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

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Form10-QSB

|        |                                                                                            |
|--------|--------------------------------------------------------------------------------------------|
|   | QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |

|        |                                                  |
|--------|--------------------------------------------------|
|   | For the quarterly period ended September 30,2005 |

or

|        |                                                                                             |
|--------|---------------------------------------------------------------------------------------------|
|   | TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |

|        |                                                                                                                                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | For the transition period from               to              . |

CommissionFile No.  333-96257

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TAG Entertainment Corp.

(Exact name of Small Business Issuer asspecified in itscharter)

|                                                             |  |                                    |  |  |  |  |
|-------------------------------------------------------------|--|------------------------------------|--|--|--|--|
| Delaware                                                    |  | 13-3851304                         |
| (Stateor other jurisdiction ofincorporation ororganization) |  | (I.R.S. EmployerIdentificationNo.) |
|                                                             |

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9916 SouthSanta Monica Boulevard, 1st Floor Beverly Hills,California 90212

(Address of principalexecutive offices)

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Registrant's telephonenumber, including area code:(310)  277-3700

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Check whether the issuer (1)  filedall reports required to be filed by Section  13 or 15(d) of theExchange Act during the preceding 12  months (or for such shorterperiod that the registrant was required to file such reports), and(2)  has been subject to such filing requirements for the past90  days. Yes  No 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act). Yes  No 

APPLICABLE ONLY TOCORPORATE ISSUERS

State the number of shares outstanding ofeach of the issuer's classes of common equity, as of the latestpracticable date: The registrant had 21,195,448 shares of common stock,$0.001 par value, issued and outstanding as of November 11, 2005.

Transitional Small Business Disclosure Format (Check one): Yes No

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TABLEOF CONTENTS

PART I – FINANCIALINFORMATION

|                                      |  |                                                            |  |        |        |        |        |        |  |  |
|--------------------------------------|--|------------------------------------------------------------|--|--------|--------|--------|--------|--------|--|--|
| Item1.                               |  | ConsolidatedCondensed Financial Statements                 |  |   |   |   |
| Item2.                               |  | Management's Discussion and Analysis or Plan ofOperation   |  |   |   |   |
| Item 3.                              |  | Controls andProcedures                                     |  |   |   |   |
| **PARTII – OTHER INFORMATION** |  |                                                       |  |   |        |   |   |   |
| Item1.                               |  | Legal Proceedings                                          |  |   |   |   |
| Item2.                               |  | Unregistered Sales of Equity Securities and Use ofProceeds |  |   |   |   |
| Item 3.                              |  | Defaults UponSenior Securities                             |  |   |   |   |
| Item4.                               |  | Submission of Matters to a Vote of SecurityHolders         |  |   |   |   |
| Item 5.                              |  | OtherInformation                                           |  |   |   |   |
| Item6.                               |  | Exhibits                                                   |  |   |   |   |
|                                      |

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FORWARD LOOKING STATEMENTS

Thisreport Form 10-QSB for TAG Entertainment Corp. (the"Company" or "TAG")contains "forward-looking statements" withinthe meaning 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, andsimilar 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:

|              |                                                                                                                       |
|--------------|-----------------------------------------------------------------------------------------------------------------------|
| •  | the Company's inability to generaterevenues sufficient to sustain operations or to raise capital as andwhen required; |

|              |                                                                                                                      |
|--------------|----------------------------------------------------------------------------------------------------------------------|
| •  | unanticipated increasesin development, production or marketing expenses related to theCompany's business activities; |

|              |                                                                                   |
|--------------|-----------------------------------------------------------------------------------|
| •  | The Company's inability toeffectively compete with other entertainment providers; |

|              |                                                                                          |
|--------------|------------------------------------------------------------------------------------------|
| •  | The Company's inability to protectits intellectual property from infringement by others; |

|              |                                                                                |
|--------------|--------------------------------------------------------------------------------|
| •  | The Company's inability to fullyimplement its business plan for any reason; or |

|              |                                                                                          |
|--------------|------------------------------------------------------------------------------------------|
| •  | The loss of the services of theCompany's Chief Executive Officer or other key employees. |

In evaluating forward-looking statements, readers should considerthe factors identified above as well as those risks outlined in thesection of this report titled "Management'sDiscussion and Analysis or Plan of Operation". Although webelieve that expectations reflected in the forward-looking statementsare reasonable, future results, levels of activity, or achievements arenot assured.

3

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Part I

Item  1. Financial Statements

TAG ENTERTAINMENTCORP.

CONSOLIDATED CONDENSED BALANCE SHEETS(unaudited)

|                                                                                                                                                                                                |  |                  |            |                 |  |        |            |         |  |  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------------------|------------|-----------------|--|--------|------------|---------|--|--|
| ASSETS                                                                                                                                                                                         |  | September30,2005 |            | December31,2004 |
| **Currentassets**                                                                                                                                                                              |  |             |       |            |  |   |       |    |
| Cash                                                                                                                                                                                           |  | $                | 203,000    |            |  | $      | 23,000     |    |
| Accountsreceivable                                                                                                                                                                             |  |             | 2,777,000  |            |  |   | 531,000    |    |
| Notesreceivable                                                                                                                                                                                |  |             | 1,455,000  |            |  |   | 5,000      |    |
| Othercurrentassets                                                                                                                                                                             |  |             | 521,000    |            |  |   | 25,000     |    |
| Totalcurrentassets                                                                                                                                                                             |  |             | 4,956,000  |            |  |   | 584,000    |    |
| **Capitalizedfilm costs,net**                                                                                                                                                                  |  |             | 1,566,000  |            |  |   | 2,053,000  |    |
| **Investmentsin limitedpartnerships**                                                                                                                                                          |  |             | 946,000    |            |  |   | 688,000    |    |
| **Equipment,net**                                                                                                                                                                              |  |             | 92,000     |            |  |   | 162,000    |    |
| **Otherassets**                                                                                                                                                                                |  |             | 195,000    |            |  |   | 16,000     |    |
|                                                                                                                                                                                           |  | $                | 7,755,000  |            |  | $      | 3,503,000  |    |
| **LIABILITIESAND STOCKHOLDERS' EQUITY(DEFICIT)**                                                                                                                                               |  |             |       |            |  |   |       |    |
| **Currentliabilities**                                                                                                                                                                         |  |             |       |            |  |   |       |    |
| Accountspayable and accruedexpenses                                                                                                                                                            |  | $                | 1,091,000  |            |  | $      | 828,000    |    |
| Bankoverdrafts                                                                                                                                                                                 |  |             | —    |            |  |   | 124,000    |    |
| Amountspayable to affiliatedpartnerships                                                                                                                                                       |  |             | 1,799,000  |            |  |   | 1,871,000  |    |
| Deferredrevenue                                                                                                                                                                                |  |             | —    |            |  |   | 81,000     |    |
| Notespayable                                                                                                                                                                                   |  |             | 175,000    |            |  |   | 495,000    |    |
| Deferredproductionfunding                                                                                                                                                                      |  |             | 338,000    |            |  |   | 191,000    |    |
| Accruedresiduals                                                                                                                                                                               |  |             | 64,000     |            |  |   | 51,000     |    |
| Accruedsalaries                                                                                                                                                                                |  |             | 340,000    |            |  |   | 370,000    |    |
| Accruedpayrolltaxes                                                                                                                                                                            |  |             | 169,000    |            |  |   | 168,000    |    |
| Totalcurrentliabilities                                                                                                                                                                        |  |             | 3,976,000  |            |  |   | 4,179,000  |    |
| **6%Series A convertible preferred stock** $.001 par value: 500,000shares authorized; 5,000 shares outstanding; mandatorily redeemable,$5,000,000 redemption value; net of unamortizeddiscount |  |             | 694,000    |            |  |   | —    |    |
| **Commitmentsand contingencies**                                                                                                                                                               |  |             |       |            |  |   |       |    |
| **Minorityinterest**                                                                                                                                                                           |  |             | 2,109,000  |            |  |   | 2,338,000  |    |
| **Stockholders'equity (deficit)**                                                                                                                                                              |  |             |       |            |  |   |       |    |
| Commonstock, $.001 par value: 50,000,000 shares authorized; 21,180,000and 21,062,000 sharesoutstanding                                                                                         |  |             | 21,000     |            |  |   | 21,000     |    |
| Additionalpaid-incapital                                                                                                                                                                       |  |             | 9,104,000  |            |  |   | 3,167,000  |    |
| Accumulateddeficit                                                                                                                                                                             |  |             | (8,149,000 | )          |  |   | (6,202,000 | )  |
| Totalstockholders' equity(deficit)                                                                                                                                                             |  |             | 976,000    |            |  |   | (3,014,000 | )  |
|                                                                                                                                                                                           |  | $                | 7,755,000  |            |  | $      | 3,503,000  |    |
|                                                                                                                                                                                                |

Seeaccompanying notes to consolidated financial statements.

4

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TAG ENTERTAINMENT CORP.

