan of Operation.

Overview

This management's discussion andanalysis of financial condition and results of operations containsforward-looking statements that involve risks and uncertainties. Pleasesee "Item 1—Business—Forward-LookingStatements" for a discussion of the uncertainties, risksand assumptions associated with these statements. You should read thefollowing discussion in conjunction with our audited consolidatedfinancial statements and the notes to our audited consolidatedfinancial statements included elsewhere in this report. Our actualresults may differ materially from those discussed in theforward-looking statements as a result of various factors, includingbut not limited to those listed under "Item1—Business—Risk Factors" and included in otherportions of this report.

We are the parent corporation ofTAG USA, a California corporation headquartered in Beverly Hills,California. TAG USA was incorporated in September 1999 and is engagedin the development, production and distribution of motion pictures andthe management of studio facilities. We also acquire the copyrightsand/or distribution rights to already completed films for mediaexhibition. In order to finance film production, we raise fundsprimarily through the establishment of single-purpose limitedpartnerships and through the sale of equity or debt securities. TAG USAserves as the sole general partner on the following four limitedpartnerships: Majestic Film Partners, LP, Majestic Film Partners II,LP, Majestic Film Partners III, LP and Majestic Film Partners IV, LP(Limited Partnerships). TAG USA is also the distributor of filmsproduced by seven other limited partnerships as well as assists infacilitating the production and distribution of films produced bylimited partnerships for which it receives an overhead and/orproduction fee. Five of these other limited partnerships have as theirgeneral partner an entity owned and controlled by Steve Austin, ourChief Executive Officer. We also seek to acquire rights to filmsproduced by third parties and to date, have acquired distributionrights to five feature films. As described above, in March 2005, weentered into a letter of intent to acquire Myriad Pictures, Inc., anindependent motion picture production and distribution company.

Our revenues are derived from motion picture distribution, whichincludes theatrical, home entertainment, television and internationaldistribution. Theatrical revenues are derived from the domestictheatrical release of motion pictures in North America. Homeentertainment revenues are derived from the sale of video and DVDreleases of our own productions and acquired films, includingtheatrical releases and direct-to-video releases. Television revenuesare primarily derived from the licensing of our productions andacquired films to the domestic cable, free and pay television markets.International revenues are derived from the licensing of ourproductions and acquired films to international markets on aterritory-by-territory basis. Our primary operating expenses includethe following: direct operating expenses, which include amortization ofproduction or acquisition costs, participation and residual expenses;distribution and marketing expenses, which primarily include the costsof theatrical "prints and advertising" and ofvideo and DVD duplication and marketing; and general and administrationexpenses, which include salaries and other overhead.

Ourindependent auditors have included a "goingconcern" explanatory paragraph in their report to ourfinancial statements for the year ended December 31, 2004, citingrecurring losses and negative cash flows from operations. We have animmediate need for cash to fund our working capital requirements andbusiness model objectives and we intend to either undertake privateplacements of our securities, either as a self-offering or with theassistance of registered broker-dealers, or negotiate a private sale ofour securities to one or more institutional investors. However, wecurrently have no firm agreements with any third-parties for suchtransactions and no assurances can be given that we will be successfulin raising sufficient capital from any of these proposedfinancings.

We were formerly known as Power Marketing, Inc.,which was originally incorporated under the laws of the State ofDelaware on August 1, 1995. From 1996 through 2002, Power Marketingengaged in the business of marketing various consumer products. PowerMarketing did not generate significant revenues and was considered adevelopment stage company as defined in Statement of FinancialAccounting Standards No. 7. On November 22, 2004, we consummated amerger with TAG USA in 

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which TAG USA merged with a wholly-ownedsubsidiary that we established for the purposes of the transaction. Asa result of the merger, TAG USA became a wholly owned subsidiary ofPower Marketing and TAG USA common stockholders and warrant holdersreceived approximately 21,450,000 shares of Power Marketing commonstock (and warrants) in exchange for the shares of the TAG USA commonstock (and warrants) that they owned. Shareholders of TAG USA ownedapproximately 90% of our outstanding shares of common stockimmediately after the merger. In connection with the merger, we changedour corporate name to TAG Entertainment Corp., all of our then-currentofficers and directors resigned and Mr. Austin, who was the majorityshareholder, Chief Executive Officer and sole director of TAG USAbecame our Chief Executive Officer, Chief Financial Officer and soledirector. Due to the merger, our results of operations for the yearended December 31, 2004 are not directly comparable to our results inprior reporting periods.

The holders of approximately 1,122,000shares of common stock of TAG USA that did not consent in writing toour acquisition of TAG USA are entitled to exercise appraisal rightsunder California Corporations Code. In the event such holders elect toexercise these rights, we would be required to purchase the shares ofcommon stock of TAG USA held by them in lieu of issuing shares of ourcommon stock at the exchange ratio applicable to the transaction.

Critical Accounting Policies

The application of thefollowing accounting policies, which are important to our financialposition and results of operations, requires significant judgments andestimates on the part of management. For a summary of all of ouraccounting policies, including the accounting policies discussed below,see Note  1 to our audited consolidated financial statements.

Use of Estimates

The preparation of the financialstatements in accordance with accounting principles generally acceptedin the United States of America requires management to make estimatesand assumptions that affect reported amounts of assets and liabilitiesand disclosure of contingent assts and liabilities at the date of thefinancial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those andother estimates.

Reclassifications

For comparativepurposes, prior year's consolidated financial statements havebeen reclassified to conform to report classifications of the currentyear.

Principles of Consolidation

The accompanyingconsolidated financial statements of the Company include the accountsof TAG and of the Limited Partnerships which the Company is the solegeneral partner. The General Partner has the full and exclusive controlof the management and operation of the business of each partnership.The Company in its capacity as General Partner participates in1% of the losses of the limited partnerships but shares in60% of any profits. All significant inter-company balances andtransactions have been eliminated in consolidation.

MinorityInterests

TAG consolidates four limited partnerships for whichit is the sole general partner. The amount of minority interestrepresents the aggregate net limited partnership capital of eachlimited partnership along with a reduction of 99% of the lossesincurred directly by the Limited Partnerships.

RevenueRecognition

Revenue from the sale or licensing of films andtelevision programs is recognized upon meeting all recognitionrequirements of SOP 00-2. Revenue from the theatrical release offeature films is recognized at the time of exhibition based on theCompany's participation in box office receipts. 

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Revenue from the sale of videocassettes anddigital video disks ("DVDs") in the retailmarket is recognized on the "street date"when it is available for sale by the customer. Revenues fromtelevisions licensing are recognized when the feature film ortelevision program is available to the licensee for telecast. Revenuesfrom sales to international territories are recognized when the featurefilm or television program is available to the distributor forexploitation and no conditions for delivery exist.

In itscapacity as facilitator or producer of various films through limitedpartnerships set up for the sole purpose of financing the production ofmotion pictures, Steve Austin, has assigned to TAG his right to receivefrom each of the Partnerships a salary of $7,000 to $7,500 per monthfrom pre-production to six months after post-production. TAG is alsoentitled to be reimbursed for reasonable and normal overhead andstaffing costs related to its management services.

Rentalrevenue from short-term operating leases studio facilities isrecognized over the term of the lease.

Cash payments receivedwhich may include minimum guarantees are recorded as deferred revenueuntil all conditions of revenue recognition have been met.

CashEquivalents

For purposes of reporting cash flows, the Companyconsiders all short-term, interest bearing deposits with originalmaturities of three months or less to be cash equivalents.

Capitalized film costs

Capitalized film costs consist ofinvestments in films which include the unamortized costs of completedfilms which have been produced by the Company or for which the Companyhas acquired distribution rights or film libraries.

For filmsproduced by the Company, capitalized costs include all directproduction and financing costs, and production overhead. For acquiredfilms, these capitalized costs consist of minimum guarantee payments toacquire the distribution rights.

Costs of acquiring andproducing films and of acquired libraries are amortized using theindividual-film-forecast method, whereby these costs are amortized andparticipation and residual costs are accrued in the proportion thatcurrent year's revenue bears to management's estimate ofultimate revenue at the beginning of the current year expected to berecognized from the exploitation, exhibition or sale of the films.

Ultimate revenue includes estimates over a period not to exceed tenyears following the date of initial release. For titles included inacquired libraries, ultimate revenue includes estimates over a periodnot to exceed ten years following the date of acquisition.

Capitalized film costs are stated at the lower of amortized cost orestimated fair value on an individual film basis. The valuation ofinvestment in films is reviewed on a title-by-title basis, when anevent or changes in circumstances indicated that the fair value of afilm is less than its unamortized cost. The fair value of the film isdetermined using management's future revenue and cost estimates.Additional amortization is recorded in the amount by which theunamortized costs exceed the estimated fair value of the film.Estimates of future revenue involve measurement uncertainty and it istherefore possible that reductions in the carrying value of investmentin films may be required as a consequence of changes inmanagement's future revenue estimates.

Films in progressinclude the accumulated costs of production, which have not yet beencompleted by the Company.

Films in development include costs ofacquiring film rights to original screenplays and costs to adapt suchprojects. Such costs are capitalized and, upon commencement ofproduction, are transferred to production costs. Projects indevelopment are written off at the earlier of the date determined notto be recoverable or when abandoned, or three years from the date ofthe initial investment.

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Advertising Expenses

The Companyexpenses advertising costs as incurred. During the years ended December31, 2004 and 2003, the Company had $5,500 and $7,569, respectively foradvertising costs.

Equipment

Equipment is carried atcost and is depreciated on the straight-line basis over their estimateduseful lives of three to eight years. Repairs and maintenance areexpensed as incurred. When assets are retired or otherwise disposed of,the property accounts are relieved of costs and accumulateddepreciation and any existing gain or loss is credited or charged tooperations.

Depreciation expense was $47,772 and $26,895 in 2004and 2003, respectively.

Stock-Based Compensation

TheCompany accounts for stock-based compensation in accordance withStatement of Financial Accounting Standards No. 123,"Accounting for Stock-Based Compensation"("SFAS 123"). This standard requires theCompany to adopt the "fair value" method withrespect to stock-based compensation of consultants and othernon-employees. The Company did not change its method of accounting withrespect to employee stock options; the Company continues to account forthese under the "intrinsic value" method andto furnish the pro-forma disclosures required by SFAS 123.

Valuation of the Company's Common Stock

Unlessotherwise disclosed, all stock-based transactions entered into by theCompany have been valued at the market value of the Company'scommon stock on the date the transaction was entered into or have beenvalued using the Modified Black-Scholes to estimate the fair marketvalue.

Concentrations of Risk

The Company'sfinancial instruments that are exposed to concentrations of credit riskconsist of cash and receivables. The Company invests its cash in bankswith high credit ratings; however, certain account balances have beenmaintained at levels in excess of federally insured limits. The Companyhas not experienced a loss in such accounts.

The Company extendscredit based on an evaluation of the customer's financialcondition, generally without collateral. Exposure to losses onreceivables is principally dependent on each customer's financialcondition. The Company monitors its exposure for credit losses andmaintains allowances for anticipated losses, as required. The Companysub-distributes titles in both the domestic and international markets.The Company is typically paid an advance or minimum guarantee for theserights. Any overages (revenue in excess of the minimum guarantee) arereported to the Company 45 to 90 days after the reporting period.Because of the minimum guarantees and short reporting periods accountsreceivables are minimized and outstanding balances are generallycollected within 45 to 90 days.

Income Taxes

Deferredincome taxes are recorded to reflect the tax consequences in futureyears of temporary differences between the tax basis of the assets andliabilities and their financial statement amounts at the end of eachreporting period. Valuation allowances are established when necessaryto reduce deferred tax assets to the amount expected to be realized.Income tax expense is the tax payable for the current period and thechange during the period in deferred tax assets and liabilities. Thedeferred tax assets and liabilities have been netted to reflect the taximpact of temporary differences. At December 31, 2004, a full valuationallowance has been established for the deferred tax asset as managementbelieves that it is more likely than not that a tax benefit will not berealized.

Earnings per common share

The Companycomputes earnings per common share in accordance with Statement ofFinancial Accounting Standards No. 128, "Earnings perShare" (SFAS No. 128). The Statement requires dual

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presentation of basic and diluted EPS on theface of the income statement for all entities with complex capitalstructures and requires a reconciliation of the numerator anddenominator of the basic EPS computation to the numerator anddenominator of the diluted EPS computation. Basic loss per share iscomputed by dividing loss available to common shareholders by theweighted average number of common shares outstanding. The computationof diluted loss per share is similar to the basic loss per sharecomputation except the denominator is increased to include the numberof additional shares that would have been outstanding if the dilutivepotential common shares had been issued. In addition, the numerator isadjusted for any changes in income or loss that would result from theassumed conversions of those potential shares. However, suchpresentation is not required if the effect is anti-dilutive.Accordingly, the diluted per share amounts do not reflect the impact ofwarrants and options totaling 4,989,976 and 639,705 at December 31,2004 and 2003, respectively as the effects would be anti-dilutive.

Results of Operations: Fiscal Year 2004 Compared to Fiscal Year2003

Revenue

Gross revenues for theyear ended December 31, 2004 and 2003 were $2,059,440 and $1,121,090,respectively, an increase of $938,350 or 83.7%. The increase inrevenues was principally attributable to the increase in film revenuealong with a small increase in studio rental income. This revenue wasrecognized from the release of the film Retrievers into the videomarket in 2004 along with the delivery of 21 episodes of the ArizonaHighway series to the distributor. No episodes of any series weredelivered in 2003. Studio rental income was also approximately $180,000higher in 2004, compared to $109,825 in 2003, because we were able torent the facilities to third parties for eleven months in 2004 asopposed to only 6 months in 2003.

Expenses

Expenses for the year ended December 31, 2004 were $6,391,575compared to $2,329,736, an increase of $4,061,839 or 174.3%. Theincrease in expenses is primarily attributed to the amortization offilm costs representing an increase of $1,090,072, legal settlements of$590,000 and an increase in selling, general and administrativeexpenses of $2,326,265. The increase in amortization costs is directlyrelated to the increase in film revenue as amortization of film costsmatches film revenue recognition along with the partial write down offilm costs in three of the limited partnerships that are consolidatedin our financial statements. The legal settlements were paid withregard to our lease of certain studio facilities in 2004 and aninvestor claim.

Selling, general and administrative expenses forthe year ended December 31, 2004 were $4,312,775 compared to $1,986,510for the year ended December 31, 2003, an increase of $2,326,265 or117.1%. The increase in Selling, general and administrativeexpenses is primarily due to an increase in consulting fees of$900,000, officers salary of $500,000, employee bonuses of $140,000,accounting fees of $343,000 and courier services of $128,000. Also,consulting fees consisted of $580,000 in stock issuance to variousconsultants for services rendered. Most of these expenses haveincreased as a result of engaging consultants, and other professionalsto assist with the Company's management and financial advisoryneeds.

Minority Interest

The lossattributable to minority interest for the year ended December 31, 2004and 2003 was $451,264 and (22,520), respectively, an increase of$473,874. The increase is primarily attributable to the partial writedown of films costs in three of the limited partnerships that weconsolidate in our financial statements. There were no correspondingwrite downs in the 2003.

Financial Condition, Liquidity, andCapital Resources: For the Year Ended December 31, 2004

Since inception, we have financed our operationsprimarily through the sale of equity securities. As of December 31,2004 we had received a total of approximately $6,547,672 from publicand private offerings of its equity securities.

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As of December 31, 2004, we had minimalcash and cash equivalents as we were in the process of completingvarious financing arrangement. In March 2005, we completed a secureddebt financing transaction which provided the company with cash of$1,000,000. We intend to use the funds for the production anddistribution of films, including acquisition of additional productand/or distribution assets and for general working capital. The securednote matures March 30, 2006 and the principal amount of the note is$1,150,000 with a 15% yield funded as original issuancediscount. We also granted the investor warrants to purchase a total of500,000 shares of our common stock, exercisable at $1.00 per share,subject to adjustment upon certain events, including as a result of oursale of equity securities at a price below the exercise price. The warrants are exercisable at any time on or before March 30,2010.

