**U.S.      SECURITIES AND EXCHANGE COMMISSION**

**FORM      10-QSB**

|   | [X]     QUARTERLY  REPORT  PURSUANT  TO  SECTION                13 OR 15(d) OF THE SECURITIES |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | EXCHANGE  ACT  OF  1934 |
|--------|-------------------------------------------------------|

|   | For                the quarterly period ended June 30,                2006 |
|--------|----------------------------------------------------------------------------|

|   |  |
|--------|--|
|   |  [   ]     TRANSITION  REPORT  PURSUANT  TO  SECTION              13 OR 15(d) OF THE SECURITIES |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | EXCHANGE  ACT  OF  1934  |
|--------|-------------------------------------------------------------|

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**Modern      City Entertainment Inc. **

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| Washington                                                                                                                                                     | 98-0206033                                            |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|
|            (State                or other jurisdiction of incorporation                or organization) | (IRS                Employer Identification No.) |

**8551      Sunrise Boulevard, Suite 210, Ft. Lauderdale,      Florida  33322**

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**MODERN      CITY ENTERTAINMENT INC.**

**FORM      10-QSB**

**JUNE      30, 2006**

**INDEX**

| PART                  I                          | FINANCIAL                  INFORMATION                                                                                              |   |
|---------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                      |                                                                                                                                |   |
| Item                  1.                                             | Financial                  Statements                                                                                          | 3      |
| Item                  2.                              | Management’s                  Discussion and Analysis of Financial Condition and Results of                  Operations  | 16     |
| Item                  3.          | Controls                  and Procedures                                                                                       | 16     |
|                                                                      |                                                                                                                                |   |
| PART                  II                    | OTHER                  INFORMATION                                                                                                  | 17     |
|                                                                      |                                                                                                                                | 17     |
| Item                  1.                                        | Legal                  Proceedings                                                                                                  | 17     |
| Item                  2.                              | Change                  in Securities                                                                                               | 17     |
| Item                  3.                         | Defaults                  upon Senior Securities                                                                                    | 17     |
| Item                  4.                    | Submission                  of Matters to a Vote of Security Holders                                                                | 17     |
| Item                  5.          | Other                  Information                                                                                                  | 17     |
| Item                  6.          | Exhibits                  and Reports on Form 8-K                                                                                   | 17     |

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**PART      1                      FINANCIAL      INFORMATION**

**Item      1.                                Financial      Statements**

**MODERN      CITY ENTERTAINMENT, INC.**

----

**MODERN      CITY ENTERTAINMENT, INC.**

|                                                                                          |       | **June                    30** |                                                    |   | **March                    31** |   |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------|---------------------------------------------------------|--------|---------------------------------|--------|
| **ASSETS**                                                                                    |       | **2006**                       |                                                    |   | **2006**                        |   |
|                                                                                          |       |                           |                                                    |   |                            |   |
| Current                                                                                       |       |                           |                                                    |   |                            |   |
| Cash                                                                                          |       | $                              | 79                                                      |   |                            | $      | 1,108 |   |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
| Equipment–                    Note 3                                                    |       |                           | -                                                       |   |                            |   | 926 |   |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
|                                                                                          |       | $                              | 79                                                      |   |                            | $      | 2,034 |   |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
| **LIABILITIES**                                                                               |       |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
| Current                                                                                       |       |                           |                                                    |   |                            |   |   |   |
| Accounts                    payable and accrued                    liabilities – Note 7 |       | $                              | 52,070                                                  |   |                            | $      | 62,888 |   |
| Due                    to related parties – Note                    7                   |       |                           | 12,870                                                  |   |                            |   | 11,610 |   |
| Loans                    payable to stockholders –                    Note 4            |       |                           | 16,284                                                  |   |                            |   | 5,875 |   |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
|                                                                                          |       |                           | 81,224                                                  |   |                            |   | 80,373 |   |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
| **STOCKHOLDERS’                    DEFICIENCY**                                         |       |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
| Preferred                    Stock, $0.0001 par value                                         |       |                           |                                                    |   |                            |   |   |   |
|                                                                                          | 20,000,000 |                           | shares                    authorized; none issued       |   |                            | -      |   |   |   | - |   |
| Common                    stock, $0.0001 par value – Note 5                             |       |                           |                                                    |   |                            |   |   |   |
|                                                                                          | 50,000,000 |                           | shares                    authorized                    |   |                            |   |   |   |   |   |   |
|                                                                                          | 32,423,628 |                           | shares                    issued (2005: 5,576,082) |   |                            | 3,242  |   |   |   | 3,242 |   |
| Additional                    paid-in capital                                                 |       |                           | 1,360,776                                               |   |                            |   | 1,360,776 |   |
| Deficit                    accumulated during the prior development stage                     |       |                           | (151,117                                                | )      |                            |   | (151,117 | ) |
| Deficit                    accumulated during the development stage                           |       |                           | (1,294,047                                              | )      |                            |   | (1,291,240 | ) |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
|                                                                                          |       |                           | (81,146                                                 | )      |                            |   | (78,339 | ) |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |
|                                                                                          |       | $                              | 79                                                      |   |                            | $      | 2,034 |   |
|                                                                                          |       |                           |                                                    |   |                            |   |   |   |

