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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSIONWashington, D.C.20549

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Form 10-QSB

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|   | QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGEACT OF 1934 |

           For the quarterly period endedJune  30,2006

or

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|--------|--------------------------------------------------------------------------------------------|
|   | TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF1934 |

           For the transition periodfrom                to                .

CommissionFile No. 333-96257

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TAGEntertainment Corp.

(Exact name of SmallBusiness Issuer as specified in itscharter)

|                                                                                    |  |  |                                             |
|------------------------------------------------------------------------------------|--|--|---------------------------------------------|
| Delaware(Stateor other jurisdiction of incorporation ororganization)               |  |  | 13-3851304(I.R.S.EmployerIdentificationNo.) |
| 1333Second Street, Suite 240Santa Monica,CA(Address of principal executiveoffices) |  |  |     90401(ZipCode)      |
|                                                                                    |

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Issuer’stelephone number:(310) 260-3350

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Indicate bycheck mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Actduring the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days.    Yes      No

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

APPLICABLE ONLY TO CORPORATEISSUERS

State the number of shares outstanding of each of theissuer’s classes of common equity, as of the latest practicabledate: The registrant had 21,414,948 shares of common stock, $0.001 parvalue, issued and outstanding as of August  30,2006.

Transitional Small Business Disclosure Format (Checkone):  Yes    No

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TABLE OFCONTENTS

|                                    |  |  |                                                                |  |  |  |  |    |  |
|------------------------------------|--|--|----------------------------------------------------------------|--|--|--|--|----|--|
| PARTI – FINANCIALINFORMATION |
| Item1.                             |  |  | ConsolidatedCondensed FinancialStatements                      |  |  |  |  | 4  |  |
| Item2.                             |  |  | Management’s Discussion and Analysis or Plan ofOperation |  |  |  |  | 18 |  |
| Item3.                             |  |  | Controls andProcedures                                         |  |  |  |  | 29 |  |
| PARTII – OTHERINFORMATION    |
| Item1.                             |  |  | LegalProceedings                                               |  |  |  |  | 29 |  |
| Item2.                        |  |  | Unregistered Sales of Equity Securities and Use ofProceeds     |  |  |  |  | 31 |  |
| Item3.                             |  |  | Defaults Upon SeniorSecurities                                 |  |  |  |  | 31 |  |
| Item4.                             |  |  | Submission of Matters to a Vote of SecurityHolders             |  |  |  |  | 31 |  |
| Item 5.                            |  |  | OtherInformation                                               |  |  |  |  | 31 |  |
| Item6.                             |  |  | Exhibits                                                       |  |  |  |  | 32 |  |
|                                    |

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FORWARD LOOKING STATEMENTS

Thisreport Form 10-QSB for TAG Entertainment Corp. (the‘‘Company’’ or‘‘TAG’’) contains‘‘forward-looking statements’’ within themeaning of the Private Securities Litigation Reform Act of 1995. Insome cases, forward-looking statements may be identified by terms suchas ‘‘may,’’‘‘intend,’’‘‘will,’’‘‘should,’’‘‘could,’’‘‘would,’’‘‘expect,’’‘‘believe,’’‘‘estimate,’’‘‘expect’’ or the negative of these terms,and similar expressions intended to identify forward-lookingstatements.

These forward-looking statements reflect theCompany’s current views with respect to future events and arebased on assumptions and are subject to risks and uncertainties. Also,these forward-looking statements present estimates and assumptions onlyas of the date of this report. Except for the ongoing obligation todisclose material information as required by federal securities laws,the Company does not intend to update readers concerning any futurerevisions to forward-looking statements to reflect events orcircumstances occurring after the date of this report. Some of thefactors that could cause actual results to vary from theforward-looking statements include:

|  |              |                                                                                                                            |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------|
|  | •  | theCompany’s inability to generate revenues sufficient to sustainoperations or to raise capital as and whenrequired; |

|  |              |                                                                                                                           |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------|
|  | •  | unanticipated increases indevelopment, production or marketing expenses related to theCompany’s businessactivities; |

|  |              |                                                                                        |
|--|--------------|----------------------------------------------------------------------------------------|
|  | •  | the Company’sinability to effectively compete with other entertainmentproviders; |

|  |              |                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------|
|  | •  | the Company’sinability to protect its intellectual property from infringement byothers; |

|  |              |                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------|
|  | •  | the Company’s inabilityto fully implement its business plan for any reason;or |

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | the loss of the services of theCompany’s Chief Executive Officer or other key persons. |

Inevaluating forward-looking statements, readers should consider thefactors identified above as well as those risks outlined in the sectionof this report titled ‘‘Management’s Discussionand Analysis or Plan of Operation’’. Although we believethat expectations reflected in the forward-looking statements arereasonable, future results, levels of activity, or achievements are notassured.

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PartI

Item 1.    Financial Statements

TAGENTERTAINMENT CORP.

CONSOLIDATED CONDENSED BALANCESHEETS

|                                                                                                                                                     |  |  |             |   |            |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------|---|------------|---|
|                                                                                                                                                |  |  | June30,2006 |
|                                                                                                                                                |  |  | (unaudited) |
| ASSETS                                                                                                                                              |  |  |             |   |       |   |
| Currentassets                                                                                                                                       |  |  |             |   |       |   |
| Cash                                                                                                                                                |  |  |             | $ | 126,000    |   |
| Accountsreceivable, net of allowance of$142,000                                                                                                     |  |  |             |   | 2,956,000  |   |
| Receivables fromaffiliatedpartnerships                                                                                                              |  |  |             |   | 1,501,000  |   |
| Notesreceivable                                                                                                                                     |  |  |             |   | 1,377,000  |   |
| Other currentassets                                                                                                                                 |  |  |             |   | 343,000    |   |
| Totalcurrent assets                                                                                                                                 |  |  |             |   | 6,303,000  |   |
| Capitalized filmcosts, net                                                                                                                          |  |  |             |   | 1,389,000  |   |
| Investments inlimitedpartnerships                                                                                                                   |  |  |             |   | 1,013,000  |   |
| Equipment,net                                                                                                                                       |  |  |             |   | 22,000     |   |
| Otherassets                                                                                                                                         |  |  |             |   | 165,000    |   |
|                                                                                                                                                |  |  |             | $ | 8,892,000  |   |
| LIABILITIESAND STOCKHOLDERS’EQUITY                                                                                                            |  |  |             |   |       |   |
| Currentliabilities                                                                                                                                  |  |  |             |   |       |   |
| Accounts payable andaccrued expenses                                                                                                                |  |  |             | $ | 1,047,000  |   |
| Cashoverdraft                                                                                                                                       |  |  |             |   | 2,000      |   |
| Payables toaffiliatedpartnerships                                                                                                                   |  |  |             |   | 2,895,000  |   |
| Notespayable                                                                                                                                        |  |  |             |   | 75,000     |   |
| Notes payable, relatedparty                                                                                                                         |  |  |             |   | 100,000    |   |
| Deferred productionfunding                                                                                                                          |  |  |             |   | 8,000      |   |
| Accruedresiduals                                                                                                                                    |  |  |             |   | 71,000     |   |
| Accruedsalaries                                                                                                                                     |  |  |             |   | 475,000    |   |
| Totalcurrentliabilities                                                                                                                             |  |  |             |   | 4,673,000  |   |
| 6%Series A convertible preferredstock                                                                                                               |  |  |             |   |       |   |
| $.001 par value: 500,000shares authorized; 5,000 shares outstanding; mandatorily redeemable,$5,000,000 redemption value; net of unamortizeddiscount |  |  |             |   | 1,944,000  |   |
| Commitmentsand contingencies                                                                                                                        |  |  |             |   |       |   |
| Minority interest                                                                                                                                   |  |  |             |   | 2,052,000  |   |
| Stockholders’equity                                                                                                                           |  |  |             |   |       |   |
| Common stock, $.001 parvalue: 50,000,000 shares authorized; 21,414,948 shares outstanding                                                           |  |  |             |   | 21,000     |   |
| Additional paid-incapital                                                                                                                           |  |  |             |   | 9,417,000  |   |
| Accumulated(deficit)                                                                                                                                |  |  |             |   | (9,215,000 | ) |
| Totalstockholders’ equity                                                                                                                     |  |  |             |   | 223,000    |   |
|                                                                                                                                                |  |  |             | $ | 8,892,000  |   |
|                                                                                                                                                     |

Seeaccompanying notes to consolidated financialstatements.

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TAG ENTERTAINMENTCORP.

CONSOLIDATED CONDENSED STATEMENTS OFOPERATIONS(unaudited)

|                                   |  |  |                           |   |            |      |  |  |  |   |            |   |
|-----------------------------------|--|--|---------------------------|---|------------|------|--|--|--|---|------------|---|
|                              |  |  | Threemonths ended June30, |
|                              |  |  | 2006                      |   |            | 2005 |
| Revenue                           |  |  |                           |   |       |      |  |  |  |   |       |   |
| Filmrevenue                       |  |  |                           | $ | 44,000     |      |  |  |  | $ | 128,000    |   |
| Productionfees                    |  |  |                           |   | 365,000    |      |  |  |  |   | —    |   |
| Distributionfees                  |  |  |                           |   | 45,000     |      |  |  |  |   | —    |   |
| Managementfees                    |  |  |                           |   | 66,000     |      |  |  |  |   | 90,000     |   |
| Overheadfees                      |  |  |                           |   | 85,000     |      |  |  |  |   | 60,000     |   |
| Sponsorshipfees                   |  |  |                           |   | 135,000    |      |  |  |  |   | —    |   |
| Totalrevenue                      |  |  |                           |   | 740,000    |      |  |  |  |   | 278,000    |   |
| Operatingexpenses                 |  |  |                           |   |       |      |  |  |  |   |       |   |
| Amortizationof filmcosts          |  |  |                           |   | 18,000     |      |  |  |  |   | 52,000     |   |
| Studiorent and otherexpenses      |  |  |                           |   | —    |      |  |  |  |   | 10,000     |   |
| Selling,general andadministrative |  |  |                           |   | 537,000    |      |  |  |  |   | 996,000    |   |
| Totaloperatingexpenses            |  |  |                           |   | 555,000    |      |  |  |  |   | 1,058,000  |   |
| Income(loss) fromoperations       |  |  |                           |   | 185,000    |      |  |  |  |   | (780,000   | ) |
| Interestexpense                   |  |  |                           |   | (291,000   | )    |  |  |  |   | (984,000   | ) |
| Interestand otherincome           |  |  |                           |   | 12,000     |      |  |  |  |   | 7,000      |   |
| Net(loss) before minorityinterest |  |  |                           |   | (94,000    | )    |  |  |  |   | (1,757,000 | ) |
| Minorityinterest                  |  |  |                           |   | 5,000      |      |  |  |  |   | 20,000     |   |
| Net(loss)                         |  |  |                           | $ | (89,000    | )    |  |  |  | $ | (1,737,000 | ) |
| Net(loss) pershare                |  |  |                           |   |       |      |  |  |  |   |       |   |
| Basic andDiluted                  |  |  |                           | $ | (0.00      | )    |  |  |  | $ | (0.08      | ) |
| Weightedaverage shares            |  |  |                           |   |       |      |  |  |  |   |       |   |
| BasicandDiluted                   |  |  |                           |   | 21,415,000 |      |  |  |  |   | 21,069,000 |   |
|                                   |

Seeaccompanying notes to consolidated financialstatements.

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TAG ENTERTAINMENTCORP.