In January 2005, we commenced raising funds through aprivate placement offering under Rule 506, promulgated under theSecurities Act of 1933. The offering is for a maximum of $5 million tobe raised through the issuance of 1,666,666 shares of our common stock.As of March 31, 2005 approximately $60,000 had been deposited in escrowfor the purchase of 20,000 shares from the offering. This disclosuredoes not constitute an offer to sell or the solicitation of an offer tobuy any of our securities, nor will there be any sale of thesesecurities by us in any state or jurisdiction in which the offer,solicitation or sale would be unlawful. The securities being offeredhave not been registered under the Securities Act of 1933 and may notbe sold or offered in the United States absent registration or anapplicable exemption from the registration requirements. Thisdisclosure is being issued pursuant to and in accordance with Rule 135cunder the Securities Act of 1933.

Net cash used for operatingactivities for the year ended December 31, 2004 was $903,744 whichprimarily consisted of: a net loss of $4,322,293 along with filminvestments of $1,005,976. This was partially offset by the issuance of$1,070,000 of our stock to pay for various services and legal coststhereby preserving our cash position along with a $1,237,571 increasein amounts payable to affiliated limited partnerships. Also offsettingthe net loss was $1,264,912 in film amortization costs which includescash disbursements in prior years.

Net cash used for operatingactivities for the year ended December 31, 2003 was $157,913 whichprimarily consisted of: a net loss of $1,102,359 along with filminvestments of $386,846. The use of cash was partially offset byincreases in accounts payable of $300,103 and accounts payable –affiliated partnerships of $453,130 along with the increase in deferredincome of $150,500.

Net cash used in investing activities forfiscal year 2004 was $162,121, compared to $11,413 in fiscal year2003.   The increase is primarily due to leasehold improvementsto our new offices in Beverly Hills. We moved to the new location atthe end of September 2004.

Net cash provided by financingactivities for fiscal year 2004 was $404,621 which primarily consistedof the completion of the October 2003 private placement. We received atotal of $470,038 from the private placement which was offset by$219,355 in offering costs. We also received $93,750 in proceeds tofinance the production of a film along with $141,250 from the exerciseof stock warrants.

The net cash provided by financing activitiesin 2003 was $693,232 which was a result of the initiation of theprivate placement in October 2003. We received $777,250 during 2003from the private placement along with another $150,000 from theexercise of stock warrants and $97,500 in proceeds to finance theproduction of a film. The cash inflow was partially offset by $168,066in capital payments along with $125,000 in refunds to various limitedpartners.

Cash Requirements and Need for Additional Funds

We have an immediate need for cash to fund our working capitalrequirements and business model objectives. In accordance with ourprepared expansion plan, it is the opinion of management thatapproximately $4.0 million will be required to cover operatingexpenses, including, but not limited to, marketing, sales, filmproductions, and operations during the next twelve months. We intend toeither undertake private placements of our securities, either as aself-offering or with the assistance of registered broker-dealers, ornegotiate a private sale of our securities to one or more institutionalinvestors. However, we currently have no firm agreements with anythird-parties for such transactions 

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and no assurances can be given that we willbe successful in raising sufficient capital from any of these proposedfinancings. Further, we cannot assure you that any additional financingwill be available or, even if it is available that it will be on termsacceptable to us. Any inability to obtain required financing onsufficiently favorable terms could have a material adverse effect onour business, results of operations and financial condition. If we areunsuccessful in raising additional capital and increasing revenues fromoperations, we will need to reduce costs and operations substantially.Further, if expenditures required to achieve our plans are greater thanprojected or if revenues are less than, or are generated more slowlythan projected, we will need to raise a greater amount of funds thancurrently expected.

TAG USA entered into a consulting agreementwith an investment/strategic advisory firm on September 1, 2004. Theagreement calls for the investment advisor to assist the Company indevising financial and marketing strategies, and also to assist us inraising funds on a non-exclusive basis through the offering of debtand/or equity securities. We will pay the investment advisor the amountof $10,000 per month, plus expenses that we approve, and have issued666,667 warrants. The agreement contains confidentiality andnon-competition provisions. The term of the agreement is 12 months andcan be terminated by either party on 90 days notice in writing.

We expect to work with the investment advisory group as well asother contacts in the investment banking community in an effort toraise the required capital as mentioned above.

Off-BalanceSheet Arrangements

We have not created, and are not party to,any special-purpose or off-balance sheet entities for the purpose ofraising capital, incurring debt or operating parts of our business thatare not consolidated into our financial statements, except as describedherein. Except as described herein, we do not have any arrangements orrelationships with entities that are not consolidated into ourfinancial statements that are reasonably likely to materially affectour liquidity or the availability of our capital resources.

Wehave incurred debt to both consolidated and unconsolidated partnershipsin the aggregate amount of $1,870,896 as of December 31, 2004, which weincurred due to our borrowing of funds to meet our operating cash flowneeds.   We have also used cash of one affiliated partnership tomeet the cash flow needs of other affiliated partnerships.   Cashtransfers were made between and among us and both consolidated andunconsolidated partnerships.   The receivable and payablebalances among affiliated entities on December 31, 2004 and the amountsdue (to) or from affiliated partnerships consist are asfollows:

|                                           |  |        |            |         |  |  |
|-------------------------------------------|--|--------|------------|---------|--|--|
| DesertRock Corp./Majestic Film PartnersLP |  |   | 3,988      |    |
| Santa Trap,LLC                            |  |   | (39,169    | )  |
| Animal Partners,LP                        |  |   | (530,040   | )  |
| Family Film Partners VII,LP               |  |   | 110,232    |    |
| Cinderella,LP                             |  |   | 142,245    |    |
| Fairy Tale Partners III,LP                |  |   | (1,828,583 | )  |
| Family Film Partners, VIII,LP             |  |   | (2,920     | )  |
| Tag Studios No. 1,LP                      |  |   | 3,312,295  |    |
| Ghost Town,LP                             |  |   | (645,707   | )  |
| American Black Beauty,LP                  |  |   | (109,078   | )  |
| Red Riding Hood,LLC                       |  |   | 1,118,534  |    |
| Motocross Kids,LP                         |  |   | (1,262,045 | )  |
| Funny Money the Movie,LP                  |  |   | (89,229    | )  |
| Down Town the Movie,LP                    |  |   | 423,400    |    |
| Supercross the Movie,LP                   |  |   | (2,350,627 | )  |
| Austin Family Entertainment,LLC           |  |   | (6,725     | )  |
| Steve Austin Productions,LLC              |  |   | (117,467   | )  |
|                                      |  |   |       |    |
| Total                                     |  |   | (1,870,896 | )  |
|                                           |

45

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TAG USA, in its capacity as generalpartner and distributor of various films produced by the limitedpartnerships is allowed to charge monthly overhead and production feeswhich get recorded to and against related party transactions.We also plan on making a formal purchase offer to the variouspartnerships in return for shares of our stock, which if consummated,would eliminate any current and future outstanding balances owed to thepartnerships. We have recorded interest on amounts borrowed fromrelated entities at the prime leading rate which was 5% and4% at December 31, 2004 and 2003 respectively. 

Wehave entered into various agreements by which we may be obligated toindemnify the other party with respect to certain matters. Generally,these indemnification provisions are included in contracts arising inthe normal course of business under which we customarily agree to holdthe indemnified party harmless against losses arising from a breach ofrepresentations related to such matters as intellectual propertyrights. Payments by us under such indemnification clauses are generallyconditioned on the other party making a claim. Such claims aregenerally subject to challenge by us and to dispute resolutionprocedures specified in the particular contract. Further, ourobligations under these arrangements may be limited in terms of timeand/or amount and, in some instances, we may have recourse againstthird parties for certain payments made by us. It is not possible topredict the maximum potential amount of future payments under theseindemnification agreements due to the conditional nature of ourobligations and the unique facts of each particular agreement.Historically, we have not made any payments under these agreements thathave been material individually or in the aggregate. As of December 31,2004, we were not aware of any obligations under such indemnificationagreements that would require material payments.

Recent IssuedAccounting Pronouncements

In December 2004, the FASB issuedSFAS No.123 (revised 2004), "Share-BasedPayment" ("SFAS 123(R)"). SFAS123(R) will provide investors and other users of financial statementswith more complete and neutral financial information by requiring thatthe compensation cost relating to share-based payment transactions berecognized in financial statements. That cost will be measured based onthe fair value of the equity or liability instruments issued. SFAS123(R) covers a wide range of share-based compensation arrangementsincluding share options, restricted share plans, performance-basedawards, share appreciation rights, and employee share purchase plans.SFAS 123(R) replaces SFAS No. 123, "Accounting forStock-Based Compensation", and supersedes APB Opinion No.25, "Accounting for Stock Issued toEmployees". SFAS 123, as originally issued in 1995,established as preferable a fair-value-based method of accounting forshare-based payment transactions with employees. However, thatStatement permitted entities the option of continuing to apply theguidance in Opinion 25, as long as the footnotes to financialstatements disclosed what net income would have been had the preferablefair-value-based method been used. Public entities (other than thosefiling as small business issuers) will be required to apply SFAS 123(R)as of the first interim or annual reporting period that begins afterJune 15, 2005. The Company has evaluated the impact of the adoption ofSFAS 123(R), and believes that it could have an impact to theCompany's overall results of operations depending on the numberof stock options granted in a given year.

In December 2004, theFASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,an amendment of APB Opinion No. 29, Accounting for NonmonetaryTransactions." The amendments made by SFAS 153 are basedon the principle that exchanges of nonmonetary assets should bemeasured based on the fair value of the assets exchanged. Further, theamendments eliminate the narrow exception for nonmonetary exchanges ofsimilar productive assets and replace it with a broader exception forexchanges of nonmonetary assets that do not have commercial substance.Previously, Opinion 29 required that the accounting for an exchange ofa productive asset for a similar productive asset or an equivalentinterest in the same or similar productive asset should be based on therecorded amount of the asset relinquished. Opinion 29 provided anexception to its basic measurement principle (fair value) for exchangesof similar productive assets. That exception required that somenonmonetary exchanges, although commercially substantive, to berecorded on a carryover basis. By focusing the exception on exchangesthat lack commercial substance, the FASB believes SFAS No.153 producesfinancial reporting that more faithfully represents the economics ofthe 

46

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transactions. SFAS No.153 is effective fornonmonetary asset exchanges occurring in fiscal periods beginning afterJune 15, 2005. Earlier application is permitted for nonmonetary assetexchanges occurring in fiscal periods beginning after the date ofissuance. The provisions of SFAS No.153 shall be applied prospectively.The Company has evaluated the impact of the adoption of SFAS 153, anddoes not believe the impact will be significant to the Company'soverall results of operations or financial position.

In November2004, the FASB issued SFAS No. 151 "Inventory Costs, anamendment of ARB No.  43, Chapter 4 (" SFAS No.151". The amendments made by SFAS 151 clarify thatabnormal amounts of idle facility expense, freight, handling costs, andwasted materials (spoilage) should be recognized as current-periodcharges and require the allocation of fixed production overheads toinventory based on the normal capacity of the production facilities.The guidance is effective for inventory costs incurred during fiscalyears beginning after June 15, 2005. Earlier application is permittedfor inventory costs incurred during fiscal years beginning afterNovember 23, 2004. The Company has evaluated the impact of the adoptionof SFAS 151, and does not believe the impact will be significant to theCompany's overall results of operations or financialposition.

In May 2003, the FASB issued SFAS No. 150,"Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity," which iseffective for financial instruments entered into or modified after May31, 2003, and otherwise is effective at the beginning of the firstinterim period beginning after June 15, 2003. SFAS No. 150 establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. Theadoption of this standard did not have a material impact on theCompany's financial statements.

In April 2003, FASB issuedSFAS No. 149, "Accounting for Derivative Instruments andHedging Activities," which is effective for contractsentered into or modified after June 30, 2003 and for hedgingrelationships designated after June 30, 2003. This statement amends andclarifies financial accounting and reporting for derivative instrumentsincluding certain instruments embedded in other contracts and forhedging activities under SFAS No. 133, "Accounting forDerivative Instruments and Hedging Activities." Theadoption of this standard did not have a material impact on theCompany's financial statements.

In January 2003, the FASBissued FIN 46, "Consolidation of Variable InterestEntities." FIN 46 clarifies the application of AccountingResearch Bulletin No. 51, "Consolidated FinancialStatements," for certain entities which do not havesufficient equity at risk for the entity to finance its activitieswithout additional subordinated financial support from other parties orin which equity investors do not have the characteristics of acontrolling financial interest ("variable interestentities"). Variable interest entities will be required tobe consolidated by their primary beneficiary. The primary beneficiaryof a variable interest entity is determined to be the party thatabsorbs a majority of the entity's expected losses, receives amajority of its expected returns, or both, as a result of holdingvariable interests, which are ownership, contractual, or otherpecuniary interests in an entity. FIN 46 applies immediately tovariable interest entities created after January 31, 2003, and tovariable interest entities in which an enterprise obtains an interestafter that date. It applies in the first fiscal year or interim periodbeginning after December 15, 2003, to variable interest entities inwhich an enterprise holds a variable interest that it acquired beforeFebruary 1, 2003. FIN 46 applies to public enterprises as of thebeginning of the applicable interim or annual period. TheCompany's adoption of FIN 46 did not have any impact upon theCompany's financial condition or results of operations.

InMarch 2004, the FASB approved the consensus reached on the EmergingIssues Task Force (EITF) Issue No. 03-1, "The Meaning ofOther-Than-Temporary Impairment and Its Application to CertainInvestments." The objective of this Issue is to provideguidance for identifying impaired investments. EITF 03-1 also providesnew disclosure requirements for investments that are deemed to betemporarily impaired. In September 2004, the FASB issued a FASB StaffPosition (FSP) EITF 03-1-1 that delays the effective date of themeasurement and recognition guidance in EITF 03-1 until after furtherdeliberations by the FASB. The disclosure requirements are effectiveonly for annual periods ending after June 15, 2004. The Company hasevaluated the impact of the adoption of the disclosure requirements ofEITF 03-1 and does not believe it will have an impact to theCompany's 

47

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overall combined results of operations orcombined financial position. Once the FASB reaches a final decision onthe measurement and recognition provisions, the Company will evaluatethe impact of the adoption of EITF 03-1.

Item 7.    FinancialStatements.

Our audited financial statements for the fiscalyears ended December 31, 2004 and December 31, 2003 follow Item 14 ofthis Annual Report on Form 10-KSB, beginning at page F-1.

Item8.    Changes In and Disagreements With Accountants on Accounting andFinancial Disclosure.

Engagement of Grobstein Horwath &Co., LLP

 (i)   On January 17, 2005, wedismissed Pritchett, Siler & Hardy, P.C. as our independent publicaccountants. The reports of Pritchett, Siler & Hardy on ourfinancial statements for each of the past two fiscal years, the fiscalyears ended December 31, 2003 and 2002, contained no adverse opinion ordisclaimer of opinion and were not qualified or modified as touncertainty, audit scope or accounting principles, except that thereports of Pritchett, Siler & Hardy on our financial statements foreach of the fiscal years ended December 31, 2003 and 2002 contained anexplanatory paragraph as to our ability to continue as a going concern.The decision to dismiss Pritchett, Siler & Hardy was made andapproved by Steve Austin, sole director of the Company on January 17,2005.

 (ii)   During our two most recent fiscalyears and through the date of our Report on Form 8-K announcing thedismissal of Pritchett, Siler & Hardy, we had no disagreements withPritchett, Siler & Hardy on any matter of accounting principles orpractices, financial statement disclosure, or auditing scope orprocedure, which disagreements if not resolved to the satisfaction ofPritchett, Siler & Hardy would have caused it to make reference tothe subject matter of the disagreement in its report on our financialstatements for such years. During our two most recent fiscal years andthrough the date of our Report on Form 8-K, we had no reportable eventsas defined in Item  304(a) (1)(iv) of Regulation  S-B.Pritchett, Siler & Hardy provided us with a letter addressed to theCommission stating its agreement with the above statements.

 (iii)   Effective January 17, 2005, we engagedGrobstein, Horwath & Company LLP as our new independent publicaccountants to audit our financial statements for the fiscal year endedDecember 31, 2004. Grobstein was engaged by TAG USA with respect to itsconsolidated financial statements for the fiscal year ended December31, 2003. TAG USA was a private company that we acquired in a mergerconsummated on November 22, 2004, and is deemed to be the accountingacquirer for financial statement reporting purposes. Prior to theengagement of Grobstein, we had not consulted with Grobstein during ourtwo most recent fiscal years and through the date of this report in anymatter regarding: (A)  either the application of accountingprinciples to a specified transaction, either completed or proposed, orthe type of audit opinion that might be rendered on our financialstatements, and neither was a written report provided to us nor wasoral advice provided that Grobstein concluded was an important factorthat we considered in reaching a decision as to the accounting,auditing or financial reporting issue, or (B) the subject of either adisagreement or a reportable event defined in Item 304(a)(1)(iv) ofRegulation  S-B.

