UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 Washington,
        D.C. 20549
 
 FORM
        10-KSB
 (Mark
        One)
 
 [X]
              ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
 
 For
        the
        fiscal year ended June 30, 2005
 
 OR
 
 [  
                  ]
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
 
 For
        the
        transition period from ___________to _________
 
 Commission
        file number: 0-26845
 
 THEATER XTREME ENTERTAINMENT GROUP,
                  INC.
                (Exact
                  name of registrant as specified in its charter)Florida
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              65-0913583
                (I.R.S.
                  Employer Identification No.)250
                  Corporate Boulevard, Suite E&F
                Newark,
                  Delaware
                (Address
                  of principal executive offices)
              
              19702
                (Zip
                  Code)
 
 Registrant’s
                    telephone number, including area code:
                (302)
                     455-1334
  Securities
                    registered under Section 12(b) of the Exchange Act:
                Title
                    of Class
                
                Name
                    of each exchange
                  on
                    which registeredCommon
                    Stock, par value $.001 per share
                
                None
  Indicate
        by check mark whether the registrant (1) has
        filed all reports required to be filed by Section 13 or 15(d) of the Securities
        Exchange Act of 1934 during the past 12 months (or for such shorter period
        that
        the registrant was required to file such reports), and (2) has been
        subject to such filing requirements for the past 90 days. Yes [ X ]
        No
        [  ]
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K (section 229.405 of this chapter) is not contained herein,
        and
        will not 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-K or any amendment to this Form 10 - K.
        [  ]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
        Yes
        [  ] No [ X ]
 
 State
        issuer’s revenues for its most recent fiscal year $2,822,871
 
 As
        of
        September 30, 2005, the aggregate market value of the voting stock held by
        non-affiliates of the registrant was approximately $2,978,600. Such aggregate
        market value was computed by reference to the most recent equity offering
        dated
        April 26, 2005.
 
 As
        of
        September 30, 2005, 16,881,097 shares of the registrant’s Common Stock were
        issued and outstanding.
 
 Transitional
        Small Business Disclosure Format. Yes [  ] No [ X ]
 
  **Table
        of Contents**
  **Page****PART
                  I**ITEM
                  1.
              DESCRIPTION
                  OF BUSINESS
              1ITEM
                  2.
              DESCRIPTION
                  OF PROPERTY
              7ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              7ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF OUR SECURITY HOLDERS
              7**PART
                  II**ITEM
                  5.
              MARKET
                  FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                  ISSUER PURCHASES OF EQUITY SECURITIES
              9ITEM
                  6.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              10ITEM
                7.
              FINANCIAL
                STATEMENTS
              18ITEM
                  8.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              32ITEM
                  8A.
              CONTROLS
                  AND PROCEDURES
              32ITEM
                  8B.
              OTHER
                  INFORMATION
              32**PART
                  III**ITEM
                  9.
              DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION
                  16(a) OF
                  THE EXCHANGE ACT
              33ITEM
                  10.
              EXECUTIVE
                  COMPENSATION
              35ITEM
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              37ITEM
                  12.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              38ITEM
                  13.
              EXHIBITS
              38ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              39
 
