UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
  FORM
10-KSB
 
   [X]
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
fiscal year endedDecember 31,
2006
  [ 
      ]
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      [No Fee Required]
  For the
transition period from ________ to ________
  Commission
File No. 000-29019
  CHINA ENTERTAINMENT
GROUP, INC.
 
 (Name of
small business issuer as specified in its charter)
  NEVADA
              
              22-3617931(State
      or jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)Unit
      3409 Shun Tak Centre, West Tower,
                168-200
      Connaught Road Central, Hong Kong
              
              n/a(Address
      of principal executive offices)
              
              (Zip
      Code)
  Issuer’s
telephone number, including area code:011-852-2312-1888
  Securities
registered pursuant to Section 12(b) of the Act:
  Title
      of each class
              
              Name
      of each exchange on which registeredNone
              
              None
  Securities
      registered pursuant to Section 12(g) of the Act:$.001
      Par Value Common Stock(Title
      of Class)
  Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
report), and (2) has been subject to such filing requirements for the past 90
days.Yes [__]
No [X]
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes [__]
No [X]
  Check if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[ 
]
  The
issuer’s revenues for the fiscal year ended December 31, 2006 were
$1,080,040.
  As of
March 11, 2008, the registrant had 19,340,419 common shares outstanding that
were held by non-affiliates. The aggregate market value of the common shares
held by non-affiliates was approximately $251,425. This calculation is based
upon the closing sale price of $0.013 per share as of March 11,
2008.
 As of
March 11, 2008, there were 128,963,425 shares of the issuer’s $0.001 par value
common stock issued and outstanding.
  Documents
Incorporated By Reference: None.
  Transitional
Small Business Disclosure Format: Yes [__] No [X]
 
  TABLE OF
CONTENTS
 TO ANNUAL REPORT ON
FORM 10-KSB
 FOR YEAR ENDED
DECEMBER 31, 2006
   PART
      I
              
              PageItem
      1.
              Description
      of Business
              2Item
      2.
              Description
      of Property
              8Item
      3.
              Legal
      Proceedings
              8Item
      4.
              Submission
      of Matters to Vote of Security Holders
              8
  PART
      IIItem
      5.
              Market
      for Common Equity and Related StockholderMatters
              8Item
      6.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              11Item
      7.
              Financial
      Statements
              17Item
      8.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              18Item
      8A.
              Controls
      and Procedures
              18Item
      8B.
              Other
      Information
              18
  PART
      IIIItem
      9.
              Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act
              19Item
      10.
              Executive
      Compensation
              20Item
      11.
              Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
              21Item
      12.
              Certain
      Relationships and Related Transactions
              22Item
      13.
              Exhibits
              24Item
      14.
              Principal
      Accountant Fees and Services
              25
  Signatures
              
              25
    (REMAINDER
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  i




FORWARD-LOOKING
STATEMENTS
  The
following discussion, including the discussion regarding our financial condition
and results of operations, contain forward-looking statements and should be read
in conjunction with the consolidated financial statements and related notes
thereto. China Entertainment Group, Inc. is referred to herein as "we" or "the
Company" or "China Entertainment Group" or "our."  The words or
phrases "would be," "will allow," "intends to," "will likely result," "are
expected to," "will “continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements." Such
statements include those concerning expected financial performance, corporate
strategy, and operational plans. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
risks and uncertainties, including: (a) general economic conditions in China;
(b) regulatory factors in China that may lead to additional costs or otherwise
negatively affect our business; (c) our ability to manage our planned growth
efficiently, including whether our management will be able to: (i) identify,
hire, train, retain, motivate and manage required personnel or (ii) successfully
manage and exploit existing and potential market opportunities; (d) our ability
to generate sufficient revenues or obtain financing to sustain and grow our
operations; and (e) our ability to successfully fulfill our primary cash
requirements which are explained below under "Liquidity, Capital Resources and
Financial Condition".  Statements made herein are as of the date of
the filing of this Form 10-KSB with the Securities and Exchange Commission and
should not be relied upon as of any subsequent date.
  Unless
otherwise required by applicable law, we do not undertake, and we specifically
disclaim any obligation, to update any forward-looking statements to reflect
occurrences, developments, unanticipated events or circumstances after the date
of such statement.  The safe harbors for forward-looking statements
provided by the Private Securities Litigation Reform Act of 1995 (the "Reform
Act") are unavailable to issuers of penny stock.  Our shares may be
considered penny stock and as a result of such safe harbors set forth under the
Reform Act are unavailable to us.
   (REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK)
  1
  PART
I
  ITEM
      1.
              DESCRIPTION OF
      BUSINESS
  INTRODUCTION
  China
Entertainment Group, Inc. (together with our direct and indirect subsidiaries,
and their respective predecessors, unless the context otherwise requires, the
"Company") is a multi-faceted entertainment company with historically profitable
operations in film, television, print and music artist management fees comprised
of talent development fees, artist casting, booking and brokering commissions,
and artist promotional fees. Our Company's Board of Directors and management
team is comprised of senior management from the group headed by China Star
Entertainment Limited ("China Star", together with its subsidiaries "China Star
Group"), a Hong Kong listed company and one of the largest media companies in
Asia.
  As of
December 31, 2006, we owned all of the equity interest in Metrolink Pacific
Limited ("MPL"), a British Virgin Islands corporation. MPL, in turn, owns a 100%
equity interest in Anglo Market International Limited, a corporation
incorporated in the British Virgin Islands on September 15, 2000, a 100% equity
interest in China Star Management Limited, a company incorporated in Hong Kong
on September 6, 1985, and a 100% interest in MPL subsidiary Metrolink Global
Limited, a corporation incorporated in the British Virgin Islands on September
10, 2004. MPL's subsidiaries currently provide artist management, talent
development and artist brokering services. Our principal executive office is
located at Unit 3409 Shun Tak Centre, West Tower, 168-200 Connaught Road
Central, Hong Kong, China. Our telephone number is
011-852-2313-1888.
  HISTORICAL
BACKGROUND
  We were
originally incorporated in the state of Nevada as Shur De Cor, Inc. ("Shur De
Cor") on August 14, 1987. By 1999, Shur De Cor was a public company with no
operations searching for a business opportunity. In April 1999, Shur De Cor
merged with Interactive Marketing Technology, Inc., a New Jersey corporation
("Interactive New Jersey"), in an arm's length
transaction.  Interactive New Jersey was engaged in the business of
direct marketing of consumer products and desired to become a public company.
Shur De Cor was the surviving corporation and changed its name to Interactive
Marketing Technology, Inc. Shur De Cor's management resigned and the management
of Interactive New Jersey filled the vacancies.
  Through
our then wholly owned subsidiary, IMT's Plumber, Inc., we produced, marketed,
and sold a licensed product called the Plumber's Secret, which was discontinued
during fiscal 2001.  In May 2002, we discontinued our former business
and actively sought to either acquire a third party, merge with a third party or
pursue a joint venture with a third party in order to re-enter our former
business of direct marketing of proprietary consumer products in the United
States and worldwide.
  On
November 17, 2004, our Board of Directors unanimously approved, subject to
shareholder approval, entering into a Share Exchange Agreement (the "Agreement")
with MPL, an international business company organized to do business under the
laws of the British Virgin Islands.  At that time, MPL was wholly
owned by Imperial International Limited ("Imperial"), a company incorporated
under the laws of the British Virgin Islands. The parent company and 100% owner
of Imperial is Together Again Limited ("TAL").
  On
November 17, 2004, the Board also approved, subject to shareholder approval,
amendments to our Articles of Incorporation to change our corporate name ("Name
Change") from Interactive Marketing Technology, Inc. to China Artists Agency,
Inc. ("China Artists"), and to increase the authorized common stock of the
Company to 200,000,000 shares (the "Authorized Share Increase").  On
that same date, and also subject to shareholder approval, the Board also
approved a 1 for 1.69 reverse stock split to accommodate the terms of the
Agreement (the "Reverse Split"), and a spin-off of the Company's existing
business, including its assets and liabilities, into a Nevada corporation formed
as the Company's wholly owned subsidiary into a separate public company by means
of pro-rata share dividend (the "Spin-off").
  The
above-described actions approved by the Board also required approval by a
majority of the Company's shareholders under Nevada Revised
Statutes.  Thus, on November 15, 2004, as authorized by the Nevada
Revised Statutes, the majority shareholders, who together owned 50.4% of our
issued and outstanding shares of common stock, approved the Agreement, the
Authorized Share Increase, the Name Change, the Reverse Split, and the Spin-off
by action of written consent.
  2
  On
November 17, 2004, the Company, as contemplated under the Agreement, issued an
aggregate of 109,623,006 shares of its common stock to Imperial, the sole
shareholder of MPL, in exchange for 100% of the issued and outstanding shares of
MPL capital stock transferred to China Artists by Imperial at the closing (the
"Share Exchange").  The acquisition of the 100% interest includes
MPL's interests in its subsidiaries, Anglo Market International Limited, China
Star Management Limited, and Metrolink Global Limited (hereinafter MPL and its
subsidiaries are collectively referred to as the "Metrolink Group"). Upon
completion of the Share Exchange, MPL became the Company's wholly owned
subsidiary and China Artist's former owner subsequently transferred control of
China Artists to Imperial.  We relied on Rule 506 of Regulation D of
the Securities Act of 1933, as amended (the "Act") in regard to the shares that
we issued pursuant to the Share Exchange.  We believe this offering
qualified as a "business combination" as defined by Rule 501(d). Reliance on
Rule 506 requires that there are no more than 35 non-accredited purchasers of
securities from the issuer in an offering under Rule 506.  MPL
represented to us that they had one stockholder, who has certified that it is an
`accredited investor' as defined in Rule 501(a) of Regulation D. MPL also
represented to us that there had been no advertising or general solicitation in
connection with this transaction.
  The
Company's Certificate of Amendment to our Articles of Incorporation to effect
the Name Change, the Reverse Split, and the Authorized Share Increase was filed
with the Nevada Secretary of State and became effective on December 21,
2004.  Concurrent with Name Change, Reverse Split and Authorized Share
Increase, the Company also obtained a new stock symbol, "CAAY", and a new CUSIP
Number.  The new stock symbol and CUSIP number also became effective
on December 21, 2004.
  The
Spin-off, which was approved by both the Board and the majority shareholders
prior to the closing of the Agreement, resulted in the formation of a separate
public company, All Star Marketing, Inc. ("All Star").  All Star is a
Nevada corporation and it was formed as a wholly owned subsidiary of the
Company.  The Spin-off was satisfied by means of a pro-rata share
dividend to the Company's shareholders of record as of December 10,
2004.  The purpose of the Spin-Off was to allow the subsidiary to
operate as a separate public company and raise working capital through the sale
of its own equity.  This allowed our management to focus exclusively
on our business after the Share Exchange concluded, while at the same time,
allowing the spun-off company to have greater exposure by trading as an
independent public company. Additionally, the shareholders and the market will
then more easily identify the results and performance of the Company as a
separate entity from that of All Star.
  On June
27, 2005, the Company's Board of Directors and the Company's majority
shareholder approved and authorized a name change to China Entertainment Group,
Inc.  The Company's Certificate of Amendment to our Articles of
Incorporation to effect our name change to China Entertainment Group, Inc. was
filed with the Nevada Secretary of State and became effective on August 4,
2005.  Concurrent with Name Change, the Company also obtained a new
stock symbol, "CGRP", and a new CUSIP Number.  The new stock symbol
and CUSIP number became effective on August 9, 2005.
  On
January 17, 2008, the Company entered into an Agreement (“Agreement”) with
Imperial, the Company’s current majority shareholder, pursuant to which the
Company agreed to sell and Imperial agreed to purchase substantially all of the
Company’s assets. Pursuant to the Agreement, the Company will sell 100% of total
issued and paid up capital of MPL, the Company’s wholly-owned subsidiary and
operating business to Imperial with effect from December 31, 2007 in exchange
for Imperial’s payment of US$1 to the Company (the “Asset Sale”) at the closing
of the Asset Sale transaction (the “Closing”). The Closing of the Asset Sale
transaction is subject to the satisfaction of all of the closing conditions set
forth in the Agreement. As of the date of this filing, all of the closing
conditions have either been satisfied or waived by the Parties except for the
Company’s compliance with the required notification provisions of Section 14(c)
of the Securities Exchange Act of 1934, as amended, and Regulation 14C
thereunder in regards to administrative notification of all Company shareholders
regarding the majority shareholder’s approval of the Asset Sale (the “14C
Requirements”).  The Company presently intends to maintain its
corporate existence after the Asset Sale transaction is fully
completed.  Although there are no specific plans, the Company expects
that it may seek to find a private, operating company with which to combine. In
the event Company can find and complete any such transaction, it is generally to
be expected that the current owners of Company, in the aggregate, would have a
significantly reduced equity ownership of the surviving company. There can be no
assurance that the Company will be able to identify any business with which the
Company may conduct a business combination, nor that any such transaction could
be completed. The Agreement was attached to the Form 8-K filed with the
Securities and Exchange Commission on February 22, 2008 as Exhibit 10.1 and
is incorporated herein by reference; provided, however, that the warranties and
representations contained in such agreement are made solely to Imperial and
solely for purposes of the Asset Sale. The foregoing summary and description do
not purport to be complete and are qualified in their entirety by reference to
the Agreement.
 We are
currently authorized to issue 200,000,000 shares of common stock, $0.001 par
value, of which 128,963,425 shares of common stock are currently issued and
outstanding as of March 11, 2008.  We are currently not authorized to
issue preferred stock.
  3
  DESCRIPTION
OF OUR BUSINESS OPERATIONS
  HISTORICAL
FINANCIAL STATEMENTS
  As a
result of the reverse acquisition that occurred on November 17, 2004, the
financial statements of the Company became the historical financial statements
of the accounting parent.  In summary, the accounting effect of the
reverse acquisition results in MPL as the accounting parent and China
Entertainment Group (the former public shell) as the accounting
subsidiary.  The consolidated financial statements include the
operations of the accounting subsidiary from the date of acquisition and reflect
the historical financial statements of MPL, the accounting acquirer, as adjusted
for the effects of the exchange of shares on its equity accounts, the inclusion
of net liabilities of the accounting subsidiary as of the date of the Merger
(November 17, 2004) on their historical basis, and the inclusion of the
accounting subsidiary's results of operations from that
date.  Additionally, China Entertainment Group adopted the fiscal year
of the accounting parent, December 31, effective from December 24,
2004.
  MPL was
organized on September 10, 2004, for the purpose of reorganizing the group
structure of its intermediate holding company, Together Again Limited ("TAL").
Prior to the incorporation of MPL, the current operations of the company were
conducted through TAL (the "predecessor entity").  The reorganization
of TAL's group structure was completed in October 2004 by transferring certain
assets and liabilities employed in the operation of the principal activity of
TAL ("the Business") to Metrolink Global Limited ("MGL"), a company incorporated
in the British Virgin Islands in consideration of the HK$3,645,820, satisfied by
(a) the allotment and issue by 99 MGL ordinary shares to MPL, the immediate
holding company of MGL; (b) the allotment and issue by MPL to Imperial of 99 MPL
ordinary shares; and (c) the allotment and issue of 98 ordinary shares of
Imperial to TAL, each issued and credited as fully paid; (d) allotment of 20
ordinary shares of MPL to Imperial as consideration for acquiring the entire
issued share capital of China Star Management Limited ("CSML") and Anglo Market
International Limited ("AMIL") each issued and credited as fully paid. At the
same time, the Company entered into several deeds of novation with MGL for
completion of the transfer of the Business as follows: (i) deed of novation in
relation to amounts paid by CSML on behalf of the Company; (ii) deed of novation
in relation to artist contract entered by the Company; and (iii) deed of
novation in relation to professional fees contracted to be paid by the
Company.
  Since MPL
succeeded to substantially all of the business and operations of TAL and its own
operations prior to the succession were insignificant relative to the operations
assumed or acquired in the reorganization, the historical financial statements
of MPL's predecessor entity become those of MPL.
  ARTIST
MANAGEMENT UNIT
  Our
Company presently derives revenue and income from artist management fees from
artists that the Company has under contract.  Similar to artist
management companies in the United States such as the Creative Artists Agency or
the William Morris Agency, our Company is one of the major artist management
agencies in Asia and currently represents several well-known Chinese film and
television artists whose work is distributed throughout China and other parts of
Asia. We currently provide artist management services through Metrolink Group,
which consists of the following entities:
  ●
              China
      Star Management Limited ("CSML") is a wholly owned subsidiary of MPL and
      was incorporated under the laws of the Hong Kong on September 6,
      1985.  CSML provides talent management and talent brokering
      services, including locating projects, contract negotiations, work
      scheduling, artist training and development, image building and
      improvement, publicity campaigns, and providing personal assistant
      services in Hong Kong;
  ●
              Anglo
      Market International Limited ("AMIL") is a wholly owned subsidiary of MPL
      that was incorporated under the laws of the British Virgin Islands on
      September 15, 2000.  AMIL also provides talent management and
      talent brokering services, including locating projects, contract
      negotiations, work scheduling, artist training and development, image
      building and improvement, publicity campaigns, and providing personal
      assistant services outside Hong
Kong.
  ●
              Metrolink
      Global Limited ("MGL") is a wholly owned subsidiary of MPL that was
      incorporated under the laws of the British Virgin Islands on September 10,
      2004. MGL mainly manages one artist's PRC business including locating
      projects, contract negotiations and providing personal assistant
      services.
  4
  OUR
MARKET
  The
Metrolink Group is headquartered in Hong Kong and our artists are principally
based in Hong Kong. Our artists provide services to entities primarily based in
Southern China, including the cities of Hong Kong, Shanghai, Beijing, Guangdong,
Sichuan and Macau.
  COMPETITIVE
BUSINESS CONDITIONS AND COMPETITIVE POSITION IN THE INDUSTRY
  Our
Company is one of the major artist management agencies in Asia and we currently
represent well-known Chinese film and television artists whose work is
distributed throughout China and other parts of Asia. However, we have other
emerging competitors in the entertainment industry.  One of our
primary competitors is Emperor Entertainment Group ("Emperor"), a Hong Kong
based entertainment company.
  Emperor
engages in the production and distribution of local and foreign records, artist
management, and the organization of concerts, stage performances and
dramas.  Our Company's talent is comprised mainly of actors and
actresses who appear in films and may also perform as vocalists, although their
main talent is in acting.  In contrast, Emperor's artists are mainly
local singers who also incidentally appear in film and other
performances.  We are primarily a provider of management and related
services acting talent, whereas Emperor is a competitor in a slightly different
market, which is that of vocalists.  In addition, our artists tend to
appear in more international and Asia Pacific films, whereas Emperor's artists
tend to appear more in productions locally. Currently, Emperor’s artists have
diversified more performances in films and more international.
  SOURCES
AND AVAILABILITY OF RAW MATERIALS AND NAMES OF PRINCIPAL SUPPLIERS
  The
Company and its subsidiaries' principal activity is the provision of artist
management services and thus it does not require the purchase of raw
materials.
  SEASONAL
VARIATIONS
  Our
Company does not experience seasonal variations.
  CONCENTRATION
OF CUSTOMERS
  As of
December 31, 2006, all of the Company's revenues were generated by 17 artists,
and the aggregate revenues from 2 of these artists accounted for more than 60%
of the Company’s revenues.  The loss of any and/or all of these
artists could have a material adverse effect on our business.
  PATENTS,
TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR
CONTRACTS
  We do not
own any patents, trademarks, licenses or other forms of intellectual
property.
  GOVERNMENT
REGULATIONS
  Our
Company's activities are subject to various governmental and regulations
concerning the business activities generally in various countries.  We
believe that we are in compliance with all applicable laws and
regulations.
  EMPLOYEES
  As of
December 31, 2006, our Company had approximately 5 full-time employees and none
of our employees are covered by collective bargaining agreements.  We
have not experienced any labor shortages as our operations relied on services
generated both internally and externally.  In addition to services
provided by our employees, we also relied on management services provided by
related companies. The breakdown of the number of employees for each of the
business units of the Company is as follows:
  5
  Company
      and Subsidiaries
              