Resignation of Grobstein, Horwath& Co., LLP

(i) We filed a Form 8-K with the Securitiesand Exchange Commission on February 16, 2005 disclosing that onFebruary 9, 2005, we received a letter from our independent publicaccountants, Grobstein, Horwath & Company, LLP advising us thatthey resigned, effective immediately, as our independent accountantsand auditors and that it would not provide audit services to us inconnection with the audit of our 2004 fiscal year.

(ii)Grobstein did not report on our consolidated financial statements forany fiscal year. We initially engaged Grobstein on January 17, 2005.However, on March 20, 2003, TAG USA retained Grobstein to performspecific accounting and tax services. The nature and scope of theservices 

48

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included: (1) review and analysis of thecondition of their existing accounting records and financial dataincluding previously filed tax returns, financial records, and legalagreements, (2) assistance in summarizing and recording transactions aswell as review its policies and procedures for recording transactionsand producing financial statements; and (3) assisting their managementin producing a complete set of accounting books and records which willreflect its history from inception. Further, on June 21, 2004, TAG USAexpanded the nature and scope of the services that Grobstein providedto include audit services.

(iii) Grobstein's resignationwas an independent decision and our Board neither recommended norapproved such event.

(iv)(A) During the period ofGrobstein's engagement, there were no disagreements withGrobstein on any matter of accounting principle or practices, financialstatement disclosure, or auditing scope or procedure which, if notresolved to Grobstein's satisfaction, would have caused them tomake reference to the subject matter in connection with their report onour consolidated financial statements.

(iv)(B) As discussedbelow, in a letter dated January 28, 2005, Grobstein advised us thatthe scope of the audit that it had been conducting during the period ofits engagement would need to be expanded significantly in order todetermine if Grobstein would be able to render an opinion on theconsolidated financial statements of TAG USA for the periods throughDecember 31, 2003. Grobstein's January 28, 2005 letter was sentafter its receipt of certain documents (including minutes of a meetingof TAG USA's board from September 26, 2001) that were deliveredto Grobstein on or about January 20, 2005 by a consultant to us thatwas retained to provide financial and accounting services equivalent tothe services customarily provided by a company's chief financialofficer. The minutes described the allegations set forth in paragraph(iv)(C) below. The Board's consideration of these allegations andthe subsequent temporary resignation of TAG USA's Chief ExecutiveOfficer were not previously communicated to Grobstein by management orthe consultant, contrary to representations that all minutes had beenproduced. In its letter dated February 9, 2005 to us, Grobstein statedthat it reached the conclusion that it was unwilling to rely onmanagement's representations.

(iv)(C) The subject matterof Grobstein's statements identified in Paragraph (iv)(B) aboveare described herein. As stated above, under cover of a letter datedJanuary 28, 2005, Grobstein advised us that on January 20, 2005, itreceived copies of minutes of a meeting of the Board of Directors ofTAG USA dated September 26, 2001, after having been previously advisedthat all minutes were previously produced. Grobstein expressed itsconcern that the minutes were not previously disclosed in light of thesubject matter of such minutes. The minutes from September 26, 2001discussed allegations concerning TAG USA's lack of corporateformalities between the corporation and certain affiliated limitedpartnerships; inadequate financial controls; irregularities by itsChief Executive Officer in the disposition of corporate and partnershipassets and financial resources by making undocumented expensereimbursements; failure of the Chief Executive Officer to properlydisclose insider and related party transactions and other matters; andthe disregard of directions of the Board concerning its operations.These events led to the temporary resignation of TAG USA's ChiefExecutive Officer from the Board of Directors and such office.Subsequently, the Board approved an action plan by the Chief ExecutiveOfficer that resulted in the reinstatement of the Chief ExecutiveOfficer. The original members of the Board resigned after the approvalof the action plan. Subsequently, TAG USA engaged additional accountingprofessionals, including Grobstein and other firms, to remediate theinadequate financial controls and documentation. In addition, upon theadvice of Grobstein, the Chief Executive Officer agreed to takeresponsibility for and treat the undocumented expense reimbursements asloans made to him by the company and/or its affiliated limitedpartnerships and to repay those amounts by surrendering shares ofcommon stock of TAG that he owned to those entities.

Grobsteinalso expressed concern that the failure to document expenditures andthe transfer of funds between the corporation and its affiliatedlimited partnerships continued during the 2003 audit period. It statedthat such events has caused it to believe that it needed to expand thescope of its 

49

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audit and perform additional procedures todetermine if it is able to render an opinion on the consolidatedfinancial statements of TAG USA for periods through December 31, 2003,and to continue its engagement with us. Grobstein stated that this latedisclosure of the minutes from September 2001 also raised the questionof whether it can rely on the representations of our management.Grobstein concluded its January 28, 2005 letter by identifying a seriesof actions it requested that we take in order for Grobstein to continuewith its audit procedures and to issue a report on our financialstatements.

Upon our receipt of Grobstein's January 28,2005 letter, we advised Grobstein that we believed that our financialconsultant had supplied Grobstein with all necessary documents andinformation, delivered a detailed written response dated February 1,2005 to Grobstein in response to the issues raised in Grobstein'sJanuary 28, 2005 letter and held a meeting on February 3, 2005 todiscuss the matters raised therein in order to reach an agreement on anaction plan. On February 4, 2005, we provided Grobstein with a detailedaction plan in response to the meeting and provided supplementalinformation on February 7, 2005. Notwithstanding our discussion andcorrespondence subsequent to January 28, 2005, in a letter datedFebruary 9, 2005, Grobstein advised us of its decision to resign as ouraccountants and auditors. Grobstein based its decision to resign on itsbelief that it was unable to rely on management's representationsdue to the matters discussed above.

We have established, andwill continue to establish, new policies and procedures designed toimprove the reliability and reporting of operational and financialinformation. In recent months, prior to the January 28, 2005 letterfrom Grobstein, we had hired additional accounting staff and workeddiligently with its counsel to improve its internal financial controlsand adherence to corporate formalities. We are committed to improvingits internal controls, and is reevaluating systems and personnel with aview toward implementation of all appropriate corrective action.

(iv)(D) Upon our receipt of Grobstein's January 28, 2005letter, we arranged a meeting between Grobstein and our Chief ExecutiveOfficer/Chairman of the Board (and sole director) to discuss thematters raised therein. Our sole director did not meet with Grobsteinto discuss the matters raised in its February 9, 2005 letter.

(iv)(E) We have authorized Grobstein to respond fully to theinquiries of the TAG's successor accountant.

On February24, 2005 we filed an Amendment to Current Report on Form 8-K ofFebruary 16, 2005 to include the letter we requested from Grobstein inaccordance with Item 304(a)(3) of Regulation S-B and to respond tocertain of the statements made by Grobstein in their letter.

Engagement of AJ. Robbins PC

(i) Effective February24, 2005, we engaged AJ. Robbins, PC("AJRPC") as our new independent publicaccountants to audit our financial statements for the fiscal yearending December 31, 2004.

(ii) Prior to the engagement of AJRPC,we had not consulted with AJRPC during our two most recent fiscal yearsand through the date of this report in any matter regarding: (A) eitherthe application of accounting principles to a specified transaction,either completed or proposed, or the type of audit opinion that mightbe rendered on our financial statements, and neither was a writtenreport provided to us nor was oral advice provided that AJRPC concludedwas an important factor considered by us in reaching a decision as tothe accounting, auditing or financial reporting issue, or (B) thesubject of either a disagreement or a reportable event defined in Item304(a)(1)(iv) of Regulation S-B.

Although we did not consultwith AJRPC on the reportable events and/or disagreements described inthe Report on Form 8-K disclosing the resignation of Grobstein, inconnection with our potential engagement of AJRPC, we did discuss thenature of those matters with them.

Item 8A.    Controls andProcedures.

Disclosure Controls

As of the endof the period covered by this report, we carried out an evaluation,under the supervision and with the participation of our management,including our Chief Executive Officer and 

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Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures as defined inExchange Act Rule 13a-15(e).   Based upon that evaluation, ourChief Executive Officer and Chief Financial Officer have concluded thatour current disclosure controls and procedures are effective as ofDecember 31, 2004. 

Internal Controls

Inconnection with the merger of Power Marketing and TAG USA in November2004, our management has adopted and implemented numerous measures inconnection with our ongoing efforts to improve our control processesand corporate governance. These changes are required to effect thetransition of our company from a privately-held corporation to a publiccompany that files period reports under the Securities Exchange Act of1934, as amended. As a private company, TAG USA was not required toadopt the types of internal control procedures that a public companymust adopt and maintain. Accordingly, since the merger, we have takennumerous steps to enhance existing policies, or implement new ones, soas to have an effective system of internal controls over financialreporting. These measures included the following:

|              |                                                                                                                                                                                                                                                                                                                              |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We have determined to increase themembership of our board of directors to provide that a majority of ourdirectors are independent directors, as such term is defined in theMarketplace Rules of the Nasdaq Stock Market, and to ensure that atleast one of such persons will qualify as an "AuditCommittee FinancialExpert." |

|              |                                                                                                     |
|--------------|-----------------------------------------------------------------------------------------------------|
| •  | We havedetermined to hire an individual to serve as our Chief FinancialOfficer on a full-timebasis. |

|              |                                                                                                                                                                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We have formalized aCode of Ethics and Business Conduct. Our Code of Ethics is designed topromote ethical conduct and full, fair and accurate disclosure in ourperiodic reports. We have re-emphasized to our finance and accountingpersonnel the importance of theserequirements. |

|              |                                                                                                                                                                                                                                                                                           |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We have recruitednew personnel to our finance organization who have expertise infinancial controls and reporting, including a corporate controller, andmade other changes in finance personnel to improve the overall qualityand level of experience of our finance organizationglobally. |

|              |                                                                                                        |
|--------------|--------------------------------------------------------------------------------------------------------|
| •  | We have reorganizedour finance and general and administrative functions to improvefinancial oversight. |

|              |                                                                                                                                                                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We havemade changes in our organizational structure to provide a clearersegregation of responsibilities in connection with accountreconciliations, manual journal entries, and the preparation and reviewof documentation to support our quarterly and annual financialstatements. |

|              |                                                                                                                                                                                                                                                                     |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We have adopted andimplemented standard financial policies and procedures on acomprehensive basis. These policies provide finance and accountingguidance and include process documentation designed to ensureconsistent application of our policies and procedures. |

Wecontinue to implement additional measures in response to specificaccounting and reporting weaknesses, including personnel andorganizational changes to improve supervision and increased trainingfor finance and accounting personnel. We will continue to develop newpolicies and procedures and educate and train our employees on ourexisting policies and procedures in our effort to constantly improveour internal controls and control environment.

Except for theimprovements described above, there have been no other changes in ourinternal control over financial reporting during the quarter endedDecember  31, 2004 that have materially affected, or arereasonably likely to materially affect, our internal control overfinancial reporting.

We do not expect that our disclosurecontrols or internal controls over financial reporting will prevent allerrors or all instances of fraud. A control system, no matter how welldesigned and operated, can provide only reasonable, not absolute,assurance that the control system's objectives will be met.Further, the design of a control system must reflect the fact thatthere are resource 

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constraints, and the benefits of controlsmust be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances offraud, if any, within our company have been detected. These inherentlimitations include the realities that judgments in decision-making canbe faulty, and that breakdowns can occur because of simple error ormistake. Controls can also be circumvented by the individual acts ofsome persons, by collusion of two or more people, or by managementoverride of the controls. The design of any system of controls is basedin part upon certain assumptions about the likelihood of future events,and any design may not succeed in achieving its stated goals under allpotential future conditions. Over time, controls may become inadequatebecause of changes in conditions or deterioration in the degree ofcompliance with policies or procedures. Because of the inherentlimitation of a cost-effective control system, misstatements due toerror or fraud may occur and not be detected.

Item8B.    Other Information.

None.

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PART III

|               |                                                                                                                |
|---------------|----------------------------------------------------------------------------------------------------------------|
| Item 9.  | Directors, Executive Officers,Promoters and Control Persons; Compliance With Section 16(a) of theExchange Act. |

The following table summarizes the name, age,title and business experience for the past five years of each of ourcurrent directors and executive officers. Directors are electedannually by our stockholders and hold office until their successors areelected and qualified, or until their earlier resignation or removal.Our Board of Directors currently consists of one member, Steve Austin.Officers are elected by and serve at the discretion of the Board ofDirectors. They hold office until their successors are chosen andqualified, or until they resign or have been removed from office:

Our sole officer and director is asfollows:

|             |  |        |    |                        |  |                                                              |  |  |  |  |
|-------------|--|--------|----|------------------------|--|--------------------------------------------------------------|--|--|--|--|
| Name        |  | Age    |    | ExecutivePosition Held |
| SteveAustin |  |   | 47 |                   |  | Chairman, ChiefExecutive Officer and Chief Financial Officer |
|             |

Mr.Austin's principal occupation and business experience for atleast the past five years is as follows:

Steve Austin hasbeen our Chairman, Chief Executive Officer and Chief Financial Officersince our inception. Mr. Austin has over 25 years of experience in theentertainment industry. Mr. Austin has an extensive and distinguishedcareer in all aspects of the film and television industry includingexperience as an actor, personal manager, director, producer andcompany executive. He starred in the best-selling video series"Daddy and Me" distributed by ArtisanEntertainment. He managed his daughter Alana Austin's career forover ten years and negotiated deals for her that included staring rolesin: A Simple Twist of Fate for Disney starring Steve Martin,North for Castle Rock directed by Rob Reiner, a recurring rolein the television series Ink with Tony Danza and SisterSister for Warner Bros. Mr. Austin directed the feature filmRoute 66, and has produced and independently financed thefollowing films: Dumb Luck, No Place Like Home, Castle Rock,The Retrievers, The Santa Trap and Red RidingHood. Mr. Austin founded TAG Entertainment, Inc. in 1999 as acompany focused on developing, creating, distributing and marketingfamily entertainment.

Significant Consultant

RaymondJ. Skiptunis

Raymond J. Skiptunis, 62, is expected to join TAGon a full-time basis as its Chief Operating Officer and Interim ChiefFinancial Officer during the fiscal quarter ended June 30, 2005.Mr.  Skiptunis is currently providing management services to TAGon a consulting basis. Mr. Skiptunis has extensive experience as asenior executive and board member for both private and publiccompanies. From 2002 to 2004, Mr. Skiptunis served as a consultant andthe interim Chief Financial Officer and Chief Executive Office of PowerEfficiency Corporation. Prior to that, Mr. Skiptunis worked at SRCapital Partners, a business consulting firm, from 1996 to 2002. Mr.Skiptunis also served as the Chief Executive Officer and Vice Chairmanof TeamStaff, Inc. from 1990 to 1996 a publicly held professionalemployer organization; the Chief Executive Officer of Venray ManagementCorp. from 1983 to 1990 a venture capital and financial consultingfirm; the Chief Financial Officer, Vice President and Board member ofBiosearch Medical Products, Inc. from 1978 to 1983; and was engaged inprivate practice as an accountant.

Meetings of Directors;Committees of the Board; Audit Committee Financial Expert

Mr.Steve Austin is currently the only member of our Board of Directors.Actions of the Board are taken from time to time and documented asappropriate. Due to the fact we currently have one Board member, wehave not formally constituted any Board committees, including an auditcommittee. Mr. Austin does not qualify as a "financialexpert" as defined in Item 401 under 

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Regulation S-B of the Securities Act of1933.   In connection with our transition to being a reportingcompany we are actively seeking to expand our Board membership toinclude a majority of independent directors, including at least oneperson that satisfies the definition of "financialexpert."

Compliance with Section 16(a) of theSecurities Exchange Act

 As we are registered underSection 15(d) of the Exchange Act, we are not subject to the reportingobligations of Section 16(a).

Code of Ethics

 Weadopted a new Code of Ethics for our employees and management,including our Chief Financial Officer and Chief Executive Officer as ofApril 4, 2005. Our Code of Ethics is filed as Exhibit 14 to this Reporton Form 10-KSB.