  i
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            of Contents
   **PART
        I**
  **** **ITEM
        1.**  **DESCRIPTION
        OF BUSINESS**
  Theater
        Xtreme Entertainment Group, Inc. (the “Company”) is a retail store and franchise
        marketing company engaged in retail sales and distribution through the operation
        of its home cinema design centers, the sale of franchise stores and wholesale
        product distribution to franchisees.
  The
        Company’s design centers focus on the sale and installation of affordable large
        screen front projection in-home cinema rooms comprised of video and audio
        home
        theater components. A majority of its home theater systems are installed
        on-site
        at customer homes, with screen sizes ranging from 80 inches to over 12 feet.
        The
        Company also sells theater seating, interior décor items, accessories and its
        proprietary digital theater management system called OneViewTM. The Company
        targets its home theater system marketing toward a larger consumer base than
        traditional custom home theater companies and focuses on lower retail price
        points in a store setting where customers can easily and readily encounter
        the
        complete home theater experience in a number of home settings.
  Retail
        pricing of the Company’s video systems starts at under $3,000 per system and are
        comprised of components from manufacturers such as Infocus®, Klipsch, Polk
        Audio, Bose, Denon, and Marantz. Not all stores carry all products. A basic
        home
        theater system might include a 92” screen, ceiling mounted projector, and
        cabling, all of which would be installed by the Company at the customer’s choice
        of location. Video systems are sold as cinema packages and are branded under
        theater names, such as “The Rialto,” “The Majestic,” “The Palace,” and “The
        Grand.”
  The
        Company’s first retail store or “design center” opened on September 1, 2003 in
        Newark, Delaware and was built to resemble an actual movie theater. A separate
        distribution center, warehouse and administrative office facility opened
        in
        February 2004 also in Newark, Delaware. This multi-purpose facility will
        provide
        installation and service, warehousing and product distribution, and other
        retail
        support services to a cluster of company-owned design centers in contiguous
        and
        surrounding areas. The second company-owned design center opened in August
        2004
        in Wilmington, Delaware and a third company-owned design center opened in
        September 2005 in Bel Air, Maryland. The Company anticipates that it will
        open
        additional company-owned design centers in the Mid-Atlantic region in the
        future.
  In
        early
        2005 the Company began to consider changes to the layout of its design centers
        and engaged the services of an architectural design firm to reconfigure store
        layouts and establish a more sophisticated appearance to support its brand
        image
        and create a more dramatic retail store atmosphere. While the Company is
        still
        considering certain design center enhancements, two new stores feature the
        redesigned layout -- one company-owned store located in Bel Air Maryland,
        and
        one franchisee-operated store located in Auburn Hills, Michigan.
  The
        sale
        of franchises is integral to the Company’s success. The Company has sold four
        franchises through June 30, 2005, the first of which opened in May, 2005
        in East
        Longmeadow, Massachusetts. Other franchised design centers are planned for
        opening dates in the months of September through December, 2005, and in early
        2006. Management expects to expand its franchising activities in 2006
        significantly. These and future franchised retail design centers will generally
        reflect enhanced physical layouts and may incorporate other refinements or
        modifications depending on the store’s physical characteristics.
  Also
        key
        to the Company’s success is the franchisees’ use and application of the
        Company’s franchise “system” that is designed to provide customers with a
        consistent and exciting store experience, reduce the time it takes to quote
        custom installation products, and improve the closing rate of the sales
        staff.
  Table
            of Contents
  To
        accomplish these goals, the franchise “system” involves the storewide
        integration of tour demonstration procedures and an activity management system
        called SellXTM. The Company’s “system” shuns the typical retail response “May I
        help you” in favor of a well defined store tour. After the tour, customers are
        taken to a design center workstation, integrated into a web-based activity
        management system. At the workstation the design consultant provides customers
        with a sales quote. Once a quote is completed, subsequent customer contact
        is
        automated, with each design consultant receiving daily instructions following
        a
        prescribed marketing and fulfillment strategy. In addition, targeted customer
        e-mail correspondence maintains contact with all store visitors on an ongoing
        basis. Home theater component products for franchisee fulfillment are ordered
        at
        the time of sale and inventory levels are thereby minimized. The Company
        believes that its franchise “system” is truly unique within the audio-video
        industry.
  Another
        component of the Company’s strategic expansion is increased distribution of
        targeted private label products. In 2006, the Company plans to expand its
        current private-label distribution efforts to include audio visual furniture
        and
        interior décor elements along with additional private-label accessories. During
        the past year, the Company was successful in negotiating with certain vendors
        for production of its private-label products. Seating and décor products are now
        branded under the RowOne TM trademark. The Company plans to expand its private
        label branding program to include additional products.
  On
        February 11, 2005, Theater Xtreme, Inc. merged with and into BF Acquisition
        Group II, Inc., a Florida corporation. The merged entity changed its name
        to
        Theater Xtreme Entertainment Group, Inc., with its principal offices located
        at
        250 Corporate Blvd., Suites E & F, Newark, DE 19702. The following
        discussion refers to Theater Xtreme, Inc. for all periods prior to the effective
        date of the merger and to the combined company, Theater Xtreme Entertainment
        Group, Inc., thereafter.
  The
        Company has a limited operating history for evaluating trends and seasonality.
        The Company’s competition comes from existing audio/video dealers, custom
        audio/video installation companies, regional and national audio/video and
        general merchandise chain stores, furniture dealers and computer stores.
        Although the Company markets its private-label theater seating under the
        RowOneTM
brand, other seating, including theater seating, can be found at furniture
        dealers. Theater seating available at competitive stores and outlets is
        generally limited to a few styles and selections. The Company’s design centers
        feature six different seating styles and over 20 color selections. Audio/video
        products and components comprising the Company’s home theater systems are
        available from numerous manufacturers and are sold through local authorized
        specialty stores and regional and national chain stores and outlets. Some
        manufacturers may place restrictions on certain categories of distribution,
        notably online sales, the number of authorized dealers and may establish
        minimum
        advertised pricing points for certain products. The Company chooses its
        manufacturers and product offerings based on manufacturer distribution strategy,
        quality of product offerings and advantages that manufacturers would offer
        to
        custom retail stores.
  Although
        the Company believes that few competitive outlets showcase their product
        offerings and selections in a manner similar to the Company’s design centers,
        there can be no certainty that other stores will not expand their selections
        and
        floor spacing to include similar product offerings, product displays and
        installation services.
  As
        of
        June 30, 2005, the Company had 26 full-time employees and no part-time
        employees.
  2
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            of Contents
  **Available
        Information**
  For
        more
        information about us, visit our web site at www.theaterxtreme.com .
        Our
        electronic filings with the U.S. Securities and Exchange Commission (including
        our Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB, and Current
        Reports on Form 8-K, and any amendments to these reports) are available free
        of
        charge at www.sec.gov .
        The
        public may also read and copy any materials we file with the SEC at the SEC’s
        Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
        Information on the operation of the Public Reference Room can be obtained
        by
        calling the SEC at 1-800-SEC-0330.
   3
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            of Contents
  **RISK
        FACTORS**
  *Investing
        in our securities involves a material degree of risk. Before making an
        investment decision, you should carefully consider the risk factors set forth
        below.*
  **Limited
        Company History**
  Theater
        Xtreme Entertainment Group, Inc. is the successor by merger to Theater Xtreme,
        Inc., which was formed in 2003 and accordingly, the Company has only a limited
        history upon which an evaluation of its prospects and future performance
        can be
        made. The Company’s operations are subject to all business risks associated with
        new enterprises. The likelihood of the Company’s success must be considered in
        light of the problems, expenses, difficulties, complications, and delays
        frequently encountered in connection with the establishment and expansion
        of a
        business, operation in a competitive industry, and the continued development
        of
        advertising, promotions, and a corresponding customer base. There is a
        possibility that the Company could sustain losses in the future. There can
        be no
        assurances that Theater Xtreme Entertainment Group, Inc will operate
        profitably.
  **Inadequacy
        of Funds**
  Theater
        Xtreme Entertainment Group, Inc. had a working capital deficit of $216,790
        at
        June 30, 2005 and sustained a net loss of $1,532,685 for the twelve months
        then
        ended. If the Company does not raise a sufficient amount of capital, it may
        not
        have the ability to remain in business until such time (if ever) when it
        becomes
        profitable.
  On
        April
        26, 2005, the Company began offering up to 2,900,000 shares of its common
        stock
        at a purchase price of $0.35 per share. Management expects this issue will
        be
        fully subscribed. The shares of the Company’s common stock are to be issued in
        reliance upon exemptions from registration available under Rule 506 of
        Regulation D and Section 4(2) of the Securities Act of 1933, as amended,
        and are
“restricted securities.” Management believes that the proceeds from the Offering
        will capitalize and sustain the Company sufficiently to allow for the continued
        development and improvement of the franchise program and for retail center
        growth, the implementation of a marketing campaign, and distribution of the
        Company’s products for a certain period of time.
  The
        Company has reserved the right to offer the shares at a later date for a
        sale
        price greater than $0.35 per share as well as the right to increase the number
        of shares of its common stock under the offering. On October 10, 2005, the
        Company utilized that right and increased the Offering by 714,285 shares
        at a
        purchase price of $0.35 per share, for an additional $250,000 of proceeds.
        See
“Management’s Discussion and Analysis or Plan of Operation.”
  **Dependence
        on Management**
  In
        the
        early stages of development the Company’s business will be significantly
        dependent on the Company’s Management team. The Company’s success will be
        particularly dependent on Scott Oglum, President, the Company’s chief executive
        officer, founder of Theater Xtreme Entertainment Group, Inc. and developer
        of
        the Company’s operations, business plans, and manager of the business. The loss
        of this individual could have a material adverse effect on the Company. See
        “Executive Officers of Theater Xtreme.”
  **Risks
        Associated with Expansion**
  The
        Company plans on expanding its business through both expansion of its corporate
        stores and franchises. Any expansion of operations the Company may undertake
        will entail risks, such actions may involve specific operational activities
        which may negatively affect the profitability of the Company. Consequently,
        shareholders must assume the risk that (i) such
        expansion may ultimately involve expenditures of funds beyond the resources
        available to the Company at that time, and (ii) management of such expanded operations may divert Management’s attention and
        resources away from its existing operations, all of which factors may have
        a
        material adverse effect on the Company’s present and prospective business
        activities.
  4
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            of Contents
  **Customer
        Base and Market Acceptance**
  Although
        Theater Xtreme Entertainment Group, Inc. believes it can develop the retail
        design store and franchise expansion program, and develop a new store base
        through the marketing of the franchise opportunity, the inability of the
        Company
        to develop such a franchise base could have a material adverse effect on
        the
        Company. Although Theater Xtreme Entertainment Group, Inc. believes that
        its
        market timing and the attractiveness of its franchise opportunity compared
        to
        that of alternative companies and products is competitive, no assurance can
        be
        given that Theater Xtreme Entertainment Group Inc.’s, products and e-commerce
        web site will attain a degree of market acceptance on a sustained basis or
        that
        it will generate revenues sufficient for sustained profitable
        operations.
  **Competition**
  To
        the
        knowledge of Management, competition for our type of franchise operation
        is
        non-existent. The sale of home theater systems (including projection systems)
        is
        currently handled by established specialty dealers and some well established
        mass merchants, internet dealers, and custom installation dealers which focus
        on
        the upscale marketplace.
  Although
        there does exist some current competition, Management believes that the Theater
        Xtreme Entertainment Group marketing program is unique in nature and the
        expertise of Management combined with the innovative nature of its product
        matrix and its sophisticated web site will set Theater Xtreme Entertainment
        Group apart from its competitors. There is the possibility that new competitors
        could seize on Theater Xtreme Entertainment Group’s product ideas and business
        model and produce competing stores with similar product matrixes. Likewise,
        these new competitors could be better capitalized than Theater Xtreme
        Entertainment Group which could give them a significant advantage. There
        is the
        possibility that the competitors could capture significant market share of
        Theater Xtreme Entertainment Group’s intended market.
  **General
        Economic Conditions**
  The
        financial success of the Company may be sensitive to adverse changes in general
        economic conditions in the United States, such as recession, inflation,
        unemployment, and interest rates. Such changing conditions could reduce demand
        in the marketplace for the Company’s products and services. Management believes
        that the niche products and the extensive product line of Theater Xtreme
        Entertainment Group will insulate the Company from excessive reduced demand.
        Nevertheless, Theater Xtreme Entertainment Group has no control over these
        changes.
  **Trend
        in Consumer Preferences and Spending; Possible Fluctuations in Operating
        Results**
  The
        Company’s operating results may fluctuate significantly from period to period as
        a result of a variety of factors, including purchasing patterns of customers,
        competitive pricing, debt service and principal reduction payments, and general
        economic conditions. There is no assurance that the Company will be successful
        in marketing any of its products or that the revenues from the sale of such
        products will be significant. Consequently, the Company’s revenues may vary by
        quarter, and the Company’s operating results may experience
        fluctuations.
  5
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            of Contents
  **Unanticipated
        Obstacles to Execution of the Business Plan**
  The
        Company’s business plans may change significantly. Many of the Company’s
        potential business endeavors are capital intensive and may be subject to
        statutory or regulatory requirements. Management believes that the Company’s
        chosen activities and strategies are achievable in light of current economic
        and
        legal conditions with the skills, background, and knowledge of the Company’s
        principals and advisors. Management reserves the right to make significant
        modifications to the Company’s stated strategies depending on future
        events.
  **Control
        by Management**
  As
        of
        September 30, 2005, the Company’s officers and directors owned approximately 50%
        of the Company’s outstanding shares. Upon completion of the private placement of
        3,614,285 shares (as increased on October 10, 2005) (assuming all offered
        shares
        are sold), the Company’s officers and directors will continue to own
        approximately 48% of then issued and outstanding shares, and may be able
        to
        elect all of the directors and continue to control Theater Xtreme Entertainment
        Group, Inc. Following the conversion of their outstanding options, the officers
        and directors will own approximately 49% of the then issued and outstanding
        shares. Investors may own a minority percentage of the Company’s common stock
        and will have minority voting rights. Investors may not have the ability
        to
        control either a vote of the Company’s shareholders or Board of
        Directors.
  **No
        Assurances of Protection for Proprietary Rights; Reliance on Trade
        Secrets**
  In
        certain cases, the Company may rely on trade secrets to protect proprietary
        technology and processes which the Company has developed or may develop in
        the
        future. There can be no assurances that secrecy obligations will be honored
        or
        that others will not independently develop similar or superior technology.
        The
        protection of proprietary technology through claims of trade secret status
        has
        been the subject of increasing claims and litigation by various companies
        both
        in order to protect proprietary rights as well as for competitive reasons
        even
        where proprietary claims are unsubstantiated. The prosecution of proprietary
        claims or the defense of such claims is costly and uncertain given the
        uncertainty and rapid development of the principles of law pertaining to
        this
        area. The Company, in common with other firms, may also be subject to claims
        by
        other parties with regard to the use of technology information and data which
        may be deemed proprietary to others.
   6
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            of Contents
  **** **ITEM
        2.****DESCRIPTION
        OF PROPERT****Y**
  The
        Company leases its corporate offices, warehouse and retail design centers
        for
        various terms under long-term, non-cancelable operating lease agreements.
        The
        leases expire at various dates through 2010 and provide for renewal options
        ranging from none to five years. In the normal course of business, it is
        expected that these leases will be renewed or replaced by leases on other
        properties.
  ******ITEM
        3.****LEGAL
        PROCEEDINGS**
  None.
  **** **ITEM
        4.****SUBMISSION
        OF MATTERS TO A VOTE OF OUR****SECURITY
        HOLDERS**
  On
        April
        5, 2005, stockholders holding a majority of the shares of the Company’s common
        stock approved the adoption of the 2005 Stock Option Plan (the “Plan”). The Plan
        is designed to help the Company attract, motivate and retain the quality
        employees necessary to successfully execute the Company’s business plan. The
        Plan allocates up to 1,400,000 shares of common stock as incentive compensation
        to employees and directors.
   7
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            of Contents
  **EXECUTIVE
        OFFICERS OF THE COMPANY**
  The
        following table sets forth certain information with respect to the executive
        officers of the Company as of October 10, 2005.
  **Name**
              **Age**
              **Position
                  with the Company**Scott
                  R. Oglum
              49
              Chairman,
                  President, Chief Executive Officer, Treasurer and
                  DirectorJustin
                  Schakelman
              29
              Corporate
                  Vice President - Marketing, Communications and Training, Secretary
                  and
                  DirectorKen
                  Warren
              46
              Executive
                  Vice President - Franchising
  *Scott
        R. Oglum* is
        Chairman, President, Chief Executive Officer and the founder of the Company
        and
        has a background in franchise sales and marketing, having developed the Second
        Source Computer Center franchise organization in the early 1990’s. Mr. Oglum
        started Second Source Computer Center in October 1988 and was the owner of
        that
        business, until it was sold in February, 2004. Mr. Oglum has served as the
        chief
        executive officer of the Company since its inception in September, 2003 as
        Theater Xtreme, Inc. Prior to 1988, his background was managing computer
        franchise stores on the East coast and Texas, working for Entre Computer
        Center.
        Mr. Oglum’s educational background includes his undergraduate degree earned at
        the University of Wisconsin - Madison, where he also attended the Graduate
        School of Business.
  *Justin
        Schakelman* is
        Corporate Vice President - Marketing, Communications and Training and has
        served
        in that capacity since February 11, 2005, upon consummation of the merger
        between Theater Xtreme, Inc. and BF Acquisition Group II, Inc. He was elected
        as
        a director in 2005. From September 2003 until February 11, 2005, Mr. Schakelman
        was employed by the Company’s predecessor, Theater Xtreme, Inc. Mr. Schakelman
        served as a non-compensated employee until January 2005. From September 2001
        until May 2004, he pursued a doctorate in educational technology at the
        University of Delaware, and from September 1997 until May 2001, he attended
        Shippensburg University in Shippensburg, Pennsylvania. Mr. Schakelman is
        Mr.
        Oglum’s step-son.
  *Ken
        Warren* is
        Executive Vice President - Franchising and has served in that capacity,
        previously Director - Franchising, since February 11, 2005, upon consummation
        of
        the merger between Theater Xtreme, Inc. and BF Acquisition Group II, Inc.
        From
        January 2004 until the Merger, he served as Vice President of Theater Xtreme,
        Inc. From November, 1999 to December, 2003, Mr. Warren served as General
        Manager
        of Outten Brothers Furniture located in Dover, Delaware. He has a 20 year
        background in sales and management, having worked in the automotive, furniture
        and computer industries. His expertise is in operating efficiencies and sales
        management. He attended Washington State University where he specialized
        in
        business administration.
   8
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   **PART****II**
  ******ITEM
                  5.**
              **MARKET
                  FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                  ISSUER PURCHASES OF EQUITY
                  SECURITIES**
  Our
        common stock is not currently trading. As of September 30, 2005, our common
        stock was held by 139 holders of record.
  We
        have
        never paid dividends on our common stock and do not anticipate paying any
        cash
        dividends on our common stock in the foreseeable future.
  On
        April
        26, 2005, the Company began offering up to 2,900,000 shares of its common
        stock
        at a purchase price of $0.35 per share. Management expects this issue to
        be
        fully subscribed. The shares of the Company’s common stock were issued in
        reliance upon exemptions from registration available under Rule 506 of
        Regulation D and Section 4(2) of the Securities Act of 1933, as amended,
        and are
“restricted securities.” On October 10, 2005, the Company increased the offering
        by 714,285 shares.
  No
        underwriters or agents were involved in the foregoing issuance and no commission
        or other remuneration was paid or given directly or indirectly by the
        Company.
     9
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            of Contents
   **ITEM
                  6.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATION**
  The
        following discussion of our financial condition and results of operations
        should
        be read in conjunction with our Consolidated Financial Statements and the
        related Notes to such Consolidated Financial Statements also included in
        this
        Form 10-KSB. Some of the information that follows does not constitute historical
        fact but merely reflects our intent, belief or expectations regarding the
        anticipated effect of events, circumstances and trends. Such statements should
        be considered as forward-looking statements within the meaning of the Private
        Securities Litigation Reform Act of 1995. We believe that our expectations
        are
        based on reasonable assumptions within the bounds of our knowledge of our
        business and operations. Factors that might cause or contribute to differences
        between our expectations and actual results include:
  ·
              our
                  ability to obtain the franchise growth and profitability as anticipated
                  by
                  Management;
 ·
              our
                  ability to maintain margin and sales growth
                  rate;
 ·
              our
                  ability to attract and retain quality
                  employees;
 ·
              the
                  effect of changing economic conditions;
 ·
              our
                  ability to obtain adequate debt financing, the proceeds of which
                  would be
                  used principally to fund the opening of additional stores and for
                  working
                  capital
 ·
              continued
                  demand for our products and services;
                  and
 ·
              our
                  ability successfully to compete with competitors in our
                  industry.
  The
        listing of factors is not intended to include all potential risk factors.
        The
        Company makes no commitment to update these factors or to revise any
        forward-looking statements for events or circumstances, occurring after the
        statement is issued, except as required by law.
   10
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   **Results
        of Operations**
  Because
        the Company is in a startup stage, it is difficult to forecast revenues,
        expenses and losses accurately, or to produce same period results which are
        comparable to those of similar periods in the previous fiscal year. As its
        design centers mature and if the number of Company-owned design centers
        increases, the Company believes that it will begin to produce more predictable
        and comparable operating results.
  The
        following table sets forth selected financial information for the periods
        indicated:
  Year
                    Ended
                