CONSOLIDATED CONDENSED STATEMENTS OFOPERATIONS(unaudited)

|                                   |  |  |                         |   |            |      |  |  |  |   |            |   |
|-----------------------------------|--|--|-------------------------|---|------------|------|--|--|--|---|------------|---|
|                              |  |  | Sixmonths ended June30, |
|                              |  |  | 2006                    |   |            | 2005 |
| Revenue                           |  |  |                         |   |       |      |  |  |  |   |       |   |
| Filmrevenue                       |  |  |                         | $ | 225,000    |      |  |  |  | $ | 359,000    |   |
| Productionfees                    |  |  |                         |   | 632,000    |      |  |  |  |   | —    |   |
| Distributionfees                  |  |  |                         |   | 74,000     |      |  |  |  |   | —    |   |
| Managementfees                    |  |  |                         |   | 135,000    |      |  |  |  |   | 180,000    |   |
| Overheadfees                      |  |  |                         |   | 195,000    |      |  |  |  |   | 120,000    |   |
| Sponsorshipfees                   |  |  |                         |   | 270,000    |      |  |  |  |   | —    |   |
| Totalrevenue                      |  |  |                         |   | 1,531,000  |      |  |  |  |   | 659,000    |   |
| Operatingexpenses                 |  |  |                         |   |       |      |  |  |  |   |       |   |
| Amortizationof filmcosts          |  |  |                         |   | 86,000     |      |  |  |  |   | 196,000    |   |
| Studiorent and otherexpenses      |  |  |                         |   | —    |      |  |  |  |   | 43,000     |   |
| Selling,general andadministrative |  |  |                         |   | 1,111,000  |      |  |  |  |   | 1,666,000  |   |
| Totaloperatingexpenses            |  |  |                         |   | 1,197,000  |      |  |  |  |   | 1,905,000  |   |
| Income(loss) fromoperations       |  |  |                         |   | 334,000    |      |  |  |  |   | (1,246,000 | ) |
| Interestexpense                   |  |  |                         |   | (581,000   | )    |  |  |  |   | (984,000   | ) |
| Interestand otherincome           |  |  |                         |   | 12,000     |      |  |  |  |   | 11,000     |   |
| Net(loss) before minorityinterest |  |  |                         |   | (235,000   | )    |  |  |  |   | (2,219,000 | ) |
| Minorityinterest                  |  |  |                         |   | 5,000      |      |  |  |  |   | 19,000     |   |
| Net(loss)                         |  |  |                         | $ | (230,000   | )    |  |  |  | $ | (2,200,000 | ) |
| Net(loss) pershare                |  |  |                         |   |       |      |  |  |  |   |       |   |
| Basic andDiluted                  |  |  |                         | $ | (0.01      | )    |  |  |  | $ | (0.10      | ) |
| Weightedaverage shares            |  |  |                         |   |       |      |  |  |  |   |       |   |
| BasicandDiluted                   |  |  |                         |   | 21,269,000 |      |  |  |  |   | 21,065,000 |   |
|                                   |

Seeaccompanying notes to consolidated financialstatements.

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TAG ENTERTAINMENTCORP.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSFORTHE SIX MONTHS ENDED JUNE 30(unaudited)

|                                                                                           |  |  |      |   |          |      |  |  |  |   |            |   |
|-------------------------------------------------------------------------------------------|--|--|------|---|----------|------|--|--|--|---|------------|---|
|                                                                                      |  |  | 2006 |   |          | 2005 |
| Cashflows from (to) operatingactivities                                                   |  |  |      |   |     |      |  |  |  |   |       |   |
| Net (loss)before minorityinterest                                                         |  |  |      | $ | (235,000 | )    |  |  |  | $ | (2,219,000 | ) |
| Adjustmentsto reconcile net (loss) to net cash provided by (used in) operatingactivities: |  |  |      |   |     |      |  |  |  |   |       |   |
| Amortization offilmcosts                                                                  |  |  |      |   | 86,000   |      |  |  |  |   | 196,000    |   |
| Depreciation                                                                              |  |  |      |   | 11,000   |      |  |  |  |   | 27,000     |   |
| Bad debtexpense                                                                           |  |  |      |   | 147,000  |      |  |  |  |   | —    |   |
| Stockand warrants issued for consultingservices                                           |  |  |      |   | 220,000  |      |  |  |  |   | 167,000    |   |
| Amortizationof discount on debtfinancings                                                 |  |  |      |   | 430,000  |      |  |  |  |   | 782,000    |   |
| Amortizationof deferred financingcosts                                                    |  |  |      |   | 54,000   |      |  |  |  |   | 21,000     |   |
| Loss ondisposal ofassets                                                                  |  |  |      |   | 49,000   |      |  |  |  |   | —    |   |
| Changesin operating assets andliabilities:                                                |  |  |      |   |     |      |  |  |  |   |       |   |
| Accountsreceivable                                                                        |  |  |      |   | 370,000  |      |  |  |  |   | 181,000    |   |
| Investmentsinfilms                                                                        |  |  |      |   | 28,000   |      |  |  |  |   | (37,000    | ) |
| Othercurrentassets                                                                        |  |  |      |   | (177,000 | )    |  |  |  |   | —    |   |
| Bankoverdrafts                                                                            |  |  |      |   | 2,000    |      |  |  |  |   | (124,000   | ) |
| Accountspayable                                                                           |  |  |      |   | (341,000 | )    |  |  |  |   | (251,000   | ) |
| Duefrom/to affiliatedpartnerships                                                         |  |  |      |   | (115,000 | )    |  |  |  |   | (819,000   | ) |
| Deferredrevenue                                                                           |  |  |      |   | —  |      |  |  |  |   | (81,000    | ) |
| Accruedsalaries                                                                           |  |  |      |   | 60,000   |      |  |  |  |   | (5,000     | ) |
| Other                                                                                     |  |  |      |   | (140,000 | )    |  |  |  |   | (88,000    | ) |
| Netcash provided by (used in) operatingactivities                                         |  |  |      |   | 449,000  |      |  |  |  |   | (2,250,000 | ) |
| Cashflows from (to) investingactivities                                                   |  |  |      |   |     |      |  |  |  |   |       |   |
| Issuance ofnotesreceivable                                                                |  |  |      |   | (342,000 | )    |  |  |  |   | (250,000   | ) |
| Collectionson notesreceivable                                                             |  |  |      |   | 165,000  |      |  |  |  |   | —    |   |
| Investmentin filmpartnerships                                                             |  |  |      |   | (200,000 | )    |  |  |  |   | (8,000     | ) |
| Proceedsfrom disposition ofequipment                                                      |  |  |      |   | —  |      |  |  |  |   | 49,000     |   |
| Purchasesofequipment                                                                      |  |  |      |   | (4,000   | )    |  |  |  |   | (12,000    | ) |
| Netcash (used in) investmentactivities                                                    |  |  |      |   | (381,000 | )    |  |  |  |   | (221,000   | ) |
| Cashflows from (to) financingactivities                                                   |  |  |      |   |     |      |  |  |  |   |       |   |
| Proceedsfrom issuance of notespayable                                                     |  |  |      |   | —  |      |  |  |  |   | 1,025,000  |   |
| Paymentson notespayable                                                                   |  |  |      |   | —  |      |  |  |  |   | (1,273,000 | ) |
| Proceedsfrom issuance of convertible preferredstock                                       |  |  |      |   | —  |      |  |  |  |   | 5,000,000  |   |
| Proceedsfrom relatedparty                                                                 |  |  |      |   | —  |      |  |  |  |   | 85,000     |   |
| Paymentsto relatedparty                                                                   |  |  |      |   | —  |      |  |  |  |   | (8,000     | ) |
| Proceedsfrom private placement offerings of commonstock                                   |  |  |      |   | —  |      |  |  |  |   | 88,000     |   |
| Paymentof financingcosts                                                                  |  |  |      |   | —  |      |  |  |  |   | (370,000   | ) |
| Minorityinterest capitalreturned                                                          |  |  |      |   | —  |      |  |  |  |   | (17,000    | ) |
| Proceedsfor filmproduction                                                                |  |  |      |   | —  |      |  |  |  |   | 106,000    |   |
| Netcash provided by financingactivities                                                   |  |  |      |   | —  |      |  |  |  |   | 4,636,000  |   |
| Netincrease incash                                                                        |  |  |      |   | 68,000   |      |  |  |  |   | 2,165,000  |   |
| Cashat beginning ofperiod                                                                 |  |  |      |   | 58,000   |      |  |  |  |   | 23,000     |   |
| Cashat end ofperiod                                                                       |  |  |      | $ | 126,000  |      |  |  |  | $ | 2,188,000  |   |
| Supplementaldisclosure of cash flowinformation:                                           |  |  |      |   |     |      |  |  |  |   |       |   |
| Interest andoriginal issue discountpaid                                                   |  |  |      | $ | 74,000   |      |  |  |  | $ | 197,000    |   |
|                                                                                           |

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TAG ENTERTAINMENTCORP.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANTACCOUNTING POLICIES 

Accounting Principles andUse of Estimates

The accompanying consolidated condensedfinancial statements for the six month periods ended June30,  2006 and 2005 have been prepared in accordance withaccounting principles generally accepted in the United States(‘‘GAAP’’) and with the instructions toForm 10-QSB and Item 310 of Regulation S-B. These consolidatedfinancial statements have not been audited by independent publicaccountants, but include all adjustments (consisting of normalrecurring adjustments), which are, in the opinion of management,necessary for a fair presentation of the financial condition, resultsof operations, and cash flows for such periods. However, these resultsare not necessarily indicative of results for any other interim periodor for the full year. The accompanying consolidated condensed balancesheet as of December  31,  2005 has been derived from theaudited financial statements, but does not include all disclosuresrequired by GAAP.

Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withGAAP have been omitted pursuant to guidelines of the Securities andExchange Commission (the ‘‘SEC’’).Management believes that the disclosures included in the accompanyinginterim financial statements and footnotes are adequate to make theinformation not misleading, but the disclosures contained herein shouldbe read in conjunction with the consolidated financial statements andnotes thereto included in the Company’s Annual Report on Form10-KSB for the year ended December  31,  2005.

Thepreparation of the financial statements in accordance with GAAPrequires management to make estimates and assumptions that affectreported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period.Actual results could differ from those and otherestimates.

Nature of Operations

TAG Entertainment Corp.(the ‘‘Company’’ or‘‘TAG’’) is a Delaware corporationheadquartered in Santa Monica, California. 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 and through the sale of equity or debt securities. TAGEntertainment USA, Inc. (‘‘TAG USA’’), theCompany's wholly-owned subsidiary, serves as the sole generalpartner of the following four limited partnerships: Majestic FilmPartners, LP, Majestic Film Partners II, LP, Majestic Film PartnersIII, LP and Majestic Film Partners IV, LP (the ‘‘LimitedPartnerships’’). TAG USA is also the distributor of filmsproduced by numerous 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, theCompany’s Chief Executive Officer.

The Company'srevenues are derived from motion picture production and distribution,which includes theatrical, home entertainment, television andinternational distribution. Theatrical revenues are derived from thedomestic theatrical release of motion pictures in North America. Homeentertainment revenues are derived from the sale of video and DVDreleases of the Company's own productions and acquired films,including theatrical releases and direct-to-video releases. Televisionrevenues are primarily derived from the licensing of theCompany's productions and acquired films to the domestic cable,free and pay television markets. International revenues are derivedfrom the licensing of the Company's productions and acquiredfilms to international markets on a territory-by-territorybasis.

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The Company's primary operatingexpenses include the following: direct operating expenses, whichinclude amortization of production or acquisition costs, participationand residual expenses; distribution and marketing expenses; whichprimarily include the costs of theatrical ‘‘prints andadvertising’’ and of video and DVD duplication andmarketing; and general and administration expenses, which includesalaries and other overhead.

Going Concern and ManagementPlans

The Company’s consolidated financial statementshave been presented on the basis that it is a going concern, whichcontemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. The Company hasexperienced recurring losses and negative cash flows from operationsand has a capital deficit, which raises substantial doubt about itsability to continue as a going concern. The Company is currentlydevoting its efforts to raising additional capital and 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.

On March  30,  2005, the Companyentered into a letter of intent to acquire 100% of theoutstanding common stock of Myriad Pictures, Inc. As of February23,  2006, the Company notified Myriad that it was terminatingnegotiations and the letter of intent, effective immediately. Pursuantto its terms, the Myriad Loan (less certain expenses) was repayable byMarch  30,  2006 and the Company has not received repaymentas of the date hereof.