              Number of
      EmployeesChina
      Entertainment Group, Inc.
              
              
              0Anglo
      Market International Limited
              
              
              0China
      Star Management Limited
              
              
              5Metrolink
      Global Limited
              
              
              0Metrolink
      Pacific Limited
              
              
              0TOTAL
              
              
              5
  CURRENCY
CONVERSION AND EXCHANGE
  Although
Metrolink Group does derive revenue in Hong Kong Dollars, Renminbi and U.S.
Dollars, Metrolink Group's revenues, expenses, assets and liabilities are
primarily denominated in Hong Kong Dollars.  The Company does not
anticipate significant foreign exchange losses as long as the Hong Kong SAR
Government's policy to peg the Hong Kong dollar to the U.S. dollar remains in
effect.  The Company does not currently engage in any hedging activity
in order to minimize the effect of exchange rate risks but it will continue to
monitor its foreign exchange exposure and market conditions to determine if any
hedging is required.
  RISK
FACTORS
  This
information statement contains "forward looking statements" which can be
identified by the use of forward-looking words such as "believes", "estimates",
"could", "possibly", "probably", "anticipates", "estimates", "projects",
"expects", "may" or "should" or other variations or similar words. No assurances
can be given that the future results anticipated by the forward-looking
statements will be achieved.  The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements.  Among the key factors that have a
direct bearing on our results of operations are the effects of various
governmental regulations, the fluctuation of our direct costs and the costs and
effectiveness of our operating strategy. Other factors could also cause actual
results to vary materially from the future results anticipated by those
forward-looking statements.
  RISK
RELATED TO OUR FINANCIAL POSITIONS AND LIQUIDITY
  THE
COMPANY HAS RECEIVED AUDIT OPINIONS WITH AN EXPLANATORY PARAGRAPH REGARDING ITS
ABILITY TO CONTINUE AS A GOING CONCERN.
  The audit
report our independent registered public accounting firms issued on our audited
financial statements for the fiscal year ended December 31, 2006 and 2005
contain explanatory paragraphs regarding our ability to continue as a going
concern.  We had negative working capital and recurring losses from
operations for both years, resulting in net stockholders’
deficiency.  These matters raise substantial doubt about our ability
to continue as a going concern. The consolidated financial statements for both
years do not include any adjustment that might result from the outcome of this
uncertainty.
  RISKS
RELATED TO OUR BUSINESS
  WE
DEPEND ON A LIMITED POOL OF ACTING AND RECORDING TALENT.
  Our
failure to maintain or renew contracts with these individuals will significantly
hinder our ability to generate revenues. Our Company manages contracts of acting
talent and recording artists in relation to those artists' engagements with,
among other things, the film, recording, television and video
industry.  We depend on a pool of individuals willing and able to
accept production assignments as negotiated.  Our ability to succeed
will be significantly impaired if we are unable to arrange for suitable projects
for our talent while providing them with attractive compensation
packages.  The highly personalized nature of the services contracted
for and required in this industry makes it extremely difficult to predict the
availability of current and future performers, our ability to continue to engage
that talent and Metrolink Group's ability to arrange for suitable engagements
for their services.  We are materially dependent upon the continued
availability of such talent and opportunities for their engagement. Our failure
to continue those operations will significantly hinder our ability to conduct
business and generate revenues.  We cater to the film, television, and
recording and movie industries and thus we are affected by changes or trends
occurring within those industries.
  6
  THE
FILM, RECORDING, TELEVISION AND MOVIE INDUSTRIES, AND ENTERTAINMENT INDUSTRY IN
GENERAL IS A SPECULATIVE VENTURE WHICH INVOLVES SUBSTANTIAL RISKS.
  There is
no certainty that the engagements that we arrange, the talent we engage and the
efforts and expenditures we make will continue to result in a commercially
profitable business.  The marketability of our talent will be affected
by numerous factors that affect the motion picture, recording, television and
video industries, and which are beyond our control. These factors include market
fluctuations, the general state of the economy, including the rate of inflation,
consumer tastes and local economic conditions, all of which can affect
consumers' discretionary spending.  These factors or any combination
of these factors may hinder our ability to generate revenues consistently. Our
operating results will fluctuate due to a number of factors, including but not
limited to, risks associated with the development, production, and completion of
film, recording, television or video projects.
  DUE
TO THE NUMEROUS FACTORS THAT AFFECT HOW A FILM, TELEVISION PROGRAM, MUSICAL
RECORDING OR OTHER ARTISTIC PRODUCTION IS DEVELOPED AND PRODUCED, WE CANNOT BE
CERTAIN AS TO HOW SUCCESSFUL OUR OPERATIONS WILL BE AT ANY GIVEN
TIME.
  Additional
variables that will affect our success include location and timing of film,
television, recording or video productions and the conditions under which the
talent that we engage are required to perform.  Typically, project
production dates for larger scale endeavors are well in advance of release
dates. Smaller scale production endeavors are usually scheduled closer to their
release date.  We anticipate that our operating results will fluctuate
as a result of these and other factors, including overall trends in the economy
and client engagement patterns, which are characterized by individual
engagements from clients rather than long-term contracts.  As such, we
may not be able to anticipate, for more than a few months in advance, the
number, size and profitability of talent engagements in a given
period.  Consequently, the operating results for one quarter are not
necessarily indicative of the operating results for future quarters or the
entire year then ended.
  WE
MAY BE SUBJECT TO LITIGATION IN CONNECTION WITH TALENT WE ENGAGE AND OUR
OPERATIONS WILL BE ADVERSELY AFFECTED AS A CONSEQUENCE OF SUCH
LITIGATION.
  Our
Company may be engaged in litigation from time to time, during the ordinary
course of business, in connection with disputes as to contract interpretations,
compensation and other matters.  We may not be able to adequately
forecast the effect such litigation will have on our operations.  Any
litigation that we may become involved in may hinder our ability to conduct
operations.
  OUR
COMPANY COMPETES WITH EMPEROR ENTERTAINMENT GROUP IN THE HONG KONG MARKET FOR
TALENT AND MAY NOT SUCCEED IN OBTAINING OR KEEPING ARTISTIC TALENT IN OUR POOL
OF INDIVIDUALS.
  We
believe that Emperor is one of our primary competitors.  Emperor is
based in Hong Kong, and engages in the production and distribution of local and
foreign records, artist management, and organization of concerts, stage
performances and dramas.  Emperor may be able to maintain or increase
its market share by negotiating more favorable terms with artists and obtaining
a greater pool of talent with which to operate. Our Company expects ongoing
competition and pricing pressure from Emperor.  We cannot guarantee
that we will be able to obtain market share or profitability.
  RISKS
RELATED TO OWNING OUR COMMON STOCK:
  Our
Company's principal security holder, Imperial, owns a majority of our
outstanding common stock, allowing this shareholder to control matters requiring
approval of our shareholders.  Our principal security holder owns
approximately 85% of our outstanding shares of our common stock. Such
concentrated control of the company may adversely affect the price of our common
stock.  Our principal security holder will control matters requiring
approval by our security holders, including the election of
directors.  Such concentrated control may also make it difficult for
our shareholders to receive a premium for their shares of our common stock in
the event we merge with a third party or enter into different transactions which
require shareholder approval.  In addition, certain provisions of the
Nevada Revised Statutes could have the effect of making it more difficult or
more expensive for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of us in the future.
  7
  Because
our common stock will be subject to the "penny stock" rules, the level of
trading activity in our stock may be reduced, which may make it difficult for
investors in our common stock to sell their shares. Broker-dealer practices in
connection with transactions in "penny stocks" are regulated by certain penny
stock rules adopted by the SEC. Penny stocks, like shares of our common stock,
generally are equity securities with a price of less than $5.00, other than
securities registered on certain national securities exchanges or quoted on
NASDAQ. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and, if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, broker-dealers who sell these securities to
persons other than established customers and "accredited investors" must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
Consequently, these requirements may have the effect of reducing the level of
trading activity, if any, in the secondary market for a security subject to the
penny stock rules, and investors in our common stock may find it difficult to
sell their shares.
 ITEM
      2.
              DESCRIPTION
      OF PROPERTY
  Effective
August 15, 2006, our principal executive offices are located in a facility
consisting of approximately 2,683 square feet located at Unit 3409 Shun Tak
Centre, West Tower, 168-200 Connaught Road Central, Hong Kong. We do not own
this property and we have not entered into a lease of this office space because
it is shared with other affiliated companies.
  We
believe that the current facilities occupied by the Company and its subsidiaries
will be able to meet the Company's operational needs for the coming two
years.
  ITEM 3.
              LEGAL
      PROCEEDINGS
  Lang, et al. v. Welch, et
al. (China Entertainment Group, Inc.) (United States District Court,
Central District California, Case No. CV 07-1068-GHK-PJWx).OnDecember 20, 2006,
plaintiffs Sanford Lang and Martin Goldrod (collectively, “Plaintiffs”)
initiated a lawsuit in the Los Angeles Superior Court, Central District,
alleging claims for fraud, breach of contract, violations of RICO, and civil
conspiracy against several parties, including the Company.  The Company was
provided with a copy of Plaintiffs’ Complaint on or about February 28, 2007,
after the matter was removed to United States District Court.  According to
the Complaint, the Company is “a nominal Defendant” as Plaintiffs purport to
assert claims derivatively on its behalf.  Accordingly, it appears that no
relief is being sought against the Company itself.  On or about
January 31, 2008, Plaintiffs and Defendants, including the Company, entered
into a confidential settlement agreement to resolve all claims pending between
them.  Subject to satisfactory discharge of certain obligations set forth
in the confidential settlement, it is anticipated that a dismissal of the action
will be filed no later than early January 2009.
 ITEM 4.
                SUBMISSION OF MATTERS TO
      VOTE OF SECURITY HOLDERS
 None.
  PART
II
  ITEM 5.
              MARKET FOR COMMON EQUITY AND
      RELATED STOCKHOLDER
  We are
subject to the informational requirements of the Securities Exchange Act of
1934. Accordingly, we file annual, quarterly and other reports and information
with the SEC.  You may read and copy these reports and other
information we file at the SEC’s public reference rooms in Washington, D.C., New
York, New York, and Chicago, Illinois. Our filings are also available to the
public from commercial document retrieval services and the Internet worldwide
website maintained by the SEC at www.sec.gov.
  8
  MARKET
FOR COMMON EQUITY
  Our
Common Stock is traded over-the-counter and quoted on the National Quotation
Bureau's Pink Sheets under the symbol "CGRP".  Until April 17, 2000,
our common stock was listed on the OTC Electronic Bulleting Board under the
symbol "IAMK.OB".  After entering into the Agreement, we changed our
symbol from "IAMK.OB" to "CAAY.OB" with CUSIP Number 16936W 10 4, and these
changes became effective on December 21, 2004.  In June 2005, in
connection with our name change to China Entertainment Group, Inc., our ticker
symbol changed to “CGRP.OB” with CUSIP Number 16939C105.  The following
table sets forth the range of the high and low bid prices of our stock as
reported by the Nasdaq Trading and Market Services for each fiscal quarter for
the last two years ending December 31, 2006 and December 31,
2005.  The bid prices represent inter-dealer quotations, without
adjustments for retail mark-ups, markdowns or commissions and may not
necessarily represent actual transactions.
  Bid
      PricesHigh
              