                Year
                    EndedJune
                    30, 2005
                
                June
                    30, 2004Revenue:Retail
                    sales
                
                $
                2,751,780
                
                $
                933,669Wholesale
                    sales
                
                
                44,021
                
                
                -Franchise
                    license fees
                
                
                25,000
                
                
                -Franchise
                    royalties
                
                
                2,070
                
                
                -Total
                    revenue
                
                
                2,822,871
                
                
                933,669Cost
                    of revenues
                
                
                1,710,596
                
                
                606,157Occupancy
                    expenses
                
                
                206,053
                
                
                65,370Selling,
                    general and administrative expenses
                
                
                2,409,016
                
                
                554,247Loss
                    from operations
                
                
                (1,502,794
                )
                
                (292,105
                )Interest
                    income
                
                
                464
                
                
                1,120Interest
                    expense
                
                
                (30,355
                )
                
                (4,763
                )Net
                    loss
                
                $
                (1,532,685
                )
                $
                (295,748
                )Basic
                    and Diluted:Loss
                    Per Share
                
                $
                (0.12
                )
                $
                (0.04
                )Weighted
                    -average shares outstanding
                
                
                12,358,814
                
                
                7,996,439
 
 
 11
 Table
            of Contents
 Year
                    Ended
                
                Year
                    EndedJune
                    30, 2005
                
                June
                    30, 2004
 Operating
                  Data:Company
                  Owned:Design
                  Centers open at beginning of period
              
              
              1
              
              
              -New
                  Design Centers
              
              
              1
              
              
              1Closed
                  Design Centers
              
              
              -
              
              
              -Design
                  Centers open at end of period
              
              
              2
              
              
              1Franshise
                  Operations:Design
                  Centers open at beginning of period
              
              
              -
              
              
              -New
                  Design Centers
              
              
              1
              
              
              -Closed
                  Design Centers
              
              
              -
              
              
              -Design
                  Centers open at end of period
              
              
              1
              
              
              -Total
                  Design Centers open at end of period
              
              
              3
              
              
              1Company
                  Owned Design Centes underConstruction
                  at end of period
              
              
              1
              
              
              1Franchises
                  sold - not yet open at end of period
              
              
              4
              
              
              15
              
              
              2Balance
                  Sheet Data:Working
                  capital (deficit)
              
              $
              (216,790
              )
              $
              9,835Total
                  assets
              
              
              1,007,646
              
              
              478,501Long
                  term debt, excluding current portion
              
              
              40,614
              
              
              227,482Stockholders'
                  equity (deficit)
              
              
              31,016
              
              
              (45,748
              )
  Overall,
        the Company has emphasized the importance of acquiring and developing the
        requisite management team and administrative infrastructure and capacity
        necessary to implement the Company’s business plan. The Company’s business plan
        envisions a national company capable of effectively marketing affordable
        home
        theater solutions and other related technologies. Accordingly, the Company
        has
        expended and will continue to expend significant resources in acquiring the
        personnel, capabilities and facilities needed to not only operate our present
        and future retail design centers, but to establish the foundation necessary
        to
        create a national organization, capable of capitalizing on the significant
        growth anticipated in the home theater market. As an example, it is estimated
        that 17 of our 30 current Company employees are above and beyond the staffing
        level required to effectively operate our existing design centers.
  **Results
        of Operations for the year ended June 30, 2005 compared to the year ended
        June
        30, 2004**
  In
        fiscal
        2006, Management expects the sale of franchise licenses to have a positive
        effect upon cash flow from operations and working capital. Management also
        expects increased operating costs in future periods due to a commitment to
        develop retail, franchising, and distribution operations on a regional and
        national scale.
  12
 Table
            of Contents
  *Total
        Revenue.* Total
        revenue includes delivered and installed merchandise, installation and service
        labor, customer service revenues, earned franchise license fees and franchise
        royalties. Total revenue increased $1,889,202 or 202.3%, to $2,822,871 in
        the
        year ended June 30, 2005. This increase is primarily the result of revenues
        from
        the second company design center and from the commencement of franchise
        operations.
  For
        the
        year ended June 30, 2005 the Company had total new customer orders of
        $3,257,602 which represents 354 projection systems with an average order
        price
        of $9,202. For the year ended June 30, 2004 the Company had total new customer
        orders of $1,287,025 which represents 170 projection systems with an average
        order price of $7,570. The increase in average orders is the result of the
        Company’s continued expansion of home theater design components which the
        Company offers to its customers.
  The
        Company has continued to emphasize an integrated approach to home theater
        design
        which increasingly includes not only audio and video equipment and cutting
        edge
        technologies, but also complementary chairs, seating and furniture, as well
        as
        other interior design elements which taken together provide customers with
        integrated home theater design solutions. Of the 354 systems ordered by
        customers in fiscal 2005, 234 included custom installation, 265 included
        audio
        systems, and 169 included the Company’s custom OneViewTM
        digital media control system. These orders also included 578 chairs and home
        theater seating units. Management expects this trend to continue as the Company
        offers more complex and integrated products and services to its customers.
  The
        increase in the number of systems and total customer orders sold is related
        to
        the opening of the Company’s second design center and to the Company’s first
        design center operating for the full year in comparison to ten months in
        the
        previous year.
  Recognized
        retail sales for the year ended June 30, 2005 were $2,751,780 compared to
        $933,669 for the year ended June 30, 2004. This 195% increase in sales reflects
        the addition of the Company’s second design center and the full period operation
        of the Company’s first design center. In the year ended June 30, 2005, the
        Company recognized wholesale sales to franchisees of $44,021. Wholesale gross
        profit amounts and percentages were $4,402 and 10%. There were no wholesale
        sales for the year ended June 30, 2004.
  In
        the
        year ended June 30, 2005 the Company collected $97,500 in non-refundable,
        initial franchise license fees. Of this amount $25,000 was recognized as
        earned
        revenues relating to the opening of the Company’s first franchise in the year
        ended June 30, 2005. The remainder, $72,500 is deferred as at June 30, 2005
        and
        will be recognized as earned revenue in the period when the franchise stores
        open. The Company expects these stores to open in the current fiscal year.
        There
        were no franchise license fees collected or recognized as revenue in the
        year
        ended June 30, 2004. Management expects revenue and cash flow from the sale
        of
        franchise licenses to increase in the current fiscal year.
  The
        Company’s franchise contract provides royalty payments of 4% of franchisee gross
        revenues. In the year ended June 30, 2005, the Company recognized franchise
        royalties of $2,070. No franchise royalties were recognized in the year ended
        June 30, 2004. Franchise royalties are expected to increase in the current
        year.
  *Cost
        of Sales and Gross Profit.* Retail
        gross profit amounts and percentages were $1,080,803 and 39% for the year
        ended
        June 30, 2005 and $327,512 and 35% for the year ended June 30, 2004. The
        fluctuation in gross profit percentages is more reflective of the nature
        of the
        Company’s operations in this startup stage. Management expects to maintain and
        hopefully increase the gross profit percentage as operations expand and
        increase.
  13
 Table
            of Contents
  *Occupancy
        Expenses.* Occupancy
        expenses include leasing expenses for retail design centers and office and
        warehouse facilities, property taxes, utilities, maintenance and other related
        occupancy expenses. For the year ended June 30, 2005, occupancy expenses
        were
        $206,053 compared to $65,370 for the year ended June 30, 2004. The increase
        relates to the opening of the second design center, and the full period
        operation of the first design center, which was open for only ten months
        in the
        year ended June 30, 2004, and the multi-purpose facility which was open for
        only
        five months in the year ended June 30, 2004.
  *Selling,
        general and administrative expenses.* Selling,
        general and administrative expenses include the compensation of design center
        personnel, the franchise sales and support operations, advertising, marketing
        and other merchandising expenses, finance and information systems, human
        resources and training operations, related support functions and executive
        officers. Selling, general and administrative expenses for the year ended
        June
        30, 2005 were $2,409,016 compared to $554,247 for the year ended June 30,
        2004.
        The increase relates to the additional personnel and other operating costs
        of
        implementing the Company’s business plan and to additional cash and non-cash
        expenses related to the merger and to becoming a publicly registered company.
  The
        following describe significant components within the Company’s selling, general
        and administrative expenses. Personnel costs for the year ended June 30,
        2005
        were $967,628 compared to $305,567 for the year ended June 30, 2004. This
        217%
        increase in personnel costs relates to efforts to hire and obtain the necessary
        personnel to implement the Company’s long-term business plan. These activities
        include the initial development of our franchise sales and support operation,
        the cost of opening our second Company owned design center, and other operating
        activities related to the Company’s growth strategy.
  Advertising
        and promotional expenses for the year ended June 30, 2005 were $643,934 compared
        to $156,290 for the year ended June 30, 2004. This 312% increase reflects
        the
        addition of our second design center and the full period operation of our
        first
        design center. This increase also reflects the Company’s first significant
        franchise marketing costs. These costs are expected to increase in the current
        fiscal year.
  Professional
        fees were $441,553 in the year ended June 30, 2005 compared to $11,237 for
        the
        year ended June 30, 2004. This substantial increase includes legal, audit
        and
        accounting, architectural, marketing, consulting, and other professional
        fees. A
        portion of these fees were related to the Company’s decision to become a
        publicly registered company. These costs also include the architectural design
        of the Company’s new retail design center prototype which will be used in future
        build-outs of Company-owned and franchise design centers.
  **Liquidity**
  The
        Company’s cash needs are primarily for working capital to support inventory and
        fund anticipated future net losses, and for the capital costs of expanding
        the
        number of Company-owned design centers. Additional working capital will be
        used
        to further develop the Company’s ability to significantly expand and support
        franchise operations.
  The
        Company’s cash position decreased slightly from $119,228 at June 30, 2004 to
        $112,874 at June 30, 2005. This decrease is the result of the Company’s net loss
        less the additional funds provided by stockholders through the sale of common
        stock and proceeds of convertible notes payable, which were subsequently
        converted to common stock.
  14
 Table
            of Contents
  Working
        capital at June 30, 2005 was a deficit of $(216,790), representing a decrease
        in
        of $(226,625) from June 30, 2004. This decrease results from the net loss
        for
        year ended June 30, 2005.
  The
        primary source of financing has been from proceeds from the sale of equity.
        In
        April 2005, the Company began offering up to 2,900,000 shares of common stock
        at
        $0.35 per share. Net proceeds are expected to be $992,000 of which $785,705
        was
        received in the year ended June 30, 2005 and $205,925 additional was received
        after June 30, 2005 and on or before September 30, 2005. The Company increased
        the number of shares being offered for sale by 714,285 shares on October
        10,
        2005.
  The
        Company’s cash flow from operations since inception has been and continues to be
        negative. The Company continues to expand its revenues by increasing the
        number
        of Company-owned design centers and by selling additional franchises and
        increasing its product distribution network to franchisees.
  Management
        believes there will be sufficient cash to fund operations for the next 12
        months. To accomplish this, Management expects a significant increase in
        the
        sale of franchise licenses, an increase in gross profits from sales resulting
        from the expansion of Company-owned design centers, from additional capital
        contributions from shareholders, and, to the extent necessary, through further
        modifications to its business plan.
  The
        Company used $766,521 of cash in operating activities in the year ended June
        30,
        2005, or approximately $65,000 per month. If the Company continues to use
        cash
        in operating activities at this rate, it would consume its June 30, 2005
        cash
        reserves ($112,874) and its additional subscription proceeds received ($205,925
        at September 30, 2005) by November 30, 2005. Although the Company believes
        that
        the rate at which it is consuming cash is declining as additional franchises
        are
        sold and additional Company-owned design centers are opened, cash flow from
        operating activities continues to be negative. To fund these losses, the
        Company
        has the ability to utilize its rights reserved under the stock offering of
        April
        26, 2005 and seek additional equity investment by increasing the number of
        common shares offered which it did on October 10, 2005 for approximately
        $250,000 in additional proceeds. Management expects such offering increase
        to be
        fully subscribed.
  At
        June
        30, 2005 and 2004 the Company did not have a credit facility or line-of-credit
        arrangement. Thus, there are no restrictive covenants or compensating balance
        requirements. The Company does not have any committed sources of additional
        financing, and there can be no assurance that additional funding, as necessary,
        will be available on acceptable terms, if at all. If adequate funds are not
        available, the Company may be required to delay, scale back, or eliminate
        certain aspects of its business plan or current operations or attempt to
        obtain funds through arrangements with collaborative partners or others that
        may
        require it to surrender rights to Company methods, technologies, product
        development projects, certain products or existing markets. If adequate funds
        are not available, the Company’s business, financial condition, and results of
        operations will be materially and adversely affected.
  Future
        capital requirements and the adequacy of available funds will depend on numerous
        factors and risks, including the successful expansion and increase in the
        number
        of Company-owned retail design centers, the sale of Company franchises on
        a
        national level, the successful development of internally branded products
        for
        distribution to franchisees, and the results of risks associated with the
        Company’s ability to establish meaningful consumer market identification,
        branding and penetration, its ability to adapt to rapid technological changes,
        and its ability to successfully compete against intense competitive pressures
        from potentially larger, better capitalized future competitors when such
        enter
        its market segment. Further, the Company’s results of operations and resulting
        capital requirements will be impacted by a wide variety of additional factors
        and risks including, but perhaps not limited to general economic conditions,
        decreases in average selling prices over the life of any particular product,
        new
        product and technology introductions, the ability to acquire sufficient
        quantities of a given product in a timely manner, the ability to develop
        and
        maintain critical strategic supply and co-marketing relationships and the
        ability to safeguard intellectual property.
  15
 Table
            of Contents
  In
        the
        event the Company’s plans change or its assumptions change or prove to be
        inaccurate or the funds available prove to be insufficient to fund operations
        at
        the planned level (due to further unanticipated expenses, delays, problems
        or
        otherwise), the Company could be required to obtain additional funds through
        equity or debt financing, through strategic alliances with corporate partners
        and others, or through other sources in order to successfully continue to
        implement its business strategies.
  The
        Company has plans to increase the number of employees and/or independent
        contractors it employs at this time contingent upon its ability to have
        sufficient funds to continue to implement its business strategies. The Company
        anticipates significant additional capital expenditures during the coming
        year
        in connection with the costs of increasing the number of Company-owned design
        centers, the anticipated cost of expanding and replicating the multi-purpose
        facility, and the costs of implementing and possibly manufacturing Company
        branded products for distribution to franchisees and directly to retail
        customers.
  The
        Company’s current policy is to invest its cash reserves in bank deposits,
        certificates of deposit, commercial paper, corporate notes, U.S. government
        instruments or other investment-grade instruments.
  **Impact
        of Inflation**
 