CONSOLIDATED CONDENSED STATEMENTS OFOPERATIONS(unaudited)

|                                              |  |                                |            |                               |  |        |            |         |  |        |            |         |  |        |            |         |  |  |
|----------------------------------------------|--|--------------------------------|------------|-------------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                         |  | Threemonths ended September 30 |            | Nine months ended September30 |
|                                         |  | 2005                           |            | 2004                          |  | 2005   |            | 2004    |
| **Revenue**                                  |  |                           |       |                          |  |   |       |    |  |   |       |    |  |   |       |    |
| Filmrevenue                                  |  | $                              | 721,000    |                          |  | $      | 510,000    |    |  | $      | 1,080,000  |    |  | $      | 831,000    |    |
| Productionfees                               |  |                           | 800,000    |                          |  |   | —    |    |  |   | 800,000    |    |  |   | —    |    |
| Managementfees                               |  |                           | 68,000     |                          |  |   | 90,000     |    |  |   | 248,000    |    |  |   | 315,000    |    |
| Overheadfees                                 |  |                           | 159,000    |                          |  |   | 60,000     |    |  |   | 279,000    |    |  |   | 210,000    |    |
| Studiorentalincome                           |  |                           | —    |                          |  |   | 44,000     |    |  |   | —    |    |  |   | 269,000    |    |
| Totalrevenue                                 |  |                           | 1,748,000  |                          |  |   | 704,000    |    |  |   | 2,407,000  |    |  |   | 1,625,000  |    |
| **Operatingexpenses**                        |  |                           |       |                          |  |   |       |    |  |   |       |    |  |   |       |    |
| Amortizationof filmcosts                     |  |                           | 328,000    |                          |  |   | 410,000    |    |  |   | 524,000    |    |  |   | 616,000    |    |
| Studiorent and otherexpenses                 |  |                           | —    |                          |  |   | 141,000    |    |  |   | 43,000     |    |  |   | 490,000    |    |
| Legalsettlement                              |  |                           | —    |                          |  |   | 500,000    |    |  |   | —    |    |  |   | 500,000    |    |
| Selling,general andadministrative            |  |                           | 736,000    |                          |  |   | 1,281,000  |    |  |   | 2,402,000  |    |  |   | 2,738,000  |    |
| Totaloperatingexpenses                       |  |                           | 1,064,000  |                          |  |   | 2,332,000  |    |  |   | 2,969,000  |    |  |   | 4,344,000  |    |
| **Income(loss) fromoperations**              |  |                           | 684,000    |                          |  |   | (1,628,000 | )  |  |   | (562,000   | )  |  |   | (2,719,000 | )  |
| Interestexpense                              |  |                           | (291,000   | )                        |  |   | —    |    |  |   | (1,275,000 | )  |  |   | —    |    |
| Interestand otherincome                      |  |                           | 4,000      |                          |  |   | —    |    |  |   | 15,000     |    |  |   | 5,000      |    |
| **Netincome (loss) before minorityinterest** |  |                           | 397,000    |                          |  |   | (1,628,000 | )  |  |   | (1,822,000 | )  |  |   | (2,714,000 | )  |
| Minorityinterest                             |  |                           | 192,000    |                          |  |   | 16,000     |    |  |   | 211,000    |    |  |   | 23,000     |    |
| **Netincome(loss)**                          |  | $                              | 589,000    |                          |  | $      | (1,612,000 | )  |  | $      | (1,611,000 | )  |  | $      | (2,691,000 | )  |
| **Netincome (loss) pershare**                |  |                           |       |                          |  |   |       |    |  |   |       |    |  |   |       |    |
| Basic                                        |  | $                              | 0.03       |                          |  | $      | (0.09      | )  |  | $      | (0.08      | )  |  | $      | (0.16      | )  |
| Diluted                                      |  | $                              | 0.02       |                          |  | $      | (0.09      | )  |  | $      | (0.08      | )  |  | $      | (0.16      | )  |
| **Weightedaverageshares**                    |  |                           |       |                          |  |   |       |    |  |   |       |    |  |   |       |    |
| Basic                                        |  |                           | 21,107,000 |                          |  |   | 17,406,000 |    |  |   | 21,079,000 |    |  |   | 17,296,000 |    |
| Diluted                                      |  |                           | 24,589,000 |                          |  |   | 17,406,000 |    |  |   | 21,079,000 |    |  |   | 17,296,000 |    |
|                                              |

Seeaccompanying notes to consolidated financial statements

5

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TAG ENTERTAINMENT CORP.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSFOR THE NINEMONTHS ENDED SEPTEMBER 30 (unaudited)

|                                                                           |  |        |            |         |  |        |            |         |  |  |
|---------------------------------------------------------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                      |  | 2005   |            | 2004    |
| **Cashflows from operatingactivities**                                    |  |   |       |    |  |   |       |    |
| Net lossbefore minorityinterest                                           |  | $      | (1,822,000 | )  |  | $      | (2,714,000 | )  |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities: |  |   |       |    |  |   |       |    |
| Amortization offilmcosts                                                  |  |   | 524,000    |    |  |   | 616,000    |    |
| Depreciation                                                              |  |   | 35,000     |    |  |   | 27,000     |    |
| Stockissued forservices                                                   |  |   | 177,000    |    |  |   | 580,000    |    |
| Stockissued for legalsettlement                                           |  |   | —    |    |  |   | 500,000    |    |
| Amortizationof discount on debtfinancings                                 |  |   | 996,000    |    |  |   | —    |    |
| Amortizationof deferred financingcosts                                    |  |   | 53,000     |    |  |   | —    |    |
| Changesin operating assets andliabilities:                                |  |   |       |    |  |   |       |    |
| Accountsreceivable                                                        |  |   | (1,446,000 | )  |  |   | (142,000   | )  |
| Investmentsinfilms                                                        |  |   | (37,000    | )  |  |   | (948,000   | )  |
| Bankoverdrafts                                                            |  |   | (124,000   | )  |  |   | —    |    |
| Accountspayable                                                           |  |   | 263,000    |    |  |   | (51,000    | )  |
| Amountspayable to affiliatedpartnerships                                  |  |   | (39,000    | )  |  |   | 915,000    |    |
| Deferredrevenue                                                           |  |   | (81,000    | )  |  |   | 8,000      |    |
| Accruedsalaries                                                           |  |   | (30,000    | )  |  |   | 425,000    |    |
| Other                                                                     |  |   | 19,000     |    |  |   | (9,000     | )  |
| Netcash used in operatingactivities                                       |  |   | (1,512,000 | )  |  |   | (793,000   | )  |
| **Cashflows from investingactivities**                                    |  |   |       |    |  |   |       |    |
| Issuance ofnotesreceivable                                                |  |   | (2,250,000 | )  |  |   | —    |    |
| Investmentin filmpartnerships                                             |  |   | (258,000   | )  |  |   | (475,000   | )  |
| Paymentof proposed acquisitioncosts                                       |  |   | (278,000   | )  |  |   | —    |    |
| Proceedsfrom disposition ofequipment                                      |  |   | 49,000     |    |  |   | 5,000      |    |
| Purchasesofequipment                                                      |  |   | (14,000    | )  |  |   | (24,000    | )  |
| Netcash used in investmentactivities                                      |  |   | (2,751,000 | )  |  |   | (494,000   | )  |
| **Cashflows from financingactivities**                                    |  |   |       |    |  |   |       |    |
| Proceedsfrom issuance of notespayable                                     |  |   | 1,025,000  |    |  |   | 19,000     |    |
| Paymentson notespayable                                                   |  |   | (1,345,000 | )  |  |   | (211,000   | )  |
| Proceedsfrom issuance of convertible preferredstock                       |  |   | 5,000,000  |    |  |   | —    |    |
| Proceedsfrom exercise ofwarrants                                          |  |   | —    |    |  |   | 75,000     |    |
| Proceedsfrom private placement offerings due to relatedparty              |  |   | —    |    |  |   | 322,000    |    |
| Proceedsfrom private placement offerings of commonstock                   |  |   | 88,000     |    |  |   | 1,352,000  |    |
| Paymentof private offering proceeds due to relatedparty                   |  |   | —    |    |  |   | (442,000   | )  |
| Paymentof financingcosts                                                  |  |   | (455,000   | )  |  |   | (169,000   | )  |
| Minorityinterest capitalreturned                                          |  |   | (17,000    | )  |  |   | —    |    |
| Proceedsfor filmproduction                                                |  |   | 147,000    |    |  |   | 65,000     |    |
| Netcash provided by financingactivities                                   |  |   | 4,443,000  |    |  |   | 1,011,000  |    |
| Netincrease (decrease) incash                                             |  |   | 180,000    |    |  |   | (276,000   | )  |
| Cashat beginning ofperiod                                                 |  |   | 23,000     |    |  |   | 685,000    |    |
| Cashat end ofperiod                                                       |  | $      | 203,000    |    |  | $      | 409,000    |    |
| Supplementaldisclosure of cash flowinformation:                           |  |   |       |    |  |   |       |    |
| Interest and originalissue discountpaid                                   |  | $      | 272,000    |    |  | $      | 9,000      |    |
|                                                                           |

Seeaccompanying notes to consolidated financialstatements

6

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TAG ENTERTAINMENTCORP.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

Accounting Principles and Use of Estimates

The accompanying consolidated condensed financial statements for thenine month periods ended September 30, 2005 and 2004 have been preparedin accordance with accounting principles generally accepted in theUnited States ("GAAP") and with theinstructions to Form 10-QSB and Item 310 of Regulation S-B. Thesefinancial 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, 2004 has been derived from the auditedfinancial statements, but does not include all disclosures required byGAAP.

Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with GAAP havebeen omitted pursuant to guidelines of the Securities and ExchangeCommission (the "SEC"). Management believesthat the disclosures included in the accompanying interim financialstatements and footnotes are adequate to make the information notmisleading, but the disclosures contained herein should be read inconjunction with the consolidated financial statements and notesthereto included in the Company's Annual Report on Form 10-KSBfor the year ended December 31, 2004.