In order to satisfy future cashrequirements, management is actively pursuing and has entered intodiscussions regarding additional financing to support expansion plansand ongoing operations. The Company currently has no firm agreementswith any third parties for any future transactions and futurefinancings.

Principles of Consolidation

The accompanyingconsolidated financial statements of the Company include the accountsof TAG, TAG USA and of the Limited Partnerships, which the Company isthe sole general partner. The General Partner has the full andexclusive control of the management and operation of the business ofeach partnership. The Company in its capacity as General Partnerparticipates in 1% of the losses of the limited partnerships butshares in 60% of any profits. All significant inter-companybalances and transactions have been eliminated inconsolidation.

Minority Interests

TAG consolidates theLimited Partnerships for which it is the sole general partner. Theamount of minority interest represents the aggregate net limitedpartnership capital of each partnership offset by 99% ofaccumulated Limited Partnership losses.

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. Revenue from thesale of videocassettes and digital video disks(‘‘DVDs’’) in the retail market isrecognized on the ‘‘street date’’ when itis available for sale by the customer. Revenues from televisionslicensing are recognized when the feature film or television program isavailable to the licensee for telecast. Revenues from sales tointernational territories are recognized when the feature film ortelevision program is available to the distributor for exploitation andno conditions for delivery exist.

Production fees are earned onfilms where the Company has been engaged as producer by limitedpartnerships formed to finance the movie. In certain cases, such feesare fixed in amount and are earned and billed during the productionprocess. In other cases, the Company earns a fee based on the revenuesof the film and therefore recognizes its fee when revenues aredetermined and reported by the distributors of thefilm.

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On certain films, the Company earnsmanagement fees in connection with its role as production manager forthe limited partnerships where the Chief Executive Officer of theCompany has assigned to TAG his management fee rights during theproduction period.

The Company bills overhead fees to limitedpartnerships for reasonable, direct and allocable costs arising duringthe management of film projects.

Rental revenue from short-termoperating leases of studio facilities is recognized over the term ofthe lease.

Sponsorship income is recognized pursuant to the termsstipulated in the agreement.

Cash payments received which mayinclude minimum guarantees are recorded as deferred revenue until allconditions 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 cashequivalents.

Capitalized Film Costs

Capitalized filmcosts consist of investments in films, which include the unamortizedcosts of completed films which have been produced by the Company or forwhich the Company has acquired distribution rights or filmlibraries.

For films produced by the Company, capitalized costsinclude all direct production and financing costs, and productionoverhead. For acquired films, these capitalized costs consist ofminimum 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 usingmanagement’s future revenue and cost estimates. Additionalamortization is recorded in the amount by which the unamortized costsexceed the estimated fair value of the film. Estimates of futurerevenue involve measurement uncertainty and it is therefore possiblethat reductions in the carrying value of investment in films may berequired as a consequence of changes in management’s futurerevenue estimates.

Films in progress include the accumulatedcosts of production, which have not yet been completed by theCompany.

Films in development include costs of acquiring filmrights to original screenplays and costs to adapt such projects. Suchcosts are capitalized and, upon commencement of production, aretransferred to production costs. Projects in development are writtenoff at the earlier of the date determined not to be recoverable or whenabandoned, or three years from the date of the initialinvestment.

Equipment

Equipment is carried at cost and isdepreciated on the straight-line basis over their estimated usefullives of three to eight years. Repairs and maintenance are expensed asincurred. When assets 

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are 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 $11,000 and $27,000 for the six months endedJune  30,  2006 and 2005, respectively.

Impairmentof Long-Lived Assets

Statement of Financial Accounting StandardsNo. 144, ‘‘Accounting for the Impairment or Disposal ofLong-Lived Assets’’ (‘‘SFAS No.144’’)requires that long-lived assets tobe disposed of by sale, including those of discontinuedoperations, be measured at the lowerof carrying amount orfair value less cost tosell, whether reported in continuing operations orin discontinued operations.  SFASNo. 144 broadens the reporting of discontinuedoperations to include all components of an entity with operations thatcan be distinguished from the rest of the entity and that will beeliminated from the ongoing operations of the entity ina disposal transaction. SFAS No. 144 alsoestablishes a ‘‘primary-asset’’approach to determine the cash flow estimation period for agroup of assets and liabilities that represents the unit of accountingfor a long-lived asset to be held and used. The Company has noimpairment issues to disclose.

Stock-BasedCompensation

Prior to the January 1, 2006 adoption ofStatement of Financial Accounting Standards(‘‘SFAS’’) No. 123R,‘‘Share-Based Payment,’’ the Companyaccounted for stock-based compensation using the intrinsic value methodprescribed in Accounting Principles Board (APB) Opinion No. 25,‘‘Accounting for Stock Issued toEmployees,’’ and related interpretations. Accordingly,under APB Opinion No. 25, no compensation expense was recognizedbecause the exercise price of the Company’s employee stockoptions was equal to the market price of the underlying stock on thedate of grant. The Company applied the disclosure provisions of SFASNo. 123, ‘‘Accounting for Stock BasedCompensation,’’ as amended by SFAS No. 148,‘‘Accounting for Stock Based Compensation –Transition and Disclosure,’’ as if the fair value methodhad been applied in measuring compensation expense.

EffectiveJanuary 1, 2006, the Company adopted the fair value recognitionprovisions of SFAS No. 123R, under which compensation expense isrecognized in the Consolidated Statement of Operations for the fairvalue of employee stock-based compensation. The Company has elected themodified-prospective transition method as permitted by SFASNo. 123R and accordingly, prior periods have not been restatedto reflect the effect of SFAS No. 123R. The modified-prospectivetransition method requires that stock-based compensation expenserecognized in the first quarter of fiscal 2006 include(1) quarterly amortization of all stock-based payments grantedprior to, but not vested as of January 1, 2006, based on thegrant date fair value estimated in accordance with the originalprovisions of SFAS No. 123 and (2) quarterly amortizationof all stock-based payments granted subsequent to January 1,2006, based on the grant date fair value estimated in accordance withthe provisions of SFAS No. 123R. In addition, pursuant to SFASNo. 123R, the Company is required to estimate the amount ofexpected forfeitures when calculating stock-based compensation expense,rather than accounting for forfeitures as incurred, which was theCompany’s previous method. Compensation expense will berecognized over the requisite service (vesting) period using thestraight-line attribution method.

Valuation of theCompany’s Common Stock

Unless otherwise disclosed, allstock-based transactions entered into by the Company have been valuedat the market value of the Company’s common stock on the datethe transaction was entered into or have been valued using theBlack-Scholes to estimate the fair market value.

Concentrationsof Risk

The Company’s financial instruments that areexposed to concentrations of credit risk consist of cash andreceivables. The Company invests its cash in banks with high creditratings; however, certain account balances have been maintained atlevels in excess of federally insured limits. The Company has notexperienced a loss in such accounts.

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The Company extends credit based on anevaluation of the customer’s financial condition, generallywithout collateral. Exposure to losses on receivables is principallydependent on each customer’s financial condition. The Companymonitors its exposure for credit losses and maintains allowances foranticipated losses, as required. The Company sub-distributes titles inboth the domestic and international markets. The Company is typicallypaid an advance or minimum guarantee for these rights. Any overages(revenue in excess of the minimum guarantee) are reported to theCompany 45 to 90 days after the reporting period. Because of theminimum guarantees and the details of the Company’s distributionrelationships, the Company’s outstanding balances may extend togreater than 90 days.

At June  30,  2006, theCompany’s receivables included $1.2  million to becollected from an international film distributor for sub-distributionrights on a film completed and delivered during 2005. In addition, theCompany received a note for production funding provided to the investorpartnership that owns the underlying rights to this film. The notereceivable balance was $1.4  million at June  30,2006. The receivable from distributor represents a minimum guaranteeunder a distribution contract with the Company to be collected fromreceipts in various foreign markets. The note receivable, whichoriginally matured during the fourth quarter of 2005 was extended untilthe fourth quarter of 2006. The amount due of $1,035,000 bears interestat 12% per annum and will be collected from the partnershipafter payment of distribution and production fees and expenses relatedto the film. While estimates of gross receipts, including video and DVDsales, support the stated values of these amounts, the collection ofthese balances is subject to inherent risks associated with theworldwide performance of the film and general conditions in the variousforeign markets. During the six months ended June  30,2006 the Company also advanced in the form of a note receivable attotal of $342,000 for the movie ‘‘Deal’’which is due on December  31,  2006.

IncomeTaxes

Deferred income taxes are recorded to reflect the taxconsequences in future years of temporary differences between the taxbasis of the assets and liabilities and their financial statementamounts at the end of each reporting period. Valuation allowances areestablished when necessary to reduce deferred tax assets to the amountexpected to be realized. Income tax expense is the tax payable for thecurrent period and the change during the period in deferred tax assetsand liabilities. The deferred tax assets and liabilities have beennetted to reflect the tax impact of temporary differences. A fullvaluation allowance has been established for net deferred tax assets asmanagement believes that it is more likely than not that a tax benefitwill not be realized.

Earnings per Common Share

TheCompany computes earnings per common share in accordance with Statementof Financial 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 complex capital structures and requiresa reconciliation of the numerator and denominator of the basic EPScomputation to the numerator and denominator of the diluted EPScomputation. Basic EPS is computed by dividing income or loss availableto common shareholders by the weighted average number of common sharesoutstanding. The computation of diluted EPS is similar to the basic EPScomputation 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. Thediluted EPS amounts for the periods ended June  30,  2006and 2005 do not reflect the impact of common share equivalents arisingfrom warrants and options totaling 7,713,000 and 5,567,000 atJune  30,  2006 and 2005, respectively, as the effectswould be anti-dilutive in those periods.

Recently IssuedAccounting Pronouncements

In May  2005, the FASB issuedSFAS No. 154, ‘‘Accounting Changes and ErrorCorrections.’’ This statement applies to all voluntarychanges in accounting principle and requires retrospective

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application to prior periods' financialstatements of changes in accounting principle, unless this would beimpracticable. This statement also makes a distinction between‘‘retrospective application’’ of anaccounting principle and the‘‘restatement’’ of financial statements toreflect the correction of an error. This statement is effective foraccounting changes and corrections of errors made in fiscal yearsbeginning after December  15,  2005. SFAS No. 154 has nothad a material effect on the consolidated financial position or resultsof operations of the Company through the date of this filing.

InFebruary  2006, FASB issued SFAS No. 155,‘‘Accounting for Certain Hybrid FinancialInstruments’’. SFAS No. 155 amends SFAS No 133,‘‘Accounting for Derivative Instruments and HedgingActivities’’, and SFAS No. 140,‘‘Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities’’. SFAS No.155, permits fair value re-measurement for any hybrid financialinstrument that contains an embedded derivative that otherwise wouldrequire bifurcation, clarifies which interest-only strips andprincipal-only strips are not subject to the requirements of SFAS No.133, establishes a requirement to evaluate interest in securitizedfinancial assets to identify interests that are freestandingderivatives or that are hybrid financial instruments that contain anembedded derivative requiring bifurcation, clarifies thatconcentrations of credit risk in the form of subordination are notembedded derivatives, and amends SFAS No. 140 to eliminate theprohibition on the qualifying special-purpose entity from holding aderivative financial instrument that pertains to a beneficial interestother than another derivative financial instrument. This statement iseffective for all financial instruments acquired or issued after thebeginning of the Company’s first fiscal year that begins afterSeptember  15,  2006. SFAS No. 155 is not expected to havea material effect on the consolidated financial position or results ofoperations of the Company.

In June  2005, the EITF reachedconsensus on Issue No. 05-6, Determining the Amortization Period forLeasehold Improvements (‘‘EITF 05-6.’’)EITF 05-6 provides guidance on determining the amortization period forleasehold improvements acquired in a business combination or acquiredsubsequent to lease inception. The guidance in EITF 05-6 will beapplied prospectively and is effective for periods beginning afterJune  29,  2005. EITF 05-6 is not expected to have amaterial effect on its consolidated financial position or results ofoperations.