 Management
        does not believe that inflation has had a material adverse effect on the
        Company’s results of operations. However, Management cannot predict accurately
        the effect of inflation on future operating results.
  **Seasonality**
 
 The
        Company’s business is subject to seasonal variations. Historically, it has
        realized a significant portion of its total revenue and gross profits for
        the
        year during the second and third fiscal quarters. Due to the importance of
        this
        extended holiday shopping season, any factors negatively impacting this extended
        holiday selling season could have an adverse effect on the Company’s revenues
        and its ability to generate gross profit. The Company’s quarterly results of
        operations may also fluctuate significantly due to a number of factors,
        including the timing of new store openings, both Company-owned and franchise
        stores. In addition, operating results may be negatively affected by increases
        in merchandise costs, price changes in response to competitive factors and
        unfavorable local, regional or national economic developments that result
        in
        reduced consumer spending.
  **Critical
        Accounting Policies**
 
 Presented
        below is a discussion about the Company’s application of critical accounting
        policies that require it to make assumptions about matters that are uncertain
        at
        the time the accounting estimate is made, and where different estimates that
        it
        reasonably could have used in the current period, or changes in the accounting
        estimate that are reasonably likely to occur from period to period, would
        have a
        material impact on the presentation of the Company’s financial condition,
        changes in financial condition or results of operations. Management has
        identified the following accounting estimates as critical for the Company,
        and
        will discuss them separately below: allowance for bad debts and doubtful
        accounts, inventory obsolescence provision, and income tax
        accruals.
  16
 Table
            of Contents
  **Allowance
        for Bad and Doubtful Accounts**
 
 Most
        of
        the Company’s accounts receivable are due from retail customers. The Company’s
        net accounts receivable balance at June 30, 2005 of $22,797 represents 2.3%
        of
        total assets, and the reserve of $4,851 is 17.6% of gross accounts receivable.
        This reserve is based on the Company’s review of the likely collectibility of
        specific accounts. As there was no reserve at June 30, 2004, there was an
        increase to the reserve of $4,851 in fiscal 2005.
  **Inventory
        Obsolescence**
 
 Inventory
        represents a significant portion of the Company’s assets (45.7%). The Company’s
        profitability and viability are highly dependent on the demand for its products.
        An imbalance between purchasing levels and sales could cause rapid and material
        obsolescence, and loss of competitive price advantage and market share. The
        Company believes that its product mix has provided sufficient diversification
        to
        mitigate this risk. At the end of each reporting period, the Company reduces
        the
        value of its inventory by its estimate of what it believes to be obsolete,
        and
        it recognizes an expense in this amount, which is included in cost of sales
        in
        its statement of operations.
  In
        the
        Company’s industry, merchandise models change periodically. When they do, the
        Company reclassifies the old model into a discontinued category. The Company
        also reclassifies merchandise into the discontinued category when it decides
        it
        no longer wants to sell the item. Generally, the Company attempts to sell
        these
        discontinued models at standard retail prices. In estimating the Company’s
        obsolescence reserve, it analyzes sales of discontinued merchandise and
        determines what profit or loss was recorded in the period. If such discontinued
        product is sold below cost, then the Company applies that negative gross
        margin
        to reduce the value of the inventory on hand as of the balance sheet date.
        In
        addition, the Company includes the selling costs to be incurred in the sale
        of
        such discontinued inventory as part of this obsolescence reserve. The Company
        also evaluates the obsolescence of its display inventories and service parts
        inventory.
  As
        a
        result of the factors described above, the Company has reduced its net inventory
        value to reflect its estimated amount of inventory obsolescence. The Company’s
        inventory obsolescence reserve at June 30, 2005 and 2004 was $6,503 and $4,241.
        It is possible that obsolescence could become a significant issue in the
        future.
        Additionally, different reserve estimates that the Company reasonably could
        have
        used would have had a material impact on its reported net inventory and cost
        of
        sales, and thus would have had a material impact on the presentation of the
        Company’s results of operations.
  **Income
        Taxes**
 
 The
        Company’s estimate of deferred tax assets, which were valued at $0 on June 30,
        2005 and 2004, is impacted by its assessment of its ability to generate
        sufficient taxable income to be able to realize the deferred tax asset. The
        deferred tax asset, net of reserve has been valued at $0 at June 30, 2005
        and
        2004.
  There
        can
        be no assurance that the Company will be able to successfully implement its
        business strategies or that profitability will ever be achieved. The Company
        expects that its future operating results will fluctuate significantly from
        year
        to year and will be impacted by factors beyond its control.
   17
 Table
            of Contents
  **ITEM
                  7.**
              **FINANCIAL
                  STATEMENTS**
  **INDEX
        TO FINANCIAL STATEMENTS**
  **PAGE**REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              19BALANCE
                  SHEETS
              20STATEMENTS
                  OF OPERATIONS
              21STATEMENTS
                  OF STOCKHOLDERS’ EQUITY (DEFICIT)
              22STATEMENTS
                  OF CASH FLOW
              23NOTES
                  TO FINANCIAL STATEMENTS
              24-31
   18
 Table
            of Contents
   REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
 To
        the
        Board of Directors
 Theater
        Xtreme Entertainment Group, Inc.
 Newark,
        Delaware
 
 
 We
        have
        audited the balance sheets of Theater Xtreme Entertainment Group, Inc. as
        of
        June 30, 2005 and 2004, and the related statements of operations, stockholders'
        equity (deficit) and cash flows for the years then ended. These financial
        statements are the responsibility of the Company's management. Our
        responsibility is to express an opinion on these financial statements based
        on
        our audits.
  We
        conducted our audits 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 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 audits provide a
        reasonable basis for our opinion.
  In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Theater Xtreme Entertainment
        Group,
        Inc. as of June 30, 2005 and 2004, and the results of its operations and
        cash
        flows for the years then ended, in conformity with accounting principles
        generally accepted in the United States.
  
 
 /s/
        COGEN
        SKLAR LLP
 
 Bala
        Cynwyd, Pennsylvania
 July
        29,
        2005
 
  19
 Table
            of Contents
   THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 BALANCE
        SHEETS
 JUNE
        30,
        2005 AND 2004
  2005
                
                2004**Assets**Current
                    Assets:Cash
                    and equivalents
                
                $
                112,874
                
                $
                119,228Accounts
                    receivable, net of allowance of $ 4,851 and $-0-
                
                
                22,797
                
                
                7,061Inventory
                
                
                460,111
                
                
                180,313Prepaid
                    expenses
                
                
                123,444
                
                
                -Total
                    current assets
                
                
                719,226
                
                
                306,602Property
                    and Equipment, net
                
                
                267,700
                
                
                166,139Other
                    Assets:Deposits
                
                
                20,720
                
                
                5,760$
                1,007,646
                
                $
                478,501**Liabilities
                    and Stockholders' Equity (Deficit)**Current
                    Liabilities:Accounts
                    payable and accrued expenses
                
                $
                323,132
                
                $
                127,825Payroll
                    tax liabilities
                
                
                31,769
                
                
                11,216Current
                    portion of notes payable
                
                
                12,010
                
                
                6,754Due
                    to officer
                
                
                243
                
                
                6,109Deferred
                    sales
                
                
                568,862
                
                
                144,863Total
                    current liabilities
                
                
                936,016
                
                
                296,767Long-term
                    Liabilities:Notes
                    payable, net of current portion
                
                
                40,614
                
                
                27,482Convertible
                    notes payable
                
                
                -
                
                
                200,000Total
                    long-term liabilities
                
                
                40,614
                
                
                227,482Total
                    liabilities
                
                
                976,630
                
                
                524,249Stockholders'
                    Equity (Deficit):Preferred
                    stock, no par value, 5,000,000 shares authorized,no
                    shares issued and outstanding
                
                
                -
                
                
                -Common
                    stock, $.001 par, 50 million shares authorized;16,291,814
                    and 9,775,000 shares issued and outstanding
                
                
                16,292
                
                
                9,775Additional
                    paid in capital
                
                
                1,843,157
                
                
                240,225Accumulated
                    deficit
                
                
                (1,828,433
                )
                
                (295,748
                )Total
                    stockholders' equity (deficit)
                
                
                31,016
                
                
                (45,748
                )$
                1,007,646
                
                $
                478,501
 The
        accompanying notes are an integral part of these financial
        statements.
 20
 Table
              of Contents
 THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 STATEMENTS
        OF OPERATIONS
 YEARS
        ENDED JUNE 30, 2005 AND 2004
 2005
                
                2004Revenues
                
                $
                2,822,871
                
                $
                933,669Cost
                    of revenues
                
                
                1,710,596
                
                
                606,157Occupancy
                    expenses
                
                
                206,053
                
                
                65,370Selling,
                    general and administrative expenses
                
                
                2,409,016
                
                
                554,2474,325,665
                
                
                1,225,774Loss
                    from operations
                
                
                (1,502,794
                )
                
                (292,105
                )Interest
                    income
                
                
                464
                
                
                1,120Interest
                    expense
                
                
                (30,355
                )
                
                (4,763
                )Net
                    loss
                
                $
                (1,532,685
                )
                $
                (295,748
                )Basic
                    and diluted:Loss
                    per common share
                
                $
                (0.12
                )
                $
                (0.04
                )Weighted
                    average shares
                
                
                12,358,814
                
                
                7,996,439
 The
        accompanying notes are an integral part of these financial
        statements.
 