              
              LowFiscal
      Year Ended December 31, 2006Fourth
      Quarter (ended December 31, 2006)
              
              
              0.032
              
              
              
              0.015Third
      Quarter (ended September 30, 2006)
              
              
              0.03
              
              
              
              0.03Second
      Quarter (ended June 30, 2006)
              
              
              0.08
              
              
              
              0.03First
      Quarter (ended March 31, 2006)
              
              
              0.1
              
              
              
              0.03Fiscal
      Year Ended December 31, 2005Fourth
      Quarter (ended December 31, 2005)
              
              
              0.09
              
              
              
              0.02Third
      Quarter (ended September 30, 2005)
              
              
              0.11
              
              
              
              0.03Second
      Quarter (ended June 30, 2005)
              
              
              0.14
              
              
              
              0.05First
      Quarter (ended March 31, 2005)
              
              
              0.25
              
              
              
              0.14
  Stockholders
of Record
  As of
March 11, 2008, the number of record holders of our common stock was
approximately 82.
  Dividends
  We have
not declared or paid, and do not anticipate declaring or paying in the near
future, any dividends on our common stock.  We intend to reinvest in
our business operations any funds that could be used to pay a cash
dividend.
  Recent
Sales of Unregistered Securities; Use of Proceeds From Registered
Securities
  The
following issuances were made during the year ended December 31, 2004, all
pursuant to Section 4(2) of the Securities Act of 1933 and pursuant to
Regulation D promulgated thereunder:
  During
2004, we issued 121,123,897 shares of common stock. The issuances of these
unregistered shares (the "Unregistered Shares") were made under exemptions from
registration and prospectus delivery requirements of the Securities Act of 1933
(the “1933 Act"), as amended, and as specified in Section 4(2) of the 1933 Act.
The details of the share issuances consist of:
  (1)
              1,183,432
      (equivalent to 2,000,000 shares of ordinary stock prior the Reverse Split)
      Unregistered Shares were issued to former affiliate Sandy Lang, and former
      officer and director Marty Goldrod prior the Reverse Split as payment in
      full for accrued salaries, accrued travel and entertainment expenses
      (Sandy and Marty), shareholder advances (by Marty), and a note payable
      issued to shareholder (Sandy) during the third quarter of the fiscal year
      2004. The details regarding the issuance of the 1,183,432 shares of the
      Company's common stock were previously disclosed in a Current Report on
      Form 8-K filed by the Company on November 19, 2004 and thus no further
      information required under Item 701 of Regulation S-B will be included
      herein.
  (2)
              Pursuant
      to Section 1.02(a) and Section 3.01(q) of the Agreement dated November 17,
      2004, the Company issued 109,623,006 shares, 6,809,522 shares (refer to
      subsequent cancellation and re-issuance disclosed below) and 3,507,937
      shares of the Unregistered Shares to Imperial, Orient Financial Services
      Limited ("Orient"), and Emerging Growth Partners, Inc. ("Emerging"),
      respectively, with an aggregate issuance of 119,940,465 shares. The table
      below sets forth the details of the issuance of the 119,940,465
      shares:
  9
  Name
      of Party
              
              Number
      of Shares
                Issued
      and Date of Issuance
              
              Nature
      of Transaction
              
              Amount
      Received
                from
      the TransactionImperial
      International Limited
              
              109,623,006
      shares issued
                on
      December 22, 2004
              
              Share
      exchange with shareholder Metrolink Pacific Ltd.
              
              $146,475.98Orient
      Financial Service Ltd.
              
              6,809,522
      shares issued
                on
      December 22, 2004
              
              Services
      rendered related to Share Exchange
              
              $6,809.52Emerging
      Growth Partners, Inc.
              