----

**MODERN      CITY ENTERTAINMENT, INC.**

|                                                                                           |       |                                  |       |       |                         |       |       | **April                1, 2000**  | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------|------------------------------|------------|------------|-----------------------------------|------------|
| ** **                                                                                     | ** ** | ** **                            | ** ** | ** ** | ** **                   | ** ** | ** ** | **(Date                of**       | ** ** |
| ** **                                                                                     | ** ** | ** **                            | ** ** | ** ** | ** **                   | ** ** | ** ** | **Commencement**                  | ** ** |
| ** **                                                                                     | ** ** | ** **                            | ** ** | ** ** | ** **                   | ** ** | ** ** | **of                Development** | ** ** |
| ** **                                                                                     | ** ** | **Three                months ended** | ** ** | ** ** | **Stage)                to** | ** ** |
| ** **                                                                                     | ** ** | **June                30,**           | ** ** | ** ** | **June                30,**  | ** ** |
| ** **                                                                                     | ** ** | **2006**                              | ** ** | ** ** | **2005**                     | ** ** | ** ** | **2006**                          |       |
|                                                                                           |       |                                  |       |       |                         |       |       |                              |       |
| Expenses                                                                                       |       |                                  |       |       |                         |       |       |                              |       |
| Advertising                and                promotion                                        |       | $                                     | -          |       |                         | $          | 2,382      |                              |       | $ | 44,692 |   |
| Amortization                                                                                   |       |                                  | 171        |       |                         |       | 218        |                              |       |   | 21,379 |   |
| Audit                and accounting fees –                Note 7                         |       |                                  | 5,970      |       |                         |       | 7,786      |                              |       |   | 128,224 |   |
| Bank                charges and interest –                Note 7                         |       |                                  | 33         |       |                         |       | 157        |                              |       |   | 85,332 |   |
| Consulting                fees – Note                7                                   |       |                                  | 4,500      |       |                         |       | 18,000     |                              |       |   | 495,981 |   |
| Investor                relations and                marketing fees – Note 7             |       |                                  | 3,000      |       |                         |       | 12,090     |                              |       |   | 113,450 |   |
| Legal                fees – Note                7                                        |       |                                  | (6,000     | )          |                         |       | 7,591      |                              |       |   | 90,598 |   |
| Office,                telephone and                miscellaneous – Note 7               |       |                                  | 4,256      |       |                         |       | 5,313      |                              |       |   | 160,910 |   |
| Software                research and                development                                |       |                                  | -          |       |                         |       | -          |                              |       |   | 66,410 |   |
| Transfer                agent                fees                                              |       |                                  | 125        |       |                         |       | 148        |                              |       |   | 6,109 |   |
| Travel                                                                                         |       |                                  | -          |       |                         |       | 1,416      |                              |       |   | 79,956 |   |
|                                                                                           |       |                                  |       |       |                         |       |       |                              |       |   |   |   |
| Loss                before other items                                                         |       |                                  | (12,055    | )          |                         |       | (55,101    | )                                 |       |   | (1,283,059 | ) |
|                                                                                           |       |                                  |       |       |                         |       |       |                              |       |   |   |   |
| Other                items:                                                                    |       |                                  |       |       |                         |       |       |                              |       |   |   |   |
| Write-off                of equipment – Note                3                            |       |                                  | 756        |       |                         |       | -          |                              |       |   | (4,011 | ) |
| Loss                on disposal of equipment –                Note 3                     |       |                                  | -          |       |                         |       | -          |                              |       |   | (2,217 | ) |
|      (Gain)                on disposition of Azul Studios Property SL |       |                                  | (11,384    | )          |                         |       |       |                              |       |   | (3,874 | ) |
|      Write                off of loan due from ASPSL                  |       |                                  | 1,129      |       |                         |       |       |                              |       |   |   |   |
| Foreign                currency                adjustments                                     |       |                                  | 251        |       |                         |       | (28        | )                                 |       |   | (1,953 | ) |
|                                                                                           |       |                                  |       |       |                         |       |       |                              |       |   |   |   |
|                                                                                           |       |                                  | (9,248     | )          |                         |       | (28        | )                                 |       |   | (8,036 | ) |
|                                                                                           |       |                                  |       |       |                         |       |       |                              |       |   |   |   |
| Net                loss for the period                                                         |       | $                                     | (2,807     | )          |                         | $          | (55,129    | )                                 |       | $ | (1,291,240 | ) |
|                                                                                           |       |                                  |       |       |                         |       |       |                              |       |   |   |   |
| Basic                and diluted loss per share                                                |       | $                                     | (0.00      | )          |                         | $          | (0.01      | )                                 |       |   |   |   |
|                                                                                           |       |                                  |       |       |                         |       |       |                              |       |   |   |   |
| Weighted                average number of shares outstanding For                the year  |       |                                  | 32,423,638 |       |                         |       | 5,576,082  |                              |       |   |   |   |