  21
 Table
            of Contents
   THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 STATEMENTS
        OF STOCKHOLDERS’ EQUITY (DEFICIT)
 YEARS
        ENDED JUNE 30, 2005 AND 2004
  Additional
                
                
                
                TotalCommon
                
                Paid-in
                
                Accumulated
                
                Stockholders'Stock
                
                Capital
                
                Deficit
                
                Equity
                    (Deficit)Balance
                    at July 1, 2003
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Founder
                    shares issued upon incorporation
                
                
                1,875
                
                
                (1,875
                )
                
                -
                
                
                -Issuance
                    of common stock
                
                
                250
                
                
                249,750
                
                
                -
                
                
                250,000Retroactive
                    recapitalization upon reverseacquisition
                
                
                7,650
                
                
                (7,650
                )
                
                -
                
                
                -Net
                    loss for the year ended June 30, 2004
                
                
                -
                
                
                -
                
                
                (295,748
                )
                
                (295,748
                )Balance
                    at June 30, 2004
                
                
                9,775
                
                
                240,225
                
                
                (295,748
                )
                
                (45,748
                )Conversion
                    of notes payable
                
                
                3,348
                
                
                970,214
                
                
                -
                
                
                973,562Issuance
                    of common stock for services
                
                
                1,462
                
                
                510,308
                
                
                -
                
                
                511,770Issuance
                    of common stock at merger
                
                
                1,250
                
                
                (1,250
                )
                
                -
                
                
                -Liabilities
                    assumed upon merger
                
                
                -
                
                
                (13,026
                )
                
                -
                
                
                (13,026
                )Issuance
                    of common stock, private placement
                
                
                457
                
                
                136,686
                
                
                -
                
                
                137,143Net
                    loss for the year ended June 30, 2005
                
                
                -
                
                
                -
                
                
                (1,532,685
                )
                
                (1,532,685
                )Balance
                    at June 30, 2005
                
                $
                16,292
                
                $
                1,843,157
                
                $
                (1,828,433
                )
                $
                31,016
 The
        accompanying notes are an integral part of these financial
        statements.
  22
 Table
            of Contents
   THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 STATEMENTS
        OF CASH FLOWS
 YEARS
        ENDED JUNE 30, 2005 AND 2004
 2005
                
                2004**Cash
                    flows from operating activities:**Net
                    Loss
                
                $
                (1,532,685
                )
                $
                (295,748
                )Adjustments
                    to reconcile net loss tonet
                    cash used in operating activities:Depreciation
                
                
                52,405
                
                
                14,995Issuance
                    of common stock for services
                
                
                511,770
                
                
                -Increase
                    in assetsAccounts
                    receivables
                
                
                (15,736
                )
                
                (7,061
                )Inventory
                
                
                (279,798
                )
                
                (180,313
                )Prepaid
                    expenses
                
                
                (123,444
                )
                
                -Increase
                    (decrease) in liabilitiesAccounts
                    payable and accrued expenses
                
                
                182,281
                
                
                127,825Payroll
                    tax liabilities
                
                
                20,553
                
                
                11,216Due
                    to officer
                
                
                (5,866
                )
                
                6,109Deferred
                    sales
                
                
                423,999
                
                
                144,863Net
                    cash used in operating activities
                
                
                (766,521
                )
                
                (178,114
                )**Cash
                    flows from investing activities:**Deposits
                    on stores and corporate facility
                
                
                (14,960
                )
                
                (5,760
                )Purchase
                    of property and equipment
                
                
                (127,370
                )
                
                (143,418
                )Net
                    cash used in investing activities
                
                
                (142,330
                )
                
                (149,178
                )**Cash
                    flows from financing activities:**Repayment
                    of notes payable
                
                
                (10,000
                )
                
                (3,480
                )Proceeds
                    from convertible note payable
                
                
                773,562
                
                
                200,000Proceeds
                    from financing lease
                
                
                1,792
                
                
                -Proceeds
                    from issuance of common stock
                
                
                137,143
                
                
                250,000Net
                    cash provided by financing activities
                
                
                902,497
                
                
                446,520Net
                    increase (decrease) in cash
                
                
                (6,354
                )
                
                119,228Cash
                    and equivalents, beginning of year
                
                
                119,228
                
                
                -Cash
                    and equivalents, end of year
                
                $
                112,874
                
                $
                119,228**Supplemental
                    disclosure:**Cash
                    paid during the year for interest
                
                $
                30,355
                
                $
                3,096**Supplemental
                    disclosure of non-cash****investing
                    and financing activites:**Conversion
                    of notes payable to common stock
                
                $
                973,562
                
                $
                -Liabilities
                    assumed as part of merger
                
                $
                13,026
                
                $
                -Acquisition
                    of property and equipmentby
                    issuance of notes payable
                
                $
                26,596
                
                $
                37,716
 The
        accompanying notes are an integral part of these financial
        statements.
 23
 Table
              of Contents
 THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 NOTES
        TO
        FINANCIAL STATEMENTS
 JUNE
        30,
        2005 AND 2004
  Note
        1:
        Nature of Operations and Significant Accounting Policies
  *Nature
        of operations.* Theater
        Xtreme Entertainment Group, Inc. (the “Company”), a Florida corporation, opened
        the first Company retail store or design center on September 1, 2003 in Newark,
        Delaware. The Company has designed and created large-format home theater
        entertainment systems, offering new, low cost technology at prices affordable
        to
        many families. In August 2004 the Company opened a second Company owned design
        center in Wilmington, Delaware. A third Company owned design center is scheduled
        to open in Bel Air, Maryland in September 2005. The Company has sold 4 franchise
        licenses through June 30, 2005. The first franchise design center opened
        in
        Springfield, Massachusetts in May 2005. Other franchise centers are schedule
        to
        open in Pennsylvania, Michigan and Idaho. The Company expects to offer franchise
        licenses nationwide.
  *Merger.* On
        February 11, 2005 the Company acquired BF Acquisition Group II, Inc., a Florida
        corporation. Under the terms of the merger agreement, each stockholder of
        Theater Xtreme, Inc. received 4.60 shares of voting common stock of BF
        Acquisition Group II, Inc. for each share of Theater Xtreme, Inc. common
        stock
        held by such stockholder, totaling 9,775,000 shares. The stockholders’ equity at
        June 30, 2004 has been retroactively restated for the equivalent number of
        shares received in the reverse acquisition. Following the merger, the Company
        changed its name to Theater Xtreme Entertainment Group, Inc. Under accounting
        principles generally accepted in the United States, the share exchange is
        considered to be a capital transaction in substance, rather than a business
        combination. That is, the share exchange is equivalent to the issuance of
        stock
        by Theater Xtreme Entertainment Group, Inc. for the net monetary assets of
        BF
        Acquisition Group II, Inc., accompanied by a recapitalization, and is accounted
        for as a change in capital structure. Accordingly, the accounting for the
        share
        exchange will be identical to that resulting from a reverse acquisition,
        except
        no goodwill will be recorded. Under reverse takeover accounting, the post
        reverse acquisition comparative historical financial statements of the legal
        acquirer, BF Acquisition Group II, Inc., are those of the legal acquiree
        which
        are considered to be the accounting acquirer, Theater Xtreme Entertainment
        Group, Inc.
  *Industry
        Risks.* The
        Company participates in a highly volatile industry that is characterized
        by
        rapid technological change, intense competitive pressure, and cyclical market
        patterns. The Company’s results of operations will be affected by a wide variety
        of factors, including general economic conditions, decreases in average selling
        prices over the life of any particular product, the timing of new product
        introductions (by the Company, its competitors, and others), the ability
        to
        acquire sufficient quantities of a given product in a timely manner, the
        timely
        implementation of new technologies, the ability to safeguard intellectual
        property from competitors, and the effect of new technologies resulting in
        rapid
        escalation of demand for some products in the face of equally steep decline
        in
        demand for others. Based on the factors noted herein, the Company may experience
        substantial period-to-period fluctuations in future operating
        results.
  *Comprehensive
        Income.* The
        Company follows the Statement of Financial Accounting Standard (“SFAS”) No. 130,
“Reporting Comprehensive Income.” Comprehensive income is a more inclusive
        financial reporting methodology that includes disclosure of certain financial
        information that historically has not been recognized in the calculation
        of net
        income. Since the Company has no items of other comprehensive income,
        comprehensive income (loss) is equal to net income (loss).
  *Fair
        Value of Financial Instruments.* The
        Company’s financial statements consist of cash and cash equivalents, accounts
        receivable, payables, accrued expenses and deposits. The carrying values
        of
        these items approximate fair value because of their short maturities. The
        carrying value of notes payable also approximate fair value because the interest
        rates of these notes approximates current market interest rates.
   24
 Table
            of Contents
   **THEATER
        XTREME ENTERTAINMENT GROUP, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **JUNE
        30, 2005 AND 2004**
  Note
        1:
        Nature of Operations and Significant Accounting Policies
        (Continued)
 
 *Use
        of Estimates.* The
        preparation of financial statements in conformity with generally accepted
        accounting principles 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 financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from these estimates.
  *Cash
        Equivalents.* The
        Company considers all short-term securities purchased with a maturity of
        three
        months or less to be cash equivalents.
  *Concentration
        of Credit Risk.* The
        Company maintains its cash in bank deposit accounts which, at times, may
        exceed
        federally insured limits. Accounts are guaranteed by the Federal Deposit
        Insurance Corporation (FDIC) up to $100,000. At June 30, 2005 the Company
        had
        approximately $12,874 in excess of FDIC insured limits. The Company has not
        experienced any losses in such accounts.
  *Inventory.* The
        Company’s inventory is stated at the lower of cost (first-in, first-out) or
        market (net realizable value), and consists of the following at June
        30:
  2005
              
              2004Equipment
                  and furniture products
              
              $
              256,547
              
              $
              62,807Cable
                  and supplies
              
              
              9,283
              
              
              14,525Retail
                  displays
              
              
              194,281
              
              
              102,981$
              460,111
              
              $
              180,313
 
 
 *Depreciation
        and Fixed Assets.* The
        cost
        of property and equipment is depreciated over the estimated useful lives
        of the
        assets *.* Leasehold
        improvements are amortized over the lesser of the length of the related leases
        or the estimated useful lives of the assets. Depreciation is computed using
        the
        straight-line method. The estimated useful lives are as follows:
  
 Computer
                  equipment
              3
                  yearsOffice
                  equipment
              5
                  yearsOffice
                  furniture
              7
                  yearsVehicles
              5
                  yearsLeasehold
                  improvements
              3
                  to 7 years
 
 *Long-lived
        Assets.* The
        Company follows SFAS No. 144 “Accounting for the Impairment or Disposal of
        Long-Lived Assets.” Long-lived assets to be held and used are reviewed for
        impairment whenever events or changes in circumstances indicate that the
        related
        carrying amount may not be recoverable. When required, impairment losses
        on
        assets to be held and used are recognized based on the excess of the asset’s
        carrying amount. Fair value of the asset and long-lived assets to be disposed
        of
        are reported at the lower of carrying amount or fair value less cost to sell.
        The Company is not aware of any events or circumstances which indicate the
        existence of an impairment which would be material to the Company’s annual
        financial statements.
  
