UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549
                           _____________________

                                FORM 10-KSB

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES
      EXCHANGE ACT OF 1934.

      For the fiscal year ended December 31, 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 No. 0-33145

                    HEADLINERS ENTERTAINMENT GROUP, INC.
            -----------------------------------------------------
            (Exact name of the Registrant as specified in Charter)

           Delaware                                      84-1195628
 ----------------------------------------------------------------------------
  (State or other jurisdiction                 (I.R.S. Employer ID Number)
  of incorporation or organization)

                  501 Bloomfield Avenue, Montclair, NJ 07042
                  ------------------------------------------
                   (Address of principal executive offices)

      Registrant's Telephone Number, including Area Code: 973-233-1233

      Securities Registered Pursuant to Section 12(b) of the Act: None
      Securities Registered Pursuant to Section 12(g) of the Act:

                   Common Stock, $.001 par value per share

Check whether the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. [ ]

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 preceding 12 months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.   Yes  [X]    No [ ]

<PAGE>

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act. [ ]

State the issuer's revenues for its most recent fiscal year: $8,623,734.

State the aggregate market value of the voting stock held by non-affiliates
of the Registrant.  The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
ask prices of such stock, as of a specified date within 60 days prior to the
date of filing.

The aggregate market value of the Registrant's common stock, $.001 par
value, held by non-affiliates as of March 28, 2006 was $668,150.

As of March 28, 2006, the number of shares outstanding of the Registrant's
common stock was 32,000,052 shares, $.001 par value.

Transitional Small Business Disclosure Format:    Yes [ ]  No [X]

                DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>

            FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED

     This Report contains certain forward-looking statements regarding
Headliners, its business and financial prospects.  These statements repre
sent Management's present intentions and its present belief regarding the
company's future.  Nevertheless, there are numerous risks and uncertainties
that could cause our actual results to differ materially from the results
suggested in this Report.  Factors that might cause such a difference
include, but are not limited to, those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors that May Affect Future Results."  Readers are
cautioned not to place undue reliance on these forward-looking statements.
We undertake no obligation to revise or publicly release the results of any
revision to these forward-looking statements.

                                 PART 1

Item 1.  BUSINESS

     The Business Plan

     Headliners Entertainment Group, Inc. is the successor to a business
operation commenced in 1983.  Until June 1, 2004, Headliners' corporate name
was "Rascals International, Inc." Headliners began with a comedy club and
restaurant in West Orange, New Jersey that operated under the trade name
"Rascal Comedy Club."  Until 2003 the West Orange "Rascals" and a sister
club/restaurant of the same name in the New Jersey resort area of Ocean
Township were the source of substantially all of Headliners' revenue.
Nevertheless the success of those clubs in booking and promoting both
headliners and rising stars in the field of stand-up comedy made Rascals a
name known throughout the comedy industry.  Many of today's stars of comedy
were helped on their way to fame by appearing at a Rascals Comedy Club.
They include talents such as Rosie O'Donnell, Tim Allen, Ray Romano, Chris
Rock and Andrew Dice Clay.

     In recent years Headliners has acquired new management, a new business
plan, and a new determination to exploit the value of the "Rascals" name as
leverage for the growth of our company. During the past several years, our
business plan has expanded to involve three separate but interrelated
aspects of Rascals entertainment: comedy clubs, dance clubs and media
distribution.

     Comedy Clubs

     Comedy shows at our clubs generally consist of three performers: one
nationally-known headliner, a featured act and a comic master of ceremonies.
Our ticket prices range from $8.00 to $35.00, and are determined by the fees
we commit to pay the entertainers.  Those fees may on occasion include a
percentage of our ticket revenues.

                                    -1-
<PAGE>

     Entertainers are booked for our clubs by our in-house booking staff.
As the number of our clubs increases, Rascals should become even more
attractive to entertainers due to our ability to offer "block booking."  In
a block booking arrangement, we commit to multiple dates at multiple loca
tions in exchange for a reduced fee per show.