----

**MODERN      CITY ENTERTAINMENT, INC.**

|                                                                                                                 |   |                                  |    |   |                              |   |    | **April                1, 2000** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------|-----------------------------------|--------|---------|----------------------------------|--------|
| ** **                                                                                                           |   | ** **                            |    |   | ** **                        |   |    | **(Date                of**      |   |
| ** **                                                                                                           |   | ** **                            |    |   | ** **                        |   |    | **Commencement**                 |   |
| ** **                                                                                                           |   | ** **                            |    |   | **of                Development** |   |
| ** **                                                                                                           |   | **Three                months ended** |    |   | **Stage)                to**      |   |
| ** **                                                                                                           |   | **June                30,**           |    |   | **March                31,**      |   |
| ** **                                                                                                           |   | **2006**                              |    |   | **2005**                          |   |    | **2006**                         |   |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |
| Cash                flows used in Operating Activities                                                               |   |                                  |    |   |                              |   |    |                             |   |
| Net                loss for the                period                                                                |   | $                                     | (2,807  | )      |                              | $      | (55,129 | )                                |   | $ | (1,294,047 | ) |
| Add                items not involving                cash:                                                          |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Amortization                                                                                                         |   |                                  | 171     |   |                              |   | 218     |                             |   |   | 21,380 |   |
| Donated                interest                                                                                      |   |                                  | -       |   |                              |   | -       |                             |   |   | 1,154 |   |
| Write-off                of                equipment                                                                 |   |                                  | 756     |   |                              |   | -       |                             |   |   | 4,767 |   |
| Loss                on disposal of                equipment                                                          |   |                                  | -       |   |                              |   | -       |                             |   |   | 2,217 |   |
|         Gain                on disposal of Azul Studios Property SL          |   |                                  | (11,384 | )      |                              |   | -       |                             |   |   | (11,384 | ) |
|         Write                off loan due from ASPSL                         |   |                                  | 942     |   |                              |   |    |                             |   |   | 942 |   |
| Changes                in non-cash working                capital item    related to operations: |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Accounts                payables and accrued                liabilities                                              |   |                                  | 252     |   |                              |   | 49,140  |                             |   |   | 501,543 |   |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
|                                                                                                                 |   |                                  | (12,070 | )      |                              |   | (5,771  | )                                |   |   | (773,428 | ) |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Cash                Flows used in Investing Activity                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Acquisition                of                equipment                                                               |   |                                  | -       |   |                              |   | -       |                             |   |   | (16,447 | ) |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Cash                Flows provided by Financing Activities                                                           |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Increase                in amount due to                related party                                                |   |                                  | 1,260   |   |                              |   | 1,731   |                             |   |   | 17,534 |   |
| Increase                in loan payable to                stockholders                                               |   |                                  | 10,409  |   |                              |   | -       |                             |   |   | 379,780 |   |
| Increase                in convertible                debenture                                                      |   |                                  | -       |   |                              |   | -       |                             |   |   | 278,114 |   |
| Proceeds                from common stock                subscriptions                                               |   |                                  | -       |   |                              |   | -       |                             |   |   | 35,000 |   |
|      Net                cash decrease from disposition of ASPSL                             |   |                                  | (628    | )      |                              |   | -       |                             |   |   | (628 | ) |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
|                                                                                                                 |   |                                  | 11,041  |   |                              |   | 1,731   |                             |   |   | 709,800 |   |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Decrease                in cash during the period                                                                    |   |                                  | (1,029  | )      |                              |   | (4,040  | )                                |   |   | (80,075 | ) |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Cash,                beginning of the period                                                                         |   |                                  | 1,108   |   |                              |   | 4,721   |                             |   |   | 80,154 |   |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Cash,                end of the period                                                                               |   | $                                     | 79      |   |                              | $      | 681     |                             |   | $ | 79 |   |
|                                                                                                                 |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Supplementary                disclosure of cash flow information                                                     |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Cash                paid for:                                                                                        |   |                                  |    |   |                              |   |    |                             |   |   |   |   |
| Interest                                                                                                             |   | $                                     | -       |   |                              | $      | -       |                             |   | $ | 620 |   |
| Non-cash              transactions – Notes 3 and 5                                                             |   |                                  |    |   |                              |   |    |                             |   |   |   |   |