  25
 Table
            of Contents
   THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 NOTES
        TO
        FINANCIAL STATEMENTS
 JUNE
        30,
        2005 AND 2004
  Note
        1:
        Nature of Operations and Significant Accounting Policies
        (Continued)
  *Recently
        Issued Accounting Pronouncements.* In
        December 2004, the FASB revised SFAS 123, *“Accounting
        for Stock-Based Compensation”* to
        require all companies to expense the fair value of employee stock options.
        SFAS
        123R is effective at the beginning of the next fiscal year that begins after
        December 15, 2005 for a small business issuer.
  *Revenue
        Recognition.* Retail
        sales include all sales from Company-owned design centers. The following
        is a
        summary of earned revenues at June 30:
  2005
              
              2004Retail
                  sales
              
              $
              2,751,780
              
              $
              933,669Wholesale
                  sales
              
              
              44,021
              
              
              -Franchise
                  licenses and royalties
              
              
              27,070
              
              
              -Total
                  revenues
              
              $
              2,822,871
              
              $
              933,669
 Retail
        sales represent the sale and installation of home-theater equipment. In
        accordance with the SEC’s Staff Accounting Bulletin No. 104 (SAB 104)
“ *Revenue* Recognition,”
        the Company recognizes revenue when persuasive evidence of a customer
        arrangement exists or acceptance occurs, receipt of goods by customer occurs,
        the price is fixed or determinable, and the sales revenues are considered
        collectible. Revenue is recognized on such sales when the equipment is delivered
        and the installation is substantially completed. Generally these events occur
        on
        the same date. Revenues are recognized prorata on larger, more complex systems
        where installation occurs over a period of time.
  Customer
        deposits on orders which are not completed are shown as deferred revenue.
        Included in deferred sales is an amount which represents the unexpired portions
        of extended service contracts. In addition, the Company has deferred revenues
        from the sales of franchise licenses. Such revenues will be recognized when
        the
        related franchise design center opens for business, as that is when the Company
        has substantially completed its initial obligations to the franchisee. The
        following is a summary of orders and retail sales for the years ended June
        30:
  2005
              
              2004Customer
                  orders
              
              $
              3,257,602
              
              $
              1,287,025Increase
                  in unfinished orders
              
              
              (505,822
              )
              
              (353,356
              )Retail
                  sales (recognized)
              
              $
              2,751,780
              
              $
              933,669Customer
                  deposits, deferred retail sales
              
              $
              460,877
              
              $
              144,863Balances
                  due on unfinished orders
              
              
              398,301
              
              
              208,493Less
                  unfinished orders at June 30, 2004and
                  2003
              
              
              (353,356
              )
              
              -Increase
                  in unfinished orders
              
              $
              505,822
              
              $
              353,356
 
 The
        following amounts are included in deferred sales at June 30:
 
 2005
              
              2004Deferred
                  retail sales
              
              $
              460,877
              
              $
              144,863Deferred
                  service contracts
              
              
              35,485
              
              
              -Customer
                  deposits, deferred retail sales
              
              
              496,362
              
              
              144,863Deferred
                  franchise licenses
              
              
              72,500
              
              
              -Total
                  deferred sales
              
              $
              568,862
              
              $
              144,863
 
  26
 Table
            of Contents
   THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 NOTES
        TO
        FINANCIAL STATEMENTS
 JUNE
        30,
        2005 AND 2004
  Note
        1:
        Nature of Operations and Significant Accounting Policies
        (Continued)
  *Loss
        Per Share.* The
        Company follows SFAS 128, "Earnings Per Share," resulting in the presentation
        of
        basic and diluted earnings (loss) per share. The basic loss per share
        calculations include the change in capital structure which resulted from
        the
        merger for all periods presented. For the years ended June 30, 2005 and 2004,
        the basic and diluted loss per share are the same, because the assumed
        conversion of the convertible notes payable would be antidilutive as the
        Company
        experienced a net losses for these periods.
  *Income
        Taxes* .
        The
        Company accounts for income taxes under SFAS No. 109, “Accounting for Income
        Taxes,” which requires an asset and liability approach to financial accounting
        and reporting for income taxes. Deferred income tax assets and liabilities
        are
        computed annually for temporary differences between the financial statement
        and
        tax bases of assets and liabilities that will result in taxable or deductible
        amounts in the future based on enacted tax laws and rates applicable to the
        periods in which the differences are expected to affect taxable income.
        Valuation allowances are established when necessary to reduce deferred tax
        assets to the amount expected to be realized. Income tax expense is the tax
        payable or refundable for the period plus or minus the change during the
        period
        in deferred tax assets and liabilities.
  *Shipping
        and Handling Fees and Costs.* The
        Company classifies shipping and handling costs as part of selling and
        administration expenses. Shipping and handling costs were $15,661 and $3,761
        for
        the years ended June 30, 2005 and 2004.
  *Advertising
        Costs.* Advertising
        and sales promotion costs are expensed as incurred. Advertising expense totaled
        $643,935 and $154,726 for the years ended June 30, 2005 and 2004.
  *Store
        Opening Costs.* Store
        opening costs and other start-up costs are expensed as incurred.
  *Recently
        Issued Accounting Pronouncements.* In
        December 2004, the FASB revised SFAS 123, “ *Accounting
        for Stock-based Compensation* ”
to
        require all companies to expense the fair value of employee stock options.
        SFAS
        123(R) is effective for the first period ending after December 15, 2005 for
        small business issuer.
  Note
        2:
        Reverse Merger
  Effective
        February 11, 2005 Theater Xtreme Entertainment Group, Inc. completed its
        merger
        with BF Acquisition Group II, Inc., which was treated as a reverse acquisition.
        The following pro forma consolidated statement of operations assumes the
        merger
        was effective July 1, 2004.
  For
        the
        year ending June 30, 2005:
  Revenues
              
              $
              2,822,871Net
                Loss
              
              $
              1,681,435Basic
                and Diluted Loss Per Share
              
              $
              (0.14
              )
  27
 Table
            of Contents
   THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 NOTES
        TO
        FINANCIAL STATEMENTS
 JUNE
        30,
        2005 AND 2004
  
 Note
        3:
        Property and Equipment
  Property
        and equipment consist of the following at June 30:
  2005
              
              2004Vehicles
              
              $
              69,312
              
              $
              42,716Equipment
                  and computers
              
              
              63,265
              
              
              31,270Leasehold
                  improvements
              
              
              202,523
              
              
              107,148335,100
              
              
              181,134Accumulated
                  depreciation
              
              
              (67,400
              )
              
              (14,995
              )$
              267,700
              
              $
              166,139
 
 Depreciation
        expense was $52,405 and $14,995 for the years ended June 30, 2005 and
        2004.
  Note
        4:
        Long-term Liabilities and Notes Payable
  Long-term
        debt consists of the following at June 30,:
  2005
              
              2004Note
                  Payable to bank, in monthly installmentsof
                  $349, including interest at 7.25%,secured
                  by vehicle, maturingDecember
                  2008
              
              $
              12,863
              
              $
              16,032Note
                  Payable to bank, in monthly installmentsof
                  $402, including interest at 7.25%.secured
                  by vehicle, maturingNovember
                  2008
              
              
              14,307
              
              
              18,204Note
                  Payable to bank, in monthly installmentsof
                  $539, including interest at 7.99%secured
                  by vehicle, maturingDecember
                  2009
              
              
              24,387
              
              
              -Capitalized
                  lease with monthly payments of $34and
                  imputed interest at 10% throughJuly
                  2008
              
              
              1,067
              
              
              -Note
                  Payable to minority stockholder, unsecured,monthly
                  payments of interest only at 10%,principal
                  due April 2009, converted intocommon
                  stock during Fiscal 2005.
              
              
              -
              
              
              200,00052,624
              
              
              234,236Less
                  current portion
              
              
              (12,010
              )
              
              (6,754
              )Notes
                  Payable, net of current portion
              
              $
              40,614
              
              $
              227,482
 
  28
 Table
            of Contents
   THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 NOTES
        TO
        FINANCIAL STATEMENTS
 JUNE
        30,
        2005 AND 2004
  Note
        4:
        Long-term Liabilities and Notes Payable
  Future
        maturities of long-term debt as of June 30, 2005 are as follows:
  Year
                  ending June 30, :2006
              
              $
              12,0102007
              
              
              13,2422008
              
              
              14,2682009
              
              
              9,9432010
              
              
              3,161$
              52,624
 
 The
        Company incurred interest costs of $30,355 and $4,763 for the years ended
        June
        30, 2005 and 2004. Of these amounts $13,552 were paid by the issuance of
        common
        stock for the year ended June 30, 2005.
  Note
        5:
        Lease Commitments
  The
        Company leases its corporate offices, warehouse and retail design centers
        for
        various terms under long-term, non-cancelable operating lease agreements.
        The
        leases expire at various dates through 2010 and provide for renewal options
        ranging from none to five years. In the normal course of business, it is
        expected that these leases will be renewed or replaced by leases on other
        properties. The leases provide for increases in future minimum annual rental
        payments based on defined increases in the Consumer Price Index, subject
        to
        certain minimum increases. Also, the agreements generally require the Company
        to
        pay executory costs (real estate taxes, insurance, and repairs or allocated
        common area charges).
  The
        company also has operating leases on vehicles with monthly payments of
        $350.
  The
        following is a schedule by year of future minimum rental payments required
        under
        the operating lease agreements:
  Year
                    ending June 30,2006
                
                $
                207,6622007
                
                
                191,1072008
                
                
                133,9772009
                
                
                110,5392010
                
                
                57,696thereafter
                
                
                -$
                700,981
  Total
        minimum lease payments do not include executory costs, common area charges,
        or
        increases measured by consumer price or other index changes.
  Rent
        expense charged to operations was $136,635 and $7,708 for the years ended
        June
        30, 2005 and 2004
 29
 Table
              of Contents
 THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 NOTES
        TO
        FINANCIAL STATEMENTS
 JUNE
        30,
        2005 AND 2004
 
 Note
        6:
        Stockholders’ Equity
  Common
        Stock
  In
        October 2003, the Company issued 250,000 pre-merger shares (1,150,000
        post-merger shares) for net proceeds of $250,000.
  In
        February 2005, the Company issued 675,000 shares for services valued at
        $236,250.
  In
        December 2004, various shareholders converted $325,000 of promissory notes
        into
        1,495,000 shares of the Company’s common stock. In June 2005, the remaining
        promissory notes and related interest amounting to $648,562 were converted
        into
        1,853,035 shares of common stock.
  In
        April
        2005 the Company issued 787,200 shares of its common stock for services valued
        at $275,520.
  On
        April
        26, 2005 the Company began offering up to 2,900,000 shares of its common
        stock
        at a purchase price of $0.35 per share. As of June 30, 2005, the Company
        issued
        456,578 shares of its common stock for proceeds of $137,143, net of filing
        and
        related attorney fees in connection with this offering. The conversion of
        the
        promissory notes in June 2005 and the share offering resulted in the issuance
        of
        a total of 2,309,613 shares of common stock for net proceeds of
        $785,705.
  Options
  Pursuant
        to the terms of the Company’s 2005 Stock Option Plan, in April 2005 employees
        received options to purchase 740,000 shares of the Companies’ common stock. The
        exercise price per share of these options is $.35 and vest either 25% or
        33%
        each year on the anniversary of grant date contingent upon
        employment.
  The
        Company applies ABP Opinion 25, “Accounting for Stock Issued to Employees,” and
        related interpretations in accounting for the issuance of its stock options.
        Accordingly, no compensation cost has been recognized for its stock options
        issued during the years ended June 30, 2005 and 2004. Had compensation cost
        for
        the Company’s issuance of vested stock options been determined based on the fair
        value at grant dates for options consistent with the method of SFAS No. 123(R),
        Company’s net loss and net loss per share would not have been increased since
        the vesting of the option is contingent on being employed at anniversary
        date.
        No Proforma adjustment has been presented at June 30, 2005. No options were
        granted during the year ended June 30, 2004.
  In
        April
        2005, pursuant to the terms of the Company’s 2005 Stock Option Plan, the Company
        issued stock options to purchase 150,000 shares of its common stock to outside
        members of the Company’s board of directors at an exercise price of $0.35 per
        share pursuant to Section 4(2) of the Securities Act in exchange for services.
        The stock options are exercisable until April 2015 and vest 25% per year.
        In
        accordance with the fair value method as described in accounting requirements
        of
        SFAS No. 123(R), the Company recognized no expense for the year ended June
        30,
        2005 since the vested amount was insignificant.
  30
 Table
              of Contents
 THEATER
        XTREME ENTERTAINMENT GROUP, INC.
 NOTES
        TO
        FINANCIAL STATEMENTS
 JUNE
        30,
        2005 AND 2004
  Note
        7:
        Income Taxes
  Deferred
        income taxes reflect the net effect of an operating loss carryforward. There
        are
        no significant temporary differences between the carrying amount of assets
        and
        liabilities for financial reporting purposes and the amount used for income
        tax
        purposes.
  The
        components of the deferred assets are as follows at June 30:
  2005
              