     We market our shows through traditional local media: newspaper and
radio advertisements, local cable TV commercials, and radio promotions,
often involving the performers that will be appearing.  In addition, tickets
to all of our club locations can be purchased at our Website:
www.Rascalscomedyclub.com.

     Our comedy clubs fall into two categories:

          Embedded Clubs.  An "embedded club" is designed to take
     advantage of a location where there is a pre-established clientele.
     The concept of the "embedded club" is aimed at attracting customers
     for our comedy by offering them a richer entertainment experience.
     The combined restaurant and comedy club facilities that we operated
     for most of our history represented a first level of the embedded
     club.  That relationship is replicated today in our Montclair, NJ
     location, where a Rascals Comedy Club accompanies our premier
     restaurant as well as a "Red Cheetah" dance club.  Another example of
     an "embedded club" is the Rascals Comedy Club that we opened in May,
     2005 in the Palisades Center in West Nyack, New York, which is the
     second largest shopping mall in the U.S.  That club failed and was
     closed at the end of 2005.  Nevertheless,  we are today exploring a
     broad variety of environments in which a Rascals Comedy Club would
     achieve marketing synergy with other entertainment venues.

          Hotel-Based Clubs.  We are underway with a program of
     establishing "Rascals Comedy Clubs" in premier hotels throughout the
     U.S.  During 2001 we opened a Rascals in the Crowne Plaza Hotel in
     Phoenix, and another in the Sheraton Springfield at Monarch Place in
     Springfield, MA.  Both of those clubs have since closed.  However,
     since December 2002 we have operated a Rascals Comedy Club in the
     Hilton Hotel in Cherry Hill, NJ. It consists of a comedy room with a
     seating capacity of 308 in which we produce six shows per week In each
     of these arrangements the hotel will provide the facility (rent-free)
     and operate the food and beverage service.  We provide the show and
     the promotion only, keep all admission proceeds, and receive a share
     of the food and beverage gross revenue.

          The primary advantage of a hotel-based club for Headliners is
     the efficiency of initiating the club's operations.  Since we are
     moving into an established facility, we are required to make only the
     minimal capital investment necessary to outfit the comedy room in
     Rascals' trademark decor.  In addition, since the hotels in which we
     locate are already known as entertainment locations in their
     communities (even if only as a restaurant location), the expense
     incurred in "attracting traffic" to the site is generally not much
     greater than the expense we incur in promoting shows at our
     established sites.  Our estimate is that our capital commitment to a
     new hotel-based facility, including the working capital required until

                                    -2-
<PAGE>

     the club achieves positive cash flow, will generally not exceed
     $130,000.  Occasionally, however, a particular site will be
     appropriate for a higher quality build-out, which will require a
     larger investment.  This was the case with our club in Cherry Hill,
     where we installed cherrywood paneling and a state-of-the-art sound
     system.

     Dance Clubs

     At the end of March 2005 we purchased six dance club operations.  The
clubs are located in Jackson MS, Omaha NE, Louisville KY, Tucson AZ,
Cincinnati OH and Kansas City MO.  Each operates under one of the followings
trade names: "Banana Joe's,""Margarita Mama's," "Red Cheetah," "Parrot
Beach" or "Cactus Cafe."  Three of the dance clubs were developed jointly by
Headliners and JHF Property Holdings during 2004.  The other three were
developed by JHF Property Holdings in 2003. In July 2005 we severed all
relations with JHF Property Holdings, but retained ownership of the six
clubs.  Subsequently we have closed the clubs in Omaha and Tucson.

     In March 2006 we opened a fifth dance club, a Red Cheetah, in the
facility in Montclair, NJ that already housed our restaurant and Rascals
Comedy Club combination.  We believe that this complex of entertainment
offerings will attract a wide audience.

     Our dance club operations currently produce over 80% of our revenues.