              3,507,937
      shares issued
                on
      December 22, 2004
              
              Services
      rendered related to Share Exchange
              
              $3,507.94
  The
amount paid for services rendered by Orient and Emerging was based on the number
of Unregistered Shares issued in relation to the services rendered for the Share
Exchange and the $0.001 par value of the Unregistered Shares. Fair market value
of such shares is not applicable in determining the amount of the transaction as
the Unregistered Shares have not been registered under the 1933 Act, as amended
and may not be offered for sales, sold, or otherwise disposed of, except in
compliance with the registration provisions in the Act, or pursuant to an
exemption from such registration provisions, the availability of which is to be
established to the satisfaction of the Company.
  During
2005, we cancelled and issued 4,809,522 shares of common stock. The issuances of
these unregistered shares (the "Unregistered Shares") were made under exemptions
from registration and prospectus delivery requirements of the 1933 Act, as
amended, and as specified in Section 4(2) of the 1933 Act. The Company's Board
of Directors approved the cancellation of 4,809,522 shares of common stock
previously issued to Orient, an unrelated party, for services provided in
connection with the Company's merger agreement in November
2004.  These shares were subsequently re-issued in November 2005 in
the name of Emerging, an unrelated party, pursuant to an Advisory Services
Agreement dated June 10, 2005 and to Sandy Lang, a former officer, pursuant to a
verbal agreement reached in May 2005 (the "Verbal Agreement").  Under
the Verbal Agreement, in exchange for the shares issued to him, Mr. Lang agreed
to settle, forebear to litigate, and release any and all actions or claims
(whether directly or indirectly and in whichever jurisdiction) that he has or
may have against the Company arising out of, in connection with, or leading to
the Share Exchange discussed under the section above titled “Description of
Business”.
  DESCRIPTION OF
CAPITAL STOCK
  Our
authorized capital stock consists of 200,000,000 shares of $0.001 par value
common stock, of which 128,963,425 shares are issued and outstanding as of March
11, 2008.  Holders of the shares of our common stock are entitled to
receive dividends when and as declared by our Board of Directors from funds
legally available.  All the shares of our common stock have equal
voting rights and, according to the opinion of our legal counsel, are
nonassessable.  Each shareholder of our common stock is entitled to
share ratably in any assets available for distribution to holders of our equity
securities upon our liquidation.  Holders of our common stock do not
have preemptive rights.
  EQUITY
COMPENSATION PLANS
  We have
no securities authorized for issuance under any equity compensation
plans.
  PENNY
STOCK REGULATION
  Shares of
our common stock are subject to rules adopted by the SEC that regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in those securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the SEC, which contains the
following:
  ●
              a
      description of the nature and level of risk in the market for penny stocks
      in both public offerings and secondary
trading;
  10
 ●
              a
      description of the broker's or dealer's duties to the customer and of the
      rights and remedies available to the customer with respect to violation to
      such duties or other requirements of securities'
  laws;
  ●
              a
      brief, clear, narrative description of a dealer market, including "bid"
      and "ask" prices for penny stocks and the significance of the spread
      between the "bid" and "ask" price;
  ●
              a
      toll-free telephone number for inquiries on disciplinary
      actions;
  ●
              definitions
      of significant terms in the disclosure document or in the conduct of
      trading in penny stocks; and
  ●
              such
      other information and is in such form (including language, type, size and
      format), as the SEC shall require by rule or
  regulation.
  Prior to
effecting any transaction in penny stock, the broker-dealer also must provide
the customer the following:
  ●
              the
      bid and offer quotations for the penny
stock;
  ●
              the
      compensation of the broker-dealer and its salesperson in the
      transaction;
  ●
              the
      number of shares to which such bid and ask prices apply, or other
      comparable information relating to the depth and liquidity of the market
      for such stock; and
  ●
              monthly
      account statements showing the market value of each penny stock held in
      the customer's account.
  In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
Holders of shares of our common stock may have difficulty selling those shares
because our common stock is currently subject to the penny stock
rules.
  ITEM 6.
              MANAGEMENT'S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  This
following information specifies certain forward-looking statements of management
of the Company.  Forward-looking statements are statements that
estimate the happening of future events are not based on historical
fact.  Forward-looking statements may be identified by the use of
forward-looking terminology, such as "may", "shall", "could", "expect",
"estimate", "anticipate", "predict", "probable", "possible", "should",
"continue", or similar terms, variations of those terms or the negative of those
terms.  The forward-looking statements specified in the following
information have been compiled by our management on the basis of assumptions
made by management and considered by management to be reasonable. Our future
operating results, however, are impossible to predict and no representation,
guaranty, or warranty is to be inferred from those forward-looking
statements.
  The
assumptions used for purposes of the forward-looking statements specified in the
following information represent estimates of future events and are subject to
uncertainty as to possible changes in economic, legislative, industry, and other
circumstances.  As a result, the identification and interpretation of
data and other information and their use in developing and selecting assumptions
from and among reasonable alternatives require the exercise of
judgment.  To the extent that the assumed events do not occur, the
outcome may vary substantially from anticipated or projected results, and,
accordingly, no opinion is expressed on the achievability of those
forward-looking statements.  No assurance can be given that any of the
assumptions relating to the forward-looking statements specified in the
following information are accurate, and we assume no obligation to update any
such forward-looking statements.
  11
  CRITICAL
ACCOUNTING POLICIES
  Our
Management's Discussion and Analysis Plan of Operations section discusses our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America (“US
GAAP”).  This discussion and analysis should be read in conjunction
with the accompanying consolidated financial statements and related
notes.
  An
accounting policy is deemed to be critical if it requires an accounting estimate
to be made based on assumptions about matters that are highly uncertain at the
time the estimate is made, and if different estimates that reasonably could have
been used or changes in the accounting estimate that are reasonably likely to
occur could materially change the consolidated financial
statements.  We believe the following critical accounting policies
reflect our more significant estimates and assumptions used in the preparation
of our financial statements:
  Use
of Estimates
  The
preparation of consolidated financial statements in accordance with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period.  Actual results may differ from these estimates under
different assumptions or conditions.
  Revenue
recognition
  Service
fee income from provision of artist management services is recognized when
services are rendered. In accordance with SEC Staff Accounting Bulletin (“SAB”).
101, Revenue
Recognition in Financial Statements, the Company presents its revenue on
a net basis as it acts as an agent for the artists.
  Contingencies
and litigation
  We may be
subject to certain asserted and unasserted claims encountered in the normal
course of business.  It is our belief that the resolution of these
matters will not have a material adverse effect on our financial position or
results of operations, however, we cannot provide assurance that damages that
result in a material adverse effect on our financial position or results of
operations will not be imposed in these matters.  We account for
contingent liabilities when it is probable that future expenditures will be made
and such expenditures can be reasonably estimated.
  The
Company has failed to comply with substantially all of the obligations imposed
upon it by the Securities Exchange Act of 1934 Act (the "1934 Act") and is
delinquent in filing its annual report on Form 10-KSB for the period ended
December 31, 2006 and its 2007 quarterly reports on Form 10-QSB.  As a
result, the Company and its officers and directors could be subject to
substantial civil and criminal penalties due to such
non-compliance.  There can be no assurance that substantial civil and
criminal penalties will not be imposed.
  RECENT
ACCOUNTING PRONOUNCEMENTS
  In
February 2006, the Financial Accounting Standards Board
(“FASB”) issued SFAS 155, Accounting for
Certain Hybrid Financial Instruments – an amendment of FASB Statements 133 and
140 (“SFAS 155”).  SFAS 155 will be effective for the Company
beginning January 1, 2007.  The statement permits interests in hybrid
financial instruments that contain an embedded derivative that would otherwise
require bifurcation, to be accounted for as a single financial instrument at
fair value, with changes in fair value recognized in earnings.  This
election is permitted on an instrument-by-instrument basis for all hybrid
financial instruments held, obtained, or issued as of the adoption
date.  The Company does not expect there to be any significant impact
of adopting SFAS 155 on its consolidated financial position, cash flows and
results of operations.
  In June
2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in
tax positions. This interpretation requires that the Company recognize in its
financial statements the impact of a tax position if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position.  The provisions of FIN 48 are effective for the Company
on January 1, 2007, with the cumulative effect of the change in accounting
principle, if any, recorded as an adjustment to opening retained
earnings.  The Company does not expect there to be any significant
impact of adopting FIN 48 on its consolidated financial position, cash flows and
results of operations.
  12
  In
September 2006, the FASB issued SFAS 157, Fair Value
Measurements (“SFAS 157”), which provides guidance about how to measure
assets and liabilities that use fair value. SFAS 157 will apply whenever another
US GAAP standard requires (or permits) assets or liabilities to be measured at
fair value but does not expand the use of fair value to any new
circumstances.  This standard also will require additional disclosures
in both annual and quarterly reports. SFAS 157 will be effective for financial
statements issued for fiscal years beginning after November 15, 2007, and will
be adopted by us beginning in the first quarter of 2008.   The
Company does not expect there to be any significant impact of adopting SFAS 157
on its consolidated financial position, cash flows and results of
operations.
  In
September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) 108,
Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (“SAB 108”). SAB 108 was issued to
eliminate the diversity of practice in how public companies quantify
misstatements of financial statements, including misstatements that were not
material to prior years’ financial statements.  The Company began to
apply the provisions of SAB 108 to its annual financial statements for the year
ended December 31, 2006.  The application of this guidance has not had
a material effect on the Company’s consolidated financial position, cash flows
and results of operation.
  In
February 2007, the FASB issued SFAS 159, The Fair Value
Option for Financial Assets and Financial Liabilities – Including an amendment
of FASB Statement No. 115 (“SFAS 159”), which will be effective for the
Company beginning January 1, 2008. This standard permits entities to choose to
measure many financial instruments and certain other items at fair value and
consequently report unrealized gains and losses on such items in
earnings.  The Company does not expect there to be any significant
impact of adopting this standard on its consolidated financial position, cash
flows and results of operations.
  In
December 2007, the FASB issued SFAS 141 (revised 2007), Business
Combinations (“SFAS 141(R)”).  SFAS 141(R) establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill
acquired.  141(R) also establishes disclosure requirements to enable
the evaluation of the nature and financial effects of the business
combination.  141(R) will be effective for financial statements issued
for fiscal years beginning after December 15, 2008, and will be adopted by the
Company beginning in the first quarter of 2009.  The Company does not
expect there to be any significant impact of adopting 141(R) on its consolidated
financial position, cash flows and results of operations.
  In
December 2007, the FASB issued SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements – an amendment of Accounting
Research Bulletin No.51(“SFAS 160”).  SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated.  SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners.  SFAS 160 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008, and will be adopted by the
Company beginning in the first quarter of 2009.  The Company does not
expect there to be any significant impact of adopting SFAS 160 on its
consolidated financial position, cash flows and results of
operations.
  Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force (“EITF”)), the American Institute of Certified Public
Accountants (“AICPA”), and the SEC did not or are not believed by management to
have a material impact on the Company's present or future consolidated financial
statements.
  BUSINESS
OVERVIEW
  Through
the Share Exchange that resulted in our acquisition of MPL, our principal
activity became the provision of artist management services.  Our
Company operates under a similar business model to the U.S. based Creative
Artists Agency ("CAA") and International Creative Management ("ICM") by
managing, on a turnkey basis, all of our clients film and recording contract
commitments as well as their product endorsements and advertising commitments.
 We provide training, management and agency services to both new and
established artists, and we are actively engaged in image management promotion
and the marketing of our clients.  To maintain our competitiveness, we
continue to maintain good relationships with our senior artists.  In
addition, we continue to search for and foster talented artists, and we are
actively seeking more artists from the People's Republic of China ("PRC"), Hong
Kong and Taiwan.  The infusion of new talent will enhance our
Company's competitiveness and bring fresh input into the entertainment industry.
However, the entertainment industry, particularly the film industry in Hong Kong
encountered greater challenges in these years.  The industry continued
to suffer from the issue of infringements on intellectual property rights. In
addition to the popularity of copied compact discs, the advances of information
technology, especially the improvement in BT (bit torrent) point-to-point
technology and the rapid growth of peer-to-peer sharing activity on the
Internet, have caused decreased revenues in the film industry. The demand and
rate for our artists both suffer from the decrease in number of films produced
resulting in loss position in our operations.
  13
  In order
to save the operating expenses of the Company and optimize the corporate
structure for new business opportunities in the future, our management has
decided to restructure the Company.
  On
January 17, 2008, the Company entered into an Agreement (“Agreement”) with
Imperial, the Company’s current majority shareholder, pursuant to which the
Company agreed to sell and Imperial agreed to purchase substantially all of the
Company’s assets. Pursuant to the Agreement, the Company will sell 100% of total
issued and paid up capital of MPL, the Company’s wholly-owned subsidiary and
operating business to Imperial with effect from December 31, 2007 in exchange
for Imperial’s payment of US$1 to the Company (the “Asset Sale”) at the closing
of the Asset Sale transaction (the “Closing”). The Closing of the Asset Sale
transaction is subject to the satisfaction of all of the closing conditions set
forth in the Agreement.  As of the date of this filing, all of the
closing conditions have either been satisfied or waived by the Parties except
for the Company’s compliance with the notification provisions of Section 14(c)
of the Securities Exchange Act of 1934, as amended, and Regulation 14C
thereunder in regards to administrative notification of all Company shareholders
regarding the majority shareholder’s approval of the Asset Sale (the “14C
Requirements”).  The Company presently intends to maintain its
corporate existence after the Asset Sale transaction is fully
completed.  Although there are no specific plans, the Company expects
that it may seek to find a private, operating company with which to combine. In
the event Company can find and complete any such transaction, it is generally to
be expected that the current owners of Company, in the aggregate, would have a
significantly reduced equity ownership of the surviving company. There can be no
assurance that the Company will be able to identify any business with which the
Company may conduct a business combination, nor that any such transaction could
be completed.  The Agreement was attached to the Form 8-K filed
with the Securities and Exchange Commission on February 22, 2008
as Exhibit 10.1 and is incorporated herein by reference; provided, however,
that the warranties and representations contained in such agreement are made
solely to Imperial and solely for purposes of the Asset Sale.  The
foregoing summary and description do not purport to be complete and are
qualified in their entirety by reference to the Agreement.
 RESULTS
OF OPERATIONS
  YEAR
ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31,
2005
  Revenue
  Revenue
recognized from the provision of artist management services decreased 12.2% to
$1,081,389 for the year ended December 31, 2006 from $1,231,563 for the same
period in 2005.  The decrease resulted primarily from the decreased
demand for artists’ services.  The entertainment industry,
particularly the film industry in Hong Kong, encountered greater challenges in
the year 2006.  The industry continued to suffer from the issue of
infringements on intellectual property rights. In addition to the popularity of
copied compact discs, the advances of information technology, especially the
improvement in BT (bit torrent) point-to-point technology and the rapid growth
of peer-to-peer sharing activity on the Internet, have caused decreased revenues
in the film industry. The immediate impact of these advances of information
technology was the production of fewer films during the year.
  General
and Administrative Expenses
  General
and administrative expenses incurred for the year ended December 31,
2006 decreased $158,052, or 11.2%, to $1,257,111 compared to $1,415,163 for
the same period in 2005.  General and administrative expenses mainly
consisted of management fees, wages, rent, and professional fees.  The
decrease was primarily caused by the decrease in our number of
employees.
  Reversal
of / Provisions For Impairment Of Amounts Due From Affiliates
  During
2005, we recorded a provision for impairment for amounts due from
affiliates.  During 2006, the Company reversed the provision for
impairment of amount due from an affiliate in the amount of approximately
$89,000.
  Provisions
For Impairment Of Deposits And Other Current Assets
  The
increase in provisions for impairment of deposits paid and other current assets
occurred because some of our artist management contracts expired during the year
ended December 31, 2006 and the Company made provisions for impairment of
deposits paid in connection with these expired contracts in the amount of
approximately $330,000.
  14
  Income
Tax
  Income
tax represents the aggregate taxes provided on the assessable profits for the
consolidated entities.  No income taxes expenses were provided for the
years ended December 31, 2006 and December 31, 2005 as the Company incurred tax
losses for the both years. Instead, for the year ended December 31, 2005, a tax
benefit was recognized as the Company had a tax overprovision from previous
year.
 Net
Loss
  Net loss
for the year ended December 31, 2006 decreased $291,624, or 41.1%, to $417,334
compared to $708,958 for the same period in 2005.  The decrease
resulted from a 12.2% decrease in revenues, an 11.2% decrease in general and
administrative expenses, the provisions for impairment of deposits paid and
other current assets, and the reversal for impairment of amount due from
affiliate recognized for the year.
  LIQUIDITY,
CAPITAL RESOURCES AND FINANCIAL CONDITION
  Liquidity
  We had
negative working capital at December 31, 2006 of $1,119,518.  We
regularly review our cash funding requirements and attempt to meet those
requirements through a combination of cash on hand, cash provided by operations,
deposits received and possible future public and private equity
offerings.  We evaluate possible acquisitions of, or investments in,
businesses that our complementary to ours, which transactions may require the
use of cash.  We believe that our cash, other liquid assets, operating
cash flows, credit arrangements, access to equity capital markets, taken
together, provide adequate resources to fund ongoing operating
expenditures.  In the event that they do not, we may require
additional funds in the future to support our working capital requirements or
for other purposes and may seek to raise such additional funds through the sale
of public or private equity as well as other sources.
  Cash
flows from operating activities
  For the
year ended December 31, 2006, net cash flows provided by operating activities
was $172,273 (2005: $284,735), primarily resulting from a decrease in deposits
paid and a decrease in accrued expenses, other liabilities and deposit
received.
  Cash
flows from investing activities
  For the
year ended December 31, 2006, net cash flow used in investing activities was
$509 as compared to $53,431 for the same period in 2005.  The decrease
in cash flow used in investing activities primarily resulted from a decrease in
additions to fixed assets.
  Cash
flows from financing activities
  Net cash
flows provided by financing activities for the year ended December 31, 2006 was
$578,364.  The cash inflows were mainly provided by advances from
certain affiliates.   Net cash flows used in financing activities
for the year ended December 31, 2005 was $40,664, representing repayments to
certain affiliates offset by common stock issued for cash.
  Expected
Material Capital Commitments
  The
Company has no material commitments for capital expenditures and has no plans or
intention to purchase or sell any plant and/or other significant
equipment.
  Expected
Significant Changes in Number of Employees
  The
Company does not anticipate any significant changes in its number of employees,
other than the changes that may arise during the course of normal business
operations.
  15
  EFFECTS
OF INFLATION
  The
Company believes that the effect of inflation has not been material during the
years ended December 31, 2005 and December 31, 2006.  The countries in
which the Metrolink Group conducts the majority of its operations, which include
Hong Kong, PRC and the United States, were subject to moderate degree of
inflations.
  EFFECT
OF FLUCTUATION IN FOREIGN EXCHANGE RATES
  All of
the Company's revenues are denominated either in U.S. dollars, Renminbi or Hong
Kong dollars, while its expenses are denominated primarily in Hong Kong dollars.
The value of the Hong Kong dollar-to-United States dollar and other currencies
may fluctuate and is affected by, among other things, changes in political and
economic conditions. Although a devaluation of the Hong Kong dollar relative to
the United States dollar would likely reduce the Company's expenses (as
expressed in United States dollars), any material increase in the value of the
Hong Kong dollar relative to the United States dollar would increase the
Company's expenses, and could have a material adverse effect on the Company's
business, financial condition and results of operations.  The Company
has never engaged in currency hedging operations but will continue to monitor
its foreign exchange exposure and market conditions to determine if hedging is
required.
  OFF-BALANCE
SHEET ARRANGEMENTS
  There are
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
  16
  ITEM
7. FINANCIAL
STATEMENTS
   CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
   REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              F-1CONSOLIDATED
      BALANCE SHEET
              F-3CONSOLIDATED
      STATEMENT OF OPERATIONS
              F-4CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
              F-5CONSOLIDATED
      STATEMENT OF CASH FLOWS
              F-6NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
              F-7
  17
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders of
 China
Entertainment Group, Inc.
  We have
audited the accompanying consolidated balance sheet of China Entertainment
Group, Inc. and its subsidiaries (collectively referred to as the “Company”) as
of December 31, 2006, and the related consolidated statement of operations,
changes in stockholders’ deficiency, and cash flows for the year then
ended.  These consolidated financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 2006, and the consolidated results of its operations and its
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to consolidated financial statements, the Company had negative working capital
and recurring losses from operations, resulting in a net stockholders’
deficiency at December 31, 2006.  These matters raise substantial
doubt about the Company’s ability to continue as a going concern. 
Management’s plans in regards to these matters are also described in Note 1 to
consolidated financial statements.  These consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
   /s/
      HLB
      Hodgson Impey ChengChartered
      AccountantsCertified
      Public Accountants
 Hong
Kong
 March 11,
2008
  F-1
  REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To the
Board of Directors and Stockholders of
 China
Entertainment Group, Inc. and Subsidiaries
  We have
audited the accompanying consolidated statements of operations, changes in
stockholders’ deficiency, and cash flows for the year ended December 31, 2005,
of China Entertainment Group, Inc., a Nevada limited liability company, and its
subsidiaries (collectively referred to as the “Company”). These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of China Entertainment Group, Inc. and Subsidiaries for the year ended December
31, 2005, in conformity with generally accepted accounting principles in the
United States of America.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has a negative working
capital and recent losses from operations, resulting in a net stockholders’
deficiency at December 31, 2005. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
    Clancy
and Co., P.L.L.C.
 Scottsdale,
Arizona
  November
10, 2006, except for Note 7 which is dated March 21, 2007
  F-2
  CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEET
  December
      31,
                  2006ASSETSCurrent
      AssetsCash
      and cash equivalents
                