NOTE 2 – CAPITALIZED FILMCOSTS

Capitalized film costs for theatrical and non-theatricalfilms at June  30,2006:

|                               |  |  |           |   |           |                         |  |  |         |   |            |   |  |  |  |   |           |  |
|-------------------------------|--|--|-----------|---|-----------|-------------------------|--|--|---------|---|------------|---|--|--|--|---|-----------|--|
|                          |  |  | Grosscost |   |           | Accumulatedamortization |  |  | Netcost |
| Produced and released films   |  |  |           | $ | 6,366,000 |                         |  |  |         | $ | (5,508,000 | ) |  |  |  | $ | 858,000   |  |
| Acquiredfilms and film rights |  |  |           |   | 393,000   |                         |  |  |         |   | (352,000   | ) |  |  |  |   | 41,000    |  |
| Filmsin progress              |  |  |           |   | 261,000   |                         |  |  |         |   | —    |   |  |  |  |   | 261,000   |  |
| Filmsunderdevelopment         |  |  |           |   | 229,000   |                         |  |  |         |   | —    |   |  |  |  |   | 229,000   |  |
| Total                         |  |  |           | $ | 7,249,000 |                         |  |  |         | $ | (5,860,000 | ) |  |  |  | $ | 1,389,000 |  |
|                               |

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NOTE 3 – INVESTMENT IN LIMITEDPARTNERSHIPS

TAG has purchased interests in various affiliatedunconsolidated partnerships by issuing TAG common stock (except forDeal The Movie LP which was purchased for cash) for the partnershipshares ranging in value at $1 to $2 per share of TAG common stock(accounted for at cost) asfollows:

|                                      |  |  |        |  |        |      |  |  |  |   |           |  |
|--------------------------------------|--|--|--------|--|--------|------|--|--|--|---|-----------|--|
| LimitedPartnerships                  |  |  | %Owned |  |        | Cost |
| Family Film Partners VII,LP          |  |  |        |  | 5.94   | %    |  |  |  | $ | 200,000   |  |
| AnimalPartners, LP                   |  |  |        |  | 14.21  | %    |  |  |  |   | 425,000   |  |
| Fairy TalePartners III, LP           |  |  |        |  | 2.82   | %    |  |  |  |   | 150,000   |  |
| Family FilmPartners,LP               |  |  |        |  | 0.05   | %    |  |  |  |   | 13,000    |  |
| MotocrossKids                        |  |  |        |  | 0.42   | %    |  |  |  |   | 25,000    |  |
| Deal TheMovie LP (acquired withcash) |  |  |        |  |   |      |  |  |  |   | 200,000   |  |
|                                 |  |  |        |  |   |      |  |  |  | $ | 1,013,000 |  |
|                                      |

NOTE4 – RECEIVABLES/PAYABLES FROM/TO AFFILIATEDPARTNERSHIPS

We have incurred net debt to unconsolidatedpartnerships in the aggregate amount of $1,394,000 as of June30,  2006, which we required during the course of managing ouroperations and facilitating the activities of the partnerships. Thereis an accounts receivable due from these partnerships in the amount of$1,501,000 and a payable to the partnerships in the amount of$2,895,000. Cash transfers were required between affiliatedpartnerships to meet cash flow needs and other obligations. Cashtransfers were made between and among us and both consolidated andunconsolidated partnerships.

The receivable and payable balancesamong affiliated entities on June  30,  2006 and theamounts due (to) or from related affiliated partnerships are asfollows:

|                           |  |  |                             |  |            |             |  |  |  |   |            |   |
|---------------------------|--|--|-----------------------------|--|------------|-------------|--|--|--|---|------------|---|
| Movie                     |  |  | Balance(Payable)/Receivable |  |            | NetBalance* |
| SantaTrap                 |  |  |                             |  |       |             |  |  |  |   |       |   |
| Santa Trap LLC            |  |  |                             |  | (19,169    | )           |  |  |  |   |       |   |
| Family FilmPartners VIILP |  |  |                             |  | 134,830    |             |  |  |  | $ | 115,661    |   |
| Popstar                   |  |  |                             |  |       |             |  |  |  |   |       |   |
| GhostownLP                |  |  |                             |  | (642,707   | )           |  |  |  |   |       |   |
| DowntownLP                |  |  |                             |  | 749,729    |             |  |  |  |   | 107,022    |   |
| BlackBeauty               |  |  |                             |  |       |             |  |  |  |   |       |   |
| Black BeautyLLP           |  |  |                             |  | 296,542    |             |  |  |  |   |       |   |
| American BlackBeautyLP    |  |  |                             |  | (132,847   | )           |  |  |  |   | 163,695    |   |
| Supercross                |  |  |                             |  |       |             |  |  |  |   |       |   |
| TagStudios                |  |  |                             |  | 3,807,254  |             |  |  |  |   |       |   |
| SupercrossThe MovieLP     |  |  |                             |  | (2,846,044 | )           |  |  |  |   | 961,210    |   |
| CinderellaLLC             |  |  |                             |  | 153,795    |             |  |  |  |   | 153,795    |   |
| ReceivablefromAffiliates  |  |  |                             |  |       |             |  |  |  | $ | 1,501,383  |   |
| MiracleDogs               |  |  |                             |  |       |             |  |  |  |   |       |   |
| Animal Partners LP        |  |  |                             |  | (609,324   | )           |  |  |  | $ | (609,324   | ) |
| RedRiding Hood            |  |  |                             |  |       |             |  |  |  |   |       |   |
| Red RidingHood LLC        |  |  |                             |  | 1,253,154  |             |  |  |  |   |       |   |
| FairyTale Partners III LP |  |  |                             |  | (1,303,285 | )           |  |  |  |   | (50,131    | ) |
| MotocrossKids             |  |  |                             |  |       |             |  |  |  |   |       |   |
| Motocross KidsLP          |  |  |                             |  | (1,201,451 | )           |  |  |  |   | (1,201,451 | ) |
|                           |

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|                               |  |  |                             |  |          |             |  |  |  |   |            |   |
|-------------------------------|--|--|-----------------------------|--|----------|-------------|--|--|--|---|------------|---|
| Movie                         |  |  | Balance(Payable)/Receivable |  |          | NetBalance* |
| Steve AustinPartnerships      |  |  |                             |  |     |             |  |  |  |   |       |   |
| SteveAustin ProductionsLLC    |  |  |                             |  | (502,542 | )           |  |  |  |   |       |   |
| Austin FamilyEntertainmentLLC |  |  |                             |  | (6,725   | )           |  |  |  |   | (509,267   | ) |
| Family FilmPartnersVIII       |  |  |                             |  | (2,920   | )           |  |  |  |   | (2,920     | ) |
| FunnyMoney                    |  |  |                             |  | (522,387 | )           |  |  |  |   | (522,387   | ) |
| AmountsPayable toAffiliates   |  |  |                             |  |     |             |  |  |  | $ | (2,895,480 | ) |
|                               |

|  |
|--|
|  |  |
|  |

|   |                                                                                                                                                                                                                                                                                                         |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * | Theinformation presented under this column shows the aggregate amountsreceivable from and payable to various entities established for thepurpose of film production projects. These amounts representintercompany balances between these entities which are updated andreconciled on a continual basis. |

NOTE 5 – FINANCINGACTIVITIES

On March  30,  2005, the Company enteredinto a 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 its common stock in aprivate placement to accredited investors under Regulation D of theSecurities Act of 1933, as amended. The Company received gross proceedsof $1,000,000, which were intended for the film production and generalworking capital requirements. The aggregate principal amount of theNotes was $1,150,000 with a 15% yield funded as originalissuance discount. The Company also entered into a Registration RightsAgreement and a Security Agreement with the investors and itssubsidiary, TAG Entertainment USA, Inc. co-signed the SecurityAgreement and agreed to guaranty its obligations pursuant to thefinancing agreements. Pursuant to the Security Agreement, the Companygranted the investors a first priority lien on all of its assets, otherthan certain previously issued liens, in order to secure itsobligations. The Notes were to mature on March  30,  2006and are sooner payable in full in the event the Company consummates asubsequent financing event, with certain exceptions, or upon theoccurrence of an event of default. The warrants are exercisable at$1.00 per share, subject to adjustment upon certain events, includingas a result of its sale of equity securities at a price below theexercise price. The warrants are exercisable at any time on or beforeMarch  30,  2010. In connection with the issuance of theNotes and the related warrants, the Company allocated the net proceedsbetween the instruments based on the relative fair value of thewarrants and the Notes. The fair value of the warrants was determinedusing the Black-Scholes pricing model and the following assumptions:contractual terms of five years, an average risk free interest rate of2.5%, a dividend yield of 0%, and a volatility of95.3%. Accordingly, the Company recorded an increase inadditional paid-in capital and note payable discount of $638,000 inconnection with the issuance of the Notes and warrants.

OnMay  4,  2005 the Company consummated a subsequentfinancing transaction with the holders of these notes, pursuant towhich these secured notes were repaid in full and the Company fulfilledits obligations under the Security Agreement and Guaranty. In thisfinancing transaction, the Company completed a private placement ofshares of its 6% Series A Redeemable Convertible Preferred Stock(‘‘Preferred Stock’’), par value $.001 pershare, and warrants to purchase shares of TAG’s common stock.The placement was made pursuant to a Securities Purchase Agreement,dated May  3,  2005 and the gross proceeds of thistransaction were $5,000,000, which matures on May  3,2008. The Company repaid out of the gross proceeds the secured notesthe Company issued to the investors in the bridge financing completedMarch  30,  2005. After payment of the notes and financingexpenses in the amount of approximately $370,000, the Company receivednet proceeds of approximately $3,480,000 from this financing. TheCompany has used the net proceeds for the production, acquisition anddistribution of feature films and general working capital. Financingexpenses are being amortized over the three year maturity period of thePreferred Stock.

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In this financing, the Companyissued 5,000 shares of Preferred Stock, convertible at the option ofthe holder into an initial aggregate amount of 2,000,000 shares ofcommon stock, par value $.001 per share, at an initial conversion priceof $2.50 per share, and warrants to purchase an initial aggregateamount of 2,000,000 shares of common stock at an initial exercise priceof $2.50 per share, which are immediately exercisable and expire inseven years. However, the decline in the market price of its commonstock has resulted in an adjustment of the conversion price to thefloor amount of $1.00. Accordingly, the holders of the outstandingshares of Series A Preferred Stock are able to convert these sharesinto an aggregate of 5,000,000 shares of the Company's commonstock.

In connection with the issuance of the PreferredStock and the related warrants, the Company allocated the net proceedsbetween the instruments based on the relative fair value of thewarrants and the Preferred Stock before valuation of the beneficialconversion feature. The fair value of the warrants was determined usingthe Black-Scholes pricing model and the following assumptions:contractual terms of seven years, an average risk free interest rate of2.5%, a dividend yield of 0%, and a volatility of115%. Accordingly, the Company recorded an increase inadditional paid-in capital and a discount against the Preferred Stockof $2,586,000 in connection with the issuance of the Preferred Stockand warrants. The discount related to the warrants is being amortizedand charged to interest expense over the three year maturity period.Amortization of $430,000 was recorded as interest expense during thesix months ended June  30,  2006.

TheCompany evaluated the beneficial conversion feature of the PreferredStock by measuring the effective conversion price after the discountfor the warrants against the current market price of TAG’scommon stock of $3 per share at closing. In recognition of theintrinsic value of the conversion feature, the company recorded anadditional discount of $2,414,000 against the Preferred Stock with acorresponding increase in additional paid-in-capital. The discount isbeing amortized over three years and charged against retainedearnings.

Each share of Preferred Stock, which has astated value of $1,000 per share, earns cumulative dividends at a rateof 6% per annum and matures three years from the date ofissuance. The dividend and liquidation rights of the Preferred Stockare senior to those of its common stock. The Preferred Stock does notcarry voting rights.

As part of its previous financingefforts for operations, the Company has recorded financing coststotaling $89,000 for the six months ended June  30,  2006.Deferred financing expenses totaled $292,000 at June  30,2006 and are included with other current assets ($158,000) and otherassets ($134,000).