----

**MODERN      CITY ENTERTAINMENT, INC.**

|                                                                                                                                                |   |                             |       |   |                         |   |   |            |   |   | **Deficit**                     |   |   | ** **      |     |   | ** ** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|--------|------------------------------|--------|--------|-----------------|--------|--------|---------------------------------|--------|--------|-----------------|----------|--------|------------|--------|
| ** **                                                                                                                                          |   | ** **                       |       |   | ** **                   |   |   | **Accumulated** |   |   | **Deficit**                     |   |   | ** **      |     |
| ** **                                                                                                                                          |   | ** **                       |       |   | ** **                   |   |   | ** **      |   |   | **During                prior** |   |   | **Accumulated** |     |   | ** ** |   |
| ** **                                                                                                                                          |   | **Note                5**        |       |   | **Additional**               |   |   | **Development** |   |   | **During                the**   |   |   | ** **      |     |
| ** **                                                                                                                                          |   | **Common                Shares** |       |   | **Paid-in**                  |   |   | **Stage**       |   |   | **Development**                 |   |   | ** **      |     |
| ** **                                                                                                                                          |   | **Number**                       |       |   | **Par                Value** |   |   | **Capital**     |   |   | **(Note                1)**     |   |   | **Stage**       |     |   | **Total**  |   |
|                                                                                                                                                |   |                             |       |   |                         |   |   |            |   |   |                            |   |   |            |     |   |       |   |
| Stock                issued for cash  - at $0.20 per share                                                                                |   |                             | 500        |   |                         | $      | -      |            |   | $      | 100                             |   |   | $               | -        |   |       | $      | - |   |   | $ | 100 |   |
| Cash                contributed by a director                                                                                                       |   |                             | -          |   |                         |   | -      |            |   |   | 100                             |   |   |            | -        |   |       |   | - |   |   |   | 100 |   |
| Additional                paid-in capital for organizational expenses incurred by a director                on                behalf of the Company |   |                             | -          |   |                         |   | -      |            |   |   | 972                             |   |   |            | -        |   |       |   | - |   |   |   | 972 |   |
| Stock                issued for “The Source” license at fair market value of -                at $0.002 per share                  |   |                             | 522,750    |   |                         |   | 52     |            |   |   | 993                             |   |   |            | -        |   |       |   | - |   |   |   | 1,045 |   |
| Net                loss for the period                                                                                                              |   |                             | -          |   |                         |   | -      |            |   |   | -                               |   |   |            | -        |   |       |   | - |   |   |   | - |   |
|                                                                                                                                                |   |                             |       |   |                         |   |   |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 1997                                                                                                              |   |                             | 523,250    |   |                         |   | 52     |            |   |   | 2,165                           |   |   |            | -        |   |       |   | - |   |   |   | 2,217 |   |
| Cash                contributed by a director                                                                                                       |   |                             | -          |   |                         |   | -      |            |   |   | 100                             |   |   |            | -        |   |       |   | - |   |   |   | 100 |   |
| Stock                issued for “Humates” license at a fair market value of -                at $0.002 per share                   |   |                             | 50,000     |   |                         |   | 5      |            |   |   | 95                              |   |   |            | -        |   |       |   | - |   |   |   | 100 |   |
| Additional                paid-in capital for organizational expenses incurred by a director                on                behalf of the Company |   |                             | -          |   |                         |   | -      |            |   |   | 346                             |   |   |            | -        |   |       |   | - |   |   |   | 346 |   |
| Net                loss for the year ended March 31, 1998                                                                                           |   |                             | -          |   |                         |   | -      |            |   |   | -                               |   |   |            | -        |   |       |   | - |   |   |   | - |   |
|                                                                                                                                                |   |                             |       |   |                         |   |   |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 1998                                                                                                              |   |                             | 573,250    |   |                         |   | 57     |            |   |   | 2,706                           |   |   |            | -        |   |       |   | - |   |   |   | 2,763 |   |
| Additional                paid-in capital for organizational expenses incurred by a director                on                behalf of the Company |   |                             | -          |   |                         |   | -      |            |   |   | 160                             |   |   |            | -        |   |       |   | - |   |   |   | 160 |   |
| Net                loss for the year ended March 31, 1999                                                                                           |   |                             | -          |   |                         |   | -      |            |   |   | -                               |   |   |            | -        |   |       |   | - |   |   |   | - |   |
|                                                                                                                                                |   |                             |       |   |                         |   |   |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 1999                                                                                                              |   |                             | 573,250    |   |                         |   | 57     |            |   |   | 2,866                           |   |   |            | -        |   |       |   | - |   |   |   | 2,923 |   |
| Capital                stock issued for cash at $0.0002 per share                                                                                   |   |                             | 3,000,000  |   |                         |   | 300    |            |   |   | 300                             |   |   |            | -        |   |       |   | - |   |   |   | 600 |   |
| Cancelled                shares                                                                                                                     |   |                             | (1,000,000 | )      |                         |   | (100   | )               |   |   | 100                             |   |   |            | -        |   |       |   | - |   |   |   | - |   |
| Net                loss for the year ended March 31, 2000                                                                                           |   |                             | -          |   |                         |   | -      |            |   |   | -                               |   |   |            | (151,117 | )      |       |   | - |   |   |   | (151,117 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |   |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 2000                                                                                                              |   |                             | 2,573,250  |   |                         |   | 257    |            |   |   | 3,266                           |   |   |            | (151,117 | )      |       |   | - |   |   |   | (147,594 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |   |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |

----

|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   | **Deficit**                     |   |   | ** **      |     |   | ** ** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|--------|------------------------------|--------|-------------|-----------------|--------|--------|---------------------------------|--------|--------|-----------------|----------|--------|------------|--------|
| ** **                                                                                                                                          |   | ** **                       |       |   | ** **                   |   |        | **Accumulated** |   |   | **Deficit**                     |   |   | ** **      |     |
| ** **                                                                                                                                          |   | ** **                       |       |   | ** **                   |   |        | ** **      |   |   | **During                prior** |   |   | **Accumulated** |     |   | ** ** |   |
| ** **                                                                                                                                          |   | **Note                5**        |       |   | **Additional**               |   |        | **Development** |   |   | **During                the**   |   |   | ** **      |     |
| ** **                                                                                                                                          |   | **Common                Shares** |       |   | **Paid-in**                  |   |        | **Stage**       |   |   | **Development**                 |   |   | ** **      |     |
| ** **                                                                                                                                          |   | **Number**                       |       |   | **Par                Value** |   |        | **Capital**     |   |   | **(Note                1)**     |   |   | **Stage**       |     |   | **Total**  |   |
|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   |                            |   |   |            |     |   |       |   |
| Balance,                March 31, 2000 (forward)                                                                                                    |   |                             | 2,573,250  |   |                         |   | 257         |            |   |   | 3,266                           |   |   |            | (151,117 | )      |       |   | - |   |   |   | (147,594 | ) |
| Net                loss for the year ended March 31, 2001                                                                                           |   |                             | -          |   |                         |   | -           |            |   |   | -                               |   |   |            | -        |   |       |   | (432,637 | ) |   |   | (432,637 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 2001                                                                                                              |   |                             | 2,573,250  |   |                         |   | 257         |            |   |   | 3,266                           |   |   |            | (151,117 | )      |       |   | (432,637 | ) |   |   | (580,231 | ) |
| Net                loss for the year ended March 31, 2002                                                                                           |   |                             | -          |   |                         |   | -           |            |   |   | -                               |   |   |            | -        |   |       |   | (105,220 | ) |   |   | (105,220 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 2002                                                                                                              |   |                             | 2,573,250  |   |                         |   | 257         |            |   |   | 3,266                           |   |   |            | (151,117 | )      |       |   | (537,857 | ) |   |   | (685,451 | ) |
| Capital                stock subscribed pursuant to debt settlement agreements                                                                      |   |                             | 229,499    |   |                         |   | 23          |            |   |   | 114,176                         |   |   |            | -        |   |       |   | - |   |   |   | 114,199 |   |
| Capital                stock subscribed pursuant to conversion of debentures                                                                        |   |                             | 1,222,903  |   |                         |   | 122         |            |   |   | 611,330                         |   |   |            | -        |   |       |   | - |   |   |   | 611,452 |   |
| Net                loss for the year ended March 31, 2003                                                                                           |   |                             | -          |   |                         |   | -           |            |   |   | -                               |   |   |            | -        |   |       |   | (54,557 | ) |   |   | (54,557 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 2003                                                                                                              |   |                             | 4,025,652  |   |                         |   | 402         |            |   |   | 728,772                         |   |   |            | (151,117 | )      |       |   | (592,414 | ) |   |   | (14,357 | ) |
| Capital                stock subscribed at $0.02 per share pursuant to debt                settlement agreement                                |   |                             | 500,000    |   |                         |   | 50          |            |   |   | 9,950                           |   |   |            | -        |   |       |   | - |   |   |   | 10,000 |   |
| Capital                stock subscribed for cash - at $0.10 per share                                                                          |   |                             | 350,000    |   |                         |   | 35          |            |   |   | 34,965                          |   |   |            | -        |   |       |   | - |   |   |   | 35,000 |   |
| Capital                stock subscribed pursuant to debt settlement agreement, valued  -                at $0.10 per share           |   |                             | 75,000     |   |                         |   | 8           |            |   |   | 7,492                           |   |   |            | -        |   |       |   | - |   |   |   | 7,500 |   |
| Net                loss for the year ended March 31, 2004                                                                                           |   |                             | -          |   |                         |   | -           |            |   |   | -                               |   |   |            | -        |   |       |   | (231,518 | ) |   |   | (231,518 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 2004                                                                                                              |   |                             | 4,950,652  |   |                         |   | 495         |            |   |   | 781,179                         |   |   |            | (151,117 | )      |       |   | (823,932 | ) |   |   | (193,375 | ) |
| Capital                stock and warrants issued pursuant to debt settlement                agreement – Note 5 - at $0.50 per share |   |                             | 625,430    |   |                         |   | 63          |            |   |   | 312,652                         |   |   |            | -        |   |       |   | - |   |   |   | 312,715 |   |
| Net                loss for the year ended March 31, 2005                                                                                           |   |                             | -          |   |                         |   | -           |            |   |   | -                               |   |   |            | -        |   |       |   | (298,089 | ) |   |   | (298,089 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 2005                                                                                                              |   |                             | 5,576,082  |   |                         |   | 558         |            |   |   | 1,093,831                       |   |   |            | (151,117 | )      |       |   | (1,122,021 | ) |   |   | (178,749 | ) |
| Capital                stock issued pursuant to debt settlement agreement –                Notes 5 and 7 - at 0.01 per share        |   |                             | 26,847,546 |   |                         |   | 2,684       |            |   |   | 265,791                         |   |   |            | -        |   |       |   | - |   |   |   | 268,475 |   |
| Donated                Interest                                                                                                                     |   |                             | -          |   |                         |   | -           |            |   |   | 1,154                           |   |   |            | -        |   |       |   | - |   |   |   | 1,154 |   |
| Net                loss for the year ended March 31, 2006                                                                                           |   |                             | -          |   |                         |   | -           |            |   |   | -                               |   |   |            | -        |   |       |   | (169,219 | ) |   |   | (169,219 | ) |
|                                                                                                                                                |   |                             |       |   |                         |   |        |            |   |   |                            |   |   |            |     |   |       |   |   |   |   |   |   |   |
| Balance,                March 31, 2006                                                                                                              |   |                             | 32,423,628 |   |                         | $      |  3,242 |            |   | $      | 1,360,776                       |   |   | $               | (151,117 | )      |       | $      | (1,291,240 | ) |   | $ | (78,339 | ) |