                $
                1,019,888Accounts
      receivable, net
                
                
                112,951Deposits
      paid for artist management services
                
                
                1,038,113Prepaid
      expenses and other current assets
                
                
                94,850Amount
      due from an affiliate
                
                
                15,771Total
      current assets
                
                
                2,281,573Fixed
      assets, net
                
                
                38,183Total
      assets
                
                $
                2,319,756LIABILITIES
      AND STOCKHOLDERS’ DEFICIENCYCurrent
      LiabilitiesAccounts
      payable
                
                $
                120,279Accrued
      expenses and other liabilities
                
                
                389,053Deposits
      received from customers
                
                
                1,255,754Amounts
      due to affiliates
                
                
                1,636,005Total
      current liabilities
                
                
                3,401,091Commitments
      and contingenciesStockholders’
      DeficiencyCommon
      stock, $0.001 par value; 200,000,000 shares authorized;128,963,425
      shares issued and outstanding
                
                
                128,963Additional
      paid-in capital
                
                
                118,762Accumulated
      deficit
                
                
                (1,329,060
                )Total
      stockholders’ deficiency
                
                
                (1,081,335
                )Total
      liabilities and stockholders’ deficiency
                
                $
                2,319,756
   The accompanying
notes are an integral part of these consolidated financial
statements.
  F-3
  CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF OPERATIONS
 FOR
THE YEARS ENDED DECEMBER 31
  2006
                
                
                2005Revenue,
      net
                
                $
                1,080,040
                
                
                $
                1,231,563Other
      revenue
                
                
                1,349
                
                
                
                -General
      and administrative expenses
                
                
                (1,257,111
                )
                
                
                (1,415,163
                )Reversal
      (provision) for impairment of amount due from an affiliate
                
                
                88,738
                
                
                
                (526,278
                )Provisions
      for impairment of deposits paid and other current assets
                
                
                (330,350
                )
                
                
                -Loss
      before income tax
                
                
                (417,334
                )
                
                
                (709,878
                )Income
      tax
                
                
                -
                
                
                
                920Net
      loss
                
                $
                (417,334
                )
                
                $
                (708,958
                )Basic
      and diluted loss per share
                
                $
                (0.003
                )
                
                $
                (0.006
                )Basic
      and diluted weighted average shares outstanding
                
                
                128,963,425
                
                
                
                127,896,106
   The accompanying
notes are an integral part of these consolidated financial
statements.
  F-4
  CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
 FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
  Common
                
                
                Common
                
                
                AdditionalStock
                
                
                Stock
                
                
                Paid-in
                
                
                Accumulated(shares)
                
                
                (par
      value)
                
                
                Capital
                
                
                Deficit
                
                
                TotalBalance
      – December 31, 2004
                
                
                128,963,402
                
                
                $
                128,963
                
                
                $
                -
                
                
                $
                (202,768
                )
                
                $
                (73,805
                )Cancellation
      of 4,809,522 shares originally issued  pursuant to theMerger
      in 2004
                
                
                (4,809,522
                )
                
                
                (4,810
                )
                
                
                4,810
                
                
                
                -
                
                
                
                -Issuance
      of 1,809,522 shares to an existing shareholder to settleexpenses
      valued at the fair market value on the date of issuance
                
                
                1,809,522
                
                
                
                1,810
                
                
                
                66,952
                
                
                
                -
                
                
                
                68,762Common
      stock issued for cash
                
                
                3,000,000
                
                
                
                3,000
                
                
                
                47,000
                
                
                
                -
                
                
                
                50,000Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (708,958
                )
                
                
                (708,958
                )Rounding
      share adjustment
                
                
                23
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance
      – December 31, 2005
                
                
                128,963,425
                
                
                
                128,963
                
                
                
                118,762
                
                
                
                (911,726
                )
                
                
                (664,001
                )Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (417,334
                )
                
                
                (417,334
                )Balance
      – December 31, 2006
                
                
                128,963,425
                
                
                $
                128,963
                
                
                $
                118,762
                
                
                $
                (1,329,060
                )
                
                $
                (1,081,335
                )
   The accompanying
notes are an integral part of these consolidated financial
statements.
  F-5
  CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31
  2006
                
                
                2005Operating
      activitiesNet
      loss
                
                $
                (417,334
                )
                
                $
                (708,958
                )Adjustments
      to reconcile net loss to net cash provided by
      operating  activities(Reversal)
      provision for impairment of amount due from an affiliate
                
                
                (88,738
                )
                
                
                526,278Depreciation
                
                
                10,894
                
                
                
                5,527Provisions
      for impairment of deposits paid and other current assets
                
                
                330,350
                
                
                
                -Expenses
      settled by the issuance of common stock
                
                
                -
                
                
                
                68,762Changes
      in operating assets and liabilities(Increase)
      decrease in accounts receivable
                
                
                (26,831
                )
                
                
                94,106Decrease
      in deposits paid, prepaid expenses and other current
assets
                
                
                605,881
                
                
                
                767,076Decrease
      in accounts payable, accrued expenses, other liabilities and deposits
      received
                
                
                (241,949
                )
                
                
                (422,377
                )Decrease
      in income taxes payable
                
                
                -
                
                
                
                (45,679
                )Net
      cash provided by operating activities
                
                
                172,273
                
                
                
                284,735Investing
      activitiesPurchases
      of fixed asset
                
                
                (509
                )
                
                
                (53,431
                )Net
      cash used in investing activities
                
                
                (509
                )
                
                
                (53,431
                )Financing
      activitiesCommon
      stock issued for cash
                
                
                -
                
                
                
                50,000Advances
      from (repayments to) affiliates
                
                
                578,364
                
                
                
                (90,664
                )Net
      cash provided by (used in) financing activities
                
                
                578,364
                
                
                
                (40,664
                )Increase
      in cash and cash equivalents
                
                
                750,128
                
                
                
                190,640Cash
      and cash equivalents, beginning of period
                
                
                269,760
                
                
                
                79,120Cash
      and cash equivalents, end of period
                
                $
                1,019,888
                
                
                $
                269,760Cash
      paid for:Interest
                
                $
                244
                
                
                $
                -Income
      taxes
                
                $
                -
                
                
                $
                45,679Supplemental
      disclosure of noncash operating, investing and financing
      activities:Expenses
      settled by the issuance of common stock
                