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.

Nature ofOperations

TAG Entertainment Corp. (the"Company" or "TAG")is a Delaware corporation headquartered in Beverly Hills, California.The Company is engaged in the development, production and distributionof motion pictures and the management of studio facilities. The Companyalso acquires the copyrights and/or distribution rights to alreadycompleted films for media exhibition. In order to finance filmproduction, the Company raises funds through the establishment ofsingle purpose limited partnerships and through the sale of equity ordebt securities. TAG Entertainment USA, Inc. ("TAGUSA"), the Company's wholly-owned subsidiary, servesas the sole general partner of the following four limited partnerships:Majestic Film Partners, LP, Majestic Film Partners II, LP, MajesticFilm Partners III, LP and Majestic Film Partners IV, LP (the"Limited Partnerships"). TAG USA is also thedistributor of films produced by numerous other limited partnerships aswell as assists in facilitating the production and distribution offilms produced by limited partnerships for which it receives anoverhead and/or production fee. Five of these other limitedpartnerships have as their general partner an entity owned andcontrolled by Steve Austin, the Company's Chief ExecutiveOfficer.

The Company's revenues are derived from motionpicture distribution, which includes theatrical, home entertainment,television and international distribution. Theatrical revenues arederived from the domestic theatrical release of motion pictures inNorth America. Home entertainment revenues are derived from the sale ofvideo and DVD releases of the Company's own productions andacquired films, including theatrical releases and direct-to-videoreleases. Television revenues are primarily derived from the licensingof the Company's productions and acquired films to the domesticcable, free and pay television markets. International revenues arederived from the licensing of the Company's productions andacquired films to international markets on a territory-by-territorybasis.

7

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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.

Merger

On November 22,2004, TAG USA was acquired by Power Marketing, Inc., a Delawarecorporation. In the transaction, TAG USA merged with a subsidiary ofPower Marketing, Inc. and became a wholly-owned subsidiary of PowerMarketing, Inc., now operating as a separate entity. As a result ofthis transaction, the stockholders and other security holders of TAGUSA became the owner of approximately 90% of the Company'soutstanding shares of common stock. In connection with the merger,Power Marketing changed its corporate name to TAG Entertainment Corp.,obtained the new trading symbol TAGE.OB and all of the officers anddirectors of Power Marketing resigned and Mr. Austin, who was themajority shareholder, Chief Executive Officer and sole director of TAGUSA became the Company's Chief Executive Officer, Chief FinancialOfficer and sole director. As discussed below, the Company recentlyappointed five additional individuals to its board of directors. Thetransaction was treated as a reverse merger and a recapitalization ofthe Company for reporting purposes. The holders of approximately1,122,000 shares of common stock of TAG USA that did not consent inwriting to the Company's acquisition of TAG USA are entitled toexercise appraisal rights under the California Corporations Code. Inthe event such holders elect to exercise these rights, the Companywould be required to purchase the shares of common stock of TAG USAheld by them in lieu of issuing shares of the Company's commonstock at the exchange ratio applicable to the transaction.

Going Concern and Management Plans

The Company'sfinancial statements have been presented on the basis that it is agoing concern, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business. TheCompany has experienced recurring losses and negative cash flows fromoperations and has a working capital deficit, which raises substantialdoubt about its ability to continue as a going concern and theCompany's independent auditors have included a"going concern" explanatory paragraph intheir report on the Company's financial statements for the yearended December 31, 2004. The Company is currently devoting its effortsto raising additional capital and ultimately achieving profitableoperations. The Company's ability to continue as a going concernis dependent upon its ability to develop additional sources of capital.The accompanying financial statements do not include any adjustmentsthat might result from the outcome of these uncertainties. The Companyclosed on a bridge financing in the amount of $1,000,000 on March 30,2005. On May 4, 2005, the Company completed a $5,000,000 preferredstock financing and retired the bridge loan.

On March 30, 2005,the Company entered into a letter of intent to acquire 100% ofthe outstanding common stock of Myriad Pictures, Inc., which is engagedin the film production and distribution business. The letter of intentprovides for a purchase price of approximately $4,000,000, including anearnout payment of up to $2,000,000 to be negotiated prior to closingof the transaction. The earnout may be paid in cash or in shares of theCompany's common stock, at its option. In addition, the Companyintends to invest an additional $750,000 to provide Myriad with workingcapital and debt repayment after the closing. Included in the purchaseprice, a $1,000,000 promissory note will be issued, payable over 12months following the closing.

In connection with the executionof the letter of intent, the Company provided Myriad with a short termloan of $250,000, bearing interest at the rate of 3% per annum,which Myriad will use for working capital and transition costs pendingthe closing. After closing of the transaction, the loan will convertinto additional investment in Myriad. The loan is secured by a lien onthe assets of Myriad. Other current assets at September 30, 2005include $280,000 in deferred acquisition costs related to legal,accounting and related due diligence efforts associated with the Myriadtransaction.

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In order to satisfy future cashrequirements, management is actively pursuing and has entered intodiscussions regarding additional financing to support the proposedacquisition, related expansion plans, and ongoing operations. TheCompany currently has no firm agreements with any third parties for anyfuture transactions and future financings.

Principles ofConsolidation

The accompanying consolidated financialstatements of the Company include the accounts of TAG and of theLimited Partnerships which the Company is the sole general partner. TheGeneral Partner has the full and exclusive control of the managementand operation of the business of each partnership. The Company in itscapacity as General Partner participates in 1% of the losses ofthe limited partnerships but shares in 60% of any profits. Allsignificant inter-company balances and transactions have beeneliminated in consolidation.

Minority Interests

TAGconsolidates the Limited Partnerships for which it is the sole generalpartner. The amount of minority interest represents the aggregate netlimited partnership 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 is recognizedon the "street date" when it is available forsale by the customer. Revenues from televisions licensing arerecognized when the feature film or television program is available tothe licensee for telecast. Revenues from sales to internationalterritories are recognized when the feature film or television programis available to the distributor for exploitation and no conditions fordelivery exist.

Production fees are earned on films where theCompany has been engaged as producer by limited partnerships formed tofinance the movie. In certain cases, such fees are fixed in amount andare earned and billed during the production process. In other cases,the Company earns a fee based on the revenues of the film and thereforerecognizes its fee when revenues are determined and reported by thedistributors of the film.

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 studio facilities is recognized over the term of thelease.

Cash payments received which may include minimumguarantees are recorded as deferred revenue until all conditions ofrevenue recognition have been met.

Cash Equivalents

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

Capitalized Film Costs

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

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

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

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

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

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

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

Equipment

Equipment is carriedat cost and is depreciated on the straight-line basis over theirestimated useful lives of three to eight years. Repairs and maintenanceare expensed as incurred. When assets are retired or otherwise disposedof, the property accounts are relieved of costs and accumulateddepreciation and any existing gain or loss is credited or charged tooperations.

Stock-Based Compensation

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

Valuation of the Company's Common Stock

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

Concentrations of Risk

The Company's financialinstruments that are exposed to concentrations of credit risk consistof cash and receivables. The Company invests its cash in banks withhigh credit ratings; however, certain account balances have beenmaintained at levels in excess of federally insured limits. The Companyhas not experienced a loss in such accounts.

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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 short reporting periods accounts receivables areminimized and outstanding balances are generally collected within 45 to90 days.

At September 30, 2005, the Company's receivablesincluded $2 million to be collected from an international filmdistributor for sub-distribution rights on a film completed anddelivered during the quarter. In addition, the Company issued a notefor production funding provided to the investor partnership that ownsthe underlying rights to this film. The note receivable balance was$1.2 million at September 30, 2005. The receivable from distributorrepresents a minimum guarantee under a distribution contract with theCompany to be collected from receipts in various foreign markets. Thenote receivable, which matures during the fourth quarter of 2005 andbears interest at 12% per annum, will be collected from thepartnership after payment of distribution and production fees andexpenses related to the film. While estimates of gross receipts,including video and DVD sales, support the stated values of theseamounts, the collection of these balances is subject to inherent risksassociated with the worldwide performance of the film and generalconditions in the various foreign markets.

Income Taxes

Deferred income taxes are recorded to reflect the tax consequencesin future years of temporary differences between the tax basis of theassets and liabilities and their financial statement amounts at the endof each reporting period. Valuation allowances are established whennecessary to reduce deferred tax assets to the amount expected to berealized. Income tax expense is the tax payable for the current periodand the change during the period in deferred tax assets andliabilities. The deferred tax assets and liabilities have been nettedto reflect the tax impact of temporary differences. A full valuationallowance 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. For thethree months ended September 30, 2005, the diluted EPS amount includes3,482,000 common shares that are potentially dilutive. The diluted EPSamounts for the nine months ended September 30, 2005 and the three andnine month periods ended September 30, 2004 do not reflect the impactof common share equivalents arising from warrants and options totaling7,535,000 and 4,990,000 at September 30, 2005 and 2004, respectively asthe effects would be anti-dilutive in those periods.

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NOTE 2 – AMOUNTS PAYABLE TOAFFILIATED PARTNERSHIPS

Net amounts payable to affiliatedpartnerships resulted from the advancement of funds by certainpartnerships to TAG which were required during the course of managingthe Company's operations and facilitating the activities of thepartnerships. In addition, to meet the cash flow needs of otheraffiliated partnerships, funding transfers have also occurred betweenand among TAG and the affiliated partnerships. The amounts payable toaffiliated partnerships include various receivable and payable balancesbetween TAG and these affiliated entities.