Item 10.    Executive Compensation.

Summary of Cash and Certain Other Compensation

Thefollowing table provides certain information concerning all Plan andNon-Plan (as defined in Item 402 (a)(ii) of Regulation S-B)compensation awarded to, earned by, paid or accrued by us during theyears ended December 31, 2004, 2003 and 2002 to each of our namedexecutive officers.

|                                                                           |  |            |      |         |  |        |         |                          |  |                             |   |                                          |  |        |   |           |  |        |   |        |  |        |           |           |  |  |
|---------------------------------------------------------------------------|--|------------|------|---------|--|--------|---------|--------------------------|--|-----------------------------|---|------------------------------------------|--|--------|---|-----------|--|--------|---|--------|--|--------|-----------|-----------|--|--|
|                                                                      |  |       |      |    |  |   |         |                     |  | LongTermCompensation Awards |
| Name andPrincipal Position                                                |  | FiscalYear |      | Salary  |  | Bonus  |         | Other AnnualCompensation |  | Restricted Stock Award(s)   |   | No.of Securities Underlying Options/SARs |
| SteveAustin,Chief Executive Officer and Chairman of the Board ofDirectors |  |       | 2004 | *  |  | $      | 500,000 |                     |  | $                           | 0 |                                     |  |   | 0 | (1)  |  |   | 0 |   |  |   | 1,665,176 | (2)  |
|                                                                           |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Mr. Austin also received a total of $95,000 as a fee forservices rendered to an unconsolidated limited partnership during thefiscal year ended December 31, 2004. |

|     |                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Original grant of 1,500,000 options were exchanged for1,665,176 options in connection with our acquisition of TAG USA inaccordance with the exchange ratio agreed to in the acquisitionagreement. |

|   |                                                                                                                                                                             |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * | TAG USA was acquired by PowerMarketing on November 22, 2004. Accordingly, the only period duringwhich Mr. Austin was employed by us is for the year ended December 31,2004. |

OPTION/SAR GRANTS IN LAST FISCAL YEAR

Thefollowing table contains information with respect to the namedexecutive officers concerning options granted during the year endedDecember 31, 2004. No Stock Appreciation Rights were granted to any ofthe named executive officers during the last fiscal year.

|              |  |                                                      |           |                                                                        |  |                               |    |                    |  |   |      |        |  |        |        |        |  |  |
|--------------|--|------------------------------------------------------|-----------|------------------------------------------------------------------------|--|-------------------------------|----|--------------------|--|---|------|--------|--|--------|--------|--------|--|--|
| Name(a)      |  | NumberofSecuritiesUnderlyingOption/SARsGranted(#)(b) |           | Percent ofTotal Option/SARs GrantedTo Employees In Fiscal Year (c) (1) |  | ExerciseofBase Price(S/Sh)(d) |    | Expiration Date(c) |
| Steve Austin |  |                                                 | 1,665,176 | (1)                                                               |  |                          | 74 | %             |  | $ | 2.00 |   |  |   | 9/1/11 |   |
|              |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Original grant of 1,500,000 options were exchanged for1,665,176 options in connection with our acquisition of TAG USA inaccordance with the exchange ratio agreed to in the acquisitionagreement. |

54

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AGGREGATED OPTION/SAR EXERCISES IN LASTFISCAL YEAR AND FY-END OPTION/SAR VALUES

The followingtable sets forth information related to the stock options held by Mr.Austin and information related to the fiscal year-end value ofunexercised stock options held by our named executive officers. We have not issued any stock appreciationrights.

|             |  |                            |  |                |  |                                                                               |  |                                                                                             |  |  |  |  |  |  |  |  |  |  |
|-------------|--|----------------------------|--|----------------|--|-------------------------------------------------------------------------------|--|---------------------------------------------------------------------------------------------|--|--|--|--|--|--|--|--|--|--|
| Name        |  | SharesAcquired on Exercise |  | Value Realized |  | Number ofUnexercised Options as of December 31, 2004Exercisable/Unexercisable |  | Value of Unexercised In-the-Money Options at December 31, 2004 (2)Exercisable/Unexercisable |
| SteveAustin |  | 0                          |  | N/A            |  | 1,665,176/0(1)                                                                |  | $3,330,352/0                                                                                |
|             |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Original grant of 1,500,000 options were exchanged for1,665,176 options in connection with our acquisition of TAG USA inaccordance with the exchange ratio agreed to in the acquisitionagreement. |

|     |                                                                                                                                                                         |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Based upon the closing price($4.00 per share) of our common stock on December 31, 2004 less theexercise price for the aggregate number of shares subject to theoptions. |

Compensation of Directors

We do not payMr. Austin any additional compensation for his service on our Board ofDirectors. In connection with our decision to expand our Board toinclude independent directors, we intend to compensate such persons fortheir service on our board and reimburse them for related expenses.Further, we also intend to adopt an option plan which will provide forthe non-discretionary grant of stock options to independent members ofour Board of Directors. It is expected that the plan will provide foran initial grant of 25,000 options to such persons upon joining ourBoard and for annual grants of up to 10,000 options for each year ofservice on our Board.

Employment, Severance and Change ofControl Agreements

We currently do not have employment or otheragreements with Steve Austin, who is our sole full-time employee. Mr.Austin is currently negotiating the terms of an employment agreementwith us, pursuant to which he would be entitled to a base salary of$300,000.00 per year with annual increases made on the anniversarydate, plus performance bonuses equal to 50% of all producer feesreceived by us. No assurances can be given the we will be able to agreeon all of the terms of an employment agreement with Mr. Austin and thecompletion of this arrangement is subject to further negotiations ofthe terms and conditions of employment.

Incentive Stock OptionPlan

In November 2004, we adopted the 2004 Employee StockOption Plan, which provides for the grant of options to purchase up to3,000,000 shares of our common stock by our employees, registeredrepresentatives and consultants. Under the terms of the Incentive Plan,options granted thereunder may be designated as options which qualifyfor incentive stock option treatment under Section 422 of the InternalRevenue Code, or options which do not so qualify.

The Plan isadministered by our Board of Directors which has the discretion todetermine the eligible employees to whom, and the times and the priceat which, options will be granted; whether such options shall beIncentive Stock Options or Non-Incentive Stock Options; the periodsduring which each option will be exercisable; and the number of sharessubject to each option. The Board has full authority to interpret theIncentive Plan and to establish and amend rules and regulationsrelating thereto.

Under the Incentive Plan, the exercise priceof an option designated as an Incentive Stock Option shall not be lessthan the fair market value of the common stock on the date the optionis granted. However, in the event an option designated as an IncentiveStock Option is granted to a ten percent 

55

----

stockholder such exercise price shall be atleast 110% of such fair market value. Exercise prices ofNon-Incentive Stock Options may be less than such fair market value.The aggregate fair market value of shares subject to options granted toa participant which are designated as Incentive Stock Options whichbecome exercisable in any calendar year may not exceed $100,000. Unlesssooner terminated, the 2004 Plan will expire in 2014.

Effectiveas of the date of this Annual Report, since the adoption of the 2004Plan, we have issued 2,259,088 options which have not been exercised orcancelled.

Item 11.    Security Ownership

Thefollowing table sets forth the beneficial ownership of our Common Stockas of March 31, 2005, by (i)  each director and each executiveofficer, (ii)  and all directors and executive officers as agroup, and (iii) persons (including any"group" as that term is used in Section13(d)(3) of the Securities Exchange Act of l934), known by us to be thebeneficial owner of more than five percent of its common stock. Sharesof Common Stock subject to options exercisable within 60  daysfrom the date of this table are deemed to be outstanding andbeneficially owned for purposes of computing the percentage ownershipof such person but are not treated as outstanding for purposes ofcomputing the percentage ownership of others. Unless otherwise stated,the address of each person in the table is 9916 South Santa MonicaBoulevard, 1st Floor, Beverly Hills, CA 90212.

|              |  |                                                              |  |                                        |            |                       |  |        |        |         |  |  |  |  |
|--------------|--|--------------------------------------------------------------|--|----------------------------------------|------------|-----------------------|--|--------|--------|---------|--|--|--|--|
| Typeof Class |  | Name and AddressofBeneficial Holder                          |  | Amount and NatureofBeneficialOwnership |            | Percentageof Class(#) |
| Common       |  | SteveAustin                                                  |  |                                   | 13,885,111 | (1)              |  |   | 61     | %  |
|         |  |                                                         |  |                                   |       |                  |  |   |   |    |
| Common       |  | Alldirectors and executive officers as a group (1 person)(1) |  |                                   | 13,885,111 | (1)              |  |   | 61     | %  |
|              |

|  |
|--|
|  |  |
|  |

|   |                                                                                        |
|---|----------------------------------------------------------------------------------------|
| # | Percentages are based on 21,081,800 shares issued andoutstanding as of March 31, 2005. |

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1. | Aftergiving effect to the surrender of 777,507 shares of our common stock byMr. Austin to us in connection with a transaction to cancel certainindebtedness. Includes vested options to purchase 1,665,176 shares ofcommon stock, which were issued in exchange for cancellation of1,500,000 options in connection with our acquisition of TAG USA inaccordance with the exchange ratio agreed to in the acquisitionagreement. |

Equity Compensation Plan Information

The following table provides information about our common stock thatmay be issued upon the exercise of options and rights under all of ourexisting equity compensation plans as of December 31, 2004, whichconsists of our 2004 Plan.

|                                                      |  |                                                                                     |  |                                                           |  |                                                                                                                                          |  |  |  |  |  |  |  |  |
|------------------------------------------------------|--|-------------------------------------------------------------------------------------|--|-----------------------------------------------------------|--|------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|--|--|--|--|
| PlanCategory                                         |  | Number of Securities to beIssued upon Exercise of Outstanding Options andRights (a) |  | Weighted Average Exercise Price ofOutstanding Options (b) |  | Number of SecuritiesRemaining Available for Future Issuance Under EquityCompensation Plans Excluding Securities Reflected inColumn(a)(c) |
| EquityCompensation Plans Approved byStockholders     |  | 2,259,088                                                                           |  | $2.00                                                     |  | 740,912                                                                                                                                  |
| EquityCompensation Plans Not Approved byStockholders |  | N/A                                                                                 |  | N/A                                                       |  | N/A                                                                                                                                      |
| Total                                                |  | 2,259,088                                                                           |  | $2.00                                                     |  | 740,912                                                                                                                                  |
|                                                      |

56

----

Item12.    Certain Relationships and Related Transactions.

Forinformation concerning employment agreements with, and compensation of,our executive officers and directors, see the disclosure in the sectionof this Annual Report on Form 10-KSB captioned "ExecutiveCompensation."

In connection with the mergertransaction between TAG USA and Power Marketing, debt owed by Mr.Austin in the amount of approximately $3.1 million (including accruedinterest to the date of repayment) to TAG USA was repaid by Mr. Austinthrough the surrender of 777,507 shares of our common stock back to us.This debt was incurred prior to the acquisition while TAG USA wasprivately held. We intend to retire a portion of the shares and todistribute some of the shares to other entities affiliated with Mr.Austin which are owed money by TAG USA.

In addition and not inlieu of Mr. Austin's salary from us, he is entitled to receivecompensation in the form of fees resulting from both his production ofmotion pictures and other entertainment products created for us andalso fees arising by reason of Mr. Austin (or entities controlled andwholly owned by Mr. Austin, such as Austin Family Entertainment, Inc.("AFE") or Steve Austin Productions, Inc.("SAP") serving as the general partner ofentities which have an interest in motion pictures previously producedby or in association with us). Production fees will vary from pictureto picture, but shall not exceed 10% of the production budget ofany film. Mr. Austin will entitled to a share (to be determined on apicture by picture basis) of such fees, along with others acting in asimilar capacity.

Steve Austin, SAP and AFE collectively haveassigned to TAG USA their right to receive from certain limitedpartnerships payments due to them for the period commencing January 1,2001 and terminating December 31, 2004. Either SAP or AFE serves as thegeneral partner of the relevant limited partnership. The paymentsassigned by Mr. Austin and his affiliated entities consist of producerfees, overhead and staffing reimbursement and salary payments. Thepayments were due from the limited partnerships in connection with thedevelopment of feature films by SAP and AFE on behalf of the limitedpartnerships.

We are authorized to and expect that we will enterinto production service agreements with Mr. Austin, AFE or SAP on a"loan-out" basis in connection with themotion pictures that we produce. Similar agreements may be entered intowith other producers who may or may not be employed by us. Managementfees are as set in the financings of the various motion picturespreviously produced by us. We intend that similar arrangements willobtain in regard to all further pictures we produce.

SteveAustin has agreed to guarantee an obligation of ours to a third partyconsultant retained by TAG USA in October 2004, in which TAG USA agreedto guarantee a payment of $1 million on the sale of shares of commonstock issuable upon exercise of a warrant by this consultant. We issueda warrant to this consultant to purchase 200,000 shares of commonstock, exercisable at $.05 per share. Mr. Austin will be personallyliable to us in the event we are required to make a payment to thisconsultant.

During the 2004 fiscal year, Steve Austin, throughan entity named TAG Studios, Inc., received fees of $95,000 inconnection with providing managerial services to the limitedpartnership Supercross the Movie, L.P. in connection with theproduction of the motion picture"Supercross".

In October 2003,TAG USA and Steve Austin commenced a private placement offering of upto $5 million through the sale of shares of common stock of TAG USA ata price of $2 per share. The shares offered were owned equally by bothTAG USA and Mr. Austin and TAG USA and Mr. Austin each received50% of the proceeds.

Mr. Raymond Skiptunis presentlyprovides services to us pursuant to a consulting agreement pursuant towhich he is paid a monthly consulting fee of $20,000, was issuedwarrants to purchase 200,000 shares of our common stock exercisable at$0.20 per share and was issued options to purchase 200,000 shares ofcommon stock exercisable at $2.00 per share, of which 100,000 werevested on the date of grant and 100,000 will vest six months from thedate of grant. In addition, Mr. Skiptunis received an aggregate of300,000 shares of our common stock in connection with our merger withTAG USA.

57

----

Item 13.    Exhibits and Reports onForm 8-K

(a)    Exhibits.