              2004Net
                  operating loss carryforward
              
              $
              658,000
              
              $
              106,000Less
                  valuation allowance
              
              
              (658,000
              )
              
              (106,000
              )$
              --
              
              $
              --
 
 The
        valuation allowance for deferred tax assets as of June 30, 2005 and 2004
        was
        $658,000 and $106,000. The change in the total valuation allowance for the
        years
        ended June 30, 2005 and 2004 was an increase of $552,000 and an increase
        of
        $106,000. In assessing the realizability of deferred tax assets, Management
        considers whether it is more likely than not that some portion or all of
        the
        deferred tax assets will not be realized. The ultimate realization of deferred
        tax assets is dependent upon the generation of future taxable income during
        the
        periods in which the net operating losses and temporary differences become
        deductible. Management considered projected future taxable income and tax
        planning strategies in making this assessment. At June 30, 2005, the Company
        had
        net operating loss carry forwards for Federal and State income tax purposes
        of
        approximately $1,828,000, which were available to offset future taxable income,
        if any, through June 30, 2026. Based upon the limited operating history of
        the
        Company and losses incurred to date, Management has fully reserved the deferred
        tax asset.
  Note
        8:
        Subsequent Event
  On
        April
        26, 2005 the Company began offering up to 2,900,000 shares of its common
        stock
        at a purchase price of $0.35 per share. Subsequent to June 30, 2005, the
        Company
        has issued an additional 589,283 shares of common stock in connection with
        this
        offering, with net proceeds of an additional $205,925.
  
  31
 Table
            of Contents
   **** **ITEM
        8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE**
  None.
  **I** **TEM
        8A. CONTROLS AND PROCEDURES**
  Our
        Management, under the supervision and with the participation of the principal
        executive officer and principal financial officer, has evaluated the
        effectiveness of our controls and procedures related to our reporting and
        disclosure obligations as of June 30, 2005, which is the end of the period
        covered by this Annual Report on Form 10-KSB. Based on that evaluation, the
        principal executive officer and principal financial officer has concluded
        that
        our disclosure controls and procedures are effective.
  There
        were no changes that occurred during the fiscal quarter ended June 30, 2005
        that
        have materially affected, or are reasonable likely to materially affect,
        our
        internal controls over financial reporting.
  **** **ITEM
        8B.****OTHER INFORMATION**
  All
        information required to be disclosed in a Current Report on Form 8-K during
        the
        fourth quarter of our 2005 fiscal year has been reported.
   32
 Table
            of Contents
  **PART
        III**
  **** **ITEM
        9.** **DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION
        16(a) OF THE EXCHANGE ACT**
  The
        information with respect to executive officers required by this item is set
        forth in Part I of this Form 10-KSB.
  The
        following table sets forth certain information with respect to the directors
        of
        the Company as of October 10, 2005.
  **Name**
              **Age**
              **Position
                  with the Company**Scott
                  R. Oglum
              49
              Chairman,
                  President, Chief Executive Officer, Treasurer and
                  DirectorDavid
                  Hludzinksi
              39
              DirectorJames
                  Ludlow
              51
              DirectorJustin
                  Schakelman
              29
              Vice
                  President and DirectorH.
                  Gregory Silber
              38
              Director
 The
        following description contains certain information concerning the foregoing
        persons except for Messrs. Oglum and Schakelman, as to whom information is
        found
        in Part I of this 10-KSB.
  *David
        Hludzinski* was
        elected as a director in 2005 and is the Business Development Manager for
        Infocus® Corporation where he has been responsible for starting up the consumer
        business unit in North America and for creating and developing relationships
        with strategic partners in the consumer electronics industry. Mr. Hludzinski’s
        career in sales and management began with Sony Corporation, where he advanced
        to
        Sr. Account Manager for the Consumer Application Group and increased core
        business ten-fold. During his tenure at Sony (1992 to 1998), he played a
        strategic role in Sony’s entry into the digital satellite market. At InFocus®
where he has been since 1998, he has developed new markets in catalog sales,
        e-commerce, and created new global accounts. Mr. Hludzinski is currently
        responsible for strategic relationships and market development for InFocus’s
        recent entry into the consumer thin television market. He holds a B.A. in
        sociology with minor in business from University at Albany.
  *James
        Ludlow* was
        elected as a director in 2005 and is the CEO, CFO and co-founder of Imirage.
        Formed in 1994, Imirage provides Internet related marketing and technology
        strategic support to 60 mid-Atlantic based clients with well-known names.
        Also,
        Mr. Ludlow has been instrumental in leading the development, marketing and
        deployment of two, enterprise, web-based portal software programs and a
        patent-pending software application that wirelessly enables web site content
        and
        software programs. Mr. Ludlow spent 24 years in a variety of financial,
        technical and operating management positions at DuPont and Air Products and
        Chemicals. His expertise centered in providing financial advice, business
        process improvement and the deployment of electronic commerce technologies.
        He
        has 22 published professional articles and has been quoted in many publications
        including *Harvard
        Business Review* and *Fortune* .
        Mr.
        Ludlow has taught 14 accounting and finance courses at the University of
        Delaware and Penn State University and has spoken at many conferences and
        panels. He has also worked in leadership and Board positions with several
        organizations including the Chemical Industry Data Exchange. In 1994, his
        first
        book, *The
        Road to Wealth* ,
        which
        reflects his personal investment philosophies and advice, appeared in bookstores
        nationwide. He holds an MBA in Finance from Indiana University.
  *H.
        Gregory Silber* was
        elected as a director in 2005 and has been President and CEO of Intelligent
        Systems, Inc., a custom software-consulting firm specializing in IT solutions
        for the pharmaceutical industry since 2001. During his 17 years of experience
        in
        the technology industry, Mr. Silber has held executive positions in three
        successful companies. He has held a position on the board of directors of
        the
        Delaware Academy of Science since 1999. In addition, Mr. Silber has taught
        Computer Science at the University of Delaware since 1999, and has published
        several scientific papers in Computational Linguistics and Artificial
        Intelligence. He regularly speaks at universities and conferences,
        internationally. Mr. Silber holds a Master of Science degree from the University
        of Delaware in computer science and artificial intelligence.
  33
 Table
            of Contents
  **Committees,
        Shareholder Nominations and Code of Ethics**
  The
        Company does not currently have any standing committees of the Board of
        Directors. The entire Board serves in the capacity of audit committee. James
        Ludlow serves as the audit committee financial expert as such term is defined
        by
        the rules promulgated by the Securities and Exchange Commission. A majority
        of
        the Board of Directors, including Mr. Ludlow, is independent, as such term
        is
        defined in the rules promulgated by the Securities and Exchange Commission.
  The
        Company does not currently have procedures in place whereby shareholders
        may
        recommend nominees to the Board of Directors. At this time, the Company relies
        heavily on its Board members and their experience, and the Board does not
        feel
        it is necessary at this time to locate new board members.
  The
        Company’s Code of Business Conduct and Ethics applies to all employees,
        including the principal executive officer and principal financial officer.
        A
        copy of such code of ethics is posted on the Company’s website at www.theaterxtreme.com .
  **Compliance
        With Section 16(a) of The Securities Exchange Act
        of 1934**
  Section
        16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and
        directors, and persons who own more than ten percent of a registered class
        of
        the Company’s equity securities, 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. Officers, directors and ten percent stockholders
        are
        required by SEC regulation to furnish the Company with copies of all Section
        16(a) forms they file. To the Company’s knowledge, based solely on a review of
        the copies of such reports furnished to the Company and written representations
        that no other reports were required during the 2005 fiscal year, the following
        reports were filed late: (i) a Form 4 for Mr. Gravatt for options which was
        filed on August 31, 2004, (ii) a Form 4 for Mr. Hludzinski due to purchases
        in
        the 506 offering which was filed on August 16, 2005, (iii) a Form 4 for Mr.
        Ludlow due to purchases in the 506 offering which was filed on September
        9,
        2005.
   34
 Table
            of Contents
  
  **** **ITEM
        10. EXECUTIVE COMPENSATION**
  The
        following table sets forth information concerning the compensation received
        by
        the executive officers of the Company:
  **Long-Term
                  Compensation****Annual
                  Compensation**
              **Awards****Payouts****Name
                  and Principal Position**
              **Fiscal**
                **Year(1)**
              **Salary**
                **($)**
              **Bonus**
                **($)**
              **Other**
                **Annual**
                **Compensation**
                **($)**
              **Restricted
                  Stock Awards**
                **($)**
              **Securities**
                **Underlying
                  Options**
                **(#)**
              **LTIP**
                **Payouts**
                **($)**
              **All
                  Other**
                **Compensation**
                **($)****Scott
                  Oglum**
                Chairman
                  and Chief
                Executive
                  Officer
              **2005**
              $86,400
              $119,100
              $4,234(2)
              —
              —
              —
              —**2004**
              $43,200
              $20,963
              $2,117(2)
              —
              —
              —
              —**Dale
                  E. Gravatt**(8)
                Chief
                  Financial Officer
              **2005**
              $27,500
              $215
              $8,179(3)
              —
              —
              —
              —**2004**
              —
              —
              $5,000(4)**Justin
                  Schakelman**
                Corporate
                  Vice
                President,
                  Secretary
                and
                  Director
              **2005**
              $24,000
              $215
              $268(5)
              —
              —
              —
              —**2004**
              (6)
              (6)
              993(7)**Ken
                  Warren**
                Executive
                  Vice
                President
              **2005**
              $60,000
              $36,570
              $1,261(7)
              —
              —
              —
              —**2004**
              $26,200
              —
              $185(7)
              —
              —
              —
              —
 (1)
        The
        2004 fiscal year compensation represents compensation received from January
        1,
        2004 to June 30, 2004.
 (2)
        Reflects reimbursement of vehicle costs of $352.81 per month.
 (3)
        Reflects reimbursement for out-of-pocket business expenses of $679, office
        allowances of $500 and professional fees of $7,000.
 (4)
        Reflects professional fees of $5,000.
 (5)
        Reflects reimbursement for out-of-pocket business expenses.
 (6)
        Mr.
        Schakelman was a non-compensated employee until January, 2005.
 (7)
        Reflects reimbursement for out-of-pocket business expenses.
 (8)
        Mr.
        Gravatt resigned from the Company effective September 29, 2005.
  **Option
        Grants In Last Fiscal Year**
  The
        following table sets forth information concerning the grant of stock options
        during fiscal year 2005 to the executive officers names in the summary
        compensation table. All such grants were made under the Company’s 2005 Stock
        Option Plan.
  35
 Table
            of Contents
   
 Individual
                  Grants
              
              Potential
                  Realized Valueat Assumed Annual Ratesof Stock
                  PriceAppreciation for OptionTerm (10 yrs)
                  (3)Name
                  ofExecutive
              Number
                  ofSecuritiesUnderlyingOptionsGranted
                  (1)
              
              % of TotalOptionsGrantedto allEmployees inFiscal 2005
                  (2)
              
              Exercise
                  orBase Priceper Share
              
              ExpirationDate
              
              At
                  5%AnnualGrowthRate
              
              At
                  10%AnnualGrowthRateScott
                  Oglum
              --
              