----

|                                                             |                             |                         |            | **Deficit**                     | ** **      | ** ** |
|------------------------------------------------------------------|----------------------------------|------------------------------|-----------------|---------------------------------|-----------------|------------|
| ** **                                                       | ** **                       | ** **                   | **Accumulated** | **Deficit**                     | ** **      |
| ** **                                                       | ** **                       | ** **                   | ** **      | **During                prior** | **Accumulated** | ** ** |
| ** **                                                       | **Note                5**        | **Additional**               | **Development** | **During                the**   | ** **      |
| ** **                                                       | **Common                Shares** | **Paid-in**                  | **Stage**       | **Development**                 | ** **      |
| ** **                                                       | **Number**                       | **Par                Value** | **Capital**     | **(Note                1)**     | **Stage**       | **Total**  |
|                                                             |                             |                         |            |                            |            |       |
| Balance, March                31, 2006 (forward)            | 32,423,628                       | 3,242                        | 1,360,776       | (151,117)                       | (1,291,240)     | (78,339)   |
| Net                loss for the three months ended June 30, 2006 | -                                | -                            | -               | -                               | (2,807)         | (2,807)    |
|                                                             |                             |                         |            |                            |            |       |
| Balance,                June 30, 2006                            | 32,423,628                       | 3,242                        | 1,360,776       | (151,117)                       | (1,294,047)     | (81,146)   |
|                                                             |                             |                         |            |                            |            |       |

----

**MODERN      CITY ENTERTAINMENT, INC.**

|   | These                financial statements have been prepared in accordance with generally                accepted accounting principles applicable to a going concern, which                assumes that the Company will be able to meet its obligations and                continue                its operations for its next fiscal year.  Realization values may                be substantially different from carrying values as shown and these                financial statements do not give effect to adjustments that would                be                necessary to the carrying values and classification of assets and                liabilities should the Company be unable to continue as a going                concern.  At June 30, 2006, the Company had not yet achieved                profitable operations, has accumulated losses of $1,445,164 since                its                inception, has a working capital deficiency of $81,145 and expects                to                incur further losses in the development of its business, all of which                casts substantial doubt about the Company’s ability to continue as a going                concern.  The Company’s ability to continue as a going concern                is dependent upon its ability to generate future profitable operations                and/or to obtain the necessary financing to meet its obligations                and repay                its liabilities arising from normal business operations when they                come                due.  Management considers that the Company will be able to                obtain additional funds by equity financing and/or related party                advances,                however there is no assurance of additional funding being                available.   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The                financial statements of the Company have been prepared in accordance                with                accounting principles generally accepted in the United States of                America.  Because a precise determination of many assets and                liabilities is dependent upon future events, the preparation of financial                statements for a period necessarily involves the use of estimates                which                have been made using careful judgement.  Actual results may vary                from these estimates. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                financial statements have, in management’s opinion, been properly prepared                within the framework of the significant accounting policies summarized                below: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                Company complies with FAS No. 7 for its characterization of the Company                as                development stage. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                Company reports the impairment of long-lived assets and certain                identifiable intangibles in accordance with FAS No. 144, “Accounting for                the Impairment of Long-lived Assets”.  Certain long-lived assets                held by the Company are reviewed for impairment whenever assets or                changes                in circumstances indicate the carrying amount of an asset may not                be                recoverable.  Accordingly, an impairment loss is recognized in                the year it is determined. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                Company uses the asset and liability method of accounting for income                taxes                pursuant to FAS, No. 109 “Accounting for Income                Taxes”.  Deferred tax assets and liabilities are recognized for                future tax consequences attributable to differences between the financial                statement carrying amounts of existing assets and liabilities and                their                respective tax bases.  Deferred tax assets and liabilities are                measured using enacted tax rates expected to apply to taxable income                in                the years in which those temporary differences are expected to be                recovered or settled.  When necessary, a valuation allowance is                recorded to reduce tax assets to an amount for which realization                is more                likely than not.  The effect of changes in tax rates is                recognized in the period in which the rate change                occurs. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Equipment                is recorded at cost.  Amortization is provided using the                declining balance method at the following                rates: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Computer                  equipment | 30% |
|-------------------------------------|-----|
| Computer                  software  | 40% |
| Office                  equipment   | 30% |
| Office                  furniture   | 20% |