     Rascals Comedy Library

     Between 1985 and 1992 Headliners developed a library of videotapes of
the comedy performances at its West Orange club.  The performers on the
videotapes include many who achieved stardom: Denis Leary, Drew Carey, Jeff
Foxworthy, Rosie O'Donnell, Tim Allen, Ray Romano and others.  In exchange
for the opportunity to appear at Rascals Comedy Club, each of these
performers signed a release giving Headliners the right to reproduce and
market the videotapes.  Until 2002 the videotapes were co-owned by
Headliners and Rob Perna d/b/a Stand and Deliver.  In 2002 we divided the
library, with Headliners retaining over 200 hours of performances.  These
videotapes comprise the Rascals Library of Comedy Classics, an inventory of
raw material that Headliners can use to develop products and content in a
variety of media.

     In 2004, we entered into a relationship with Brian Sheil, a media
producer and promoter based in California.  Mr. Sheil is supervising an
expansion of the Rascals Library.  We are again videotaping performances at
our club in Montclair as well as producing the "Rascals on the Road" series
of performances.   At the same time, Mr. Sheil has been actively developing
distribution outlets for the Rascals Library in a variety of media.  During
2005 we initiated relationships with several broadcasters:

     -      Microsoft MSN Video Downloads and Windows Media Entertainment.
            Rascals Comedy Classics is currently the exclusive stand-up
            comedy channel available on these outlets.

                                    -3-
<PAGE>

     -      TVNet.  This broadcaster makes Rascals Comedy videos available
            to cell phones with wireless video capabilities.

     -      XM Satellite Radio.  We recently contracted to have the Rascals
            Comedy Hour distributed through this service, which, with over
            4.4 million subscribers, is the largest satellite radio service
            in the U.S.

     -      RipeTV.  This download service has a client base of 20 million.
            Rascals Comedy became available on its menu recently.

     -      SmartVideo Technologies. In June 2005 we contracted to add
            Rascals Comedy to the programming lineup that this service makes
            available for mobile video devices.  Currently there are more
            than 50 million smart phones and mobile video devices in use.
            The segmented nature of our comedy, which can be enjoyed in 30
            second or 30 minute intervals, makes it ideal for this audience.

     Each of these relationships was formed only recently, and revenues to
date from our use of the Library have been minimal.  We intend, however, to
continue to expand this fertile opportunity to generate additional revenue
streams from our existing assets.

     Employees

     The Company currently employs 329 individuals, of whom 75 are full-
time employees.  The other 254 employees are primarily hosting staff, wait
staff, bartenders, and kitchen employees.  Of these 9 full-time employees
and 38 part-time employees work during the evenings at our Montclair
restaurant and club, one full-time employee and two part-time employees work
during the performances at our club in Cherry Hill, and sixty full-time
employees and 210 part-time employees work at our dance clubs.  None of our
employees is represented by a union.  We believe that our relations with our
employees are good.

     Insurance

     As a dispenser of alcoholic beverages, Headliners is subject to state
liquor liability ("dram shop") laws.  These laws vary from state to state.
In general, dram shop laws  impose liability on the proprietor of an
establishment for damage caused by a customer of the establishment, if the
service of alcoholic beverages by the establishment to that customer was a
cause of the damage and the establishment service was negligent or otherwise
culpable.  Since alcoholic beverages are served in all of our clubs, it is
particularly important that we maintain insurance against liability.

                                    -4-
<PAGE>

     At the present time, Headliners is insured by a policy which provides
$2,000,000 general aggregate liability coverage. as well as a $10,000,000
commercial umbrella policy.  The annual premium for our insurance, which
includes this liability insurance, is $102,700.

Item 2.  PROPERTIES

     Since February 2004 the executive offices of Headliners Entertainment
Group, Inc. have been  located in the building in Montclair, New Jersey
adjacent to our new restaurant and Rascals Comedy Club.  The offices and the
restaurant/club facility is leased to Rascals Montclair, Inc.  for a term
ending in 2014.  Rascals Montclair pays $19,000 and a percentage of its
gross receipts as monthly rent.  It is also responsible for an allocated
portion of the landlord's taxes and operating costs.  Pursuant to the terms
of a management agreement between Rascals Montclair and Headliners,
Headliners reimburses Rascals Montclair for its rental expenses.