The Company in itscapacity as general partner and distributor of various films producedby the limited partnerships is allowed to charge monthly overhead andproduction fees which get recorded to accounts with the affiliatedpartnerships. The Company plans on making a formal purchase offer tothe various partnerships in return for TAG stock thus settlingoutstanding balances owed to the partnerships.

The Company hasrecorded interest on amounts borrowed from related entities at theprime leading rate and has included accrued interest in the amounts dueto and from the related entities.

NOTE 3 – DEFERREDPRODUCTION FUNDING

TAG deposited funds obtained from thirdparty producers for the purpose of producing specific films. Inexchange for an ownership or participation percentage in the film, thethird party producer has agreed to finance a portion of the production.Since no funds directly related to the production had been expended atSeptember 30, 2005, the amounts received have been included as aliability until such time as the production costs are incurred.

NOTE 4 – FINANCING ACTIVITIES

On March 30, 2005, theCompany entered into a Securities Purchase Agreement with SatelliteStrategic Finance Associates, LLC and an affiliated investor underwhich the Company issued $1,000,000 in aggregate principal amount ofSenior Secured Notes and Warrants to purchase 500,000 shares of itscommon stock in a private placement to accredited investors underRegulation D of the Securities Act of 1933, as amended. The Companyreceived gross proceeds of $1,000,000 which were intended for the filmproduction and general working capital requirements. The aggregateprincipal amount of the Notes was $1,150,000 with a 15% yieldfunded as original issuance discount. The Company also entered into aRegistration Rights Agreement and a Security Agreement with theinvestors and its subsidiary, TAG Entertainment USA, Inc. co-signed theSecurity Agreement and agreed to guaranty its obligations pursuant tothe financing agreements. Pursuant to the Security Agreement, theCompany granted the investors a first priority lien on all of itsassets, other than certain previously issued liens, in order to secureits obligations. The Notes mature on March 30, 2006 and are soonerpayable in full in the event the Company consummates a subsequentfinancing event, with certain exceptions, or upon the occurrence of anevent of default. The warrants are exercisable at $1.00 per share,subject to adjustment upon certain events, including as a result of itssale of equity securities at a price below the exercise price. Thewarrants are exercisable at any time on or before March 30, 2010. Inconnection with the issuance of the Notes and the related warrants, theCompany allocated the net proceeds between the instruments based on therelative fair value of the warrants and the Notes. The fair value ofthe warrants was determined using the Black-Scholes pricing model andthe following assumptions: contractual terms of five years, an averagerisk free interest rate of 2.5%, a dividend yield of 0%,and a volatility of 95.3%. Accordingly, the Company recorded anincrease in additional paid-in capital and note payable discount of$638,000 in connection with the issuance of the Notes and warrants.

On May 4, 2005 the Company consummated a subsequent financingtransaction with the holders of these notes, pursuant to which thesesecured notes were repaid in full and the Company fulfilled itsobligations under the Security Agreement and Guaranty. In thisfinancing transaction, the Company completed a private placement ofshares of its Series A Convertible Preferred Stock, par value $.001 pershare, and warrants to purchase shares of TAG's common stock. Theplacement was made 

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pursuant to a Securities Purchase Agreement,dated May 3, 2005 and the gross proceeds of this transaction were$5,000,000. The Company repaid out of the gross proceeds the securednotes the Company issued to the investors in the bridge financingcompleted March 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 plans to use the net proceeds for the production, acquisitionand distribution of feature films and general working capital.Financing expenses are being amortized over the three year maturityperiod of the Preferred Stock.

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.

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 $214,000 and $358,000 was recorded as interest expenseduring the three and six months ended September 30, 2005.

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's commonstock of $3 per share at closing. In recognition of the intrinsic valueof the conversion feature, the company recorded an additional discountof $2,414,000 against the Preferred Stock with a corresponding increasein additional paid-in-capital. The discount is being amortized overthree years and charged against retained earnings.

Each share ofPreferred Stock, which has a stated value of $1,000 per share, earnscumulative dividends at a rate of 6% per annum and matures threeyears from the date of issuance. The dividend and liquidation rights ofthe Preferred Stock are senior to those of its common stock. ThePreferred Stock does not carry voting rights.

As part of itscurrent financing efforts for operations and the proposed transactionwith Myriad, the company has incurred financing costs totaling $83,000through September 30, 2005. Deferred financing expenses totaled$402,000 at September 30, 2005 and are included with other currentassets ($207,000) and other assets ($195,000).

As previouslyreported, in January 2005 the Company commenced a private placementoffering under Rule 506, promulgated under the Securities Act of 1933.This offering was terminated during the quarter ended June 30, 2005. Atotal of $88,000 was raised in connection with the issuance of 29,000shares.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

The Company's subsidiary, TAG Entertainment USA, Inc., isentering into production and distribution agreements with Wild StallionProductions LP, an unaffiliated third party that holds the rights tothe motion picture Wild Stallion. These arrangements provide TAGEntertainment with the rights to produce and distribute the motionpicture. In July 2005, TAG Entertainment USA agreed to guarantee a loanin the amount of $250,000 made by an individual lender to Wild StallionProductions in order to induce the lender to make this loan. The loanproceeds have been used by Wild Stallion for the production of themotion picture. This loan, which bears interest at the rate of10% per annum, was due on August 15, 2005 and has not beenrepaid by the limited partnership. The lender, however, has neitherdemanded repayment from the limited partnership nor notified TAGEntertainment USA of its intention to collect under the guarantee.

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The Company was named in an administrativeproceedings with the securities regulatory agency in the state of Texasregarding a private placement of limited partnership interests ofSupercross the Movie, L.P. made to investors in that state bySupercross the Movie, L.P. On or about February 16, 2005, the TexasSecurities Bureau and counsel for TAG and Supercross agreed thatSupercross the Movie, L.P. would undertake a rescission offer for thelimited partnership interests of Supercross sold in Texas and to makeall the required filings in that state. Counsel for Supercross is inthe process of drafting the rescission offer to the investors in Texaswho subscribed for Supercross, the Movie L.P. interests. The estimatedamount of partnership interests that would be subject to the rescissionoffer is approximately $660,000.

An arbitration was filed onJuly 20, 2004, Philipson vs. Animal Partners, LP, et al, withthe American Arbitration Association which named TAG USA as arespondent. The arbitration allegedly arises out of thepetitioners' purchase of several units of the Animal PartnersLimited Partnership. The petition alleges that respondents have neverfully reported any financial information pertaining to the limitedpartnership to the petitioners. TAG USA was named as a respondentdespite the fact that it is neither a limited partner nor the generalpartner of the limited partnership. TAG USA has a distributionarrangement with the limited partnership whereby it serves as thedistributor of the motion picture Miracle Dogs, which wasproduced by the limited partnership. This matter was settled in March2005 and TAG USA was released from any claims. As part of thissettlement, TAG acquired the outstanding limited partnership interestsowned by the petitioners for $200,000. As of the date hereof, theparties have fully performed their obligations under the settlementagreement.

The Maryland Securities Bureau is investigating therole of TAG Entertainment Corp. in certain private offerings made bycertain limited partnerships (collectively, the"LPs") for which the Company produced motionpictures in light of the relationships between TAG and the LPs. Thestate has alleged that the sale of limited partnership interests toinvestors in Maryland by these limited partnerships may not have beenmade in compliance with the "blue sky" lawsof Maryland. In September 2005, the Maryland Securities Bureau demandedthat these LPs conduct a rescission offer with respect to the limitedpartnership interests sold to Maryland residents and also indicated itsintention to seek a civil penalty of $5,000 against each LP for thesealleged violations. TAG and the LPs are currently negotiating with theMaryland Securities Bureau to reach a mutually agreeable settlement ofthese allegations and anticipate that each LP will offer rescission tothe investors residing in Maryland. The total amount of interests soldin Maryland by these LPs was $419,000.

On September 21, 2005 acomplaint entitled Grobstein, Horwath & Co., LLP("Grobstein") vs. TAG Entertainment Corp., etal. was filed in the Superior Court of The State of California,County of Los Angeles, Northwest Division. The plaintiff, theCompany's former auditing firm, alleges that the Company owes thesum of approximately $152,000 arising out of an agreement related toGrobstein's resignation as the Company's auditing firm.Management believes it has valid defenses to the claims of theplaintiff and intends to defend the action vigorously. The Companyreceived an extension of time in which to answer until November 21,2005 and management intends to file a timely response. Based on thefacts currently known, management believes that the resolution of thisclaim will not have a materially adverse effect on TAG'sfinancial condition. However, no assurances can be given that suchbelief will ultimately prove to be accurate or that other facts adverseto the Company's position currently not known to management willnot be uncovered, in which case the ultimate resolution of this claimcould potentially have a material adverse effect on the Company'sfinancial condition.

Certain limited partners in the entityFunny Money the Movie, L.P. have demanded that this limited partnershipagree to rescind their purchase of limited partnership interests, inthe aggregate amount of $275,000, plus interest. The limitedpartnership has reached an agreement in principal with these limitedpartners and expects to finalize, execute and exchange the settlementdocuments among the relevant parties during the quarter ending December31, 2005. Further, these limited partners have claimed that theCompany, due to its contractual relationship with the limitedpartnership, has responsibility for the actions of the limitedpartnership. Management has denied any responsibility for the actionstaken in the name of the limited partnership and believes the Companywould have meritorious defenses to any claim asserted against it.Accordingly, management does not believe that the resolution of thisclaim will have a materially adverse effect on the Company'sfinancial condition. 