The exhibits designatedwith an asterisk (*) are filed herewith. All other exhibits have beenpreviously filed with the Commission and, pursuant to 17 C.F.R.§230.411, are incorporated by reference to the document referencedin brackets following the descriptions of such exhibits.

|               |        |                        |  |                                                                                                                                                                                                                               |  |  |
|---------------|--------|------------------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|
| ExhibitNumber |        | Description ofDocument |
|          | 2.1    |                   |  | Agreementand Plan of Reorganization among Power Marketing, Inc., PMKT SubsidiaryCorp. and TAG Entertainment, Inc., dated October 14, 2004 (Previouslyfiled as Exhibit 2 to Current Report on Form 8-K dated October 18,2004). |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 2.2    |                   |  | AmendmentNo. 1 To Agreement and Plan of Reorganization dated October 29, 2004(Previously filed as Exhibit 10.1 to Current Report on Form 8-K datedNovember 29,2004).                                                          |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 3.1    |                   |  | Articlesof Incorporation (Previously filed as Exhibit 3.1 to RegistrationStatement on Form  SB-2, dated February 4,2000).                                                                                                     |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 3.2    |                   |  | Amendmentto Certificate of Incorporation (Previously filed as Exhibit 3.1 toCurrent Report on Form 8-K dated November 29,2004).                                                                                               |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 3.3    |                   |  | By-laws(Previously filed as Exhibit 3.2 to Registration Statement on FormSB-2, dated February 4,2000).                                                                                                                        |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 4.1    |                   |  | Formof Common Stock Certificate (Previously filed as Exhibit 4.1 toRegistration Statement on Form SB-2, dated February 4,2000).                                                                                               |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 4.2    |                   |  | Formof Secured Note Issued by TAG Entertainment Corp., dated March 30, 2005(Previously filed as exhibit 4.1 to Current Report on Form 8-K filedApril 4,2005).                                                                 |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 4.3    |                   |  | Formof Warrant Issued by TAG Entertainment Corp., dated March 30, 2005(Previously filed as exhibit 4.2 to Current Report on Form 8-K filedApril 4,2005).                                                                      |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 10.1   |                   |  | Formof Securities Purchase Agreement between TAG Entertainment Corp., andInvestors, dated March 30, 20051(Previously filed as exhibit 10.1 toCurrent Report on Form 8-K filed April 4,2005)                                   |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 10.2   |                   |  | Formof Security Agreement between TAG Entertainment Corp., TAGEntertainment USA, Inc. and Investors, dated March 30, 2005 (Previouslyfiled as exhibit 10.2 to Current Report on Form 8-K filed April 4,2005).                 |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 10.3   |                   |  | SubsidiaryGuarantee by TAG Entertainment USA, Inc., dated March 30, 2005(Previously filed as exhibit 10.3 to Current Report on Form 8-K filedApril 4,2005).                                                                   |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 10.4   |                   |  | Formof Registration Rights Agreement between TAG Entertainment Corp. andInvestors, dated March 30, 2005 (Previously filed as exhibit 10.4 toCurrent Report on Form 8-K filed April 4,2005)                                    |
|          |   |                   |  |                                                                                                                                                                                                                          |
|          | 10.5   |                   |  | Formof Secured $250,000 Note Issued by Myriad Pictures, Inc., dated March30, 2005 (Previously filed as exhibit 10.1 to Current Report on Form8-K filed April 5, 2005)                                                         |
|               |

58

----

|               |        |                        |  |                                                                                                                                                                                               |  |  |
|---------------|--------|------------------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|
| ExhibitNumber |        | Description ofDocument |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.6   | *                 |  | LeaseAgreement between SM Holding LLC and TAG Entertainment for 9916 S.Santa Monica Boulevard, BeverlyHills.                                                                                  |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.7   | *                 |  | LeaseAgreement between Schofield Family Trust and TAG Entertainment Inc.,(n/k/a TAG Entertainment USA, Inc.) for 9615 Canoga Avenue, Chatsworth,LosAngeles                                    |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.8   | *                 |  | ConsultingAgreement between TAG Entertainment, Inc. and Raymond J. Skiptunis, asamended, dated August 16,2004.                                                                                |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.9   | *                 |  | AssignmentAgreement dated March 25, 2005, among Steve Austin, Steve AustinProductions, Inc., Austin Family Entertainment, Inc. and TAGEntertainment,Inc.                                      |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.10  | *                 |  | GuarantyAgreement between Steve Austin and TAG Entertainment Corp., datedMarch  23,2005.                                                                                                      |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.11  | *                 |  | Formof Worldwide Distribution Agreement (Motion Picture and Television)between TAG Entertainment, Inc. and certain limitedpartnerships.                                                       |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.12  | *                 |  | Formof Worldwide Distribution Agreement (Home Entertainment) between TAGEntertainment, Inc. and certain limitedpartnerships.                                                                  |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.13  | *                 |  | AdvisoryAgreement between TAG Entertainment, Inc. and Valeo Partners, LLC,dated as of September 1,2004.                                                                                       |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.14  | *                 |  | 2004Employee Stock OptionPlan.                                                                                                                                                                |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 10.15  | *                 |  | Formof Stock Option Award Pursuant to 2004 Employee Stock OptionPlan.                                                                                                                         |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 14.1   | *                 |  | CodeofEthics                                                                                                                                                                                  |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 16.1   |                   |  | Letterfrom Pritchett, Siler & Hardy to TAG Entertainment Corp (formerlyPower Marketing, Inc.) (Previously filed as exhibit 16.1 to CurrentReport on Form 8-K filed January 21,2005)       |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 16.2   |                   |  | Letterfrom Pritchett, Siler & Hardy to TAG Entertainment Corp (formerlyPower Marketing, Inc.) (Previously filed as exhibit 16.1 to CurrentReport on Form 8-K/A filed January 28,2005)     |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 16.3   |                   |  | Letterfrom Grobstein, Horwath & Company LLP to TAG Entertainment Corp.(Previously filed as exhibit 16.1 to Current Report on Form 8-K filedFebruary 24,2005)                              |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 21.1   | *                 |  | Subsidiariesof TAG EntertainmentCorp.                                                                                                                                                         |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 31.1   | *                 |  | Certificationof Chief Executive Officer and Chief Financial Officer pursuant toExchange Act Rules 13a-14(a) and 15(d) -14(a), adopted pursuant toSection 302 of the Sarbanes-Oxley Act of2002 |
|          |   |                   |  |                                                                                                                                                                                          |
|          | 32.1   | *                 |  | Certificationof Chief Executive Officer and Chief Financial Officer pursuant to 18U.S.C. Section 1350, adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.                      |
|               |

59

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(b)    Reports on Form 8-K

During the quarter ended December 31, 2004 we filed the followingreports on Form 8-K:

|                  |
|------------------|
|                  |  |  |  |  |  |  |  |  |  |  |
| DateofReport     |  | Item(s) |  | Description |
|             |  |   |   |   |  |   |   |   |
| October18,2004   |  | 8.01,9.01 |  | Announcement of execution of definition agreement ofmerger between Power Marketing, Inc. and TAG Entertainment, Inc. andattached press release regardingtransaction. |
|             |  |   |  |   |
| October20, 2004  |  | 8.01, 9.01 |  | Amendment to Current Report on Form8-K dated October 18,2004 |
|             |  |   |  |   |
| November29, 2004 |  | 1.01, 2.01, 3.02, 5.01, and 5.03 |  | Announcingclosing of merger between Power Marketing, Inc. and TAG Entertainment,Inc., change of corporate name to TAG Entertainment Corp., change inofficers and directors, issuance of securities in merger transaction,and related matters. |
|                  |

60

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Item14.    Principal Accountant Fees and Services.

We haveselected AJ. Robbins PC, as our independent accountants for the currentfiscal year. The audit services to be provided by AJ. Robbins PCconsist of examination of financial statements, services relative tofilings with the Securities and Exchange Commission, and consultationin regard to various accounting matters. The financial statementsincluded with this Annual Report have been audited by AJ. Robbins PC.Our former accountants, Pritchett, Siler & Hardy, audited our 2003financial statements and served as our independent accountants duringthe 2004 fiscal year. In January 2005, we replaced Pritchett, Siler& Hardy as our independent public accountants and engagedGrobstein, Horwath & Co. LLP. In February 2005, we retained AJ.Robbins PC as our independent public accountants to replace Grobstein,Horwath & Co.

The following table presents fees forprofessional audit services rendered by Pritchett, Siler & Hardyfor the fiscal years ended December 31, 2004 and 2003 and fees billedfor other services performed for the years ended December 31, 2004 and2003. Fees for professional services by our independent auditors forthe fiscal years 2004 and 2003 in each of the following categories areas follows:

|                           |  |                                    |       |                                    |  |        |       |        |  |  |
|---------------------------|--|------------------------------------|-------|------------------------------------|--|--------|-------|--------|--|--|
|                      |  | FiscalYear Ended December 31, 2004 |       | Fiscal Year EndedDecember 31, 2003 |
| **Audit Fees (1)**        |  | $                                  | 3,890 |                               |  | $      | 3,950 |   |
| **Audit-Related Fees(2)** |  |                               | 0     |                               |  |   | 0     |   |
| **Tax Fees (3)**          |  |                               | 150   |                               |  |   | 320   |   |
| **All Other Fees (4)**    |  |                               | 0     |                               |  |   | 0     |   |
| **Total**                 |  | $                                  | 4,040 |                               |  | $      | 4,270 |   |
|                           |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Auditservices consist of audit work performed in the preparation offinancial statements for the fiscal year and for the review offinancial statements included in Quarterly Reports on Form 10-Q duringthe fiscal year, as well as work that generally only the independentauditor can reasonably be expected to provide, including consents forregistration statement flings and responding to SEC comment letters onannual and quarterly filings. |

|     |                                                                                                                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Audit-relatedservices consist of assurance and related services that aretraditionally performed by the independent auditor, including duediligence related to mergers and acquisitions, agreed upon proceduresreport and accounting and regulatory consultations. |

|     |                                                                                                                                                                                                                                                             |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Tax services consist of all services performed bythe independent auditor's tax personnel, except those servicesspecifically related to the audit of the financial statements, andincludes fees in the areas of tax compliance, tax planning, and taxadvice. |

|     |                                                                              |
|-----|------------------------------------------------------------------------------|
| (4) | Other services consist of thoseservice not captured in the other categories. |

We havedetermined that the services provided by our independent auditors andthe fees paid to them for such services has not compromised theindependence of our independent auditors.

As our Board ofDirectors currently consists solely of Steve Austin, who also serves asour Chief Executive Officer, he has responsibility for appointing,setting compensation and overseeing the work of the independentauditor. Our engagement of our independent accountants and auditors isapproved by our Board of Directors acting as the auditcommittee.

61

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TAGENTERTAINMENT CORP. AND SUBSIDIARIES

CONSOLIDATEDFINANCIAL STATEMENTS

|                                                         |  |        |     |        |  |  |
|---------------------------------------------------------|--|--------|-----|--------|--|--|
| Indexto Audited FinancialStatements                     |  | Pages  |
| Report of Independent Registered Public AccountingFirm  |  |   | F-2 |   |
| Consolidated Balance Sheet                              |  |   | F-3 |   |
| Consolidated Statement of Operations                    |  |   | F-4 |   |
| Consolidated Statement ofStockholders' Equity (Deficit) |  |   | F-5 |   |
| Consolidated Statement of Cash Flows                    |  |   | F-6 |   |
| Notes to Consolidated FinancialStatements               |  |   | F-7 |   |
|                                                         |

F-1

----

AJ.ROBBINS, PC CERTIFIED PUBLIC ACCOUNTANTS 216 16THSTREET, SUITE 600 DENVER, COLORADO 80202

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

To the Board of Directors and Stockholders ofTAG Entertainment Corp. Beverly Hills, California

Wehave audited the accompanying consolidated balance sheet of TAGEntertainment Corp. as of December 31, 2004, and the relatedconsolidated statements of operations, changes in stockholders'equity (deficit), and cash flows for each of the years in the two yearperiod then ended. These consolidated financial statements are theresponsibility of the Company's management. Our responsibility isto express an opinion on these consolidated financial statements basedon our audits.

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit alsoincludes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, inall material respects, the financial position of TAG EntertainmentCorp. as of December 31, 2004, and the results of its operations andits cash flows for each of the years in the two year period then ended,in conformity with generally accepted accounting principles in theUnited States of America.

The accompanying financialstatements have been prepared assuming that the Company will continueas a going concern. As discussed in Note 1 to the financial statements,the Company has experienced recurring losses from operations, negativecash flows from operations and has both a working capital and a capitaldeficit at December 31, 2004, that raises substantial doubt about itsability to continue as a going concern. Management's plans inregard to these matters are also described in Note 1. The financialstatements do not include any adjustments that might results from theoutcome of this uncertainty.

|  | /s/ AJ.Robbins, PC Certified Public Accountants |
|--|------------------------------------------------------|

**Denver, Colorado** April 1,2005

F-2

----

TAG ENTERTAINMENTCORP.

CONSOLIDATED BALANCE SHEETDECEMBER 31, 2004

|                                                                                                      |  |        |            |         |  |  |
|------------------------------------------------------------------------------------------------------|--|--------|------------|---------|--|--|
| **ASSETS**                                                                                           |
| **CurrentAssets:**                                                                                   |  |   |       |    |
| Cash                                                                                                 |  | $      | 23,357     |    |
| Accounts receivable                                                                                  |  |   | 531,385    |    |
| Note receivable                                                                                      |  |   | 5,000      |    |
| Totalcurrent assets                                                                                  |  |   | 559,742    |    |
| **CAPITALIZED FILM COSTS, net**                                                                      |  |   | 2,053,591  |    |
| **INVESTMENTS IN LIMITEDPARTNERSHIPS**                                                               |  |   | 687,500    |    |
| **EQUIPMENT, net**                                                                                   |  |   | 162,029    |    |
| **OTHER ASSETS**                                                                                     |  |   | 40,888     |    |
|                                                                                                 |  | $      | 3,503,750  |    |
| **LIABILITIESAND STOCKHOLDERS' EQUITY(DEFICIT)**                                                     |
| **CurrentLiabilities:**                                                                              |  |   |       |    |
| Accounts payable                                                                                     |  | $      | 827,744    |    |
| Accounts payable toaffiliated partnerships                                                           |  |   | 1,870,896  |    |
| Bank overdrafts                                                                                      |  |   | 123,779    |    |
| Deferred revenue                                                                                     |  |   | 81,154     |    |
| Notes payable                                                                                        |  |   | 495,582    |    |
| Deferred production funding                                                                          |  |   | 191,250    |    |
| Residuals payable                                                                                    |  |   | 51,379     |    |
| Accrued salaries                                                                                     |  |   | 370,657    |    |
| Payroll tax payable                                                                                  |  |   | 168,504    |    |
| Totalcurrent liabilities                                                                             |  |   | 4,180,945  |    |
| **MINORITYINTEREST**                                                                                 |  |   | 2,337,791  |    |
|                                                                                                 |  |
| **COMMITMENTSANDCONTINGENCIES**                                                                      |  |   |       |    |
|                                                                                                 |  |
| **STOCKHOLDERS'EQUITY (DEFICIT):**                                                                   |  |   |       |    |
| PreferredStock, $.001 par value: 500,000 shares authorized, none issued andoutstanding               |  |   | —    |    |
| Common stock,$0.001 par value: 50,000,000 shares authorized, 21,062,213 sharesissued and outstanding |  |   | 21,062     |    |
| Additional paid-in capital                                                                           |  |   | 3,166,529  |    |
| Accumulated (deficit)                                                                                |  |   | (6,202,577 | )  |
| Totalstockholders' equity (deficit)                                                                  |  |   | (3,014,986 | )  |
|                                                                                                 |  | $      | 3,503,750  |    |
|                                                                                                      |

Seeaccompanying notes to consolidated financial statements.

F-3

----

TAG ENTERTAINMENTCORP.

CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARSENDED DECEMBER31,

|  |
|--|
|  |  |  |  |
|  |

|                                              |  |        |            |         |  |        |            |         |  |  |
|----------------------------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                         |  | 2004   |            | 2003    |
| **REVENUE:**                                 |  |   |       |    |  |
| Filmrevenue                                  |  | $      | 1,095,455  |    |  | $      | 193,565    |    |
| Managementfees                               |  |   | 405,000    |    |  |   | 487,500    |    |
| Overheadfees                                 |  |   | 270,000    |    |  |   | 330,200    |    |
| Studiorental income                          |  |   | 288,985    |    |  |   | 109,825    |    |
| Totalrevenue                                 |  |   | 2,059,440  |    |  |   | 1,121,090  |    |
| **OPERATINGEXPENSES:**                       |  |   |       |    |  |
| Amortization of filmcosts                    |  |   | 1,264,912  |    |  |   | 174,840    |    |
| Filmdistribution expenses and fees           |  |   | 48,212     |    |  |   | 16,265     |    |
| Studio rent                                  |  |   | 175,676    |    |  |   | 152,121    |    |
| Legalsettlements                             |  |   | 590,000    |    |  |   | —    |    |
| Selling,general and administrative expenses  |  |   | 4,312,775  |    |  |   | 1,986,510  |    |
| TotalExpenses                                |  |   | 6,391,575  |    |  |   | 2,329,736  |    |
| **(LOSS)FROM OPERATIONS**                    |  |   | (4,332,135 | )  |  |   | (1,208,646 | )  |
| **OTHERINCOME:**                             |  |   |       |    |  |
| Interest income                              |  |   | 5,275      |    |  |   | 106,287    |    |
| Other income                                 |  |   | 4,567      |    |  |   | —    |    |
| TotalOther Income                            |  |   | 9,842      |    |  |   | 106,287    |    |
| **NET(LOSS) BEFORE MINORITY INTEREST**       |  |   | (4,322,293 | )  |  |   | (1,102,359 | )  |
| **MINORITYINTEREST**                         |  |   | 451,264    |    |  |   | (22,520    | )  |
| **NET(LOSS)**                                |  | $      | (3,871,029 | )  |  | $      | (1,124,879 | )  |
| NET(LOSS) PER COMMON SHARE-BASIC AND DILUTED |  | $      | (0.20      | )  |  | $      | (0.07      | )  |
| WEIGHTEDAVERAGE SHARES-BASIC AND DILUTED     |  |   | 19,845,357 |    |  |   | 17,159,579 |    |
|                                              |

Seeaccompanying notes to consolidated financial statements

F-4

----

TAG ENTERTAINMENT CORP..