|   | The                carrying value of the Company’s financial instruments, consisting of cash                and accounts payable and accrued liabilities approximate their fair                value                due to the short term maturity of such instruments.  Due to                related parties and loans payable to stockholders also approximate                fair                value. Unless otherwise noted, it is management’s opinion that the Company                is not exposed to significant interest, currency or credit risks                arising                from these financial instruments. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                Company accounts for convertible debt as required by APB Opinion                No. 14                “Accounting for Convertible Debt and Debt Issued with Stock Purchase                Warrants”. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                Company has a stock-based compensation plan, which is described in                Note                5.  Under this plan, all stock based payments to non-employees                are accounted for using a fair value based method of                accounting.  No compensation expense is recognized when the                stock options are granted to employees or                directors.  Consideration received from employees, directors or                consultants on exercise of stock options is credited to share                capital.  If stock is repurchased from employees, directors or                consultants, the excess of the consideration paid over the carrying                amount                of the stock is charged to deficit.  On the granting of stock                options to employees or directors the Company has elected to provide                pro                forma disclosure on their fair                value. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                Company’s previously wholly-owned subsidiary, Azul Studios Property S.L.                (disposed of on June 29, 2006), translates amounts from its functional                currency, Euro, to the reporting currency, United States dollars,                in                accordance with FAS No. 52, “Foreign Currency Translation”.  At                each balance sheet date, recorded balances that are denominated in                a                currency other than US dollars are adjusted to reflect the current                exchange rate which may give rise to a foreign currency translation                adjustment accounted for as a separate component of stockholder’s                deficiency and included in comprehensive                loss. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Monetary                assets and liabilities are translated into the functional currency                at the                exchange rate in effect at the end of the period.  Non-monetary                assets and liabilities are translated at the exchange rate prevailing                when                the assets were acquired or the liabilities assumed.  Revenues                and expenses are translated at the rate approximating the rate of                exchange                on the transaction date.  All exchange gains and losses are                included in the determination of net loss for the                year. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                        |       | **2006**   | ** ** |
|-------------------------------------------------------------|------------|------------|------------|
| ** **                                                  | ** ** | ** ** | ** ** | ** ** | **Accumulated** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Cost**   | ** ** | ** ** | **Amortization** | ** ** | ** ** | **Net** |   |
|                                                        |       |       |       |   |   |   |   |   |   |
| Computer                software                            |       | $          | 544        |   |   | $ | 521 |   |   | $ | 23 |   |
| Office                equipment                             |       |       | 2,778      |   |   |   | 2,450 |   |   |   | 328 |   |
| Office                furniture                             |       |       | 3,772      |   |   |   | 3,367 |   |   |   | 405 |   |
|                                                        |       |       |       |   |   |   |   |   |   |   |   |   |
|                                                        |       | $          | 7,094      |   |   | $ | 6,338 |   |   | $ | 756 |   |
| Write                off of equipment – June 30, 2006 |       |       |       |   |   |   |   |   |   | $ | 756 |   |

|                              |       | **2005**   | ** ** |
|-----------------------------------|------------|------------|------------|
| ** **                        | ** ** | ** ** | ** ** | ** ** | **Accumulated** | ** ** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Cost**   | ** ** | ** ** | **Amortization** | ** ** | ** ** | **Net** |   |
|                              |       |       |       |   |   |   |   |   |   |
| Computer                equipment |       | $          | -          |   |   | $ | - |   |   | $ | - |   |
| Computer                software  |       |       | 544        |   |   |   | 503 |   |   |   | 41 |   |
| Office                equipment   |       |       | 2,778      |   |   |   | 2,318 |   |   |   | 460 |   |
| Office                furniture   |       |       | 3,772      |   |   |   | 2,774 |   |   |   | 998 |   |
|                              |       |       |       |   |   |   |   |   |   |   |   |   |
|                              |       | $          | 7,094      |   |   | $ | 5,595 |   |   | $ | 1,499 |   |

|   | During                the three months ended June 30, 2006, the Company disposed of its                equipment for no proceeds. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

----

|   | In                June 2003, the Board of Directors approved a stock option plan for                the                Company which provides for allocation of options to purchase up to                375,000                common shares of the Company.  The Board of Directors also                approved the issuance of options to a director to acquire up to 125,000                common shares of the Company at $0.50 per share.  The options                have a term of ten years expiring in June 2013.  The option plan                is subject to approval by the stockholders of the                Company. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In                March 2004, the Board of Directors approved the issuance of options                to a                director of the Company to acquire up to 125,000 shares of common                stock at                $0.50 per share.  The options vest over a period of two years                evenly every 3 months from the date of issuance and once vested may                be                exercised at any time up to ten years expiring in March,                2014.  At March 31, 2006, these options were all                exercisable. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                Company does not record compensation expense on the granting of stock                options to employees.  In accordance with FAS No. 123R                “Share-Based Payment”, disclosure of pro forma net loss and net loss per                share is required and is calculated by determining the fair value                of the                options using fair value option pricing models.  The Company has                determined the fair value of vested employee stock options using                the fair                value method. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Note                5 | Capital                Stock – (cont’d) |
|-----------------------|-----------------------------------------------------|

|   | The                fair value for these stock options was estimated at the date of grant                using the following weighted average                assumptions: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Expected                volatility                             | 490%                  |
|----------------------------------------------------------------|-----------------------|
| Dividend                yield                                  | 0%                    |
| Weighted                average expected life of stock options | 10                yrs |
| Risk-free                interest rate                         | 4.04%                 |

|   | At                March 31, 2006, 312,715 share purchase warrants are                outstanding.  Each warrant entitles the holder to purchase an                additional common share of the Company at $0.50 per share until September                30, 2007. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                following table summarizes the significant components of the Company’s                future tax assets: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|                                                        |   | **2006** | ** ** | ** ** | **2005** |   |
|-------------------------------------------------------------|--------|----------|------------|------------|----------|--------|
|                                                        |   |     |       |       |     |   |
| Future                tax assets                            |   |     |       |       |     |   |
| Non-capital                loss                carryforward |   | $        | 480,011    |       |     | $      | 442,786 |   |
| Valuation                allowance for deferred tax asset   |   |     | (480,011   | )          |     |   | (442,786 | ) |
|                                                        |   |     |       |       |     |   |   |   |
|                                                        |   | $        | -          |       |     | $      | - |   |