     Each of the four remaining dance clubs that we acquired in 2005 leases
the premises where they are located.  Each club is operated by a subsidiary
of Headliners, and the subsidiary is solely responsible for the lease
payments.  Our Cherry Hill comedy club is located in the Hilton Hotel, which
provides the comedy room to us free of charge.

Item 3.  LEGAL PROCEEDINGS

     None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

                                  PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
         AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

     (a) Market Information

     Our common stock has been listed for quotation on the OTC Bulletin
Board under the trading symbol "HLEG.OB."  Prior to the reverse split of
common stock in March 2005 it was listed under the trading symbol "HLNR.OB."
The following table sets forth the bid prices quoted for our common stock on
the OTC Bulletin Board during the two years ended December 31, 2005  All
prices have been adjusted to reflect the 1-for-1,000 reverse split of common
stock effected on March 16, 2005.

                                    -5-
<PAGE>
                                      Bid
                              ---------------------
Period:                          High       Low

Jan. 1, 2004 - Mar. 31, 2004  $ 500.00    $  70.00
Apr. 1, 2004 - June 30, 2004  $ 270.00    $  50.00
July 1, 2004 - Sep. 30, 2004  $ 110.00    $  40.00
Oct. 1, 2004 - Dec. 31, 2004  $  45.00    $   9.00

Jan. 1, 2005 - Mar. 31, 2005  $  11.00    $   2.50
Apr. 1, 2005 - June 30, 2005  $   4.65    $    .45
July 1, 2005 - Sep. 30, 2005  $    .50    $    .09
Oct. 1, 2005 - Dec. 31, 2005  $    .20    $    .08

     (b) Shareholders

     Our shareholders list contains the names of 98 registered shareholders
of record.  Based on recent requests for materials that we mailed to
shareholders, we believe that the number of beneficial shareholders exceeds
800.

     (c)  Dividends

     The Company has never paid or declared any cash dividends on its
Common Stock and does not anticipate doing so in the foreseeable future.
The Company intends to retain any future earnings for the operation and
expansion of the business.  Any decision as to future payment of dividends
will depend on the available earnings, the capital requirements of the
Company, its general financial condition and other factors deemed pertinent
by the Board of Directors.

     (d) Sale of Unregistered Securities

     In October 2005 Headliners issued 111,111 shares of common stock to
Eric Meyer.  The shares were issued upon Mr. Meyer's conversion of principal
and accrued interest totaling $15,000 on a debenture issued to him by
Headliners.  The sale was exempt pursuant to Section 4(2) of the Act since
the sale was not made in a public offering and was made to an individual who
had access to detailed information about Headliners and was acquiring the
shares for his own accounts.  There were no underwriters.

     In October 2005 Headliners issued 500,000 shares of common stock to
Nicholas Mason.  The shares were issued in consideration for Mr. Mason's
consulting services for Headliners.  The shares were valued at $.15 per
share, the market value of the shares on the date they were issued. The sale
was exempt pursuant to Section 4(2) of the Act since the sale was not made
in a public offering and was made to an individual who had access to
detailed information about Headliners and was acquiring the shares for his
own accounts.  There were no underwriters.

                                    -6-
<PAGE>

     In December 2005 Headliners issued 300,000 shares of common stock to
Gerald Pontones and 200,000 shares to Luke McKee.  The shares were issued in
consideration for Messrs. Pontones' and McKee's services as employees of
subsidiaries of Headliners.   The shares were valued at $.16 per share, the
market value of the shares on the date they were issued. The sale was exempt
pursuant to Section 4(2) of the Act since the sale was not made in a public
offering and was made to individuals who had access to detailed information
about Headliners and were acquiring the shares for their own accounts.
There were no underwriters.