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However, no assurances can be given that suchbelief will ultimately prove to be accurate or that other facts adverseto our position currently not known to management will not beuncovered, in which case the ultimate resolution of this claim couldpotentially have a material adverse effect on the Company'sfinancial condition.

On November 10, 2005, we received anotification from Park Avenue Entertainment, LLC claiming that TAGEntertainment has materially breached an agreement between the twocompanies to produce a motion picture currently in development.Claimant has demanded that TAG pay the sum of $135,000 pursuant to thetermination clauses of the agreement. We are disputing this claim andhave asserted claims against Park Avenue Entertainment concerning theirfailure to properly perform under the agreement. We intend tovigorously defend any proceeding that may be commenced against us.Management is unable to determine at this time whether this claim willhave a material adverse impact on the Company's financialcondition, results of operations or cash flow.

The Company isinvolved in various claims and other legal proceedings that arise fromtime to time in the ordinary course of business, including claimsasserted by guilds and unions representing creative talent. Based onthe facts of which it is currently aware, management does not believeany of these matters will have a material adverse effect on TAG'sfinancial position or results of operations. Litigation is inherentlyunpredictable and excessive verdicts do occur. Although managementbelieves the Company has valid defenses in these matters, in the futurethe Company may incur judgments or enter into settlements of claimsthat could have a material adverse effect on TAG's financialposition or results of operations in any particular period. Further, noassurances can be given that management's assessment of theseclaims will ultimately prove to be accurate or that other facts adverseto our position currently not known to management will not beuncovered, in which case the ultimate resolution of some or all ofthese claims could potentially have a material adverse effect on ourfinancial condition.

TAG Entertainment Corp. and/or itssubsidiary, TAG Entertainment USA, Inc. have been involved in variousclaims made or threatened against certain limited partnerships.Although these claims concern the actions of the specific limitedpartnerships, the Company has been involved in these proceedings due tothe interests arising out of its production and distribution activitieson behalf of these limited partnerships and, in certain situations,where an affiliate of TAG's Chief Executive Officer serves asgeneral partner of the limited partnership entity. In certainsituations, the arrangements have led to limited partners assertingclaims against and seeking redress from the Company. Regardless of theultimate liability to any of these claimants, these disputes may imposefinancial and administrative challenges that may require theapplication of the Company's resources and the time and attentionof management. Further, based on our production relationship withcertain limited partnerships, cash resources were used to satisfyobligations of the limited partnerships and although the Companyexpects reimbursement from the limited partnerships, this cannot beassured. These situations have negatively impacted the Company'scash position and distracted management from focusing on our business.With respect to claims, adverse decisions or settlements may occur inone or more of these matters and it is not possible to estimate thepossible loss or losses, if any. Based on the facts of which we arecurrently aware, management believes that the resolution of theseclaims will not have a materially adverse effect on the Company'sfinancial condition. However, no assurances can be given that suchbelief will ultimately prove to be accurate or that other facts adverseto our position currently not known to management will not beuncovered, in which case the ultimate resolution of some or all ofthese claims could potentially have a material adverse effect on theCompany's financial condition.

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Item 2.    Management'sDiscussion and Analysis or Plan of Operation

Thismanagement's discussion and analysis of financial condition andresults of operations discusses our consolidated financial statements,which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of thesefinancial statements requires management to make estimates andassumptions that affect the reported amounts of assets and liabilitiesand the disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues andexpenses during the reporting period. On an on-going basis, managementevaluates its estimates and judgments. Management bases its estimatesand judgments on historical experience and on various other factorsthat are believed to be reasonable under the circumstances. Thisdiscussion also contains forward-looking statements that involve risksand uncertainties. The following discussion should be read inconjunction with our consolidated financial statements and the notesthereto included elsewhere in this report. Actual results may differfrom these estimates under different assumptions or conditions.

Nature of Operations

TAG Entertainment Corp. is a Delawarecorporation headquartered in Beverly Hills, California. We are engagedin the development, production and distribution of motion pictures andthe management of studio facilities. We also acquire the copyrightsand/or distribution rights to already completed films for mediaexhibition. In order to finance film production, we raise funds throughthe establishment of single purpose limited partnerships and throughthe sale of equity or debt securities. TAG Entertainment USA, Inc.("TAG USA"), the Company's wholly-ownedsubsidiary, serves as the sole general partner of the following fourlimited partnerships: Majestic Film Partners, LP, Majestic FilmPartners II, LP, Majestic Film Partners III, LP and Majestic FilmPartners IV, LP (the "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. Certain of these otherlimited partnerships have as their general partner an entity owned andcontrolled by Steve Austin, our Chief Executive Officer.

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

Merger

On November 22, 2004, TAG USA was acquired by PowerMarketing, Inc., a Delaware corporation. In the transaction, TAG USAmerged with a subsidiary of Power Marketing, Inc. and became awholly-owned subsidiary of Power Marketing, Inc., now operating as aseparate entity. As a result of this transaction, the stockholders andother security holders of TAG USA became the owner of approximately90% of the Company's outstanding shares of common stock.In connection with the merger, Power Marketing changed its corporatename to TAG Entertainment Corp., obtained the new trading symbolTAGE.OB and all of the officers and directors of Power Marketingresigned and Mr. Austin, who was the majority shareholder, ChiefExecutive Officer and sole director of TAG USA became theCompany's Chief Executive Officer, Chief Financial Officer andsole director. Subsequently, we appointed five additional individualsto our board of directors, four of whom are 

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independent. The transaction was treated asa reverse merger and a recapitalization of the Company for reportingpurposes. The holders of approximately 1,122,000 shares of common stockof TAG USA that did not consent in writing to the Company'sacquisition of TAG USA are entitled to exercise appraisal rights underthe California Corporations Code. In the event such holders elect toexercise these rights, we would be required to purchase the shares ofcommon stock of TAG USA held by them in lieu of issuing shares of theCompany's common stock at the exchange ratio applicable to thetransaction. The holders of an aggregate of 50,000 shares notified usin accordance with the California Corporations Code that they intend toexercise their appraisal rights. We are currently negotiating withthese holders to resolve this matter.

Going Concern andManagement Plans

Our financial statements have been presentedon the basis that the Company is a going concern, which contemplatesthe realization of assets and the satisfaction of liabilities in thenormal course of business. The Company has experienced recurring lossesand negative cash flows from operations and has a working capitaldeficit, which raises substantial doubt about its ability to continueas a going concern and the Company's independent auditors haveincluded a "going concern" explanatoryparagraph in their report on the Company's financial statementsfor the year ended December 31, 2004. We are currently devoting effortsto raising additional capital and ultimately achieving profitableoperations. The Company's ability to continue as a going concernis dependent upon our ability to develop additional sources of capital.The accompanying financial statements do not include any adjustmentsthat might result from the outcome of these uncertainties. We closed ona bridge financing in the amount of $1,000,000 on March 30, 2005. OnMay 4, 2005, we completed a $5,000,000 preferred stock financing andretired the bridge loan.

On March 30, 2005, we entered into aletter of intent to acquire 100% of the outstanding common stockof Myriad Pictures, Inc., which is engaged in the film production anddistribution business. The letter of intent provides for a purchaseprice of approximately $4,000,000, including an earnout payment of upto $2,000,000 to be negotiated prior to closing of the transaction. Theearnout may be paid in cash or in shares of the Company's commonstock, at our option. In addition, we intend to invest an additional$750,000 to provide Myriad with working capital and debt repaymentafter the closing. Included in the purchase price, a $1,000,000promissory note will be issued, payable over 12 months following theclosing.

In connection with the execution of the letter ofintent, we provided Myriad with a short term loan of $250,000, bearinginterest at the rate of 3% per annum, which Myriad will use forworking capital and transition costs pending the closing. After closingof the transaction, the loan will convert into additional investment inMyriad. The loan is secured by a lien on the assets of Myriad.

Management is actively pursuing and has entered discussionsregarding additional financing to support the proposed acquisition,related expansion plans, and ongoing operations.

CriticalAccounting Policies

The application of the following accountingpolicies, which are important to the Company's financial positionand results of operations, requires significant judgments and estimateson the part of management. For a summary of all of the Company'saccounting policies, including the accounting policies discussed below,see Note 1 to the Company's audited consolidated financialstatements.

Use of Estimates

The preparation of thefinancial statements in accordance with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect reported amounts of assets and liabilities anddisclosure of contingent assts and liabilities at the date of thefinancial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those andother estimates.

Principles of Consolidation

Theaccompanying consolidated financial statements of the Company includethe accounts of TAG and of the Limited Partnerships which TAG USA isthe sole general partner. The General 

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Partner has the full and exclusive controlof the management and operation of the business of each partnership.TAG USA in its capacity as General Partner participates in 1% ofthe losses of the limited partnerships but shares in 60% of anyprofits. All significant inter-company balances and transactions havebeen eliminated in consolidation.

Minority Interests

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

Revenue Recognition

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

Productionfees are earned on films where the Company has been engaged as producerby limited partnerships formed to finance the movie. In certain cases,such fees are fixed in amount and are earned and billed during theproduction process. In other cases, the Company earns a fee based onthe revenues of the film and therefore recognizes its fee when revenuesare determined and reported by the distributors of the film.