NOTE 6 – COMMITMENTS ANDCONTINGENCIES

Litigation

OnSeptember  21,  2005 a complaint entitled Grobstein,Horwath & Co., LLP (‘‘Grobstein’’) vs.TAG Entertainment Corp., et al. was filed in the Superior Court ofThe State of California, County of Los Angeles, Northwest Division. Theplaintiff, the Company’s former auditing firm, alleges that theCompany owes the sum of approximately $152,000 arising out of anagreement related to Grobstein’s resignation as theCompany’s auditing firm. The parties stipulated to a settlementof this claim whereby defendants have agreed to pay Grobstein the sumof $110,000 in six equal installments commencing March  1,2006.

On January  17,  2006, a complaint wasfiled against TAG Entertainment, Inc. and Steve Austin by Park AvenueEntertainment, LLC claiming that we materially breached an agreementbetween the two companies to produce a motion picture. The complaintwas filed in the Superior Court of the State of California, County ofLos Angeles, Central District, with the caption Park AvenueEntertainment LLC et al. vs. TAG Entertainment, Inc.; Steve Austin etal. The Company has been advised that plaintiffs are seeking adefault judgment against the defendants; however, the defendants arecurrently contesting any such action on the grounds of defectiveservice. The claimants are seeking damages in the amount of $2,135,000based on production fees and participation rights that they areallegedly entitled to under the production contract. The Company haspreviously disputed plaintiffs’ allegations and notified themthat the Company may assert claims against them concerning theirfailure to properly perform under the agreement. The Company iscurrently reviewing the allegations made in the complaint and theclaims being asserted and the Company intends to defend this action

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vigorously. Management is unable todetermine at this time whether this claim will have a material adverseimpact on its financial condition, results of operations or cashflow.

The Company and its Chief Executive Officer areinvolved in a dispute with Mr. Jeff Franklin and F.W.E.. Inc. regardingthe production of two motion pictures and business dealings between theCompany’s Chief Executive Officer, and Mr.Franklin.  The disputes concern the production and distributionrelationship regarding the films Funny Money and AmericanBlack Beauty. In each case, Mr.  Franklin has alleged thatthe Company has not properly performed its obligations in connectionwith the production of these motion pictures. The Company has disputedthe allegations of Mr.  Franklin, has notified him of itspotential claims against him and F.W.E. and has been engaged inprotracted negotiations with him and F.W.E. in order to achieve aglobal settlement of the disagreements between the parties. Messrs.Franklin and Austin continue to negotiate and discuss their respectivepositions and the Company is currently unable to determine at this timewhether this claim will have a material adverse impact on its financialcondition, results of operations or cash flow.

TheCompany is involved in various claims and other legal proceedings thatarise from time to time in the ordinary course of business. The Companydoes not believe any of them will have a material adverse affect on theCompany’s financial position or results of operations.Litigation is inherently unpredictable and excessive verdicts do occur.Although the Company believes it has valid defenses in these matters,the Company could in the future incur judgments or enter intosettlements of claims that could have a material adverse affect on theCompany’s financial position or results of operations in anyparticular period.

ConsultingAgreements

In March  2006, the companyentered into a consulting agreement with Relevant Entertainment Groupto assist in identifying, packaging and producing new motion pictureand television projects. In consideration for the services of Relevant,the company issued 100,000 shares of common stock valued at $78,000 andwarrants to purchase an additional 250,000 shares of common stockvalued at $100,000. The warrants are exercisable at $0.75 per share fora period of five years and vest as follows: warrants to purchase125,000 shares vested on the date of issuance and the balance vests inequal installments over a period of twelve months commencing inApril  2006. The Company agreed to pay Relevant a percentage ofthe fees received from projects that are successfully produced pursuantto this agreement.

The fair value of the warrants wasdetermined using the Black-Scholes pricing model and the followingassumptions: contractual terms of five years, an average risk freeinterest rate of 4.5%, a dividend yield of 0%, and avolatility of 151.26%.

In April  2006, theCompany entered into a production agreement with UFO Productions, LLCpursuant to which it will seek to produce new motion pictures. TheCompany’s agreement with UFO Productions, LLC provides for theparties to co-produce six new motion pictures for the Sci-Fi Network.Pursuant to this agreement, the Company issued warrants to purchase100,000 shares of its common stock to UFO Productions which areexercisable at $1.00 per share for a period of seven years, valued at$42,000.

The fair value of the warrants was determinedusing the Black-Scholes pricing model and the following assumptions:contractual terms of seven years, an average risk free interest rate of4.5%, a dividend yield of 0%, and a volatility of151.26%.

NOTE 7 – STOCKHOLDERS’EQUITY

In January  2005 the Company commenced aprivate placement offering under Rule 506, promulgated under theSecurities Act of 1933. This offering was terminated during the quarterended June  30,  2005. A total of $88,000 was raised inconnection with the issuance of 29,408 shares.

Duringthe six months ended June  30,  2006, the Company issued125,000 shares of common stock valued at $125,000 to purchase apartnership interest.

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Item2.    Management’s Discussion and Analysis or Plan ofOperation.

Overview

Thismanagement’s discussion and analysis of financial conditioncontains forward-looking statements that involve risks anduncertainties. This management's discussion and analysis containsinformation that we believe is relevant to an assessment andunderstanding of our results of operations and financial condition. Youshould read the following discussion in conjunction with the auditedfinancial statements and the notes to such financial statementsincluded in our Annual Report on Form 10-KSB as well as the unauditedfinancial statements and related notes contained in this QuarterlyReport on Form 10-QSB. The preparation of these financial statementsrequires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. On an on-going basis, management evaluates itsestimates and judgments. Management bases its estimates and judgmentson historical experience and on various other factors that are believedto be reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying value of assets andliabilities that are not readily apparent from other sources. Ouractual results may differ materially from those discussed in theforward-looking statements as a result of various factors, includingbut not limited to those discussed in our Annual Report on Form 10-KSBand in other portions of this report.

Nature ofOperations

TAG Entertainment Corp. is a Delaware corporationheadquartered in Santa Monica, California. We are engaged in thedevelopment, production and distribution of motion pictures and themanagement of studio facilities. We also acquire the copyrights and/ordistribution rights to already completed films for media exhibition. Inorder to finance film production, we have raised funds through theestablishment of single purpose limited partnerships and through thesale of equity or debt securities. TAG Entertainment USA, Inc.(‘‘TAG USA’’), our wholly-owned subsidiary,serves as the sole general partner of the following four limitedpartnerships: Majestic Film Partners, LP, Majestic Film Partners II,LP, Majestic Film Partners III, LP and Majestic Film Partners IV, LP(the ‘‘Majestic Limited Partnerships’’).TAG USA is also the distributor of films produced by numerous otherlimited partnerships as well as assists in facilitating the productionand distribution of films produced by limited partnerships for which itreceives an overhead and/or production fee. Five of these other limitedpartnerships have as their general partner an entity owned andcontrolled by Steve Austin, our Chief Executive Officer.

Ourrevenues are derived from motion picture production and distributionfees, which includes theatrical, home entertainment, television andinternational distribution. Theatrical revenues are derived from thedomestic theatrical 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 expensesinclude the following: direct operating expenses, which includeamortization of production or acquisition costs, participation andresidual expenses, distribution and marketing expenses; which primarilyinclude the costs of theatrical ‘‘prints andadvertising’’ and of video and DVD duplication andmarketing; and general and administration expenses, which includesalaries and other overhead.

Merger

On November22,  2004, TAG USA was acquired by Power Marketing, Inc., aDelaware corporation. In the transaction, TAG USA merged with asubsidiary of Power Marketing, Inc. and became a wholly-ownedsubsidiary of Power Marketing, Inc., now operating as a separateentity. As a 

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result of this transaction, the stockholdersand other security holders of TAG USA became the owners ofapproximately 90% of our outstanding shares of common stock. Inconnection with the merger, Power Marketing changed its corporate nameto TAG Entertainment Corp., obtained the new trading symbol TAGE.OB andall of the officers and directors of Power Marketing resigned andMr.  Austin, who was the majority shareholder, Chief ExecutiveOfficer and sole director of TAG USA became our Chief ExecutiveOfficer, Chief Financial Officer and sole director. The transaction wastreated as a reverse merger and a recapitalization of the company forreporting purposes. We appointed five additional directors to our boardduring 2005; however, as of March  20,  2006, two of ourindependent directors resigned. The holders of approximately 1,122,000shares of common stock of TAG USA that did not consent in writing toour acquisition of TAG USA were entitled to exercise appraisal rightsunder the California Corporations Code. As described in greater detailin our Annual Report on Form 10-KSB for the year ended December31,  2005, we are the respondent in a proceeding commenced by theholder of an aggregate of 50,000 shares of common stock of TAG USA thathas elected to its exercise dissenters’ rights under theCalifornia Corporations Code. We continue to negotiate with theclaimant to resolve this matter.

Going Concern and ManagementPlans

Our financial statements have been presented on the basisthat we are a going concern, which contemplates the realization ofassets and the satisfaction of liabilities in the normal course ofbusiness. We have experienced recurring losses and negative cash flowsfrom operations and have a working capital deficit, which raisessubstantial doubt about our ability to continue as a going concern andour independent auditors have included a ‘‘goingconcern’’ explanatory paragraph in their report on ourfinancial statements for the year ended December  31,2005. We are currently devoting efforts to raising additional capitaland achieving profitable operations. Our ability to continue as a goingconcern is dependent upon our ability to develop additional sources ofcapital. The accompanying financial statements do not include anyadjustments that might result from the outcome of these uncertainties.We closed on a bridge financing in the amount of $1,000,000 onMarch  30,  2005. On May  4,  2005, wecompleted a $5,000,000 preferred stock financing and retired the bridgeloan.

On March  30,  2005, we entered into a Letterof Intent to acquire a privately held company, Myriad Pictures, Inc.,which is engaged in the film production and distribution business. Theletter of intent provided for a purchase price of approximately$4,000,000, including an earnout payment of up to $2,000,000. Inconnection with the execution of the letter of intent, we providedMyriad with a short term loan of $250,000, bearing interest at the rateof 3% per annum, which Myriad was to use for working capital andto pay for its acquisition costs pending the closing (the‘‘Myriad Loan’’). The Myriad Loan issecured by a lien on the assets of Myriad. As of February23,  2006, we notified Myriad that we were terminatingnegotiations and the letter of intent, effective immediately. Pursuantto its terms, the Myriad Loan (less certain expenses) is repayable byMarch  30,  2006 and we have not received repayment as ofthe date hereof.

In order to satisfy future cash requirements,management is actively pursuing and has entered into discussionsregarding additional financing to support the proposed acquisition,related expansion plans, and ongoing operations. We currently have nofirm agreements with any third parties for any future transactions andfuture financings.

Critical AccountingPolicies

Accounting Principles, Estimates andReclassifications

The accompanying consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States(‘‘GAAP’’). The preparation of thefinancial statements in accordance with GAAP requires management tomake estimates and assumptions that affect reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results coulddiffer from those and other estimates. In preparing the financialstatements for comparative purposes, prior period financial informationhas been reclassified to conform with classifications of the currentperiod.

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Principles of Consolidation

Theaccompanying consolidated financial statements include the accounts ofTAG, TAG USA and of the Majestic Limited Partnerships, of which TAG USAis the sole general partner. The General Partner has the full andexclusive control of the management and operation of the business ofeach partnership. In its capacity as General Partner, TAG USAparticipates in 1% of the losses of the limited partnerships butshares in 60% of any profits. All significant inter-companybalances and transactions have been eliminated inconsolidation.

Minority Interests

We consolidate theMajestic Limited Partnerships, of which TAG USA is the sole generalpartner. The amount of minority interest represents the aggregate netlimited partnership capital of each partnership offset by 99% ofaccumulated Majestic Limited Partnership losses.

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 ourparticipation in box office receipts. Revenue from the sale ofvideocassettes and digital video disks(‘‘DVDs’’) in the retail market isrecognized on the ‘‘street date’’ when itis available for sale to the customer. Revenues from televisionslicensing are recognized when the feature film or television program isavailable to the licensee for telecast. Revenues from sales tointernational territories are recognized when the feature film ortelevision program is available to the distributor for exploitation andno conditions for delivery exist.