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIT)FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

|                                                            |  |              |            |                           |  |                       |         |         |  |        |            |         |  |        |            |         |  |        |            |         |  |  |
|------------------------------------------------------------|--|--------------|------------|---------------------------|--|-----------------------|---------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                       |  | Common Stock |            | Additional Paid-inCapital |  | Accumulated (Deficit) |         |         |
|                                                       |  | Shares       |            | Amount                    |  | Total                 |         |
| Balance, December 31, 2002                                 |  |         | 17,119,432 |                      |  | $                     | 17,119  |    |  | $      | 1,692,675  |    |  | $      | (1,173,337 | )  |  | $      | 536,457    |    |
| Proceedsfrom private placements                            |  |         | 52,064     |                      |  |                  | 52      |    |  |   | 45,348     |    |  |   | —    |    |  |   | 45,400     |    |
| Warrantsexercised through cash consideration               |  |         | 166,515    |                      |  |                  | 167     |    |  |   | 149,833    |    |  |   | —    |    |  |   | 150,000    |    |
| Stockdividend paid to shareholders                         |  |         | 2,775      |                      |  |                  | 3       |    |  |   | 2,497      |    |  |   | (2,500     | )  |  |   | —    |    |
| CashDividends Paid                                         |  |         | —    |                      |  |                  | — |    |  |   | —    |    |  |   | (2,500     | )  |  |   | (2,500     | )  |
| Returnof capital                                           |  |         | —    |                      |  |                  | — |    |  |   | (118,066   | )  |  |   | —    |    |  |   | (168,066   | )  |
| Net(loss)                                                  |  |         | —    |                      |  |                  | — |    |  |   | —    |    |  |   | (1,124,878 | )  |  |   | (1,124,878 | )  |
| December31, 2003                                           |  |         | 17,340,786 |                      |  |                  | 17,341  |    |  | $      | 1,772,287  |    |  |   | (2,303,215 | )  |  |   | (516,587   | )  |
| Proceedsfrom private placements less fees of $219,355      |  |         | 730,810    |                      |  |                  | 731     |    |  |   | 1,027,203  |    |  |   | —    |    |  |   | 1,027,934  |    |
| Purchaseof Limited Partnership shares                      |  |         | 485,669    |                      |  |                  | 485     |    |  |   | 474,515    |    |  |   | —    |    |  |   | 475,000    |    |
| Purchaseof consolidated Limited Partnership shares         |  |         | 189,550    |                      |  |                  | 189     |    |  |   | 291,311    |    |  |   | —    |    |  |   | 291,500    |    |
| Stockissued for consulting services                        |  |         | 321,929    |                      |  |                  | 322     |    |  |   | 579,678    |    |  |   | —    |    |  |   | 580,000    |    |
| Proceedsfrom warrants exercised                            |  |         | 156,802    |                      |  |                  | 157     |    |  |   | 141,093    |    |  |   | —    |    |  |   | 141,250    |    |
| Stockdividend paid to stockholders                         |  |         | 5,551      |                      |  |                  | 5       |    |  |   | 9,995      |    |  |   | (10,000    | )  |  |   | —    |    |
| Dividendspaid                                              |  |         | —    |                      |  |                  | — |    |  |   | —    |    |  |   | (18,333    | )  |  |   | (18,333    | )  |
| Stock issued in legal settlement                           |  |         | 277,525    |                      |  |                  | 278     |    |  |   | 499,722    |    |  |   | —    |    |  |   | 500,000    |    |
| Surrenderof stock for return of capital                    |  |         | (428,025   | )                    |  |                  | (428    | )  |  |   | 428        |    |  |   | —    |    |  |   | —    |    |
| Surrenderof stock for repayment of affiliate distributions |  |         | (435,081   | )                    |  |                  | (435    | )  |  |   | (1,567,286 | )  |  |   | —    |    |  |   | (1,567,721 | )  |
| Stockrepurchased in settlement agreement                   |  |         | (33,303    | )                    |  |                  | (33     | )  |  |   | (59,967    | )  |  |   | —    |    |  |   | (60,000    | )  |
| Effectof reverse merger                                    |  |         | 2,450,000  |                      |  |                  | 2,450   |    |  |   | (2,450     | )  |  |   |       |    |  |   | —    |    |
| Net(loss)                                                  |  |         | —    |                      |  |                  | — |    |  |   | —    |    |  |   | (3,871,029 | )  |  |   | (3,871,029 | )  |
| December31, 2004                                           |  |         | 21,062,213 |                      |  | $                     | 21,062  |    |  | $      | 3,166,529  |    |  | $      | (6,202,577 | )  |  | $      | (3,014,986 | )  |
|                                                            |

Seeaccompanying notes to consolidated financial statements

F-5

----

TAG ENTERTAINMENTCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARSENDED DECEMBER 31,

|                                                                           |  |        |            |         |  |        |            |         |  |  |
|---------------------------------------------------------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                      |  | 2004   |            | 2003    |
| Cashflows from (to)operatingactivities:                                   |  |   |       |    |  |
| Net (loss )fromoperations before minority interest                        |  | $      | (4,322,293 | )  |  | $      | (1,102,359 | )  |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities: |  |   |       |    |  |   |       |    |
| Amortization offilm costs                                                 |  |   | 1,264,912  |    |  |   | 174,840    |    |
| Depreciationof fixed assets                                               |  |   | 47,772     |    |  |   | 26,895     |    |
| Legalsettlements                                                          |  |   | 590,000    |    |  |   | —    |    |
| Loss on saleof fixed assets                                               |  |   | 7,021      |    |  |   |       |    |
| Stockissued in exchange for services                                      |  |   | 580,000    |    |  |   | —    |    |
| Changesin operating assets andliabilities:                                |  |   |       |    |  |   |       |    |
| Accountsreceivable                                                        |  |   | (172,099   | )  |  |   | 92,472     |    |
| Investmentsin films                                                       |  |   | (1,005,976 | )  |  |   | (386,846   | )  |
| Otherassets                                                               |  |   | (18,877    | )  |  |   | 5,988      |    |
| Bankoverdrafts                                                            |  |   | 123,779    |    |  |   | —    |    |
| Notereceivable                                                            |  |   | (5,000     | )  |  |   | —    |    |
| Residualspayable                                                          |  |   | (4,663     | )  |  |   | 3,699      |    |
| Accountspayable                                                           |  |   | 377,959    |    |  |   | 300,103    |    |
| Accountspayable affiliated partnerships                                   |  |   | 1,237,571  |    |  |   | 453,130    |    |
| Deferredincome                                                            |  |   | (69,346    | )  |  |   | 150,500    |    |
| Accruedsalaries                                                           |  |   | 420,657    |    |  |   | —    |    |
| Employee taxpayable                                                       |  |   | 88,057     |    |  |   | 80,447     |    |
| Interestpayable                                                           |  |   | (13,570    | )  |  |   | 13,570     |    |
| Interestpayable, related parties                                          |  |   | (29,648    | )  |  |   | 29,648     |    |
| Netcash (used in) operating activities                                    |  |   | (903,744   | )  |  |   | (157,913   | )  |
| Cashflows from (to) investingactivities:                                  |  |   |       |    |  |
| Investment in limitedpartnership                                          |  |   | (12,500    | )  |  |   | —    |    |
| Proceedsfrom sale of fixed assets                                         |  |   | 3,000      |    |  |
| Purchases of equipment                                                    |  |   | (152,621   | )  |  |   | (11,413    | )  |
| Netcash (used in) investment activities                                   |  |   | (162,121   | )  |  |   | (11,413    | )  |
| Cashflows from (to) financingactivities:                                  |  |   |       |    |  |
| Payments on note payable                                                  |  |   | (70,818    | )  |  |   | —    |    |
| Deferredproceeds from private placement                                   |  |   | —    |    |  |   | 777,250    |    |
| Proceeds forfilm production                                               |  |   | 93,750     |    |  |   | 97,500     |    |
| Proceeds fromprivate placements                                           |  |   | 470,038    |    |  |   | 45,400     |    |
| Payment ofoffering costs                                                  |  |   | (219,355   | )  |  |   | —    |    |
| Proceedsfrom exercise of warrants                                         |  |   | 141,250    |    |  |   | 150,000    |    |
| Dividendspaid                                                             |  |   | (18,333    | )  |  |   | (2,500     | )  |
| Returnof capital                                                          |  |   | —    |    |  |   | (168,066   | )  |
| Contributionsby minority limited partners                                 |  |   | —    |    |  |   | (125,001   | )  |
| Distributionsto minority limited partners                                 |  |   | 8,088      |    |  |   | (81,351    | )  |
| Netcash provided by financing activities                                  |  |   | 404,620    |    |  |   | 693,232    |    |
| Net(decrease)/increase in cash                                            |  |   | (661,245   | )  |  |   | 523,906    |    |
| Cashat beginning of period                                                |  |   | 684,602    |    |  |   | 160,696    |    |
| Cashat end of period                                                      |  | $      | 23,357     |    |  | $      | 684,602    |    |
| Supplementaldisclosure of cash flowinformation:                           |  |   |       |    |  |
| Interest paid                                                             |  | $      | 8,900      |    |  | $      | —    |    |
|                                                                           |

See accompanying notes toconsolidated financialstatements

F-6

----

TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Natureof Operations

TAG Entertainment Corp. (the"Company" or "TAG")is a California corporation headquartered in Beverly Hills, California.The Company incorporated in September 1999. The Company is engaged inthe development, production and distribution of motion pictures and themanagement of studio facilities. The Company also acquires thecopyrights and/or distribution rights to already completed films formedia exhibition. In order to finance film production, the Companyraises funds through the establishment of single purpose limitedpartnerships. TAG serves as the sole general partner on the followingfour limited partnerships: Majestic Film Partners, LP, Majestic FilmPartners II, LP, Majestic Film Partners III, LP and Majestic FilmPartners IV, LP (Limited Partnerships). It is also the distributor onnumerous other limited partnerships as well as assists in facilitatingthe production and distribution of films produced by limitedpartnerships for which TAG receives an overhead and/or productionfee.

Merger

On November 22, 2004 TAG was acquired byPower Marketing, Inc. In the transaction, TAG merged with a subsidiaryof Power Marketing, Inc. and became a wholly-owned subsidiary of PowerMarketing, Inc., now operating as a separate entity. Power Marketingchanged its corporate name to TAG Entertainment Corp. and obtained thenew trading symbol TAGE.OB. The officers and board members of PowerMarketing resigned and are being replaced by officers of TAG along withnew board members to be elected by TAG Entertainment Corp.stockholders. TAG stockholders and warrant holders will receiveapproximately 21,450,000 shares of common stock of Power Marketing. Asa result of the transaction, there will be approximately 23,900,000shares of Common Stock of Power Marketing issued and outstanding on afully diluted basis excluding the approximately 2,000,000 optionsoutstanding at the date of the merger of TAG that will be exchanged fornew options reflective of the exchange ratio. The transaction has beentreated as a reverse merger and a recapitalization of TAG for reportingpurposes.

Going Concern and Management's Plans

The Company's financial statements have been presented on thebasis that it is a going concern, which contemplates the realization ofassets and the satisfaction of liabilities in the normal course ofbusiness. The Company has experienced recurring losses and negativecash flows from operations and has a working capital deficit and astockholder deficit, which raises substantial doubt about its abilityto continue as a going concern. The Company is currently devoting itsefforts to raising additional capital and ultimately achievingprofitable operations. The Company's ability to continue as agoing concern is dependent upon its ability to develop additionalsources of capital. The accompanying financial statements do notinclude any adjustments that might result from the outcome of theseuncertainties. The Company closed on a bridge financing in the amountof $1,000,000 on March 30, 2005. The Company is pursuing a $5,000,000placement in the form of debt or equity.

On March 30, 2005, theCompany entered into a Letter of Intent to acquire 100% of theoutstanding common stock of Myriad Pictures, Inc., which is engaged inthe film production and distribution business. The Letter of Intentprovides for a purchase price of approximately $4,000,000, including anearnout payment of up to $2,000,000 to be negotiated prior to closingof the transaction. The earnout may be paid in cash or in shares of theCompany's common stock, at its option. In addition, the Companyintends to use an additional $750,000 to provide Myriad with workingcapital and debt repayment after the closing. Of the purchase price,$1,000,000 will be payable by a promissory note, payable over 12 monthsfollowing the closing.

F-7

----

TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

In connection with the execution of theLetter of Intent, the Company provided Myriad with a short term loan of$250,000, bearing interest at the rate of 3% per annum, whichMyriad will use for working capital and to pay for its acquisitioncosts pending the closing. In the event the transaction is completed,the loan will be an intercompany debt and thereafter be converted intoadditional equity in Myriad. The loan is secured by a lien on theassets of Myriad.

Use of Estimates

The preparation ofthe financial statements in accordance with accounting principlesgenerally accepted in the United States of America requires managementto make estimates and assumptions that affect reported amounts ofassets and liabilities and disclosure of contingent assts andliabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actualresults could differ from those and other estimates.

Reclassifications

For comparative purposes, prioryear's consolidated financial statements have been reclassifiedto conform to report classifications of the current year.

Principles of Consolidation

The accompanying consolidatedfinancial statements of the Company include the accounts of TAG and ofthe Limited Partnerships which the Company is the sole general partner.The General Partner has the full and exclusive control of themanagement and operation of the business of each partnership. TheCompany in its capacity as General Partner participates in 1% ofthe losses of the limited partnerships but shares in 60% of anyprofits. All significant inter-company balances and transactions havebeen eliminated in consolidation.

Minority Interests

TAG consolidates four limited partnerships for which it is the solegeneral partner. The amount of minority interest represents theaggregate net limited partnership capital of each limited partnershipalong with a reduction of 99% of the losses incurred directly bythe Limited Partnerships.

Revenue Recognition

Revenuefrom the sale or licensing of films and television programs isrecognized upon meeting all recognition requirements of SOP 00-2.Revenue from the theatrical release of feature films is recognized atthe time of exhibition based on the Company's participation inbox office receipts. Revenue from the sale of videocassettes anddigital video disks ("DVDs") in the retailmarket is recognized on the "street date"when it is available for sale by the customer. Revenues fromtelevisions licensing are recognized when the feature film ortelevision program is available to the licensee for telecast. Revenuesfrom sales to international territories are recognized when the featurefilm or television program is available to the distributor forexploitation and no conditions for delivery exist.

In itscapacity as facilitator or producer of various films through limitedpartnerships set up for the sole purpose of financing the production ofmotion pictures, Steve Austin, has assigned to TAG his right to receivefrom each of the Partnerships a salary of $7,000 to $7,500 per monthfrom pre-production to six months after post-production. TAG is alsoentitled to be reimbursed for reasonable and normal overhead andstaffing costs related to its management services.

F-8

----

TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

Rental revenue from short-term operatingleases studio facilities is recognized over the term of the lease.

Cash payments received which may include minimum guarantees arerecorded as deferred revenue until all conditions of revenuerecognition have been met.

Cash Equivalents

Forpurposes of reporting cash flows, the Company considers all short-term,interest bearing deposits with original maturities of three months orless to be cash equivalents.

Capitalized film costs

Capitalized film costs consist of investments in films which includethe unamortized costs of completed films which have been produced bythe Company or for which the Company has acquired distribution rightsor film libraries.

For films produced by the Company,capitalized costs include all direct production and financing costs,and production overhead. For acquired films, these capitalized costsconsist of minimum guarantee payments to acquire the distributionrights.

Costs of acquiring and producing films and of acquiredlibraries are amortized using the individual-film-forecast method,whereby these costs are amortized and participation and residual costsare accrued in the proportion that current year's revenue bearsto management's estimate of ultimate revenue at the beginning ofthe current year expected to be recognized from the exploitation,exhibition or sale of the films.

Ultimate revenue includesestimates over a period not to exceed ten years following the date ofinitial release. For titles included in acquired libraries, ultimaterevenue includes estimates over a period not to exceed ten yearsfollowing the date of acquisition.

Capitalized film costs arestated at the lower of amortized cost or estimated fair value on anindividual film basis. The valuation of investment in films is reviewedon a title-by-title basis, when an event or changes in circumstancesindicated that the fair value of a film is less than its unamortizedcost. The fair value of the film is determined using management'sfuture revenue and cost estimates. Additional amortization is recordedin the amount by which the unamortized costs exceed the estimated fairvalue of the film. Estimates of future revenue involve measurementuncertainty and it is therefore possible that reductions in thecarrying value of investment in films may be required as a consequenceof changes in management's future revenue estimates.