Oncertain films, the Company earns management fees in connection with itsrole as production manager for the limited partnerships where the ChiefExecutive Officer of the Company has assigned to TAG his management feerights during the production period.

The Company bills overheadfees to limited partnerships for reasonable, direct and allocable costsarising during the management of film projects.

Rental revenuefrom short-term operating leases studio facilities is recognized overthe term of the lease.

Cash payments received which may includeminimum guarantees are recorded as deferred revenue until allconditions 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 filmswhich include the unamortized costs of completed films which have beenproduced by the Company or for which the Company has acquireddistribution rights or film libraries.

For films produced by theCompany, capitalized costs include all direct production and financingcosts, and production overhead. For acquired films, these capitalizedcosts consist of minimum guarantee payments to acquire the distributionrights.

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

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Ultimate revenue includes estimates overa period not to exceed ten years following the date of initial release.For titles included in acquired libraries, ultimate revenue includesestimates over a period not to exceed ten years following the date ofacquisition.

Capitalized film costs are stated at the lower ofamortized cost or estimated fair value on an individual film basis. Thevaluation of investment in films is reviewed on a title-by-title basis,when an event or changes in circumstances indicated that the fair valueof a film is less than its unamortized cost. The fair value of the filmis determined using management's future revenue and costestimates. Additional amortization is recorded in the amount by whichthe unamortized costs exceed the estimated fair value of the film.Estimates of future revenue involve measurement uncertainty and it istherefore possible that reductions in the carrying value of investmentin films may be required as a consequence of changes inmanagement's future revenue estimates.

Films in progressinclude the accumulated costs of production for film projects whichhave not yet been completed.

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

Equipment

Equipment is carriedat cost and is depreciated on the straight-line basis over theirestimated useful lives of three to eight years. Repairs and maintenanceare expensed as incurred. When assets are retired or otherwise disposedof, the property accounts are relieved of costs and accumulateddepreciation and any existing gain or loss is credited or charged tooperations.

Stock-Based Compensation

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

Valuation of the Company's Common Stock

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

Concentrations of Risk

The Company's financialinstruments that are exposed to concentrations of credit risk consistof cash and receivables. The Company invests its cash in banks withhigh credit ratings; however, certain account balances have beenmaintained at levels in excess of federally insured limits. The Companyhas not experienced a loss in such accounts.

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

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At September 30, 2005, theCompany's receivables included $2 million to be collected from aninternational film distributor for sub-distribution rights on a filmcompleted and delivered during the quarter. In addition, the Companyissued a note for production funding provided to the investorpartnership that owns underlying rights to this film. The notereceivable balance was $1.2 million at September 30, 2005. Thereceivable from distributor represents a minimum guarantee under adistribution contract with the Company to be collected from receipts invarious foreign markets. The note receivable, which matures during thefourth quarter of 2005 and bears interest at 12% per annum, willbe collected from the partnership after payment of distribution andproduction fees and expenses related to the film. While estimates ofgross 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.

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. At December31, 2004, a full valuation allowance has been established for thedeferred tax asset as management believes that it is more likely thannot that a tax benefit will not be realized.

Earnings perCommon Share

We computed earnings per common share inaccordance with Statement 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 capitalstructures and requires a reconciliation of the numerator anddenominator of the basic EPS computation to the numerator anddenominator of the diluted EPS computation. Basic EPS is computed bydividing loss available to common shareholders by the weighted averagenumber of common shares outstanding. The computation of diluted EPS issimilar to the basic EPS computation except the denominator isincreased to include the number of additional shares that would havebeen outstanding if the dilutive potential common shares had beenissued. In addition, the numerator is adjusted for any changes inincome or loss that would result from the assumed conversions of thosepotential shares. However, such presentation is not required if theeffect is anti-dilutive. For the three months ended September 30, 2005,the diluted EPS amount includes the impact of 3,482,000 common sharesthat are potentially dilutive. The diluted EPS amounts for the ninemonths ended September 30, 2005 and the three and nine month periodsended September 30, 2004 do not reflect the impact of common shareequivalents arising from warrants and options totaling 7,535,000 and4,990,000 at September 30, 2005 and 2004, respectively as the effectswould be anti-dilutive in those periods.

Results ofOperations

Three and Nine Months Ended September 30, 2005 as compared to September30,  2004

Revenue

Gross revenuesfor the three months ended September 30, 2005 and 2004 were $1,748,000and $704,000, respectively; an increase of $1,044,000. For the ninemonths ended September 30, 2005 and 2004, revenues were $2,407,000 and$1,625,000, an increase of $782,000. The increase in revenues wasprincipally attributable to increased film distribution fees andproduction fees arising on guaranteed receipts from the delivery of afilm released for international distribution. In addition, the Companycompleted film production activities on another film where it earnedfees as production manager. Overhead fees increased as a result ofincreased production and related administrative support activity

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for various film projects. The Company hasdiscontinued leasing a studio during the current year, therefore therewas no rent income arising from film production activity as compared torental income of $44,000 and $269,000 during the three and nine monthsended September 30, 2004.

Expenses

Expenses for the three months ended September 30, 2005 were$1,064,000 compared to $2,332,000 in the prior year period, a decreaseof $1,268,000. For the nine months ended September 30, 2005, expenseswere $2,969,000 compared to $4,344,000 in the prior year period, adecrease of $1,375,000. For the three and nine month periods, thedecrease resulted primarily from decreased general and administrativeexpenses; in addition, a legal settlement of $500,000 was included inprior period results. General and administrative expenses have declinedprimarily as a result of decreased consulting fees in the current year.In addition, studio expenses have decreased as a result of thediscontinued leasing of a studio this year.

Interest expense was$291,000 and $1,275,000 for the three and nine months ended September30, 2005 and included discount amortization associated with bridgefinancing retired in May 2005 ($788,000), amortization of convertiblepreferred stock discount associated with related warrants ($216,000 and$360,000 for the three and nine months, respectively), and interest onthe Company's convertible preferred stock. There was no interestexpense in the prior year periods.

MinorityInterest

The consolidated income effect attributable tothe minority interest for the three and nine months ended September 30,2005 was $192,000 and $211,000, respectively, compared to $16,000 and$23,000 in the corresponding prior year periods. The increase wasattributed to higher losses experienced by limited partnerships,primarily through increased amortization of film costs that areconsolidated for financial reporting purposes.

Liquidity andCapital Resources

Since inception, we have financed ouroperations primarily through the sale of equity securities and issuanceof debt instruments. Through September 30, 2005, we had received inexcess of $12 million from such offerings, including approximately $7million raised by TAG USA prior to its merger with Power Marketing.

As of December 31, 2004, the Company had minimal cash and cashequivalents as we were in the process of completing various financingarrangements. In March 2005, we completed a secured debt financingtransaction which provided cash of $1,000,000. The secured notes wereto mature March 30, 2006 and the principal amount of the notes was$1,150,000 with a 15% yield funded as original issuancediscount. We also granted the investors warrants to purchase a total of500,000 shares of TAG common stock, exercisable at $1.00 per share,subject to adjustment upon certain events, including as a result of itssale of equity securities at a price below the exercise price. Thewarrants are exercisable at any time on or before March 30, 2010.

On May 4, 2005, we consummated a subsequent financing transactionwith the holders of the secured notes, pursuant to which the securednotes were repaid in full and we fulfilled our obligations under theSecurity Agreement and Guaranty we entered in connection with oursecured note financing. In this financing transaction, we completed aprivate placement of shares of TAG's Series A ConvertiblePreferred Stock, par value $.001 per share, and warrants to purchaseshares of TAG's common stock. The placement was made pursuant toa Securities Purchase Agreement, dated May 3, 2005 and the grossproceeds of this transaction were $5,000,000. We repaid out of thegross proceeds the secured note the Company issued to the investor inthe bridge financing completed March 30, 2005. After payment of thenote and offering expenses in the amount of approximately $370,000, theCompany received net proceeds of approximately $3,500,000 from thisfinancing. The Company is using the net proceeds for the production,acquisition and distribution of feature films and general workingcapital.

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In this financing, we issued 5,000 sharesof Preferred 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. Each share ofPreferred Stock, which has a stated value of $1,000 per share, earnscumulative dividends at a rate of 6% per annum and matures threeyears from the date of issuance. The dividend and liquidation rights ofthe Preferred Stock are senior to those of its common stock. ThePreferred Stock does not carry voting rights.

Net cash used foroperating activities for the nine months ended September 30, 2005 was$1,512,000 which primarily resulted from the Company's operatinglosses, as well as amounts advanced to certain partnerships to fundcompletion of films where the Company is engaged as producer anddistributor. Net cash used for operating activities for the nine monthsended September 30, 2004 was $793,000 which primarily consisted of theCompany's operating loss along with film investments of $948,000,offset by increases in accrued salaries of $425,000 and amounts payableto affiliated partnerships of $915,000.

Net cash used ininvesting activities for the first nine months of 2005 was $2,751,000compared to $494,000 in the prior year. In 2005, the Company loaned$250,000 in connection with a proposed acquisition and issued a notefor the provision of production completion funds on a film that wasreleased during the third quarter. In addition, the Company incurred$278,000 in costs related to a proposed acquisition and invested$258,000 in film partnerships. In 2004, amounts were invested incertain film partnerships totaling $475,000.