Production fees are earned onfilms where we have been engaged as producer by limited partnershipsformed to finance the movie. In certain cases, such fees are fixed inamount and are earned and billed during the production process. Inother cases, we earn a fee based on the revenues of the film andtherefore recognizes our fee when revenues are determined and reportedby the distributors of the film.

On certain films, we earnmanagement fees in connection with our role as production manager forthe limited partnerships where our Chief Executive Officer has assignedto TAG his management fee rights during the production period.

Webill overhead fees to limited partnerships for reasonable, direct andallocable costs arising during the management of film theprojects.

Rental revenue from short-term operating leases ofstudio facilities is recognized over the term of thelease.

Sponsorship income is recognized pursuant to the termsstipulated in the agreement.

Cash payments received which mayinclude minimum guarantees may be recorded as deferred revenue untilall conditions of revenue recognition have been met.

CashEquivalents

For purposes of reporting cash flows, we considerall short-term, interest bearing deposits with original maturities ofthree months or less to be cash equivalents.

Capitalized FilmCosts

Capitalized film costs consist of investments in films,which include the unamortized costs of completed films which we haveproduced or for which we have acquired distribution rights or filmlibraries.

For films we produced, capitalized costs include alldirect production and financing costs, and production overhead. Foracquired films, these capitalized costs consist of minimum guaranteepayments to acquire the distribution rights.

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Costs of acquiring and producing films andof acquired libraries are amortized using the individual-film-forecastmethod, whereby these costs are amortized and participation andresidual costs are accrued in the proportion that the currentyear’s revenue bears to management’s estimate of ultimaterevenue at the beginning of the current year expected to be recognizedfrom the exploitation, exhibition or sale of the films.

Ultimaterevenue includes estimates over a period not to exceed ten yearsfollowing the date of initial release. For titles included in acquiredlibraries, ultimate revenue includes estimates over a period not toexceed ten years following the date of acquisition.

Capitalizedfilm costs are stated at the lower of amortized cost or estimated fairvalue on an individual film basis. The valuation of investment in filmsis reviewed on a title-by-title basis, when an event or changes incircumstances indicated that the fair value of a film is less than itsunamortized cost. The fair value of the film is determined usingmanagement’s future revenue and cost estimates. Additionalamortization is recorded in the amount by which the unamortized costsexceed the estimated fair value of the film. Estimates of futurerevenue involve measurement uncertainty and it is therefore possiblethat reductions in the carrying value of investment in films may berequired as a consequence of changes in management’s futurerevenue estimates.

Films in progress include the accumulatedcosts of production, which have not yet been completed.

Films indevelopment include costs of acquiring film rights to originalscreenplays and costs to adapt such projects. Such costs arecapitalized and, upon commencement of production, are transferred toproduction costs. Projects in development are written off at theearlier of the date determined not to be recoverable or when abandoned,or three years from the date of the initialinvestment.

Equipment

Equipment is carried at cost and isdepreciated on the straight-line basis over their estimated usefullives of three to eight years. Repairs and maintenance are expensed asincurred. When assets are retired or otherwise disposed of, theproperty accounts are relieved of costs and accumulated depreciationand any existing gain or loss is credited or charged tooperations.

Stock-Based Compensation

Prior to theJanuary 1, 2006 adoption of Statement of Financial AccountingStandards (‘‘SFAS’’) No. 123R,‘‘Share-Based Payment,’’ the Companyaccounted for stock-based compensation using the intrinsic value methodprescribed in Accounting Principles Board (APB) Opinion No. 25,‘‘Accounting for Stock Issued toEmployees,’’ and related interpretations. Accordingly,under APB Opinion No. 25, no compensation expense was recognizedbecause the exercise price of the Company’s employee stockoptions was equal to the market price of the underlying stock on thedate of grant. The Company applied the disclosure provisions of SFASNo. 123, ‘‘Accounting for Stock BasedCompensation,’’ as amended by SFAS No. 148,‘‘Accounting for Stock Based Compensation –Transition and Disclosure,’’ as if the fair value methodhad been applied in measuring compensation expense.

EffectiveJanuary 1, 2006, the Company adopted the fair value recognitionprovisions of SFAS No. 123R, under which compensation expense isrecognized in the Consolidated Statement of Operations for the fairvalue of employee stock-based compensation. The Company has elected themodified-prospective transition method as permitted by SFASNo. 123R and accordingly, prior periods have not been restatedto reflect the effect of SFAS No. 123R. The modified-prospectivetransition method requires that stock-based compensation expenserecognized in the first quarter of fiscal 2006 include(1) quarterly amortization of all stock-based payments grantedprior to, but not vested as of January 1, 2006, based on thegrant date fair value estimated in accordance with the originalprovisions of SFAS No. 123 and (2) quarterly amortizationof all stock-based payments granted subsequent to January 1,2006, based on the grant date fair value estimated in accordance withthe provisions of SFAS No. 123R. In addition, pursuant to SFASNo. 123R, the Company is required to 

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estimate the amount of expected forfeitureswhen calculating stock-based compensation expense, rather thanaccounting for forfeitures as incurred, which was the Company’sprevious method. Compensation expense will be recognized over therequisite service (vesting) period using the straight-line attributionmethod.

Valuation of the Our Common Stock

Unlessotherwise disclosed, all stock-based transactions entered into by ushave been valued at the market value of our common stock on the datethe transaction was entered into or have been valued using theBlack-Scholes to estimate the fair market value.

Concentrationsof Risk

Our financial instruments that are exposed toconcentrations of credit risk consist of cash and receivables. Weinvest our cash in banks with high credit ratings; however, certainaccount balances have been maintained at levels in excess of federallyinsured limits. We have not experienced a loss in suchaccounts.

We extend credit based on an evaluation of thecustomer’s financial condition, generally without collateral.Exposure to losses on receivables is principally dependent on eachcustomer’s financial condition. We monitor our exposure forcredit losses and maintain allowances for anticipated losses, asrequired. We sub-distribute titles in both the domestic andinternational markets. We are typically paid an advance or minimumguarantee for these rights. Any overages (revenue in excess of theminimum guarantee) are reported to us 45 to 90 days after the reportingperiod. Because of the minimum guarantees and the details of ourdistribution relationships, our outstanding balances may extend togreater than 90 days.

At June  30,  2006, ourreceivables included $1.2  million to be collected from aninternational film distributor for sub-distribution rights on a filmcompleted and delivered during 2005. In addition, we issued a note forproduction funding provided to the investor partnership that owns theunderlying rights to this film. The note receivable balance was$1.4  million at June  30,  2006. The receivable fromdistributor represents a minimum guarantee under a distributioncontract with us to be collected from receipts in various foreignmarkets. The note receivable, which originally matured during thefourth quarter of 2005, was extended until the fourth quarter of 2006.The amount due of $1,035,000 bears interest at 12% per annum andwill be collected from the partnership after payment of distributionand production fees and expenses related to the film. While estimatesof gross receipts, including video and DVD sales, support the statedvalues of these amounts, the collection of these balances is subject toinherent risks associated with the worldwide performance of the filmand general conditions in the various foreign markets. During the sixmonths ended June  30,  2006 the Company also advanced inthe form of a note receivable at total of $342,000 for the movie‘‘Deal’’ which is due on December31,  2006.

Income Taxes

Deferred income taxes arerecorded to reflect the tax consequences in future years of temporarydifferences between the tax basis of the assets and liabilities andtheir financial statement amounts at the end of each reporting period.Valuation allowances are established when necessary to reduce deferredtax assets to the amount expected to be realized. Income tax expense isthe tax payable for the current period and the change during the periodin deferred tax assets and liabilities. The deferred tax assets andliabilities have been netted to reflect the tax impact of temporarydifferences. A full valuation allowance has been established for netdeferred tax assets as management believes that it is more likely thannot that a tax benefit will not be realized.

Earnings per CommonShare

We compute earnings per common share in accordance withStatement of Financial Accounting Standards No. 128,‘‘Earnings per Share’’ (SFAS No. 128). TheStatement requires dual presentation of basic and diluted EPS on theface of the income statement for all entities with complex capital

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structures and requires a reconciliation ofthe numerator and denominator of the basic EPS computation to thenumerator and denominator of the diluted EPS computation. Basic EPS iscomputed by dividing income or loss available to common shareholders bythe weighted average number of common shares outstanding. Thecomputation of diluted EPS is similar to the basic EPS computationexcept the denominator is increased to include the number of additionalshares that would have been outstanding if the dilutive potentialcommon shares had been issued. In addition, the numerator is adjustedfor any changes in income or loss that would result from the assumedconversions of those potential shares. However, such presentation isnot required if the effect is anti-dilutive. The diluted EPS amountsfor the three and six months ended June  30,  2006 and2005, do not reflect the impact of common share equivalents arisingfrom warrants and options totaling 7,713,000 and 5,567,000 atJune  30,  2006 and 2005, respectively, as the effectswould be anti-dilutive in those periods.

Results ofOperations: Three Months Ended June  30,  2006 compared toJune  30,2005

Revenue

Gross revenues for thethree months ended June  30,  2006 and 2005 were $740,000and $278,000, respectively, an increase of $462,000 or 166%. Theincrease in revenues was principally attributable to the increase inproduction and fees arising from film projects where TAG was engaged tomanage filming and related production activities on behalf of certaininvestor partnerships. Production, management and overhead fees for thethree months ended June  30,  2006 increased by $366,000from $150,000 during the three months ended June  30,  2005to $516,000 for the three months ended June  30,  2006.This increase was due to increased production and administrativesupport activity during the quarter on film projects. Distribution feesfor the three months ended June  30,  2006 increased by$45,000 from $0 during the three months ended June  30,2005 to $45,000 for the three months ended June  30,2006.

In addition, sponsorship revenues increased as a result ofarrangements made by us with corporate sponsors on two film projects.Sponsorship fees for the three months ended June  30,  2006were $135,000 for the three months ended June  30,  2006compared to $0 the three months ended June  30,2005.

The increases in revenue were offset by a reduction in filmrevenue of $84,000 as a result of us not being able to obtain a keysales report from a major distributor. The distributor notified us inAugust that it had been acquired and as a result of the transition into the new company the statement, which is normally due 30 days afterthe end of a calendar quarter or July  31,  2006, would notbe available before August  31,  2006. As a result, we werenot able to incorporate sales results from this particulardistributor.

Expenses

Operating expensesfor the three months ended June  30,  2006 were $555,000compared to $1,058,000 for the three months ended June30,  2005, a decrease of $503,000. The decrease in expenses isprimarily attributed to decreased amortization of film costs ($34,000),studio rent expenses ($10,000) and selling, general and administrativeexpenses ($459,000). Film and amortization costs for the three monthsended June  30,  2006 were $18,000 compared to $52,000 forthe three months ended June  30,  2005. The decrease infilm amortization is directly related to decreased revenues on filmseither TAG or consolidated limited partnerships previously financed andproduced. Studio rent expenses for the three months ended June30,  2006 were $0 compared to $10,000 for the three months endedJune  30,  2005. The decrease in studio rent expense wasthe result of the Company not pursing studio rental activities in 2006and our termination of this lease during the fiscal year ended 2005.Selling, general and administrative expenses for the three months endedJune  30,  2006 were $537,000 compared to $996,000 for thethree months ended June  30,  2005, a decrease of $459,000.The decrease in selling, general and administrative expenses isprimarily attributed to a decrease in legal expenses of $128,000related to the Company becoming public, decrease in accounting/auditingfess of $43,000, decrease in consulting fees of $159,000 related to ourbecoming public and failed acquisition costs, decrease in marketing andinvestor relations costs of $94,000 related to our cost cuttingendeavors, a 

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decrease of $72,000 in travel andentertainment, a decrease in rent expense of $44,000 as a result of anew less expensive office facility, decrease in overall corporateoffice expenses of approximately $105,0000 related to our cost cuttingendeavors. The decreases in operating expenses were offset by anincrease in bad debt allowance of $142,000 from a major distributor.The distributor notified us that it had been acquired and as a resultof the transition in to the new company the distributor's salesreport, which is due 30 days after the end of a calendar quarter, orJuly 31, 2006, would not be available before August 31, 2006. Thecompany elected to establish a reserve for certain accounts receivabledue from this distributor. And, the company also elected to write offtwo small projects in development totaling $43,000.