              --
              $
              --
              
              --
              $
              --
              $
              --Dale
                  Gravatt
              100,000
              
              13.9%
              $
              0.35
              
              2015
              $
              57,011
              $
              90,781Justin
                  Schakelman
              --
              
              --
              $
              --
              
              --
              $
              --
              $
              --Ken
                  Warren
              230,000
              
              31.9%
              $
              0.35
              
              2015
              $
              131,126
              $
              208,796
  (1)
              Options
                  granted vest in increments of one-third of the total number of
                  options
                  granted on the first, second and third anniversary dates of the
                  date of
                  grant.
  (2)
              During
                  its 2005 fiscal year, the Company granted to employees 720,000
                  options to
                  purchase shares of Common Stock.
  (3)
              The
                  potential realizable values are based on an assumption that the
                  stock
                  price of the shares of common stock appreciate at the annual rate
                  shown
                  (compounded annually) from the date of grant until the end of the
                  option
                  term. These values do not take into account contractual provisions
                  of the
                  options which provide for nontransferability or vesting. These
                  amounts are
                  calculated based on the requirements promulgated by the SEC and
                  do not
                  reflect the Company’s estimate of future stock price growth of the common
                  stock.
  **Aggregated
        Option Exercises in the 2005 Fiscal Year and Value of Options at June 30,
        2005**
  Exercised in2005 Fiscal Year
              
              Number of UnexercisedOptions at June 30, 2005
              
              Value of UnexercisedIn-the-Money Options atJune 30,
                  2005Name
                  ofExecutive
              SharesAcquiredonExercise
              
              ValueRealized
              
              Exercisable
              
              Un-exercisable
              
              Exercisable
              
              Un-exercisableScott
                  Oglum
              0
              
              -
              
              -
              
              0
              $
              -
              $
              -Dale
                  Gravatt
              0
              
              -
              
              -
              
              100,000
              $
              -
              $
              35,000Justin
                  Schakelman
              0
              
              -
              
              -
              
              0
              $
              -
              $
              -Ken
                  Warren
              0
              
              -
              
              -
              
              230,000
              $
              -
              $
              80,500
 
  None
        of
        the above named executive officers held any stock appreciation rights at
        June
        30, 2005.
  Directors
        do not receive compensation for their services as directors. The Company
        has not
        entered into any employment or consulting agreements with any of its officers
        or
        directors.
   36
 Table
            of Contents
  **ITEM
        11.****SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT********AND
        RELATED STOCKHOLDER MATTERS**
  The
        following table shows, as of September 30, 2005, the number and percentage
        of
        shares of the Company’s common stock owned beneficially by (i) each director,
        (ii) each executive officer, (iii) all executive officers and directors as
        a
        group, and (iv) each person who is known by us to own beneficially more than
        5%
        of our common stock. All common stock with respect to which a person has
        the
        right to acquire beneficial ownership within 60 days is considered beneficially
        owned by that person for purposes of this table even though such stock may
        not
        be actually outstanding. Unless otherwise noted, all shares are owned directly
        with sole voting and sole investment power and the address is c/o Theater
        Xtreme
        Entertainment Group, Inc., 250 Corporate Boulevard, Suite E & F, Newark,
        Delaware 19702.
  Name
                  of Beneficial Owner
              Amount
              Percent
                  of
                Class**Scott
                  Oglum**
              8,050,000
              47.69%**Dale
                  E. Gravatt**
              100,000(a)
              ***David
                  Hludzinski**
              144,689(b)
              ***James
                  Ludlow**
              151,078(c)
              ***Justin
                  Schakelman**
              0
              --**H.
                  Gregory Silber**
              25,000(d)
              ***Ken
                  Warren**
              0(e)
              --**The
                  Werwinski Family Limited Partnership**
              2,070,000(f)
              12.26%All
                  directors and executive officers together as a group
              8,370,767(g)
              49.59%**Total**
              10,540,767
              62.44%
 
 *
        Represents less than 1% of Theater Xtreme’s common stock.
  (a)
        In
        addition, Mr. Gravatt owns options to purchase 100,000 shares of Company
        common
        stock at an exercise price of $0.35 per share. None of such options are vested,
        or will be vested, in the next sixty days. Mr. Gravatt resigned from the
        Company
        effective September 29, 2005.
  (b)
        In
        addition, Mr. Hludzinski owns options to purchase 50,000 shares of Company
        common stock at an exercise price of $0.35 per share. None of such options
        are
        vested, or will be vested, in the next sixty days.
  (c)
        In
        addition, Mr. Ludlow owns options to purchase 50,000 shares of Company common
        stock at an exercise price of $0.35 per share. None of such options are vested,
        or will be vested, in the next sixty days.
  37
 Table
            of Contents
  (d)
        In
        addition, Mr. Silber owns options to purchase 50,000 shares of Company common
        stock at an exercise price of $0.35 per share. None of such options are vested,
        or will be vested, in the next sixty days.
  (e)
        In
        addition, Mr. Warren owns options to purchase 230,000 shares of Company common
        stock at an exercise price of $0.35 per share. None of such options are vested,
        or will be vested, in the next sixty days.
  (f)
        Robert and Edna Werwinski are the general partners of the limited partnership
        and have shared power to vote and dispose of such shares. The address is
        3
        Chipmunk Lane, Kennett Square, PA, 19348.
  (g)
        Does
        not include Mr. Gravatt’s holdings because he was no longer an officer of the
        Company at September 30, 2005.
  **Equity
        Compensation Plan Information**
  The
        following table summarizes information regarding securities authorized for
        issuance under the Company’s equity compensation plan as of June 30,
        2005:
  Plan
                  category
              Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              Weighted-average
                  exercise price of outstanding options, warrants and rights
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))(a)
              (b)
              (c)Equity
                  compensation plans approved by security holders
              870,000
              $0.35
              530,000Equity
                  compensation plans not approved by security holders
              0
              0
              0Total:
              870,000
              $0.35
              530,000
 
  ******ITEM
        12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
  Certain
        of the Company’s video components bear the InFocus® brand name and are purchased
        through distributors authorized to sell InFocus® products. A Company’s director,
        who is also a shareholder of the Company, Mr. David Hludzinski, is employed
        by
        InFocus® Corporation as its Business Development Manager for the Consumer sector
        where he has been responsible for starting up the consumer business unit
        in
        North America and for creating and developing relationships with strategic
        partners in the consumer electronics industry. Aggregate purchases of product
        bearing the InFocus® brand name amounts to approximately $640,000 for the fiscal
        year ended June 30, 2005.
  ******ITEM
                      13.**
                  **EXHIBITS**
 The
            exhibits to this Annual Report on Form 10-KSB are listed on the
            accompanying index to exhibits and are incorporated herein by reference
            or are
            filed as part of this Annual Report on Form 10-KSB.
  Each
            management contract or compensation plan required to be filed as an exhibit
            is
            identified by an asterisk (*).
  3.1
                  Certificate
                      of Incorporation of Theater Xtreme Entertainment Group,
                      Inc.3.2
                  Articles
                      of Merger of Theater Xtreme Entertainment Group, Inc. (incorporated
                      by
                      reference to the Company’s Current Report on Form 8-K filed February 17,
                      2005).
  38
 Table
              of Contents
 3.3
                  Amended
                      and Restated Bylaws of Theater Xtreme Entertainment Group,
                      Inc.
                      (incorporated by reference to the Company’s Current Report on Form 8-K
                      filed February 17, 2005).4.1
                  Specimen
                      Common Stock Certificate.10.1*
                  2005
                      Stock Option Plan (incorporated by reference to the Company’s Current
                      Report on Form 8-K filed April 11, 2005).10.2*
                  Form
                      of Option Agreement for 2005 Stock Option Plan.10.3
                  Agreement
                      and Plan of Merger by and between Theater Xtreme, Inc., BF
                      Acquisition
                      Group II, Inc., Scott Oglum, William R. Colucci and David M.
                      Bovi dated
                      February 11, 2005 (incorporated by reference to the Company’s Current
                      Report on Form 8-K filed February 17, 2005).31.1
                  Rule
                      13a-14(a)/Rule 15d-14(a) Certification of Principal Executive
                      Officer and
                      Principal Financial Officer.32.1
                  Certification
                      of Principal Executive Officer and Principal Financial Officer
                      pursuant to
                      Section 1350 of Chapter 63 of Title 18 of the United States
                      Code.
 
 ******ITEM
        14.****PRINCIPAL
        ACCOUNTANT FEES AND SERVICES**
  Cogen
        Sklar LLP is the Company’s independent accounting firm and has audited the
        financial statements of the Company since October, 2004. Prior to that time,
        the
        Company engaged the services of Dale Gravatt, CPA as an independent accountant.
        Mr. Gravatt was subsequently named Chief Financial Officer.
  For
        the
        fiscal year ended June 30, 2005, Cogen Sklar LLP billed the Company aggregate
        fees as follows unless the payee is indicated otherwise:
  **Type
                  of Fees**
              **Fiscal
                  2004 Fees**
              **Fiscal
                  2005 Fees****Audit
                  Fees**
              $16,350
              $24,000**Audit-Related
                  Fees**
              $0
              $1,500**Tax
                  Fees**
              $2,115
              $0**All
                  Other Fees**
              $7,000
                  (1)
              $5,000(1)
 (1)
        These
        amounts were paid to Dale Gravatt, CPA for accounting and tax
        services.
  All
        of
        the services provided by Cogen Sklar LLP in the fiscal years ended June 30,
        2005
        and 2004 were approved in advance by the Board.
   39
 Table
            of Contents
   **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.
  THEATER
                  XTREME ENTERTAINMENT GROUP, INC.October
                  12, 2005
              By:
              /s/
                  Scott OglumScott
                  OglumChief
                  Executive Officer, Principal Financial Officer, President and
                  Chairman
 
 
 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.
  
  /s/
                  Scott
                  Oglum
              
              Chief
                  Executive Officer
              October
                  12, 2005Scott
                  Oglum
              
              Principal
                  Financial OfficerPresident
                  and Chairman/s/
                  Justin L. Schakelman
              
              Corporate
                  Vice President
              October
                  12, 2005Director
                  and Secretary/s/
                  David Hludzinski
              
              Director
              October
                  12, 2005/s/
                  Jim Ludlow
              
              Director
              October
                  12, 2005/s/
                  H. Gregory
                  Silber
              
              Director
              October
                  12, 2005
 
   40
 Table
            of Contents
   **EXHIBIT
        INDEX**
  Exhibit
                  No.
              
              Description3.1
              
              Certificate
                  of Incorporation of Theater Xtreme Entertainment Group,
                  Inc.3.2
              
              Articles
                  of Merger of Theater Xtreme Entertainment Group, Inc. (incorporatedby
                  reference to the Company’s Current Report on Form 8-K filed February
                  17,2005).3.3
              
              Amended
                  and Restated Bylaws of Theater Xtreme Entertainment Group,
                  Inc.(incorporated
                  by reference to the Company’s Current Report on Form 8-K
                  filedFebruary
                  17, 2005).4.1
              
              Specimen
                  Common Stock Certificate.10.1
              
              2005
                  Stock Option Plan (incorporated by reference to the Company’s
                  CurrentReport
                  on Form 8-K filed April 11, 2005).10.2
              
              Form
                  of Option Agreement for 2005 Stock Option Plan.10.3
              
              Agreement
                  and Plan of Merger by and between Theater Xtreme, Inc.,
                  BFAcquisition
                  Group II, Inc., Scott Oglum, William R. Colucci and David M.
                  Bovidated
                  February 11, 2005 (incorporated by reference to the Company’s
                  CurrentReport
                  on Form 8-K filed February 17, 2005).31.1
              
              Rule
                  13a-14(a)/Rule 15d-14(a) Certification of Principal Executive Officer
                  andPrincipal
                  Financial Officer.32.1
              
              Certification
                  of Principal Executive Officer and Principal Financial
                  Officerpursuant
                  to Section 1350 of Chapter 63 of Title 18 of the United States
                  Code.