                $
                -
                
                
                $
                68,762
   The
accompanying notes are an integral part of these consolidated financial
statements.
  F-6
  CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note
      1.
                BUSINESS
      OPERATIONS, LIQUIDITY AND GOING
CONCERN
  Business
Operations
  China
Entertainment Group, Inc. is a Nevada corporation that serves as an investment
holding company. The Company, through its wholly-owned subsidiaries, is engaged
in the provision of artist management services. Our headquarters are located in
Hong Kong and we generated revenue in 2006 primarily from operations within Hong
Kong and the People’s Republic of China.
  Liquidity
and Going Concern
  As of
December 31, 2006 the Company had negative working capital and recurring losses
from operations for 2006, resulting in a net stockholders’ deficiency. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. Although the Company expects to incur additional losses for at
least the next twelve months, the Company anticipates that its current cash and
cash equivalents and the ability to borrow from affiliates will be sufficient to
fund its operations at least the next twelve months. This assumes the Company
either achieves profitable operations and the cash burn rate from the results
experienced in the recent past does not increase significantly. If, however, the
Company is unable to realize profitable operations and additional resources are
required to operate, the Company may be forced to borrow additional funds, which
may increase the risk of operating as a going concern, or cease operations. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities or any other adjustment that might be necessary
should the Company be unable to continue as a going concern.
  As per
note 13 to consolidated financial statements, the Company ceased operation of
the provision of artist management services as the major stockholder approved
the disposal (the “Disposal”) of its main operation effective December 31,
2007.
  Note
      2.
                SUMMARY
      OF PRINCIPAL ACCOUNTING POLICIES
  Basis
of presentation
  The
consolidated financial statements include the accounts of China Entertainment
Group, Inc. and its subsidiaries. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”).All
significant intercompany transactions and balances have been
eliminated.
  Use
of estimates
  The
preparation of consolidated financial statements in accordance with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of the assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated balance sheet and the reported
amounts of revenues and expenses during the reporting periods. Actual results
may differ from management’s estimates.
  Related
party transaction
  Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence. Related parties may be individuals or corporate entities.
A transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties.
  F-7
 CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fair
value of financial instruments
  The
Company considers that the carrying amount of cash and cash equivalents,
accounts receivable and accounts payable, deposits paid and received, other
receivables, other payables and amounts due from or to affiliates to approximate
fair values due to their short maturities.
  Concentrations
of credit risk
  The
Company is subject to certain concentrations of credit risk as
follows:
  ·
                Due to
      accounts receivable – Accounts receivable as at December 31, 2006
      includes 3 customers that each accounted for more than 10% of the accounts
      receivable balance.
 ·
                Due to
      revenue and major customers– For theyear
      ended December 31, 2006, 2 artists (2005: 3) each accounted for more than
      10% of the Company’s net revenue and collectively accounted for
      approximately 60% (2005: 74%) of the Company’s net
      revenue.
  Earning
(loss) per share
  Basic
earning (loss) per share (“EPS”) is computed by dividing net earning/(loss)
(numerator) by the weighted average number of common stock outstanding
(denominator) during the period. Diluted EPS is computed by dividing net
earning/(loss) (numerator) by the weighted average number of common stock
outstanding plus dilutive common stock equivalents. There was no common stock
equivalents for any of the periods presented.
  Stock-based
compensation
  Prior to
January 1, 2006, the Company applied Statement of Financial Accounting Standards
(“SFAS”) 123, Accounting for
Stock-Based Compensation (“SFAS 123”) and Accounting Principles Board
Opinion (“APB”) APB Opinion 25,
Accounting for Stock Issued to Employees (“APB 25”) in accounting for its
stock option plans whereby no compensation cost would be recognized in the
Company’s consolidated financial statements for stock options granted under any
of the stock option plans which on the date of grant the exercise price per
share was equal to or exceeded the fair value per share. Compensation cost was
only recognized for warrants and options granted to non-employees for services
provided. Effective January 1, 2006, the Company adopted the provisions of SFAS
123(R), Share-Based
Payment (“SFAS 123(R)”). SFAS 123(R) requires that all share-based
payments to employees, including grants of stock options, to be measured based
on their grant-date fair value and recognized as expense over the required
service period. The adoption of SFAS 123(R) has no significant impact on the
result of operations for the year ended December 31, 2006 as the Company did not
have share-based compensation during the year.
  Foreign
currency translation
  The
functional currencies of our foreign subsidiaries are their local currencies.
Revenue and expenses are translated at average exchange rates during the period,
and assets and liabilities are translated as at the end of period exchange
rates. Translation adjustments resulting from this process are included in
accumulated other comprehensive income (loss) in stockholders' deficiency.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred. These amounts are immaterial
to the financial statements.
  Cash
and cash equivalents
  Cash and
cash equivalents represent all highly liquid investments with original
maturities of three months or less.
  Fixed
assets
  Fixed
assets are stated at cost less accumulated depreciation. The Company provides
for depreciation using the straight-line method over the estimated useful lives
of the related assets, which is five years. Depreciation expense for the year
ended December 31, 2006 was $10,894 (2005: $5,527). When assets are retired or
disposed of, the cost and accumulated depreciation thereon are removed and any
resulting gains or losses are recognized in current operations. Repairs and
maintenance are expensed as incurred.
  F-8
 CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Impairment
of long-lived assets
  The
Company periodically assesses the recoverability of the carrying amounts of
long-lived assets pursuant to the provisions of SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,if objective indicators of
impairment exist. A loss is recognized when expected undiscounted future cash
flows are less than the carrying amount of the asset. The impairment loss is the
amount by which the carrying amount of the asset exceeds its fair
value.
  Provision
of impairment for deposits paid
  The
Company assesses the recoverability of the carrying amounts of deposits paid
when there is objective evidence that deposit paid is impaired.
  Revenue
recognition
  Service
fee income from provision of artist management services is recognized when
services are rendered. In accordance with Securities and Exchange Commission
(“SEC”) Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements, the Company presents its revenue on a net basis
as it acts as an agent for the artists. Revenue on a gross basis for 2006 was
approximately $3,383,000 (2005: $3,016,000).
  Accounts
receivable and provisions for losses
  The
Company establishes a provision account to ensure accounts receivables are not
overstated due to uncollectibility. Provisions for losses are determined on the
basis of loss experience and current economic conditions and amounted to
$330,350 for the year ended December 31, 2006 (2005: $526,278). Any significant
changes in any of these criteria would impact management’s estimates in
establishing the provision account.
  Advertising
costs
  Advertising
costs are expensed as incurred and were immaterial for both years
presented.
  Pension
obligation
  The
Company operates a defined contribution plan and the assets of which are
generally held in a separate trustee administered fund. The pension plan is
generally funded by payments from employees and by the relevant group companies.
The Company’s contributions to the defined contribution plan are expensed as
incurred. The Company’s contributions to the defined contribution plan for the
year ended December 31, 2006 was approximately $8,000
(2005:  $11,000).
  Income
taxes
  The
Company accounts for income taxes using SFAS 109, Accounting for
Income Taxes (“SFAS 109”), issued by the Financial Accounting Standards
Board (“FASB”). Under SFAS 109, income taxes are accounted for under the asset
and liability method.  The charge for taxation is based on the results
for the year as adjusted for items, which are non-assessable or disallowed, and
is calculated at tax rates that have been enacted or substantively enacted at
the balance sheet date.  Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the carrying amounts of existing assets and liabilities and their respective tax
bases, operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply in the
year(s) in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities due to a change in
tax rates is recognized in current operations in the period that includes the
enactment date. There are no deferred tax amounts recognized as of December 31,
2006.
  F-9
  CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note
      3.
                RECENT
      ACCOUNTING PRONOUNCEMENTS
  In
February 2006, the Financial Accounting Standards Board
(“FASB”) issued SFAS 155, Accounting for
Certain Hybrid Financial Instruments – an amendment of FASB Statements 133 and
140 (“SFAS 155”).  SFAS 155 will be effective for the Company
beginning January 1, 2007.  The statement permits interests in hybrid
financial instruments that contain an embedded derivative that would otherwise
require bifurcation, to be accounted for as a single financial instrument at
fair value, with changes in fair value recognized in earnings. This election is
permitted on an instrument-by-instrument basis for all hybrid financial
instruments held, obtained, or issued as of the adoption date. The Company does
not expect there to be any significant impact of adopting SFAS 155 on its
consolidated financial position, cash flows and results of
operations.
  In June
2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in
tax positions. This interpretation requires that the Company recognize in its
financial statements the impact of a tax position if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. The provisions of FIN 48 are effective for the Company on
January 1, 2007, with the cumulative effect of the change in accounting
principle, if any, recorded as an adjustment to opening retained earnings. The
Company does not expect there to be any significant impact of adopting FIN 48 on
its consolidated financial position, cash flows and results of
operations.
  In
September 2006, the FASB issued SFAS 157, Fair Value
Measurements (“SFAS 157”), which provides guidance about how to measure
assets and liabilities that use fair value. SFAS 157 will apply whenever another
US GAAP standard requires (or permits) assets or liabilities to be measured at
fair value but does not expand the use of fair value to any new circumstances.
This standard also will require additional disclosures in both annual and
quarterly reports. SFAS 157 will be effective for financial statements issued
for fiscal years beginning after November 15, 2007, and will be adopted by us
beginning in the first quarter of 2008.  The Company does not expect
there to be any significant impact of adopting SFAS 157 on its consolidated
financial position, cash flows and results of operations.
  In
September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) 108,
Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (“SAB 108”). SAB 108 was issued to
eliminate the diversity of practice in how public companies quantify
misstatements of financial statements, including misstatements that were not
material to prior years’ financial statements.  The Company began to
apply the provisions of SAB 108 to its annual financial statements for the year
ended December 31, 2006.  The application of this guidance has not had
a material effect on the Company’s consolidated financial position, cash flows
and results of operation.
  In
February 2007, the FASB issued SFAS 159, The Fair Value
Option for Financial Assets and Financial Liabilities – Including an amendment
of FASB Statement No. 115 (“SFAS 159”), which will be effective for the
Company beginning January 1, 2008. This standard permits entities to choose to
measure many financial instruments and certain other items at fair value and
consequently report unrealized gains and losses on such items in earnings. The
Company does not expect there to be any significant impact of adopting this
standard on its consolidated financial position, cash flows and results of
operations.
  In
December 2007, the FASB issued SFAS 141 (revised 2007), Business
Combinations (“SFAS 141(R)”).  SFAS 141(R) establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill
acquired.  141(R) also establishes disclosure requirements to enable
the evaluation of the nature and financial effects of the business
combination.  141(R) will be effective for financial statements issued
for fiscal years beginning after December 15, 2008, and will be adopted by the
Company beginning in the first quarter of 2009.  The Company does not
expect there to be any significant impact of adopting 141(R) on its consolidated
financial position, cash flows and results of operations.
  In
December 2007, the FASB issued SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements – an amendment of Accounting
Research Bulletin No.51(“SFAS 160”).  SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated.  SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners.  SFAS 160 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008, and will be adopted by the
Company beginning in the first quarter of 2009.  The Company does not
expect there to be any significant impact of adopting SFAS 160 on its
consolidated financial position, cash flows and results of
operations.
  F-10
  CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force (“EITF”)), the American Institute of Certified Public
Accountants (“AICPA”), and the SEC did not or are not believed by management to
have a material impact on the Company's present or future consolidated financial
statements.
  Note
      4.
                RELATED
      PARTY TRANSACTIONS
  Amounts
due from/to affiliates are unsecured, interest-free and due on demand. The
following table summarizes significant related party balances as at December 31,
2006:
  Relatedparty
                
                Nature
      of
                  relationship
                  and
      control
                
                Description
                  of
      transactions
                
                2006Due
      fromTogether
      Again Limited (“TAL”)
                
                Intermediate
      holding company, 51% owned by Colima Enterprise Holdings, Inc. (“Colima”)
      and 49% owned by China Star Entertainment Limited (“China
      Star”)
                
                Amount
      receivable in relation to service income and funds transferred between
      entities for working capital purposes
                
                $
                15,771Due
      toMs.
      Chen Ming Yin, Tiffany
                
                Director
      of the Company
                
                Director
      compensation
                
                $
                15,385Mr.
      Tang Chien Chang
                
                Director
      of the Company
                
                Funds
      transferred to the Company for working capital purposes
                
                
                277,006Imperial
      International Limited (“Imperial”)
                
                Intermediate
      holding company, ultimately owned by Colima
                
                Funds
      transferred between entities for working capital purposes
                
                
                663,845China
      Star HK Distribution Limited (“China Star Distribution”)
                
                Related
      company, a subsidiary of China Star which owns 49% of TAL
                
                Amount
      receivable in relation to service income and funds transferred between
      entities for working capital purposes
                
                
                679,769$
                1,636,005
  F-11
 CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Related
party transactions included in the consolidated statement of operations for the
years presented include the following:
  Nature of

                  relationship
                
                Description
                
                Years
      ended
                  December
      31,Related
      party
                
                and
      control
                
                of
      transactions
                
                2006
                
                
                2005China
      Star Distribution
                
                Related
      company, a subsidiary of China Star which owns 49% of TAL
                
                Service
      income, net (note a)
                
                $
                572,615
                
                
                $
                931,026China
      Star
                
                Related
      company, owns 49% of TAL
                
                Management
      fee paid
                  (note
      b)
                
                $
                107,693
                
                
                $
                107,693China
      Star Laser Disc Company Limited
                
                Related
      company, a subsidiary of China Star which owns 49% of
    TAL
                
                Management
      fee paid
                  (note
      b)
                
                $
                507,692
                
                
                $
                507,692
  Notes:
                (a)
                The
      transactions were carried out at market price or, where no market price
      was available, at cost plus a percentage profit
  mark-up.
 (b)
                  The
      transactions were carried out at terms agreed between both
      parties.
 Note
      5.
                DEPOSITS
      PAID FOR ARTIST MANAGEMENT SERVICES/DEPOSITS RECEIVED FROM
      CUSTOMERS
  Deposits
paid for artist management services are assets that represent amounts paid per
signed contracts with various famous artists. As the services are performed, the
amount is recognized as services charges on the proportion of number of
performances performed to the total number of performances contracted. The
contract periods range from one year to three years and the artists are liable
to provide services for a fixed number of performances.
  Deposits
received from customers are liabilities that represent amounts advanced from
customers for artist performance in advertisement, drama, films and
concerts.  As the services are performed, the amount is reclassified
and recognized as revenues.  The contract period ranges from one year
to three years and the performances contracted were either fixed in term of
number of performance or in periods to be performed.
  Note
      6.
                PREPAID
      EXPENSES AND OTHER CURRENT ASSETS
  December
      31, 2006Prepaid
      expenses
                
                $
                2,189Other
      current assets
                
                
                92,661$
                94,850
  Note
      7.
                FIXED
      ASSETS, NET
  December
      31, 2006Office
      equipment
                
                $
                1,734Motor
      vehicle
                
                
                53,119Fixed
      assets, at cost
                
                
                54,853Less
      accumulated depreciation
                
                
                16,670Fixed
      assets, net
                
                $
                38,183
  Note
      8.
                ACCRUED
      EXPENSES AND OTHER LIABILITIES
  December
      31, 2006Accrued
      expenses
                
                $
                382,017Other
      liabilities
                
                
                7,036$
                389,053
  F-12
 CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note
      9.
                INCOME
      TAXES
  Hong Kong
Taxes:  Hong Kong profits tax has been provided at a rate of
17.5% on the estimated assessable profits arising in Hong Kong. A reconciliation
of the provision for Hong Kong profits tax is as
follow:
  2006
                
                
                2005%
                
                
                
                
                
                %Loss
      before income tax
                
                $
                (417,334
                )
                
                
                (100
                )
                
                $
                (709,878
                )
                
                
                (100
                )Benefit
      for Hong Kong profits tax
                
                $
                73,034
                
                
                
                17.5
                
                
                $
                124,228
                
                
                
                17.5Tax
      effect of loss incurred at the company level
                
                
                (38,182
                )
                
                
                (9.1
                )
                
                
                (21,834
                )
                
                
                (3.1
                )Tax
      effect of earnings not taxable in determining taxable
    profits
                
                
                15,765
                
                
                
                3.8
                
                
                
                51,024
                
                
                
                7.2Tax
      effect of expenses not deductible in determining taxable
      profits
                
                
                (48,711
                )
                
                
                (11.7
                )
                
                
                (152,504
                )
                
                
                (21.5
                )Tax
      effect of unrecognized temporary differences
                
                
                (1,906
                )
                
                
                (0.5
                )
                
                
                (914
                )
                
                
                (0.1
                )Overprovision
      of income taxes for previous year
                
                
                -
                
                
                
                -
                
                
                
                920
                
                
                
                0.1Provision
      for income tax
                
                $
                -
                
                
                
                -
                
                
                $
                920
                
                
                