Interestexpense was $291,000 for the three months ended June  30,2006 compared to $984,000 for the three months ended June30,2005, a decrease of $693,000, and included amortization of theconvertible preferred stock discount associated with related warrantsand interest on our convertible preferred stock.. This decrease wasprimarily attributable to the recording of deferred interest payable onthe Satellite financing transaction in May of2005.

Results of Operations: Six Months EndedJune  30,  2006 compared to June  30,2005

Revenue

Gross revenues for thesix months ended June  30,  2006 and 2005 were $1,531,000and $659,000, respectively, an increase of $872,000 or 132%. Theincrease in revenues was principally attributable to the increase inproduction and fees arising from film projects where TAG was engaged tomanage filming and related production activities on behalf of certaininvestor partnerships. Production, management and overhead fees for thesix months ended June  30,  2006 increased by $662,000 from$300,000 during the six months ended June  30,  2005 to$962,000 for the six months ended June  30,  2006. Thisincrease was due to increased production and administrative supportactivity during the six months on film projects. Distribution fees forthe six months ended June  30,  2006 increased by $74,000from $0 during the six months ended June  30,  2005 to$74,000 for the six months ended June  30,  2006.

Inaddition, sponsorship revenues increased as a result of arrangementsmade by us with corporate sponsors on two film projects. Sponsorshipfees for the six months ended June  30,  2006 were $270,000for the six months ended June  30,  2006 compared to $0 thesix months ended June  30,  2005.

The increase ingross revenues was offset by a decrease in film revenue of $134,000which was attributable to lesser sales of films by distributors. Thiswas a result of us not obtaining a sales report from a key distributorwhich notified us that it had been acquired and as a result of thetransaction, the statement, which was due July 31, 2006, would not beavailable before August 31, 2006. As a result, we were unable toincorporate sales results from thisdistributor.

Expenses

Operating expensesfor the six months ended June  30,  2006 were $1,197,000compared to $1,905,000 for the six months ended June  30,2005, a decrease of $708,000. The decrease in expenses is primarilyattributed to decreased amortization of film costs ($110,000), studiorent expenses ($43,000) and selling, general and administrativeexpenses ($555,000). Film and amortization costs for the six monthsended June  30,  2006 were $86,000 compared to $196,000 forthe six months ended June  30,  2005. The decrease in filmamortization is directly related to decreased revenues on films eitherTAG or consolidated limited partnerships previously financed andproduced. Studio rent expenses for the six months ended June30,  2006 were $0 compared to $43,000 for the six months endedJune  30,  2005. The decrease in studio rent expense wasthe result of the Company not pursing studio rental activities in 2006and our termination of this lease during the fiscal year ended 2005.Thedecrease in selling, general and administrative expenses is primarilyattributed to a decrease in legal expenses of $266,000 related to theCompany becoming public, a decrease in accounting/auditing fees of$107,000, a decrease in consulting expense of $118,000, a decrease intemporary staffing of $72,000, a decrease in marketing and investorrelations cost of $67,000 related to our cost cutting measures, adecrease in travel and entertainment expense of $45,000, and a decreasein overall corporate office expenses of approximately $66,000 relatedto our cost cutting endeavors. The decreases in operating 

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expenses were offset by an increase in baddebt allowance of $142,000 from a major distributor. The distributornotified us in August that it had been acquired and as a result of thetransition in to the new company. The company elected to establish areserve for certain accounts receivable due from this distributor. And,the company also elected to write off two small projects in developmenttotaling $43,000.

Interest expense was $581,000 for the sixmonths ended June  30,  2006 compared to $984,000 for thesix months ended June  30,2005, a decrease of $403,000, andincluded amortization of the convertible preferred stock discountassociated with related warrants and interest on our convertiblepreferred stock.. This decrease was primarily attributable to therecording of deferred interest payable on the Satellite financingtransaction in May of 2005.

Financial Condition, Liquidity,and Capital Resources

As of June  30,  2006, wehad $126,000 in cash and cash equivalents and we have an additionalneed for cash to fund our working capital requirements and businessmodel objectives. Since inception, we have financed our operationsprimarily through the sale of equity securities and issuance of debtinstruments.

In March  2005, we completed a secured debtfinancing transaction, which provided us with cash of $1,000,000. Wehave used the funds for the production and distribution of films,including acquisition of additional product and/or distribution assetsand for general working capital. We also granted the investor warrantsto purchase a total of 500,000 shares of our common stock, exercisableat $1.00 per share, subject to adjustment upon certain events,including as a result of our sale of equity securities at a price belowthe exercise price. The warrants are exercisable at any time on orbefore March  30,  2010.

On May  4,2005, we consummated a subsequent financing transaction with theholders of the secured notes, pursuant to which the secured notes wererepaid in full and we fulfilled our obligations under the SecurityAgreement and Guaranty we entered in connection with our secured notefinancing. In this financing transaction, we completed a privateplacement of shares of TAG’s Series A Convertible PreferredStock, par value $.001 per share, and warrants to purchase shares ofTAG’s common stock. The placement was made pursuant to aSecurities Purchase Agreement, dated May  3,  2005 and thegross proceeds of this transaction were $5,000,000. We repaid out ofthe gross proceeds the secured note we issued to the investor in thebridge financing completed March  30,  2005. After paymentof the note and offering expenses in the amount of approximately$370,000, we received net proceeds of approximately $3,480,000 fromthis financing. We have used the net proceeds for the production,acquisition and distribution of feature films and general workingcapital.

In this financing, we issued 5,000 shares of Series APreferred Stock, convertible at the option of the holder into aninitial aggregate amount of 2,000,000 shares of common stock, par value$.001 per share, at an initial conversion price of $2.50 per share, andwarrants to purchase an initial aggregate amount of 2,000,000 shares ofcommon stock at an initial exercise price of $2.50 per share, which areimmediately exercisable and expire in seven years. Due to the declinein the market price of our common stock, the conversion rate of theshares of Series A Preferred Stock was adjusted to $1.00 and suchshares are presently convertible into an aggregate of 5,000,000 sharesof common stock. Each share of Preferred Stock, which has a statedvalue of $1,000 per share, earns cumulative dividends at a rate of6% per annum and matures three years from the date of issuance.The dividend and liquidation rights of the Preferred Stock are seniorto those of its common stock. The Preferred Stock does not carry votingrights.

Net cash from operating activities for the six monthperiod ending June  30,  2006 was a positive $449,000 whichprimarily resulted from collections on accounts receivablebalances.

Net cash used in investing activities for six monthsended June  30,  2006 was $381,000 compared to $221,000 inthe prior period. In the six months ended June  30,  2006,we purchased a partnership interest in a movie project(‘‘Deal’’) and also made an advance to thissame project in the amount of $342,000 and purchased computer equipmentin the amount of $4,000 and this was offset by a 

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$165,000 collection on the note receivabledue from Supercross. In the six months ended June  30, 2005, weloaned $250,000 to Myriad Pictures, Inc., in connection with a proposedacquisition. As of February  23,  2006, we notified Myriadthat we were terminating negotiations and the letter of intent,effective immediately and have requested repayment of our loan, whichwas due (less certain expenses) by March  30,  2006. Wehave not yet received repayment of this loan and were advised by Myriadthat an accounting of their expenses related to the failed acquisitionwill be provided by May  31,  2006.

Net cash providedby financing activities for the six months ended June  30,2006 was $0 compared to $4,636,000 for the six months ended June30,  2005, which primarily consisted of proceeds from debt andpreferred stock financings offset by financing costs.

In 2005, weinvested $260,000 in a limited liability company created to produce afilm with the working title of Pool Hall Prophets. InMarch  2005, the limited liability company agreed to pay us aspecial distribution equal to our initial capital contribution plus10% for a total of $286,000. As of June  30,  2006,the limited liability company paid an amount of $260,000 on our behalfinto a new film production entity established for the production of anew film (‘‘Deal’’). We expect the balanceof $26,000 to be paid on the next distribution. We retain a minorityinterest in the company and may receive further disbursements fromoperating cash in the future subject to the limited liabilitycompany’s prior obligations and the results of itsoperations.

Our subsidiary, TAG USA, entered into production anddistribution agreements with Wild Stallion Productions LP, anunaffiliated third party that holds the rights to the motion pictureWild Stallion. These arrangements provide TAG USA with therights to produce and distribute the motion picture. In July2005, TAG USA agreed to guarantee a loan in the amount of $250,000 madeby an individual lender to Wild Stallion Productions in order to inducethe lender to make this loan. The loan proceeds have been used by WildStallion for the production of the motion picture. This loan, whichbears interest at the rate of 10% per annum, was due onAugust  15,  2005 and has not been repaid by the limitedpartnership. The lender, however, has provided us with a forbearancefrom enforcing his rights under the debt obligation until furthernotice.

We have received a collection notice in the amount ofapproximately $369,000 from Mr. R. Michael Webb on behalf of WebbDevelopment Pension Trust on August 11, 2006. The collection noticeseeks repayment of the loan made by the creditor to Supercross theMovie, LLC, which loan was guaranteed by TAG Entertainment, Inc. aswell as the personal assets of Steve Austin. The loan was initiallymade in July 2004. We are currently negotiating a resolution of thismatter with this creditor. However, no assurances can be given that wewill be able to reach a mutually acceptable arrangement to resolve thismatter.

At June  30,  2006 our receivables included$1.2  million to be collected from an international filmdistributor for sub-distribution rights on the film Supercross,which film was completed and delivered during 2005. In addition, weissued a note for production funding provided to the investorpartnership that owns the underlying rights to this film. The notereceivable balance was $1.4  million at June  30,2006. The receivable represents a minimum guarantee under adistribution contract with us to be collected from receipts in variousforeign markets. The note receivable, which originally matured duringthe fourth quarter of 2005 was extended until the fourth quarter of2006. The amount due bears interest at 12% per annum and will becollected from the partnership after payment of distribution andproduction fees and expenses related to the film. During the six monthsended June  30,  2006 the Company also advanced in the formof a note receivable at total of $342,000 for the movie‘‘Deal’’ which is due on December31,  2006.

We will continue to evaluate our intangibleassets, including goodwill, acquired product rights, and otherintangible assets, whenever events or circumstances occur whichindicate that these assets might be impaired. We have acquired limitedpartnership interests in five limited partnerships from the holders ofsuch interests in consideration for shares of our common stock. We haveissued an aggregate of 800,000 shares of our common stock in suchtransactions and acquired limited partnership interests valued at$938,000. We will recognize an impairment charge based on the amountsof these investments if we determine, in accordance with generallyaccepted accounting 

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principles, that the carrying value of theseassets exceeds the undiscounted future cash flows expected from suchassets as well as upon the eventual disposition of such assets. If anasset is considered to be impaired, the impairment to be recognized ismeasured by the amount by which the carrying amount of the assetexceeds the fair value of the asset. We review these assets on aquarterly basis to determine whether an impairment charge isappropriate.

In March  2006, we entered into separateproduction agreements with two entities pursuant to which we will seekto produce new motion pictures. Our agreement with UFO Productions, LLCprovides for the parties to co-produce six new motion pictures for theSci-Fi Network. Pursuant to this agreement, we issued warrants topurchase 100,000 shares of our common stock to UFO Productions whichare exercisable at $1.00 per share for a period of seven years, valuedat $42,000. We also agreed to share the fees derived from projects thatare successfully produced pursuant to this agreement with UFOProductions. Pursuant to our agreement with Relevant EntertainmentGroup, we will utilize their services to assist us in identifying,packaging and producing new motion picture and television projects. Inconsideration for the services of Relevant, we issued them 100,000shares of common stock and warrants to purchase an additional 250,000shares of common stock. The warrants are exercisable at $0.75 per sharefor a period of five years and vest as follows: warrants to purchase125,000 shares vested on the date of issuance and the balance vests inequal installments over a period of twelve months commencing inMarch  2006. We agreed to pay to Relevant a percent of the feeswe receive from projects that are successfully produced pursuant tothis agreement.