Filmsin progress include the accumulated costs of production, which have notyet been completed by the Company.

Films in development includecosts of acquiring film rights to original screenplays and costs toadapt such projects. Such costs are capitalized and, upon commencementof production, are transferred to production costs. Projects indevelopment are written off at the earlier of the date determined notto be recoverable or when abandoned, or three years from the date ofthe initial investment.

Advertising Expenses

TheCompany expenses advertising costs as incurred. During the years endedDecember 31, 2004 and 2003, the Company had $5,500 and $7,569,respectively for advertising costs.

Equipment

Equipmentis carried at cost and is depreciated on the straight-line basis overtheir estimated useful lives of three to eight years. Repairs andmaintenance are expensed as incurred. When assets are 

F-9

----

TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

retired or otherwise disposed of, theproperty accounts are relieved of costs and accumulated depreciationand any existing gain or loss is credited or charged to operations.

Depreciation expense was $47,772 and $26,895 in 2004 and 2003,respectively.

Stock-Based Compensation

The Companyaccounts for stock-based compensation in accordance with Statement ofFinancial Accounting Standards No. 123, "Accounting forStock-Based Compensation" ("SFAS123"). This standard requires the Company to adopt the"fair value" method with respect tostock-based compensation of consultants and other non-employees. TheCompany did not change its method of accounting with respect toemployee stock options; the Company continues to account for theseunder the "intrinsic value" method and tofurnish the pro-forma disclosures required by SFAS 123.

Valuation of the Company's Common Stock

Unlessotherwise disclosed, all stock-based transactions entered into by theCompany have been valued at the market value of the Company'scommon stock on the date the transaction was entered into or have beenvalued using the Modified Black-Scholes to estimate the fair marketvalue.

Concentrations of Risk

The Company'sfinancial instruments that are exposed to concentrations of credit riskconsist of cash and receivables. The Company invests its cash in bankswith high credit ratings; however, certain account balances have beenmaintained at levels in excess of federally insured limits. The Companyhas not experienced a loss in such accounts.

The Company extendscredit based on an evaluation of the customer's financialcondition, generally without collateral. Exposure to losses onreceivables is principally dependent on each customer's financialcondition. The Company monitors its exposure for credit losses andmaintains allowances for anticipated losses, as required. The Companysub-distributes titles in both the domestic and international markets.The Company is typically paid an advance or minimum guarantee for theserights. Any overages (revenue in excess of the minimum guarantee) arereported to the Company 45 to 90 days after the reporting period.Because of the minimum guarantees and short reporting periods accountsreceivables are minimized and outstanding balances are generallycollected within 45 to 90 days.

Income Taxes

Deferredincome taxes are recorded to reflect the tax consequences in futureyears of temporary differences between the tax basis of the assets andliabilities and their financial statement amounts at the end of eachreporting period. Valuation allowances are established when necessaryto reduce deferred tax assets to the amount expected to be realized.Income tax expense is the tax payable for the current period and thechange during the period in deferred tax assets and liabilities. Thedeferred tax assets and liabilities have been netted to reflect the taximpact of temporary differences. At December 31, 2004, a full valuationallowance has been established for the deferred tax asset as managementbelieves that it is more likely than not that a tax benefit will not berealized.

Earnings per common share

The Companycomputes earnings per common share in accordance with Statement ofFinancial Accounting Standards No. 128, "Earnings perShare" (SFAS No. 128). The Statement requires dualpresentation of basic and diluted EPS on the face of the incomestatement for all entities with 

F-10

----

TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

complex capital structures and requires areconciliation of the numerator and denominator of the basic EPScomputation to the numerator and denominator of the diluted EPScomputation. Basic loss per share is computed by dividing lossavailable to common shareholders by the weighted average number ofcommon shares outstanding. The computation of diluted loss per share issimilar to the basic loss per share computation except the denominatoris increased to include the number of additional shares that would havebeen outstanding if the dilutive potential common shares had beenissued. In addition, the numerator is adjusted for any changes inincome or loss that would result from the assumed conversions of thosepotential shares. However, such presentation is not required if theeffect is anti-dilutive. Accordingly, the diluted per share amounts donot reflect the impact of warrants and options totaling 4,989,976 and639,705 at December 31, 2004 and 2003, respectively as the effectswould be anti-dilutive.

Recent Issued AccountingPronouncements

In December 2004, the FASB issued SFAS No.123(revised 2004), "Share-Based Payment"("SFAS 123(R)"). SFAS 123(R) will provideinvestors and other users of financial statements with more completeand neutral financial information by requiring that the compensationcost relating to share-based payment transactions be recognized infinancial statements. That cost will be measured based on the fairvalue of the equity or liability instruments issued. SFAS 123(R) coversa wide range of share-based compensation arrangements including shareoptions, restricted share plans, performance-based awards, shareappreciation rights, and employee share purchase plans. SFAS 123(R)replaces SFAS No. 123, "Accounting for Stock-BasedCompensation", and supersedes APB Opinion No. 25,"Accounting for Stock Issued to Employees".SFAS 123, as originally issued in 1995, established as preferable afair-value-based method of accounting for share-based paymenttransactions with employees. However, that Statement permitted entitiesthe option of continuing to apply the guidance in Opinion 25, as longas the footnotes to financial statements disclosed what net incomewould have been had the preferable fair-value-based method been used.Public entities (other than those filing as small business issuers)will be required to apply SFAS 123(R) as of the first interim or annualreporting period that begins after June 15, 2005. The Company hasevaluated the impact of the adoption of SFAS 123(R), and believes thatit could have an impact to the Company's overall results ofoperations depending on the number of stock options granted in a givenyear.

In December 2004, the FASB issued SFAS No.153,"Exchanges of Nonmonetary Assets, an amendment of APBOpinion No. 29, Accounting for Nonmonetary Transactions."The amendments made by SFAS 153 are based on the principle thatexchanges of nonmonetary assets should be measured based on the fairvalue of the assets exchanged. Further, the amendments eliminate thenarrow exception for nonmonetary exchanges of similar productive assetsand replace it with a broader exception for exchanges of nonmonetaryassets that do not have commercial substance. Previously, Opinion 29required that the accounting for an exchange of a productive asset fora similar productive asset or an equivalent interest in the same orsimilar productive asset should be based on the recorded amount of theasset relinquished. Opinion 29 provided an exception to its basicmeasurement principle (fair value) for exchanges of similar productiveassets. That exception required that some nonmonetary exchanges,although commercially substantive, to be recorded on a carryover basis.By focusing the exception on exchanges that lack commercial substance,the FASB believes SFAS No.153 produces financial reporting that morefaithfully represents the economics of the transactions. SFAS No.153 iseffective for nonmonetary asset exchanges occurring in fiscal periodsbeginning after June 15, 2005. Earlier application is permitted fornonmonetary asset exchanges occurring in fiscal periods beginning afterthe date of issuance. The provisions of SFAS No.153 shall be appliedprospectively. The Company has evaluated the impact of the adoption ofSFAS 153, and does not believe the impact will be significant to theCompany's overall results of operations or financialposition.

F-11

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TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

In November 2004, the FASB issued SFAS No.151 "Inventory Costs, an amendment of ARB No. 43, Chapter4 (" SFAS No. 151". The amendments made bySFAS 151 clarify that abnormal amounts of idle facility expense,freight, handling costs, and wasted materials (spoilage) should berecognized as current-period charges and require the allocation offixed production overheads to inventory based on the normal capacity ofthe production facilities. The guidance is effective for inventorycosts incurred during fiscal years beginning after June 15, 2005.Earlier application is permitted for inventory costs incurred duringfiscal years beginning after November 23, 2004. The Company hasevaluated the impact of the adoption of SFAS 151, and does not believethe impact will be significant to the Company's overall resultsof operations or financial position.

In May 2003, the FASBissued SFAS No. 150, "Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities andEquity," which is effective for financial instrumentsentered into or modified after May 31, 2003, and otherwise is effectiveat the beginning of the first interim period beginning after June 15,2003. SFAS No. 150 establishes standards for how an issuer classifiesand measures certain financial instruments with characteristics of bothliabilities and equity. The adoption of this standard did not have amaterial impact on the Company's financial statements.

InApril 2003, FASB issued SFAS No. 149, "Accounting forDerivative Instruments and Hedging Activities," which iseffective for contracts entered into or modified after June 30, 2003and for hedging relationships designated after June 30, 2003. Thisstatement amends and clarifies financial accounting and reporting forderivative instruments including certain instruments embedded in othercontracts and for hedging activities under SFAS No. 133,"Accounting for Derivative Instruments and HedgingActivities." The adoption of this standard did not have amaterial impact on the Company's financial statements.

InJanuary 2003, the FASB issued FIN 46, "Consolidation ofVariable Interest Entities." FIN 46 clarifies theapplication of Accounting Research Bulletin No. 51,"Consolidated Financial Statements," forcertain entities which do not have sufficient equity at risk for theentity to finance its activities without additional subordinatedfinancial support from other parties or in which equity investors donot have the characteristics of a controlling financial interest("variable interest entities"). Variableinterest entities will be required to be consolidated by their primarybeneficiary. The primary beneficiary of a variable interest entity isdetermined to be the party that absorbs a majority of theentity's expected losses, receives a majority of its expectedreturns, or both, as a result of holding variable interests, which areownership, contractual, or other pecuniary interests in an entity. FIN46 applies immediately to variable interest entities created afterJanuary 31, 2003, and to variable interest entities in which anenterprise obtains an interest after that date. It applies in the firstfiscal year or interim period beginning after December 15, 2003, tovariable interest entities in which an enterprise holds a variableinterest that it acquired before February 1, 2003. FIN 46 applies topublic enterprises as of the beginning of the applicable interim orannual period. The Company's adoption of FIN 46 did not have anyimpact upon the Company's financial condition or results ofoperations.

In March 2004, the FASB approved the consensusreached on the Emerging Issues Task Force (EITF) Issue No. 03-1,"The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments." The objective of thisIssue is to provide guidance for identifying impaired investments. EITF03-1 also provides new disclosure requirements for investments that aredeemed to be temporarily impaired. In September 2004, the FASB issued aFASB Staff Position (FSP) EITF 03-1-1 that delays the effective date ofthe measurement and recognition guidance in EITF 03-1 until afterfurther deliberations by the FASB. The disclosure requirements areeffective only for annual periods ending after June 15, 2004. TheCompany has evaluated the impact of the adoption of the disclosurerequirements of EITF 03-1 and does not believe it will have an impactto the Company's overall 

F-12

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TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

combined results of operations or combinedfinancial position. Once the FASB reaches a final decision on themeasurement and recognition provisions, the Company will evaluate theimpact of the adoption of EITF 03-1.

NOTE 2-CAPITALIZED FILMCOSTS

|                                                  |  |                  |           |        |  |  |
|--------------------------------------------------|--|------------------|-----------|--------|--|--|
|                                             |  | December31, 2004 |
| **Theatrical and Non-TheatricalFilms**           |  |             |      |   |
| Released, net of accumulatedamortization         |  | $                | 1,337,034 |   |
| Acquired library,net of accumulated amortization |  |             | 168,125   |   |
| InProgress                                       |  |             | 317,514   |   |
| InDevelopment                                    |  |             | 230,918   |   |
| Total                                            |  | $                | 2,053,591 |   |
|                                                  |

TheCompany expects approximately 85% of released films, net ofaccumulated amortization, will be amortized by December 31, 2006. Theconsolidated accumulated amortization balance at December 31, 2004, is$5,198,664.

Acquired library and other film products at December31, 2004 of approximately $330,000 include elements of the formerHemdale library acquired in September 2002. Amortized costs associatedwith the acquisition of the product included in this library amountedto $161,875. Also, in 2003 the Company secured the domesticdistribution rights to four other films which it is currentlyexploiting in the Home Video/DVD and television markets.

Films "In Progress" will bereleased in 2005.

NOTE 3-INVESTMENT IN LIMITEDPARTNERSHIPS

TAG has purchased shares of various affiliatedunconsolidated partnerships by issuing TAG common stock for thepartnership shares ranging in value at $1 to $2 of TAG common stock(accounted for at cost) asfollows:

|                             |  |        |        |         |  |        |         |        |  |  |
|-----------------------------|--|--------|--------|---------|--|--------|---------|--------|--|--|
| LimitedPartnerships         |  | %Owned |        | Value   |
| Family Film Partners VII,LP |  |   | 5.94   | %  |  | $      | 200,000 |   |
| AnimalPartners,LP           |  |   | 14.21  | %  |  |   | 425,000 |   |
| Fairy TalePartners III,LP   |  |   | 0.47   | %  |  |   | 25,000  |   |
| AmericanBlack Beauty,LP     |  |   | 0      | %  |  |   | — |   |
| Family FilmPartners, LP     |  |   |   |    |  |   | 12,500  |   |
| MotocrossKids               |  |   | 0.42   | %  |  |   | 25,000  |   |
|                        |  |   |   |    |  | $      | 687,500 |   |
|                             |

F-13

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TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

NOTE 4-EQUIPMENT

Equipment issummarized by major category as follows at December 31,2004:

|                                               |  |        |          |         |  |  |
|-----------------------------------------------|--|--------|----------|---------|--|--|
|                                          |  |   |     |    |
| Vehicles                                      |  | $      | 105,246  |    |
| Furnitureandfixtures                          |  |   | 12,790   |    |
| Equipment                                     |  |   | 84,056   |    |
| LeaseholdImprovements                         |  |   | 70,679   |    |
| Less: accumulateddepreciation andamortization |  |   | (110,742 | )  |
| Equipment,net                                 |  | $      | 162,029  |    |
|                                               |

NOTE5-RETURN OF CAPITAL

During the period from 1999 throughDecember 31, 2004, the Company's principal stockholder andgeneral partner of the consolidated limited partnerships received cashpayments as return of capital and distributions, totaling in theaggregate $3,110,015, including $498,479 of accrued interest on theadvances. During the fourth quarter of 2004, the principal stockholderreturned 863,106 shares of the Company's common stock.

NOTE 6-ACCOUNTS PAYABLE TO AFFILIATED PARTNERSHIPS

TAG's debt to unconsolidated partnerships of $1,870,896 as ofDecember 31, 2004 results from borrowing funds to meet TAG'soperating cash flow needs. TAG has also used cash of one affiliatedpartnership to meet the cash flow needs of other affiliatedpartnerships. Cash transfers were made between and among TAG and theunconsolidated partnerships. The receivable and payable balances amongaffiliated entities on December 31, 2004 are asfollows:

|                               |  |        |            |         |  |  |
|-------------------------------|--|--------|------------|---------|--|--|
|                          |  |   |       |    |
| CastleRock                    |  | $      | 3,988      |    |
| Santa Trap,LLC                |  |   | (39,169    | )  |
| Animal Partners,LP            |  |   | (530,040   | )  |
| Family Film Partners VII,LP   |  |   | 110,232    |    |
| Cinderella,LP                 |  |   | 142,245    |    |
| Fairy Tale Partners III,LP    |  |   | (1,828,583 | )  |
| Family Film Partners, VIII,LP |  |   | (2,920     | )  |
| TAG Studios No. 1,LP          |  |   | 3,312,295  |    |
| Ghost Town,LP                 |  |   | (645,707   | )  |
| American Black Beauty,LP      |  |   | (109,078   | )  |
| Red Riding Hood,LLC           |  |   | 1,118,534  |    |
| Motocross Kids,LP             |  |   | (1,262,045 | )  |
| FunnyMoney                    |  |   | (89,229    | )  |
| DownTown                      |  |   | 423,400    |    |
| Supercross theMovie           |  |   | (2,350,627 | )  |
| Austin FamilyEntertainment    |  |   | (6,725     | )  |
| Steve AustinProductions       |  |   | (117,467   | )  |
| Total                         |  | $      | (1,870,896 | )  |
|                               |

F-14

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TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

The Company in its capacity as generalpartner and distributor of various films produced by the limitedpartnerships is allowed to charge monthly overhead and production feeswhich get recorded to and against related party transactions. TheCompany also plans on making a formal purchase offer to the variouspartnerships in return for TAG stock thus eliminating any current andfuture outstanding balances owed to the partnerships.