                0.1
  For the
years ended December 31, 2006 and 2005, the Company generated operating losses
and, therefore, has no tax liability. The US tax loss carryforwards will expire
through 2026 and the Hong Kong tax loss carryforwards has no expiry date.Management believes it is
more likely than not that the net carrying value of the deferred tax asset will
not be realized and has provided a 100% valuationallowance. Pursuant to the
Tax Reform Act of 1986, annual utilization of the US net operating loss
carryforwards may be limited if a cumulative change in ownership of more than
50% is deemed to occur within any three-year period.
  Note
      10.
                STOCKHOLDERS’
      EQUITY
  During
November 2004, the Company completed a reverse acquisition merger (the "Merger")
with Metrolink Pacific Limited ("MPL"), an international business company
organized to do business under the laws of the British Virgin Islands ("BVI"),
whereby MPL agreed to transfer all of its issued and outstanding shares in
exchange for 109,623,006 shares of common stock of CGRP. As a result of the
Merger, MPL became a wholly-owned subsidiary of CGRP and the sole stockholder of
MPL, Imperial, received an aggregate number of shares of CGRP common stock
representing approximately 85% of the total number shares of CGRP's common stock
outstanding after the Merger. In addition, the Board and management of CGRP are
now controlled by members of the Board of Directors and management of Imperial
prior to the merger.
  Common
stock
  2006 –The
Company had no equity transaction during the year.
  2005 –The
Company had the following equity transactions during the
year:
  * In
September 2005, the Company's Board of Directors approved the cancellation of
4,809,522 shares of common stock previously issued to Orient Financial Services
Limited, an unrelated party, for services provided in connection with the
Company's Merger in November 2004.
  * In
November 2005, the Company sold 3,000,000 shares for cash to Emerging Growth
Partners, Inc., an unrelated party, pursuant to an Advisory Service Agreement
dated June 6, 2005.
  * In
November 2005, the Company issued 1,809,522 shares to Sandy Lang, an existing
stockholder to settle expenses. A “Deed of Settlement” dated June 8, 2005, was
executed between the Company and certain parties, including Sandy Lang. In
exchange for the shares issued to Sandy Lang, which were approved by the
Company’s Board of Directors, Sandy Lang agreed to settle, forebear to litigate,
and release any and all actions or claims (whether directly or indirectly and in
whichever jurisdiction) that he has or may have against the Company arising out
of, in connection with, or leading to the Merger with MPL in November
2004.
  F-13
 CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note
      11.
                CONTINGENCIES
      AND COMMITMENTS
  Litigation
  Lang, et
al. v. Welch, et al. (China Entertainment Group, Inc.) (United States District
Court, Central District California, Case No. CV 07-1068-GHK-PJWx). On December
20, 2006, plaintiffs Sanford Lang and Martin Goldrod (collectively,
“Plaintiffs”) initiated a lawsuit in the Los Angeles Superior Court, Central
District, alleging claims for fraud, breach of contract, violations of RICO, and
civil conspiracy against several parties, including the Company. The Company was
provided with a copy of Plaintiffs’ Complaint on or about February 28, 2007,
after the matter was removed to United States District Court. According to the
Complaint, the Company is “a nominal Defendant” as Plaintiffs purport to assert
claims derivatively on its behalf. Accordingly, it appears that no relief is
being sought against the Company itself. On or about January 31, 2008,
Plaintiffs and Defendants, including the Company, entered into a confidential
settlement agreement to resolve all claims pending between them. Subject to
satisfactory discharge of certain obligations set forth in the confidential
settlement agreement, it is anticipated that a dismissal of the action will be
filed no later than early January 2009. The consolidated financial statements do
not include any adjustments related to the outcome of this
uncertainty.
  Operating
leases
  The
Company had no operating leases commitment as of December 31, 2006. Rental
expense for the office premises of the Company for 2006 was $30,407 (2006:
$42,342).
  SEC
filings
  The
Company has failed to comply with substantially all of the obligations imposed
upon it by the Securities Exchange Act of 1934 Act (the “1934 Act”) and is
delinquent in filing its periodic filings including its annual report on Form
10-KSB for 2006 and its 2007 quarterly reports on Form 10-QSB. As a result, the
Company and its officers and directors could be subject to substantial civil and
criminal penalties due to such non-compliance. There can be no assurance that
substantial civil and criminal penalties will not be imposed.
  Note
      12.
                SEGMENT
      INFORMATION
  Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operation decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. Metrolink Pacific Limited’s (“MPL’s”)
wholly-owned subsidiaries are as follows: Anglo Market International Limited
("AMIL"), China Star Management Limited ("CSML"), and Metrolink Global Limited
("MGL"). The principal activities of MPL’s subsidiaries are the provision of
artist management services. The “other” column represents unallocated
corporate-related costs of the parent company.
  The
Company’s segment information for the years ended December 31, 2006 and 2005 are
as follows:
  2006
                
                AMIL
                
                
                CSML
                
                
                MGL
                
                
                OTHER
                
                
                TotalRevenue,
      net
                
                $
                130,180
                
                
                $
                949,860
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,080,040Net
      earning (loss)
                
                $
                112,884
                
                
                $
                (73,411
                )
                
                $
                (274,888
                )
                
                $
                (181,919
                )
                
                $
                (417,334
                )Total
      assets
                
                $
                153,651
                
                
                $
                1,223,263
                
                
                $
                942,842
                
                
                $
                -
                
                
                $
                2,319,756
  2005
                
                AMIL
                
                
                CSML
                
                
                MGL
                
                
                OTHER
                
                
                TotalRevenue,
      net
                
                $
                158,940
                
                
                $
                793,178
                
                
                $
                279,445
                
                
                $
                -
                
                
                $
                1,231,563Net
      earning (loss)
                
                $
                141,958
                
                
                $
                (796,140
                )
                
                $
                164,043
                
                
                $
                (218,819
                )
                
                $
                (708,958
                )Total
      assets
                
                $
                20,880
                
                
                $
                1,976,513
                
                
                $
                1,216,177
                
                
                $
                -
                
                
                $
                3,213,570
  F-14
 CHINA
ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Geographic
information is based on the location of the selling service. Revenues from
external customers by geographic region were as follows:
  Year
      ended December 31:
                
                2006
                
                
                2005%
                
                
                %Hong
      Kong
                
                
                70
                
                
                
                61People’s
      Republic of China
                
                
                29
                
                
                
                34Other
                
                
                1
                
                
                
                5100
                
                
                
                100
  Note
      13.
                SUBSEQUENT
      EVENT
  Effective
December 31, 2007, the major stockholder of the Company approved the Disposal of
100% of total issued and paid up capital of MPL to Imperial at a consideration
of $1 and the accounts of MPL and its subsidiaries have been deconsolidated from
the Company effectively from the effective date of the Disposal. Subsequent to
the Disposal, the Company has no active operation and is searching for a new
business opportunity.
  F-15
  ITEM
      8.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  None.
  ITEM 8A.
              CONTROLS AND
      PROCEDURES
  (a)
              Evaluation of
      disclosure controls and procedures. We maintain controls and
      procedures designed to ensure that information required to be disclosed in
      the reports that we file or submit under the 1934 Act is recorded,
      processed, summarized and reported within the time periods specified in
      the rules and forms of the SEC. Based upon their evaluation of those
      controls and procedures performed as of the period covered by this report,
      our chief executive officer and the chief accounting officer concluded
      that our disclosure controls and procedures were inadequate to ensure that
      information required to be disclosed by us in reports that we file or
      submit under the 1934 Act is recorded, processed, summarized and reported
      within the time periods specified in SEC rules and forms. We are
      developing a plan to ensure that all information will be recorded,
      processed, summarized and reported on a timely basis. This plan is
      dependent, in part, upon reallocation of responsibilities among various
      personnel, possibly hiring additional personnel and additional
      funding.
  (b)
              Changes in
      internal controls. There were no changes in our internal controls
      or in other factors that could significantly affect these controls
      subsequent to the date of the evaluation of those controls by the chief
      executive officer and chief accounting
  officer.
  ITEM
      8B.
              OTHER
      INFORMATION
  As
described in full detail in our Current Report on Form 8-K filed on April 23,
2007, and incorporated herein by reference, effective on February 15, 2007,
Clancy and Co., P.L.L.C. resigned as the Registrant’s independent accountant
engaged to audit the Registrant’s financial statements.  As more fully
described in our Current Report on Form 8-K filed on January 31, 2008, and
incorporated herein by reference, effective January 16, 2008, HLB Hodgson
Impey Cheng, whose address is 31/F Gloucester Tower, The Landmark, 11 Pedder
Street, Central, Hong Kong, was engaged to serve as the Company’s new
independent accountant to audit the Company’s consolidated financial
statements.
  18
  PART
III
  ITEM 9.
              DIRECTORS, EXECUTIVE OFFICERS,
      PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
      EXCHANGE ACT
  The
following table and text sets forth the names and ages of all directors and
executive officers of the Company as of December 31, 2006.  Ms. Chen
Ming Yin, Tiffany and Mr. Tang Chien Chang were named as directors of the
Company, effective December 24, 2004.  The members of the board of
directors of the Company have not yet been named to any board committees. The
Board of Directors is comprised of only one class.  Except as
otherwise described below, all of the directors will serve until the next annual
meeting of stockholders and until their successors are elected and qualified, or
until their earlier death, retirement, resignation or removal. Also provided
herein are brief descriptions of the business experience of each director and
executive officer during the past five years and an indication of directorships
held by each director in other companies subject to the reporting requirements
under the federal securities laws.
  Name
              Age
              Position(s)Ms.
      Chen Ming Yin Tiffany
              50
              DirectorMr.
      Tang Chien Chang
              49
              Director
      and Chief Executive OfficerMs.
      Dorothy Wong
              41
              Chief
      Accounting Officer
  Biographies
of Directors and Executive Officers
  TIFFANY
CHEN MING YIN, 50, Director. Ms. Chen has produced a number of blockbuster films
and is the vice chairman and executive director of two Hong Kong listed
companies in the entertainment and multi-media industries. She has over 15 years
of experience in the industries.  Ms. Chen is not an officer or
director of any other U.S. reporting company.
  TANG
CHIEN CHANG, 49, Director and Chief Executive Officer. Mr. Tang has been
self-employed as a businessman and investor in the entertainment industry for at
least the last five years.  Mr. Tang is not an officer or director of
any other U.S. reporting company.
  DOROTHY
WONG, 41, Chief Accounting Officer. Ms. Wong received her degree in Accountancy
from City Polytechnic University in 1990. She is a member of the Hong Kong
Institute of Certified Public Accountants. She is the Financial Controller and
Company Secretary of China Star Entertainment Limited ("China Star"), a
shareholder of the Company. She joined China Star in 2001. Prior to her
employment with China Star, she worked with an international accounting firm for
over 10 years.
  Family
Relationships
  There are
no family relationships between or among any of the current directors, executive
officers or persons nominated or charged by the Company to become directors or
executive officers.
  Involvement
in Certain Legal Proceedings
  There are
no orders, judgments, or decrees of any governmental agency or administrator, or
of any court of competent jurisdiction, revoking or suspending for cause any
license, permit or other authority to engage in the securities business or in
the sale of a particular security or temporarily or permanently restraining any
of our officers or directors from engaging in or continuing any conduct,
practice or employment in connection with the purchase or sale of securities, or
convicting such person of any felony or misdemeanor involving a security, or any
aspect of the securities business or of theft or of any felony. Nor are any of
the officers or directors of any corporation or entity affiliated with us so
enjoined.
  19
  Audit
Committee and Independent Directors
  As the
Company believes that our Board of Directors has the integrity and the resources
to oversee the control of the operations of the Company, the Company did not
establish an audit committee, nor do we have a financial expert on our Board of
Directors as that term is defined by Item 401(e)(2).
  Section
16(a) Beneficial Ownership Reporting Compliance:
  Section
16(a) of the 1934 Act, requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the SEC
initial reports of ownership and reports of changes in ownership of common stock
and other equity securities of the Company. Such executive officers, directors
and greater than 10% beneficial owners are required by the SEC to furnish us
copies of all Section 16(a) forms filed by such reporting persons.  To
our knowledge, based solely on the Company's review of copies of Forms 3, 4, and
5 filed with the SEC or written representations from certain reporting persons,
we believe that during fiscal year ended December 31, 2006, the shareholder
Imperial, the current director and chief executive officer Mr. Tang Chien Chang,
and current director Ms. Chen Ming Yin Tiffany were subject to but have not
filed the reports they are required to file under Section 16(a) of the 1934
Act.
  Code
of Ethics
  We have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer, or controller, or
persons performing similar functions.  We will provide to any person
without charge, upon request, a copy of such Code of Ethics.  Persons
wishing to make such a request should contact Dorothy Wong at our principal
office.
  ITEM 10.
              EXECUTIVE
      COMPENSATION
  Executive
Compensation
  The
following executive compensation disclosure reflects all compensation awarded
to, earned by or paid to the executive officers below for the fiscal year ended
December 31, 2006.  The following table summarizes all
compensation for fiscal year 2006 received by our Chief Executive Officer, and
the Company’s two most highly compensated executive officers who earned more
than $100,000 in fiscal year 2006.
  SUMMARY
COMPENSATION TABLE
  Name
      andprincipalposition
              
              Year
              
              
              Salary
                ($)
              
              
              Bonus
                ($)
              
              
              Stock
                Awards
                ($)
              
              
              Option
                Awards
                ($)
              
              
              Non-
                Equity
                Incentive
                Plan
                Compen-sation
                ($)
              
              
              Non
                qualified
                Deferred
                Compen-
                sation
                Earnings
                ($)
              
              
              All
      Other
                Compen-
                sation
                ($)
              
              
              Total
                ($)Mr.
      Tang Chien
              
              
              2006
              
              
              $
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Chang
      (1), Chief
              
              
              2005
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Executive
      OfficerMs.
      Chen Ming
              
              
              2006
              
              
              $
              15,385
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              15,385Yin
      Tiffany(2),
              