Net cash providedby financing activities for the nine months of 2005 was $4,443,000which primarily consisted of proceeds from debt financings offset byfinancing costs. Net cash provided by financing activities in 2004 was$1,011,000 which primarily included proceeds from the issuance ofcommon stock and private placement proceeds payable to the chiefexecutive officer of the Company.

Our subsidiary, TAGEntertainment USA, Inc., is entering into production and distributionagreements with Wild Stallion Productions LP, an unaffiliated thirdparty that holds the rights to the motion picture Wild Stallion.These arrangements provide TAG Entertainment with the rights to produceand distribute the motion picture. In July 2005, TAG Entertainment USAagreed to guarantee a loan in the amount of $250,000 made by anindividual lender to Wild Stallion Productions in order to induce thelender 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 on August15, 2005 and has not been repaid by the limited partnership. Thelender, however, has neither demanded repayment from the limitedpartnership nor notified TAG Entertainment USA of its intention tocollect under the guarantee.

Cash Requirements and Need forAdditional Funds

With the completion of the recent $5 millionpreferred stock financing, we received net proceeds of approximately$3.5 million after retirement of the $1 million bridge loan and paymentof closing costs. We are using these proceeds to fund theCompany's near term working capital requirements and businessmodel objectives. In connection with the execution of our businessstrategy and related expansion plans, including the proposedacquisition of Myriad Pictures, we intend to either undertake privateplacements of the Company's securities, either as a self-offeringor with the assistance of registered broker-dealers, or negotiate aprivate sale of its securities to one or more institutional investors.However, we currently have no firm agreements with any third-partiesfor such transactions and no assurances can be given that we will besuccessful in raising sufficient capital from any of these proposedfinancings. Further, we cannot assure you that any additional financingwill be available or, even if it is available that it will be on termsacceptable to us. Any inability to obtain required financing onsufficiently favorable terms could have a material adverse effect onthe Company's business, results of operations and financialcondition. If we are unsuccessful in raising additional capital andincreasing revenues from operations, we will need to reduce costs andoperations substantially. Further, if expenditures required to achieveour plans are greater than projected or if 

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revenues are less than, or are generatedmore slowly than projected, we will need to raise a greater amount offunds than currently expected.

Off-Balance SheetArrangements

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

TheCompany has incurred debt to unconsolidated partnerships in theaggregate amount of $1.8 million as of September 30, 2005, which werequired during the course of managing operations and facilitating theactivities of the partnerships. In addition, cash transfers wererequired between affiliated partnerships to meet cash flow needs andother obligations. 

TAG USA in its capacity as generalpartner and distributor of various films produced by the limitedpartnerships is allowed to charge monthly overhead and production feeswhich get recorded to and against related party transactions. We alsoplan on making a formal purchase offer to the various partnerships inreturn for shares of its stock, which if consummated, would eliminateany current and future outstanding balances owed to the partnerships.TAG has recorded interest on amounts borrowed from related entities atthe prime lending rate.

We have entered into various agreementsby which the Company may be obligated to indemnify the other party withrespect to certain matters. Generally, these indemnification provisionsare included in contracts arising in the normal course of businessunder which the Company customarily agrees to hold the indemnifiedparty harmless against losses arising from a breach of representationsrelated to such matters as intellectual property rights. Payments bythe Company under such indemnification clauses are generallyconditioned on the other party making a claim. Such claims aregenerally subject to challenge by the Company and to dispute resolutionprocedures specified in the particular contract. Further, theCompany's obligations under these arrangements may be limited interms of time and/or amount and, in some instances, the Company mayhave recourse against third parties for certain payments made by us. Itis not possible to predict the maximum potential amount of futurepayments under these indemnification agreements due to the conditionalnature of the Company's obligations and the unique facts of eachparticular agreement. Historically, we have not made any payments underthese agreements that have been material individually or in theaggregate. As of September 30, 2005, we were not aware of anyobligations under such indemnification agreements that would requirematerial payments.

Item 3.    Controls and Procedures

Disclosure Controls

As of the end of the periodcovered by this report, we carried out an evaluation, under thesupervision and with the participation of our management, including thechief executive officer (who also currently serves as our chieffinancial officer), of the effectiveness of the Company'sdisclosure controls and procedures as defined in Exchange Act Rule13a-15(e). The evaluation included certain internal control areas inwhich we have made and are continuing to make changes to improve andenhance controls, as described in greater detail below. In designingand evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how welldesigned 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 thatevaluation, our chief executive officer and chief financial officerconcluded that our disclosure controls and procedures were effective asof the end of the third quarter to provide 

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reasonable assurance that information we arerequired to disclose in reports that we file or submit under theSecurities Exchange Act of 1934, as amended, is accurately recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms, and that suchinformation is accumulated and communicated to our management,including our chief executive officer and chief financial officer, asappropriate, to allow timely decisions regarding requireddisclosure.

During our evaluation of disclosurecontrols and procedures for the quarter ended September 30, 2005 and inconnection with our ongoing efforts to improve our internal controlover financial reporting, certain deficiencies in our disclosurecontrols and procedures came to management's attention, includinga need to improve the timeliness of the dissemination of informationreceived from one of our third party service providers and ascertainingexpense and related liabilities incurred by certain limitedpartnerships with which we have production and distributionrelationships. We are continuing our efforts to improve both ourdisclosure controls and procedures and our internal control overfinancial reporting.

Internal Controls

In connectionwith the merger of Power Marketing and TAG USA in November 2004, weadopted and implemented numerous measures in connection with itsongoing efforts to improve control processes and corporate governance.These changes are required to effect our transition from aprivately-held corporation to a public company that files periodicreports under the Securities Exchange Act of 1934, as amended. As aprivate company, the Company was not required to adopt the types ofinternal control procedures that a public company must adopt andmaintain. Accordingly, since the merger, we have has taken numeroussteps to enhance existing policies, or implement new ones, so as tohave an effective system of internal controls over financial reporting.These measures, which either have materially affected, or arereasonably likely to materially affect, our internal controls overfinancial reporting, include thefollowing:

|              |                                                                                                                                                                                                                                                                      |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We increased the membershipof the board of directors to consist of six persons, four of whom areindependent, as such term is defined in the Marketplace Rules of theNasdaq Stock Market. We designated one independent director as"Audit Committee FinancialExpert." |

|              |                                                                                             |
|--------------|---------------------------------------------------------------------------------------------|
| •  | We determined tohire an individual to serve as Chief Financial Officer on a full-timebasis. |

|              |                                                                                                                                                                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We formalized a Code of Ethicsand Business Conduct. The Code of Ethics is designed to promote ethicalconduct and full, fair and accurate disclosure in its periodic reports.We have re-emphasized to our finance and accounting personnel theimportance of these requirements. |

|              |                                                                                                                                                                                                                                                                              |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Wehave recruited new personnel to the finance function who have expertisein financial controls and reporting, including a corporate controller,and made other changes in finance personnel to improve the overallquality and level of experience of the financeorganization. |

|              |                                                                                                        |
|--------------|--------------------------------------------------------------------------------------------------------|
| •  | We have reorganized thefinance and general and administrative functions to improve financialoversight. |

|              |                                                                                                                                                                                                                                                                                                   |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We have made changes in theorganizational structure to provide a clearer segregation ofresponsibilities in connection with account reconciliations, manualjournal entries, and the preparation and review of documentation tosupport the preparation of quarterly and annual financialstatements. |

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

We continueto implement additional measures in response to specific accounting andreporting weaknesses, including personnel and organizational changes toimprove supervision and increased training for finance and accountingpersonnel. We will continue to develop new policies and procedures andeducate and train employees on existing policies and procedures in aneffort to continuously improve internal controls and the controlenvironment.

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Except for the improvements describedabove, there have been no other changes in the internal control overfinancial reporting during the quarter ended September 30, 2005 thathave materially affected, or are reasonably likely to materiallyaffect, internal controls over financial reporting.

We do notexpect that disclosure controls or internal controls over financialreporting will prevent all errors or all instances of fraud. A controlsystem, no matter how well designed and operated, can provide onlyreasonable, not absolute, assurance that the control system'sobjectives will be met. Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefitsof controls must be considered relative to their costs. Because of theinherent limitations in all control systems, no evaluation of controlscan provide absolute assurance that all control issues and instances offraud, if any, within its company have been detected. These inherentlimitations include the realities that judgments in decision-making canbe faulty, and that breakdowns can occur because of simple error ormistake. Controls can also be circumvented by the individual acts ofsome persons, by collusion of two or more people, or by managementoverride of the controls. The design of any system of controls is basedin part upon certain assumptions about the likelihood of future events,and any design may not succeed in achieving its stated goals under allpotential future conditions. Over time, controls may become inadequatebecause of changes in conditions or deterioration in the degree ofcompliance with policies or procedures. Because of the inherentlimitation of a cost-effective control system, misstatements due toerror or fraud may occur and not be detected.

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Part II

Item 1.    Legal Proceedings

We are not currently a partyto any lawsuit or proceeding which, in the opinion of management, islikely to have a material adverse effect on TAG, except as set forthbelow.

The Company was named in an administrative proceedingswith the securities regulatory agency in the state of Texas regarding aprivate placement of limited partnership interests of Supercross theMovie, L.P. made to investors in that state by Supercross the Movie,L.P. On or about February 16, 2005, the Texas Securities Bureau andcounsel for TAG and Supercross agreed that Supercross the Movie, L.P.would undertake a rescission offer for the limited partnershipinterests of Supercross sold in Texas and to make all the requiredfilings in that state. The estimated amount of partnership intereststhat would be subject to the rescission offer is approximately$660,000.