----

|   | The                amount taken into income as future tax assets must reflect that portion                of                the income tax loss carry-forwards that is more likely-than-not to                be                realized from future operations.  The Company has chosen to                provide an allowance of 100% against all available income tax loss                carry-forwards, regardless of their time of                expiry. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As                at June 30, 2006, the Company has accumulated non-capital losses                totaling                approximately $1,426,793, which are available to reduce taxable income                in                future taxation |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a) | Amounts                paid or accrued to directors of the Company, former directors and                related                companies or companies in which a director is a partner or associate                are                as follows: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                    |   | **2006** | ** ** | ** ** | **2005** |   |
|-----------------------------------------|--------|----------|------------|------------|----------|--------|
|                                    |   |     |       |       |     |   |
| Accounting                fees          |   | $        | 3,909      |       |     | $      | 2,450 |   |
| Consulting                fees          |   |     | 4,500      |       |     |   | 18,000 |   |
| Donated                interest expense |   |     | -          |       |     |   | - |   |
| Investor                relation fees   |   |     | 3,000      |       |     |   | 12,000 |   |
| Legal                fees               |   |     | 6,000      |       |     |   | 6,000 |   |
| Office                                  |   |     | 1,200      |       |     |   | 2,050 |   |
|                                    |   |     |       |       |     |   |   |   |
|                                    |   | $        | 18,609     |       |     | $      | 40,500 |   |

|   | b) | Included                in accounts payable and accrued liabilities as at June 30, 2006 is                $24,766  (March 31 2005:  $16,718) due to a director                of the Company and a company in which a director of the Company is                an                associate and companies controlled by a former director of the                Company. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | Amounts                due to related parties of $14,934 (March 31, 2005: $11,610) are owing                to                significant stockholders and a former director of the Company and                are                non-interest bearing, unsecured and have no specific terms of                repayment. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a) | Pursuant                to an Agreement of Purchase and Sale dated June 29, 2006, the Company                sold                all the issued and outstanding shares of its wholly-owned subsidiary,                ASP,                S.L. for $216. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | On                February 28, 2007, a shareholder of the Company entered into an agreement                with the unit holders of MCE, whereby that shareholder tendered 19,071,546                of the common shares held in the Company to be held in trust for                the unit                holders of MCE in exchange for the transfer of 99% of the issued                and                outstanding units of MCE to the Company.  This transaction is                expected to be accounted for as a reverse                acquisition. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | Pursuant                to a sale and purchase of shares agreement dated February 28, 2007,                the                Company issued 100,000 shares of its common stock at $0.25 per share                for                total proceeds of $25,000. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d)   | On                February 28, 2007 in conjunction with the agreement referred to in                8(b)                above, certain shareholders of the Company agreed to tender an additional                9,030,112 shares into a pooling and an escrow agreement which provides                for                the sale of some of those shares and that the proceeds be used for                the                settlement of certain liabilities of the Company, payable to those                shareholders in the amount of                $125,822. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e)   | On                June 12, 2007, the Company approved the adoption of a 2007 employee                and                director stock option plan for the issuance of up to 2,100,000 options                to                acquire common stock of the Company at a price of $0.25 per                share.  The Company further approved the issuance of 1,000,000                options out of the 2,100,000 to acquire stock, to certain officers                and                directors of the Company at the price of $0.25 per                share. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item      2.                      Management’s      Discussion and Analysis of Financial Condition and Results of      Operations**

**BUSINESS  DEVELOPMENT**

**FINANCIAL  RESULTS**

**LIQUIDITY  AND  CAPITAL  RESOURCES**

**Item      3.                      Controls      and Procedures**

**Evaluation      of disclosure controls and procedures**

**Changes      in internal controls**

----

**PART      II                   OTHER      INFORMATION**

**Item      1.                      Legal      Proceedings**

**Item      2.                      Change      in Securities**

**Item      3.                      Defaults      upon Senior Securities**

**Item      4.                      Submission      of Matters to a Vote of Security Holders**

**Item      5.                      Other      Information**

**Item      6.                      Exhibits      and Reports on Form 8-K**

**A.      Exhibits**

| 31.1 | Certification                of Chief Executive officer pursuant to Section 302 of the Sarbanes-Oxley                Act of 2002 |
|------|----------------------------------------------------------------------------------------------------------------------------------|

| 31.2 | Certification                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley                Act of 2002 |
|------|----------------------------------------------------------------------------------------------------------------------------------|

**B.      Reports on Form 8-K**

----

**SIGNATURES**

|   | Date:                July 25, 2007 |
|--------|------------------------------------|

----