              
              2005
              
              
              
              15,385
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              15,385DirectorMs.
      Dorothy
              
              
              2006
              
              
              $
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Wong(1),
      Chief
              
              
              2005
              
              
              $
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Accounting
      Officer
 
 (1)
              For
      the year ended December 31, 2006, Mr. Tang and Ms Wong did not receive any
      cash or share-based compensation.
 (2)
              For
      the year ended December 31, 2006, Ms. Chen received salary of $15,385. No
      share-based compensation was received during the year ended December 31,
      2006.
  20
  Employment
Agreements
  The
Company currently does not have any employment agreements with any of the
Company's directors.  The Company's subsidiary has a service agreement
with Director, Ms. Chen Ming Yin Tiffany.
  Outstanding
Equity Awards at Fiscal Year-End
  As of
December 31, 2006, the Company does not have any outstanding equity
awards.
  Employee
Retirement Plans, Long-Term Incentive Plans and Pension Plans
  The
Company does not have any long-term incentive plan to serve as an incentive for
performance to occur over a period of longer than one fiscal year.
  Director
Compensation
  The
Company has not entered into any written director's compensation agreements with
Ms. Chen Ming Yin Tiffany or Mr. Tang Chien Chang at this time.
  COMMUNICATIONS
WITH MEMBERS OF THE BOARD OF DIRECTORS
  The Board
of Directors has not established a formal process for stockholders to send
communications to its members. Any stockholder may send a communication to any
member of the Board of Directors in care of our address below:
  China
Entertainment Group, Inc.
 Attn: Ms.
Dorothy Wong
 Unit 3409
Shun Tak Centre, West Tower,
 168-200
Connaught Road Central, Hong Kong
 Telephone:
011-852-2313-1888
  If a
communication is sent to our address, we will forward any such communication to
the Board member.  If the stockholder would like the communication to
be confidential, it should be so marked.
  ITEM
      11.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
  As used
in this section, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the 1934 Act, as amended, as consisting of sole or
shared voting power (including the power to vote or direct the vote) and/or sole
or shared investment power (including the power to dispose of or direct the
disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws
where applicable.  As of March 11, 2008, the Company had a total of
approximately 128,963,425 shares of Common Stock, which are the only issued and
outstanding voting equity securities of the Company.
  The
following table sets forth, as of March 11, 2008: (a) the names and addresses of
each beneficial owner of more than five percent (5%) of the Company's Common
Stock known to the Company, the number of shares of Common Stock beneficially
owned by each such person, and the percent of the Company's Common Stock so
owned; and (b) the names and addresses of each director and executive officer,
the number of shares of Common Stock beneficially owned, and the percentage of
the Company's Common Stock so owned, by each such person, and by all directors
and executive officers of the Company as a group.  Each person has
sole voting and investment power with respect to the shares of Common Stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of Common Stock, except as otherwise
indicated.
  21
  Name,
      Address and Title
              
              Total
      Number
                of
      Shares of
                Common
      Stock
              
              Percentage
                Ownership
      of
                Common
      Stock (3)Ms.
      Chen Ming Yin Tiffany
                Director
                Unit
      3409 Shun Tak Centre, West Tower,
                168-200
      Connaught Road Central, Hong Kong
              
              0
      (1)(2)
              
              0%Mr.
      Tang Chien Chang
                Director
      and Chief Executive Officer
                Unit
      3409 Shun Tak Centre, West Tower,
                168-200
      Connaught Road Central, Hong Kong
              
              0
      (1)(2)
              
              0%Ms.
      Dorothy Wong
                Chief
      Accounting Officer
                Unit
      3409 Shun Tak Centre, West Tower,
                168-200
      Connaught Road Central, Hong Kong
              
              0
              
              0%All Directors and Executive Officers
      (3 persons)
              
              0
              
              0%
 Other 5% or
Greater Owners:
 Name,
      Address and Title
              
              Total
      Number of
                Shares
      of
                Common
      Stock
              
              Percentage
                Ownership
      of
                Common
      Stock (3)Imperial
      International Limited
                Unit
      3409 Shun Tak Centre, West Tower,
                168-200
      Connaught Road Central, Hong Kong
              
              109,623,006
      (2)
              
              85%Total
      of All Directors and Executive Officers and 5% or Greater
      Owners
              
              109,623,006
              
              85%
 
 (1)
              Ms.
      Chen Ming Yin, Tiffany, is a direct 0.75% shareholder of China Star, which
      is an indirect 49% owner of TAL. Tang Chien Chang is indirectly a 50%
      owner of Colima Enterprises Limited ("Colima"), a 51% owner of TAL.
      Imperial is 100% owned by TAL. Imperial owns approximately 85% of the
      Company.
  (2)
              Imperial
      is 100% owned by TAL. TAL is 51% owned by Colima, whose directors are Mr.
      Tang Chien Chang and Mr. Kim Min Sup, Mark. Colima is 50% owned by Stylish
      Century Enterprises, Inc., ("Stylish") whose director is Mr. Kim Min Sup,
      Mark; Stylish is 100% owned by Mantex Holdings Limited, whose owner and
      director is Mr. Kim Min Sup, Mark. Colima is 50% owned by Givon
      Enterprises Corp., ("Givon") whose director is Mr. Tang Chien Chang; Givon
      is 100% owned by Chartwell Overseas Limited ("Chartwell"), whose owner and
      director is Mr. Tang Chien Chang. TAL is 49% owned by China Star, listed
      on the Main Board of The Stock Exchange of Hong Kong Limited. China Star
      is 0.75% owned directly by Ms. Chen Ming Yin, Tiffany; 16.65% owned by
      Porterstone Limited ("Porterstone"), whose owner is Ms. Chen Min Yin,
      Tiffany; 1.30% owned by Mr. Heung Wah Keung, and 0.66% owned by Dorest
      Company Limited ("Dorest"). Dorest is 100% owned by Glenstone Investments
      Limited ("Glenstone"); Glenstone is 40% owned by Mr. Heung Wah Kueng, and
      60% owned by Porterstone.
  (3)
              Figures
      may vary slightly due to rounding.
  CHANGE
IN CONTROL
  None.
  ITEM
      12.
              CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS
  Amounts
due from (to) affiliates are unsecured, interest-free and due on demand. Our
director Ms. Chen Ming Yin Tiffany, is a direct 0.75% shareholder of China Star,
which is an indirect 49% owner of TAL. Our Chief Executive Officer Mr. Tang
Chien Chang is indirectly a 50% owner of Colima, a 51% owner of TAL. Imperial is
100% owned by TAL. Imperial owns approximately 85% of China Entertainment Group.
The following table summarizes significant related party transactions involving
the Company and the affiliates as of December 31, 2006:
  22
  Amounts
due from (to) affiliates are unsecured, interest-free and due on demand. The
following table summarizes significant related party transactions as of December
31, 2006:
  Related
      party
              
              Nature
      of
                relationship
                and
      control
              
              Description
      of
                transaction
              
              2006Together
      Again Limited
              
              Intermediate
      holding company, 51% owned by Colima and 49% owned by China
      Star
              
              Amount
      receivable in relation to service income and funds transferred between
      entities for working capital purposes
              
              $15,771Ms.
      Chen Ming Yin, Tiffany
              
              Director
      of the Company
              
              Director
      compensation
              
              ($15,385)Mr.
      Tang Chien Chang
              
              Director
      of the Company
              
              Funds
      transferred to the Company for working capital purposes
              
              ($277,006)Imperial
      International Limited
              
              Intermediate
      holding company, ultimately owned by Colima
              
              Funds
      transferred between entities for working capital purposes
              
              ($663,845)China
      Star HK Distribution Limited (“China Star Distribution”)
              
              Related
      company, a subsidiary of China Star which owns 49% of TAL
              
              Amount
      receivable in relation to service income and funds transferred between
      entities for working capital purposes
              
              ($679,769)($1,636,005)
  Related
party transactions included in the consolidated statement of operations for the
years presented include the following:
  Nature
      ofrelationship
              
              Description of
              
              Year
      ended December 31,Related
      party
              
              and
      control
              
              transaction
              
              2006
              
              2005China
      Star Distribution
              
              Related
      company, a subsidiary of China Star which owns 49% of TAL
              
              Services
      income, net
              
              $572,615
              
              $931,026China
      Star
              
              Related
      company, owns 49% of TAL
              
              Management
      fee paid
              
              $107,693
              
              $107,693China
      Star Laser Disc Company Limited
              
              Related
      company, a subsidiary of China Star which owns 49% of TAL
              
              Management
      fee paid
              
              $507,692
              
              $507,692
  With
regard to any future related party transactions, we plan to fully disclose any
and all related party transactions, including, but not limited to, the
following:
  ●
              disclose
      such transactions in prospectuses where
  required;
  ●
              disclose
      in any and all filings with the SEC, where
  required;
  ●
              obtain
      disinterested directors consent;
and
  ●
              obtain
      shareholder consent where required.
  23
  ITEM 13.
              EXHIBITS
  Exhibit
                Number
              Description2.1
              Share Exchange Agreement dated November 17, 2004
      by and among, inter alia, the Registrant, MPL, and the shareholders of MPL
      (1)3.1(i)
              Certificate of Amendment to Articles of
      Incorporation (1)3.1(ii)
              Articles of Amendment of Articles of Incorporation
      (2)3.1(iii)
              Articles of Incorporation
    (3)3.1(iv)
              Articles of Merger(3)3.2
              Bylaws (3)10.1
              Agreement for the sale and purchase of 120 shares
      in the issued share capital of Metrolink Pacific Limited dated January 17,
      2008 by and between the Company and Imperial International Limited
      (8)16.1
              Letter on Change of Certifying Accountant
      (4)16.2
              Letter from Clancy and Co., P.L.L.C. dated April
      20, 2007 (7)21
              List
      of Subsidiaries (6)31.1
              Rule
      13a-14(a) Certifications of Chief Executive Officer pursuant to Section
      302 of the Sarbanes-Oxley Act of 200231.2
              Rule
      13a-14(a) Certifications of Chief Accounting Officer pursuant to Section
      302 of the Sarbanes-Oxley Act of 200232.1
              Certification
      of the Chief Executive Officer and pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
              Certification
      of the Chief Accounting Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.99.1
              Form 8-K Current Report filed on November 19, 2005
      (5)99.2
              Schedule 14C Definitive Information Statement
      filed on November 30, 2004
(1)
 
 (1)
              Incorporated
      by reference from the Company’s Schedule 14C filed on November 30,
      2004.
 (2)
              Incorporated
      by reference from the Company’s Form 10-QSB filed on October 23,
      2001.
 (3)
              Incorporated
      by reference from the Company’s Form 10-QSB filed on January 19,
      2000.
 (4)
              Incorporated
      by reference from the Company’s Form 8-K filed on July 27,
      2005.
 (5)
              Incorporated
      by reference from the Company’s Form 8-K filed on November 19,
      2005.
 (6)
              Incorporated
      by reference from the Company’s Form 10-KSB filed on January 13,
      2006.
 (7)
              Incorporated
      by reference from the Company’s Form 8-K filed on April 23,
      2007.
 (8)
              Incorporated
      by reference from the Company’s Form 8-K filed on February 22,
      2008.
  24
  ITEM 14.
              PRINCIPAL ACCOUNTANT FEES AND
      SERVICES
 Effective
June 24, 2005, we engaged Clancy and Co., P.L.L.C. ("Clancy and Co.") to audit
the Company's consolidated financial statements.  Effective January
16, 2008, we engaged HLB Hodgson Impey Cheng to serve as the Company’s new
independent accountant to audit the Company’s financial statements. The
following are the services provided and the amount billed.
 Fee
      Category
              
              Year
      Ended
                December
      31,
                2006
              
              
              Year
      Ended
                December
      31,
                2005Audit
      fees
              
              $
              125,000
              
              
              $
              52,500Audit-related
      fees
              
              
              -
              
              
              
              -Tax
      fees
              
              
              -
              
              
              
              -All
      other fees
              
              
              -
              
              
              
              -
  AUDIT FEES
  Audit
fees consist of fees billed for professional services rendered for the audit of
our consolidated financial statements and review of our interim consolidated
financial statements included in quarterly reports and services that are
normally provided by our independent accountants in connection with statutory
and regulatory filings or engagements.
  AUDIT
RELATED FEES
  There
were no fees billed for services reasonably related to the performance of the
audit or review of the consolidated financial statements outside of those fees
disclosed above under "Audit Fees" for the year ended December 31, 2006 or
2005.
  TAX
FEES
  There
were no fees billed for services for tax compliance, tax advice and tax planning
work to the Company for the years ended December 31, 2006 and 2005.
  PRE-APPROVAL
POLICIES AND PROCEDURES
  Prior to
engaging its accountants to perform particular services, our board of directors
obtains an estimate for the service to be performed. All of the services
described above were approved by the board of directors in accordance with its
procedure.
   [SIGNATURES
PAGE FOLLOWS]
  25
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  CHINA ENTERTAINMENT GROUP,
      INC.
                  (Registrant)Dated:
      March 14, 2008
                By:
                /s/ Tang
      Chien ChangTang
      Chien ChangChief
      Executive Officer
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
  Signature
                
                Title
                
                Date/s/
      Chen Ming Yin Tiffany
                
                Director
                
                March
      14, 2008Chen
      Ming Yin Tiffany/s/
      Tang Chien Chang
                
                Director
                
                March
      14, 2008Tang
      Chien Chang