As described below in Item 1 of Part II of thisQuarterly Report under the caption ‘‘LegalProceedings,’’ and in our Annual Report on Form 10-KSBfor the year ended December  31,  2005, we are party tovarious other claims, including claims made or threatened againstcertain limited partnerships. As described therein, although we believewe have valid defenses in these matters, we may incur judgments orenter into settlements of claims that could have a material adverseeffect on our financial position or results of operations in anyparticular period. No assurances can be given that management’sassessment of these claims will ultimately prove to be accurate or thatother facts adverse to our position currently not known to managementwill not be uncovered, in which case the ultimate resolution of some orall of these claims could potentially have a material adverse effect onour financial condition. Further, the occurrence of intervening eventsmay also result in management reconsidering their assessment of theimpact of these matters. Regardless of the ultimate liability to any ofthese claimants, these disputes may impose financial and administrativechallenges that may require the application of our resources and thetime and attention of our management.

Cash Requirements andNeed for Additional Funds

As of June  30,  2006our cash balance was approximately $126,000 and we have an immediateadditional need for cash to fund our working capital requirements andbusiness model objectives. With the completion of the $5  millionpreferred stock financing in 2005, we received net proceeds ofapproximately $3.5  million after retirement of the $1million bridge loan and payment of closing costs. We used theseproceeds to fund our near term working capital requirements andbusiness model objectives. In connection with the execution of ourbusiness strategy and related expansion plans, we intend to eitherundertake private placements of our securities, either as aself-offering or with the assistance of registered broker-dealers, ornegotiate a private sale of its securities to one or more institutionalinvestors. However, we currently have no firm agreements with anythird-parties for such transactions and no assurances can be given thatwe will be successful in raising sufficient capital from any of theseproposed financings. Further, we cannot assure you that any additionalfinancing will be available or, even if it is available that it will beon terms acceptable to us. Any inability to obtain required financingon sufficiently 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.

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Off-Balance Sheet Arrangements

Wehave not created, and are not party to, any special-purpose oroff-balance sheet entities for the purpose of raising capital,incurring debt or operating parts of our business that are notconsolidated into our financial statements, except as described herein.Except as described in Note 4 to the financial statements included inthis Quarterly Report on Form 10-QSB, we do not have any arrangementsor relationships with entities that are not consolidated into ourfinancial statements that are reasonably likely to materially affectour liquidity or the availability of our capital resources.

Item 3.    Controls and Procedures.

DisclosureControls

As of the end of the period covered by this report, wecarried out an evaluation, under the supervision and with theparticipation of our management, including the chief executive officer(who also currently serves as our chief financial officer), of theeffectiveness of our disclosure controls and procedures as defined inExchange Act Rule 13a-15(e). The evaluation included certain internalcontrol areas in which we have made and are continuing to make changesto improve and enhance controls, as described in greater detail below.In designing and evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, and management is required toapply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.

Based on that evaluation, ourchief executive officer and chief financial officer concluded that ourdisclosure controls and procedures were effective as of the end of theperiod covered by this report to provide reasonable assurance thatinformation we are required to disclose in reports that we file orsubmit under the Securities Exchange Act of 1934, as amended, isaccurately recorded, processed, summarized and reported within the timeperiods specified in Securities and Exchange Commission rules andforms, and that such information is accumulated and communicated to ourmanagement, including our chief executive officer and chief financialofficer, as appropriate, to allow timely decisions regarding requireddisclosure.

Internal Controls

During the period endedJune  30,  2006, two consultants that were providinginternal accounting and financial services for us ended theirengagement with us. In addition, two of our independent directorsresigned from their service on our board of directors during the sixmonths ended June 30, 2006, including the person that we had designatedas our Audit Committee Financial Expert. Due to these changes, weintend to retain new accounting personnel and are seeking to fill thevacancies created by the board resignations. Inherent with changes inaccounting personnel is a change in the internal control environmentover our financial reporting and these changes, along with theresignation of our board members may materially affect, or arereasonably likely to materially affect, our internal control overfinancial reporting.

There were no other changes in our system ofinternal control over financial reporting (as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934) during our fiscal quarterended June  30,  2006 that has materially affected, or isreasonably likely to materially affect, our internal control overfinancial reporting. 

We do not expect that 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 constraints, and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitationsin all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any,within its company have been detected. These inherent limitations

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include the realities that judgments indecision-making can be faulty, and that breakdowns can occur because ofsimple error or mistake. Controls can also be circumvented by theindividual acts of some persons, by collusion of two or more people, orby management override of the controls. The design of any system ofcontrols is based in part upon certain assumptions about the likelihoodof future events, and any design may not succeed in achieving itsstated goals under all potential future conditions. Over time, controlsmay become inadequate because of changes in conditions or deteriorationin the degree of compliance with policies or procedures. Because of theinherent limitation of a cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.

PartII

Item 1.    Legal Proceedings.

We are notcurrently a party to any lawsuit or proceeding which, in the opinion ofmanagement, is likely to have a material adverse effect on TAG, exceptas described below and as disclosed in our Annual Report on Form 10-KSBfor the year ended December  31,  2005 and as described inNote 5 to the financial statements included with this Quarterly Reporton Form 10-QSB.

Certain limited partners in the entity FunnyMoney the Movie, L.P. and Supercross, LP have demanded that theselimited partnerships agree to rescind their purchase of limitedpartnership interests. In addition, these limited partners have claimedthat TAG, due to its contractual relationship with the limitedpartnerships, has responsibility for the actions of the limitedpartnership. We have denied any responsibility for the actions taken inthe name of the limited partnership and believe we would havemeritorious defenses to any claim asserted against us. Although alawsuit was filed by these limited partners against the limitedpartnerships and TAG, a settlement agreement was entered into among theclaimants, the limited partnerships, the general partners and us.Pursuant to this agreement, the respondents agreed to repurchase thelimited partnership interests held by the claimants. Although we are aparty to the settlement agreement, the limited partnerships and/ortheir general partners are making the agreed-upon payments to theclaimants. Upon full satisfaction of these obligations, the claimantswill dismiss the pending litigation and provide the respondents with ageneral release.

We have received a collection notice in theamount of approximately $369,000 from Mr. R. Michael Webb on behalf ofWebb Development Pension Trust on August 11, 2006. The collectionnotice seeks repayment of the loan made by the creditor to Supercrossthe Movie, LLC, which loan was guaranteed by TAG Entertainment, Inc. aswell as the personal assets of Steve Austin. The loan was initiallymade in July 2004. We are currently negotiating a resolution of thismatter with this creditor. However, no assurances can be given that wewill be able to reach a mutually acceptable arrangement to resolve thismatter.

We are involved in various claims and other legalproceedings that arise from time to time in the ordinary course ofbusiness, including claims asserted by guilds and unions representingcreative talent. Based on the facts of which we are currently aware,management does not believe that any of these matters will have amaterial adverse effect on our financial position or results ofoperations. Litigation is inherently unpredictable and excessiveverdicts do occur. Although we believe we have valid defenses in thesematters, we may incur judgments or enter into settlements of claimsthat could have a material adverse effect on our financial position orresults of operations in any particular period. No assurances can begiven that management’s assessment of these claims willultimately prove to be accurate or that other facts adverse to ourposition currently not known to management will not be uncovered, inwhich case the ultimate resolution of some or all of these claims couldpotentially have a material adverse effect on our financial condition.Further, the occurrence of intervening events may also result inmanagement reconsidering their assessment of the impact of thesematters.

We and TAG USA have been involved in various claims madeor threatened against certain limited partnerships. Although theseclaims concern the actions of the specific limited partnerships, wehave been involved in these proceedings due to the interests arisingout of our production and 

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distribution activities on behalf of theselimited partnerships and, in certain situations, where an affiliate ofour Chief Executive Officer serves as general partner of the limitedpartnership entity. In certain situations, these arrangements have ledto limited partners asserting claims against and seeking redress fromus. Regardless of the ultimate liability to any of these claimants,these disputes may impose financial and administrative challenges thatmay require the application of our resources and the time and attentionof our management. Further, based on our production relationship withcertain limited partnerships, cash resources were used to satisfyobligations of the limited partnerships and although we expectreimbursement from the limited partnerships, this cannot be assured.These situations have negatively impacted our cash position anddistracted management from focusing on our business. With respect toclaims, adverse decisions or settlements may occur in one or more ofthese matters and it is not possible to estimate the possible loss orlosses, if any. Based on the facts of which we are currently aware,management believes that the resolution of these claims will not have amaterially adverse effect on our condition. However, no assurances canbe given that such belief will ultimately prove to be accurate or thatother facts adverse to our position currently not known to managementwill not be uncovered, in which case the ultimate resolution of some orall of these claims could potentially have a material adverse effect onour financial condition.

Item 2.    Unregistered Sales ofEquity Securities and Use of Proceeds

Disclosure of issuances ofunregistered equity securities during the six months ended June 30,2006 is contained in Note 6 and Note 7 to the financial statementsincluded with this Form 10-QSB.

Item 3.    Defaults UponSenior Securities

We are obligated to pay dividends to theholders of our shares of Series A Preferred Stock at the rate of6% per annum on January 1, April 1, July 1 and October 1 of eachcalendar year. Although we were unable to timely pay the accrueddividends due on July 1, 2006, we made the required dividend payment onAugust 31, 2006.

As described in our Quarterly Report on Form10-QSB for the quarter ended March 31, 2006, we have not maintained theeffectiveness of our registration statement on Form SB-2, which wasfiled in compliance with the registration rights agreement that weentered into with the holders of our Series A Preferred Stock of ourSeries A Preferred Stock. Accordingly, the holders of our Series APreferred Stock may require us to pay as liquidated damages an amountequal to $75,000 for each 30 day period during which we are not incompliance with our obligations. Further, the Certificate ofDesignations of Series A Preferred Stock provides that a default underthe transaction agreements, including the Registration RightsAgreement, gives the holders the right to demand the redemption of theoutstanding shares of Series A Preferred Stock at a price equal to101% of the stated value for each share redeemed. Due to theseevents, the holders of our Series A Preferred Stock may exercise suchright as to all 5,000 shares of Series A Preferred Stockissued.

We are seeking waivers or forbearance agreements from theholders of our Series A Preferred Stock. If we are unable to obtainsuch concessions, the holders may demand we pay the amounts specifiedunder the Certificate of Designations of Series A Preferred Stock andthe liquidated damages payments under the Registration RightsAgreement. Although we have not received any demand for payment fromthe holders of our Series A Preferred Stock, no assurances can be giventhat we will be successful in obtaining any waiver or forbearance fromthe holders or that the holders will not demand payment at anytime.

Item 4.    Submission of Matters to a Vote of SecurityHolders

None.

Item 5.    OtherInformation

None.

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Item 6.    Exhibits

Theexhibits designated with an asterisk (*) are filedherewith.

|               |  |  |                                                                                                                                                                                               |
|---------------|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |  |  | Description ofDocument                                                                                                                                                                        |
| 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*         |  |  | Certification of Chief ExecutiveOfficer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350,adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002.                      |
|               |

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SIGNATURES

In accordance withSection 13 or 15(d) of the Exchange Act, TAG Entertainment Corp. hascaused this Report to be signed on its behalf by the undersigned,thereunto dulyauthorized.

|                        |  |  |                        |  |  |                                                                          |
|------------------------|--|--|------------------------|--|--|--------------------------------------------------------------------------|
| Date:September 1, 2006 |  |  | TAG ENTERTAINMENTCORP. |
|                   |  |  | By:                    |  |  | /s/Steve Austin                                                          |
|                   |  |  |                   |  |  | Steve AustinPresident and Chief Executive Officer,Chief FinancialOfficer |
|                        |

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