TheCompany has recorded interest on amounts borrowed from related entitiesat the prime leading rate which was 5% and 4% at December31, 2004 and 2003 respectively and has included accrued interest in theamounts due to/from the related entities.

NOTE 7-DEFERREDPRODUCTION FUNDING

TAG deposited funds obtained from 3rd partyproducers for the purpose of producing specific films. In exchange foran ownership or participation percentage in the film, the3rd party producer has agreed to finance a portion of theproduction. Since no funds directly related to the production had beenexpended at December 31, 2004, the amounts received have been includedas a liability until such time as the production costs are incurred andreclassified as capitalized film cost.

NOTE 8-PAYROLL TAXPAYABLE

For the period ending December 31, 2004, TAGEntertainment, Inc. was assessed $168,504 in California employee taxesby the Employment Development Department (EDD). TAG has challenged thisassessment and an audit was conducted by the EDD in October 2004.However, the findings of the audit have not been presented to TAG.

NOTE 9-MINORITY INTERESTS

TAG consolidates four limitedpartnerships for which it is the sole general partner (See Principalsof Consolidation above). The amount of minority interests representsthe aggregate net limited partnership capital of each limitedpartnership along with a reduction of 99% of the losses incurreddirectly by the Limited Partnerships.

NOTE 10-NOTESPAYABLE

On September 13, 2004 the Company entered into a$134,472 promissory note to return the balance due to an investor fortheir original investment in the Company. The promissory note includesinterest and matures August 1, 2005. The note is no longer accruinginterest. The balance at December 31, 2004 was $95,582.

During2004 the Travolta Family provided consulting services on various filmseither produced and/or distributed by AG. As part of the agreement theCompany issued a $50,000 non-interest bearing note to the TravoltaFamily that was due on December 31, 2004. The Company is negotiatingthe repayment of this note.

In the matter of Billy Star v. TAGEntertainment, Inc. and Steve Austin, the Company entered into aSettlement Agreement and Mutual Release dated November 23, 2004 withthis investor to dismiss all claims against the Company for $150,000,payable as $100,000 by December 1, 2004 and $50,000 due by May 1, 2005.After final payment is made, this investor will return his 33,033shares of the Company's common stock. The $100,000 was paid by athird party, which the Company is currently indebted to.

NOTE11-INCOME TAXES

The Company accounts for income taxes inaccordance with SFAS 109, Accounting for Income Taxes. Due to theCompany having incurred losses in each year since inception, there wasno provision for income taxes during these periods.

F-15

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TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

A valuation allowance has been recordedfor the total deferred tax assets as a result of uncertaintiesregarding realization of the asset based upon the lack of profitabilityand the uncertainty of future profitability. The income tax benefitreconciled to the tax computed at the statutory rate was approximatelyas follows for the year ended December 31, 2004 and 2003:

|                                               |  |        |            |         |  |        |          |         |  |  |
|-----------------------------------------------|--|--------|------------|---------|--|--------|----------|---------|--|--|
|                                          |  | 2004   |            | 2003    |
| Tax Benefit Computed at Federal StatutoryRate |  | $      | (1,316,150 | )  |  | $      | (364,067 | )  |
| Other                                         |  |   | 115,130    |    |  |   | (15,571  | )  |
| Increase in Valuation Allowance               |  |   | 1,200,220  |    |  |   | 379,638  |    |
|                                          |  | $      | 800        |    |  | $      | 800      |    |
|                                               |

The tax effects of significant temporarydifferences representing deferred tax assets as of December 31, 2004are as follows:

|                         |  |        |            |         |  |  |
|-------------------------|--|--------|------------|---------|--|--|
| Deferredtax assets:     |  |
| Other                   |  | $      | 386,431    |    |
| Net operating loss      |  |   | 1,438,358  |    |
| Valuation allowance     |  |   | (1,824,788 | )  |
| Total Deferred TaxAsset |  | $      | —    |    |
| Net deferred taxasset   |  | $      | —    |    |
|                         |

The Company hasunused net operating loss (NOL) carry forwards totaling $6,295,000,which expire at various dates from 2004 to 2024.

NOTE12-STOCKHOLDERS' EQUITY

During the year ended December31, 2004, the Company sold 730,810 shares of common stock at an averageprice of $1.60 per share for its most recent private placement. Warrantholders also exercised 156,802 warrants at an average of $.90 exerciseprice. During the same period the Company issued 675,219 shares ofcommon stock to purchase shares in various consolidated andunconsolidated affiliated limited partnerships at a values of $1 to $2per TAG share. The Company also issued 321,929 shares of common stockto various consultants based on services rendered and milestone bonusesvalued at $580,000. The Company issued 277,525 shares to settle a legalclaim regarding its interest in Lone Star Studios valued at$500,000.

NOTE 13-COMMITMENTS AND CONTINGENCIES

TheCompany's primary offices are in Beverly Hills, CA where itentered into a three year lease beginning October 1, 2004 andterminating September 30, 2007. The base rent is $12,000 for year one,$12,750 for year two, and $13,500 for year three. The Company alsoleased office space at Universal City, CA where it had a five-yearlease terminating on December 1, 2005. The Company entered into anagreement to vacate and terminate the lease on November 1, 2004. TheCompany leases office space in La Jolla, CA beginning on May 10, 2002at a rate of $5,057 per month for three years and increases 4%on each anniversary date terminating on May 10, 2005. On July 7, 2003the Company entered into a management agreement to manage motionpicture studio facilities in Sylmar, CA which specified that TAG pay amonthly sub-lease rate of $28,800. A settlement was negotiatedeffective November 2004 that the studio would revert back to the lesseewith no further obligations to TAG. The Company leases approximately10,392 square feet for use as a production studio in Chatsworth, CA.The lease term is three years, commencing December 1, 2004, with leasepayments of approximately $9,000 until expiration.

F-16

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TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

As of December 31, 2004, theCompany's future minimum lease payments required under theoperating leases with initial or remaining terms in excess of one yearwere as follows:

|                         |  |        |         |        |  |  |
|-------------------------|--|--------|---------|--------|--|--|
| YearsEnding December31, |  |   |
| 2005                    |  | $      | 266,538 |   |
| 2006                    |  |   | 260,020 |   |
| 2007                    |  |   | 220,500 |   |
|                         |

Totalrent expense for the years ended December 31, 2004 and 2003 were$385,157 and $95,398, respectively.

The Company also enteredinto a twelve month consulting agreement beginning December 3, 2003with Shorelight Partners, Inc. to provide management consultingservices. Shorelight Partners receives a monthly retainer of $15,000plus the potential for another $100,000 based on the achievement ofvarious milestones along with 5,000 warrants per month at a strikeprice of $1. The warrants had a nominal value when granted.

Litigation

The Company is involved in various claimsand other legal proceedings that arise from time to time in theordinary course of business. The Company does not believe any of themwill have a material adverse affect on the Company's financialposition or results of operations. Litigation is inherentlyunpredictable and excessive verdicts do occur. Although the Companybelieves is has valid defenses in these matters, the Company could inthe future incur judgments or enter into settlements of claims thatcould have a material adverse affect on the Company's financialposition or results of operations in any particular period.

Anarbitration was filed on July 20, 2004; Philipson vs. Animal Partners,LP, et al, with the American Arbitration Association("AAA") which named TAG as arespondent.   An amended petition initiating the Arbitration (the"Petition") allegedly arises out of thePetitioners' purchase of several units of the Animal PartnersLimited Partnership (the "LP").   Theallegation of the Petition is that "Respondents have neverfully reported any financial information to thePetitioners".   TAG has sent the matter to its legalcounsel; however, TAG is neither a Limited Partner nor General Partnerof the "LP".   TAG's associationwith the "LP" is as distributor of the motionpicture Miracle Dogs produced by the LP.   The case was settledin March 2005 and TAG was released from any claims. TAG, however,intends to purchase the outstanding LP shares currently owned by thePhilipsons for $200,000.

In September 2004, TAG filed suitagainst Martin Halfon ("Halfon") and HalfonProperties, Inc. ("HPI") in the Los AngelesSuperior Court in an action to rescind TAG's agreement for theacquisition of the business of Lone Star Studios and the potentialacquisition of the real estate on which Lone Star Studios is situated.TAG sued Halfon and HPI for rescission and before any responsivepleading was filed. Halfon agreed that HPI will take back the studiooperations and accept 277,525 shares of TAG common stock in exchangefor a full and final release of any claims against TAG valued at$500,000. The Company has recorded a loss on legal settlement.

The Company entered into a consulting agreement with aninvestment/strategic advisory firm on September 1, 2004. The agreementcalls for the investment advisor to assist the Company in devisingfinancial and marketing strategies and raising funds on a non-exclusivebasis through the offering of debt and/or equity securities. TheCompany will pay the investment advisor $10,000 per month plus approvedexpenses and has issued 666,667 warrants to purchase theCompany's common stock at $2.00 per share. The agreement containsconfidentiality and non-competition provisions. The term of theagreement is 12 months and can be terminated by either party with 90days notice in writing.

On August 16, 2004 the Company enteredinto an Independent Contractor Agreement, expiring in one year, with anindividual to provide management services for $10,000 per month and theissuance 

F-17

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TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

of warrants to purchase 200,000 shares ofcommon stock at $.20 per share. The agreement was amended October 1,2004 to allow for payments of $20,000 per month and the issuance ofoptions to purchase 200,000 shares of the Company's common stockat $2.00 expiring in seven years with a cashless exercise provision,expense reimbursements not to exceed $3,000 per month through August2005 and $20,000 per month for 6 months after termination, expiring intwo years. The Company anticipates this individual will become afull-time employee as the Company's Chief Operating Officer andInterim Chief Financial Officer in 2005, at which time the agreementwould be replaced with an employment agreement.

NOTE14-WARRANTS AND OPTIONS

Stock Option Plan

InNovember 2004 the Company adopted the 2004 Employee Stock Option Plan,which provides for the granting of options to employees and independentconsultants. 3,000,000 shares of common stock are reserved under thePlan for the granting of options. The Plan is in effect until November2014. The options are exercisable to purchase common stock for a periodof up to ten years from the date of grant.

The Board ofDirectors of the Company approved the granting of 2,259,088 optionsunder this plan.

As of December 31, 2004, the Company hadwarrants to purchase 2,730,888 shares of common stock outstanding, andoptions to purchase 2,259,088 shares of common stock outstanding. Thesesecurities give the holder the right to purchase shares of theCompany's restricted common stock indefinitely and in accordancewith the terms of the instrument asfollows:

|                          |           |                         |  |        |        |        |
|--------------------------|-----------|-------------------------|--|--------|--------|--------|
| Numberof Warrants Issued |           | Exercise Price perShare |
|                     | 1,276,635 |                    |  | $      | 0.15   |   |
|                     | 610,564   |                    |  |   | 0.20   |   |
|                     | 66,607    |                    |  |   | 1.00   |   |
|                     | 777,082   |                    |  |   | 2.00   |   |
|                     | 2,730,888 |                    |  |   |   |   |
|                          |

|                        |           |                         |  |       |  |  |
|------------------------|-----------|-------------------------|--|-------|--|--|
| Numberof Option Issued |           | Exercise Price perShare |
|                   | 2,259,088 |                    |  | $2.00 |
|                        |

F-18

----

TAGENTERTAINMENT CORP.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

The following table summarizes theactivity of options and warrants under all agreements and plans for theyears ended December 31, 2004 and December 31, 2003:

|                              |  |                           |           |                                |  |         |           |          |  |        |         |        |  |        |         |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|------------------------------|--|---------------------------|-----------|--------------------------------|--|---------|-----------|----------|--|--------|---------|--------|--|--------|---------|--------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|                         |  | WeightedAverage Number of |           | Weighted Average ExercisePrice |  |
|                         |  | Options                   |           | Warrants                       |  | Options |           | Warrants |  |
| Outstanding,December 31,2002 |  |                      | —   |                           |  |    | 909,075   |     |  | $      | — |   |  | $      | 0.76    |   |  |
| Granted                      |  |                      | —   |                           |  |    | 784,575   |     |  |   | — |   |  |   | — |   |  |
| Warrantsexercised            |  |                      | —   |                           |  |    | (360,788  | )   |  |   | — |   |  |   | — |   |  |
| Expired/cancelled            |  |                      | —   |                           |  |    | (693,157  | )   |  |   | — |   |  |   | — |   |  |
| Outstanding,December 31,2003 |  |                      | —   |                           |  |    | 639,705   |     |  | $      | — |   |  | $      | 0.23    |   |  |
| Granted                      |  |                      | 2,259,088 |                           |  |    | 2,664,281 |     |  | $      | 2.00    |   |  |   | — |   |  |
| Expired/cancelled            |  |                      | —   |                           |  |    | (573,098  | )   |  |   | — |   |  |   | — |   |  |
| Outstanding,December 31,2004 |  |                      | 2,259,088 |                           |  |    | 2,730,888 |     |  | $      | 2.00    |   |  | $      | 0.71    |   |  |
|                              |

NOTE15-SUBSEQUENT EVENTS

On March 30, 2005 the Company entered intoa Securities Purchase Agreement with Satellite Strategic FinanceAssociates, LLC and an affiliated investor under which the Companyissued $1,000,000 in aggregate principal amount of Senior Secured Notesand Warrants to purchase 500,000 shares of the Company's commonstock. The Company received gross proceeds of $1,000,000, which will beused for the production and distribution of films, includingacquisition of additional product and/or distribution assets and forgeneral working capital. TAG also entered into a Registration RightsAgreement and a Security Agreement with the investors.

The notesmature on March 30, 2006 and are payable sooner in full in the eventTAG consummates a subsequent financing event, with certain exceptions,or upon the occurrence of an event of default. TAG also has the rightto prepay the notes in whole or in part at any time. The aggregateprincipal amount of notes issued is $1,150,000 with a 15% yieldfunded as original issuance discount. No additional interest is payableunless an event of default occurs, in which event interest at thedefault interest rate of 12% shall accrue. Pursuant to theSecurity Agreement, TAG granted the investors a first priority lien onall of the Company's assets, other than certain previously issuedliens, in order to secure the obligations. The warrants are exercisableat $1.00 per share, subject to adjustment upon certain events,including as a result of the sale of equity securities at a price belowthe exercise price.  The warrants are exercisable at any time onor before March 30, 2010.

In January 2005, TAG began raisingfunds through a private placement offering under Rule 506, promulgatedunder the Securities Act of 1933. The private placement memorandum(PPM) allowed for $5 million to be raised through the issuance of1,666,666 shares in TAG. The PPM also allows for commissions to be paidbased on 10% of the funds raised. As of March 31, 2005approximately $60,000 had been deposited in escrow for the purchase of20,000 shares from the offering.

This disclosure does notconstitute an offer to sell or the solicitation of an offer to buy anyof the Company's securities, nor will there be any sale of thesesecurities by the Company in any state or jurisdiction in which theoffer, solicitation or sale would be unlawful. The securities beingoffered have not been registered under the Securities Act of 1933 andmay not be sold or offered in the United States absent registration oran applicable exemption from the registration requirements. Thisdisclosure is being issued by the Company pursuant to and in accordancewith Rule 135c under the Securities Act of 1933.

F-19

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, TAGcaused this Report to be signed on its behalf by the undersigned,thereunto duly authorized.

|                     |  |                            |  |                                                   |  |  |  |  |  |  |
|---------------------|--|----------------------------|--|---------------------------------------------------|--|--|--|--|--|--|
| Date:April 15, 2005 |  | **TAG ENTERTAINMENTCORP.** |
|                |  | By:                        |  | /s/Steve Austin                                   |
|                |  |                       |  | Steve AustinPresident and Chief Executive Officer |
|                     |

Inaccordance with the Exchange Act, this report has been signed below bythe following persons on behalf of the registrant and in the capacitiesand on the datesindicated.

|                 |  |                                                                                                                     |  |               |
|-----------------|--|---------------------------------------------------------------------------------------------------------------------|--|---------------|
| Signature       |  | Title                                                                                                               |  | Date          |
|                 |
| /s/ SteveAustin |  | Chief ExecutiveOfficer, Chief Financial Officer, Principal Accounting Officer andChairman of the Board of Directors |  | April 15,2005 |
|                 |
| Steve Austin    |
|                 |

Supplemental Information tobe Furnished With Reports Filed Pursuant to Section 15(d) of theExchange Act by Non Reporting Issuers:

No annual reportor proxy statement has been sent to securityholders.

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