An arbitration was filed on July 20, 2004,Philipson vs. Animal Partners, LP, et al, with the AmericanArbitration Association which named TAG USA as a respondent. Thearbitration allegedly arises out of the petitioners' purchase ofseveral units of the Animal Partners Limited Partnership. The petitionalleges that respondents have never fully reported any financialinformation pertaining to the limited partnership to the petitioners.TAG USA was named as a respondent despite the fact that it is neither alimited partner nor the general partner of the limited partnership. TAGUSA has a distribution arrangement with the limited partnership wherebyit serves as the distributor of the motion picture Miracle Dogs,which was produced by the limited partnership. This matter wassettled in March 2005 and TAG USA was released from any claims. As partof this settlement, TAG acquired the outstanding limited partnershipinterests owned by the petitioners for $200,000. As of the date hereof,the parties have fully performed their obligations under the settlementagreement.

The Maryland Securities Bureau is investigating therole of TAG Entertainment Corp. in certain private offerings made bycertain limited partnerships (collectively, the"LPs") for which we produced motion picturesin light of the relationships between TAG and the LPs. The state hasalleged that the sale of limited partnership interests to investors inMaryland by these limited partnerships may not have been made incompliance with the "blue sky" laws ofMaryland. In September 2005, the Maryland Securities Bureau demandedthat these LPs conduct a rescission offer with respect to the limitedpartnership interests sold to Maryland residents and also indicated itsintention to seek a civil penalty of $5,000 against each LP for thesealleged violations. TAG and the LPs are currently attempting to reach amutually agreeable settlement of these allegations and anticipate thateach LP will offer rescission to the investors residing in Maryland.The total amount of interests sold in Maryland by these LPs was$419,000.

On September 21, 2005 a complaint entitledGrobstein, Horwath & Co., LLP("Grobstein") vs. TAG Entertainment Corp.,Steve Austin, et al. was filed in the Superior Court of The Stateof 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 decision to resign as theCompany's auditing firm. We believe we have valid defenses to theclaims of the plaintiff and intend to defend the action vigorously. Wereceived an extension of time in which to answer until November 21,2005 and we intend to timely file our answer. Based on the facts ofwhich we are currently aware, management believes that the resolutionof this claim will not have a materially adverse effect on ourfinancial condition. However, no assurances can be given that suchbelief will ultimately prove to be accurate or that other facts adverseto our position currently not known to management will not beuncovered, in which case the ultimate resolution of this claim couldpotentially have a material adverse effect on our financialcondition.

Certain limited partners in the entity Funny Moneythe Movie, L.P. have demanded that this limited partnership agree torescind their purchase of limited partnership interests, in theaggregate amount of $275,000, plus interest. The limited partnershiphas reached an agreement in principal with these limited partners andexpects to finalize, execute and exchange the settlement documentsamong the relevant parties during the quarter ending December 31, 2005.Further, these limited partners have claimed that the Company, due toits contractual relationship with the limited partnership, has

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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. Accordingly, wedo not believe that the resolution of this claim will have a materiallyadverse effect on our financial 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 thisclaim could potentially have a material adverse effect on our financialcondition.

On November 10, 2005, we received a notification fromPark Avenue Entertainment, LLC claiming that TAG Entertainment hasmaterially breached an agreement between the two companies to produce amotion picture. Claimant has demanded that TAG pay it the sum of$135,000 pursuant to the termination clauses of the agreement. We aredisputing this claim and have asserted claims against Park AvenueEntertainment concerning their failure to properly perform under theagreement. We intend to vigorously defend any proceeding that may becommenced against us. Management is unable to determine at this timewhether this claim will have a material adverse impact on theCompany's financial condition, results of operations or cashflow.

The Company and its Chief Executive Officer are involvedin a dispute with Mr. Jeff Franklin and F.W.E., Inc. regarding theproduction of two motion pictures and business dealings between Mr.Austin, our Chief Executive Officer, and Mr. Franklin. The disputesconcern the production and distribution relationship regarding thefilms Funny Money and American Black Beauty. In eachcase, Mr. Franklin has alleged that TAG has not properly performed itsobligations in connection with the production of these motion pictures.We have disputed the allegations of Mr. Franklin, have notified him ofour potential claims against him and F.W.E. and have been engaged inprotracted negotiations with him and F.W.E. in order to achieve aglobal settlement of the disagreements between the parties. Mr.Franklin has, as of October 28, 2005, demanded that we cease and desistfrom taking further actions towards the production of the film FunnyMoney and to take other actions in furtherance of unwinding theparties' relationship concerning that film. We have demanded anaudit and accounting of all relevant books and records of Mr. Franklinand F.W.E. concerning these motion pictures. We are currently unable todetermine at this time whether this claim will have a material adverseimpact on our financial condition, results of operations or cashflow.

The Company is 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 TAG's 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 TAG's financialposition or results of operations in any particular period. Noassurances can be given that management's assessment of theseclaims will ultimately prove to be accurate or that other facts adverseto our position currently not known to management will not beuncovered, in which case the ultimate resolution of some or all ofthese claims could potentially have a material adverse effect on ourfinancial condition. Further, the occurrence of intervening events mayalso result in management reconsidering their assessment of the impactof these matters.

TAG Entertainment Corp. and/or its subsidiary,TAG Entertainment USA, Inc. have been involved in various claims madeor threatened against certain limited partnerships. Although theseclaims concern the actions of the specific limited partnerships, theCompany has been involved in these proceedings due to the interestsarising out of its production and distribution activities on behalf ofthese limited partnerships and, in certain situations, where anaffiliate of TAG's Chief Executive Officer serves as generalpartner of the limited partnership entity. In certain situations, thearrangements have led to limited partners asserting claims against andseeking redress from the Company. Regardless of the ultimate liabilityto any of these claimants, these disputes may impose financial andadministrative challenges that may require the application of ourresources and the time and attention of our management. Further, basedon our production relationship with certain limited partnerships, cashresources were used to satisfy obligations of the limited partnershipsand although 

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we expect reimbursement from the limitedpartnerships, this cannot be assured. These situations have negativelyimpacted our cash position and distracted management from focusing onour business. With respect to claims, adverse decisions or settlementsmay occur in one or more of these matters and it is not possible toestimate the possible loss or losses, if any. Based on the facts ofwhich we are currently aware, management believes that the resolutionof these claims will not have a materially adverse effect on theCompany's financial condition. However, no assurances can begiven 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 onthe Company's financial condition.

Item2.    Unregistered Sales of Equity Securities and Use ofProceeds

During the quarter ended September 30, 2005, we issuedan aggregate of 9,500 shares of common stock in connection with theexercise of a warrant. These shares were issued pursuant to theexemption from registration provided by Section 4(2) of the SecuritiesAct of 1933, as amended.

During the nine months ended September30, 2005, we did not repurchase any shares of the Company'scommon stock.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote ofSecurity Holders

Not applicable.

Item 5.    OtherInformation

Our subsidiary, TAG Entertainment USA, Inc., isentering into production and distribution agreements with Wild StallionProductions LP, an unaffiliated third party that holds the rights tothe motion picture Wild Stallion. These arrangements provide TAGEntertainment with the rights to produce and distribute the motionpicture. In July 2005, TAG Entertainment USA agreed to guarantee a loanin the amount of $250,000 made by an individual lender to Wild StallionProductions in order to induce the lender to make this loan. The loanproceeds have been used by Wild Stallion for the production of themotion picture. This loan, which bears interest at the rate of10% per annum, was due on August 15, 2005 and has not beenrepaid by the limited partnership. The lender, however, has neitherdemanded repayment from the limited partnership nor notified TAGEntertainment USA of its intention to collect under the guarantee.

Item 6.    Exhibits

The exhibits designated with anasterisk (*) are filed herewith. All other exhibits have beenpreviously filed with the Commission and, pursuant to 17 C.F.R. Section230.411, are incorporated by reference to the document referenced inbrackets following the descriptions of suchexhibits.

|               |  |                                                                                                                                                                                                |  |  |  |  |
|---------------|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | DescriptionofDocument                                                                                                                                                                          |
| 31.1*         |  | Certificationof Chief Executive Officer and Chief Financial Officer pursuant toExchange Act Rules 13a-14(a) and 15(d) -14(a), adopted pursuant toSection 302 of the Sarbanes-Oxley Act of2002. |
|          |  |                                                                                                                                                                                           |
| 32.1*         |  | Certificationof Chief Executive Officer and Chief Financial Officer pursuant to 18U.S.C. Section 1350, adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.                       |
|               |

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SIGNATURES

In accordance withSection 13 or 15(d) of the Exchange Act, TAG caused this Report to besigned on its behalf by the undersigned, thereunto duly authorized.

|                        |  |                        |  |                                                                          |  |  |  |  |  |  |
|------------------------|--|------------------------|--|--------------------------------------------------------------------------|--|--|--|--|--|--|
| Date:November 17, 2005 |  | TAG ENTERTAINMENTCORP. |
|                   |  | By:                    |  | /s/Steve Austin                                                          |
|                   |  |                   |  | SteveAustinPresident and Chief Executive Officer, Chief FinancialOfficer |
|                        |

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