     In December 2005 Headliners issued 5,000,000 shares of common stock to
G&H Management L.L.C..  The shares were issued in consideration for the
management services provided to Headliners by Eduardo Rodriguez and Michael
Margolies.   The shares were valued at $.10 per share, the market value of
the shares on the date they were issued.  The sale was exempt pursuant to
Section 4(2) of the Act since the sale was not made in a public offering and
was made to an entity whose principals had access to detailed information
about Headliners and which was acquiring the shares for its own accounts.
There were no underwriters.

     In December 2005 Headliners issued 4,000,000 shares of common stock to
Global Concepts, Ltd.  The shares were issued in satisfaction of a loan of
$283,226.  The sale was exempt pursuant to Section 4(2) of the Act since the
sale was not made in a public offering and was made to an entity whose
principals had access to detailed information about Headliners and which was
acquiring the shares for its own accounts.  There were no underwriters.

     In December 2005 Headliners issued 1,000,000 shares of common stock to
Nicholas Olivieri.  The shares were issued in consideration for consulting
services provided by Mr. Olivieri.   The shares were valued at $.16 per
share, the market value of the shares on the date they were issued. The sale
was exempt pursuant to Section 4(2) of the Act since the sale was not made
in a public offering and was made to an individual who had access to
detailed information about Headliners and was acquiring the shares for his
own account.  There were no underwriters.

     (e) Repurchase of Equity Securities

     The Company did not repurchase any of its equity securities that were
registered under Section 12 of the Securities Exchange Act during the 4th
quarter of 2004.
                                    -7-
<PAGE>

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION

Results of Operations

     From its founding in 1984 through 2001, Headliners' business consisted
entirely of the operation of  stand-alone restaurant/comedy club facilities:
two in New Jersey from the 1980s until 2003/2004  and one that we operated
in Miami, Florida for only a year.  In the years since 2002 we have
substantially changed the nature of our operations.  We have began to
develop alternative locations for Rascals' comedy by organizing hotel-based
clubs and by granting licenses to utilize the name "Rascals."  We also began
to develop multiple channels of distribution for the comedic entertainment
produced in our clubs, such as online distribution, home video sales and
pay-per-view sales.

     The most dramatic example of our expanding operations is our
acquisition at the end of March 2005 of six dance clubs that operate under
one of the followings trade names: "Banana Joe's,""Margarita Mama's," "Red
Cheetah," "Parrot Beach" or "Cactus Cafe."   Commencing on April 1, 2005 we
have consolidated the financial results of the clubs with our other
operations on our financial statements.  This has resulted in a significant
increase in our revenues, from $1,317,898 in 2004 to $8,623,734 in 2005.

     We have also altered our use of the Rascals trademark over the past
several years, by expanding into new venues.  We replaced the two
restaurant-club locations that we have operated since the 1980s with a
restaurant and Rascals Comedy Club that opened in Montclair NJ in June 2004.
In addition, we have been actively pursuing opportunities to situate Rascals
Comedy Clubs in hotels and entertainment venues, where a large, pre-existing
clientele can be converted into customers of our club. Currently we own and
operate two Rascals Comedy Clubs:

     - Rascals Montclair.  To replace our West Orange and Ocean
       restaurant-clubs, in June 2004 we opened a 13,000 square foot
       restaurant and comedy club in Montclair, New Jersey.  The
       restaurant and bar in our Montclair facility seats 150, and the
       showroom seats 400.  The property is owned by a separate
       corporation organized by members of Headliners' management.
       However, that corporation has a contract with Headliners under
       which we manage the facility and pay all of its expenses, and in
       return the corporation has assigned all of the revenues from the
       Montclair operation to Headliners. In March 2006 we opened a Red
       Cheetah dance club at the same location.

     - Rascals Cherry Hill.  We are now realizing approximately $22,000
       per month in revenue from our Cherry Hill hotel-based operation,
       which commenced operations in December 2002.  Although this
       sales level is far lower than the levels we maintained in West
       Orange or Ocean, we generate it with only one full-time and
       three part-time employees (compared to dozens at our restaurant-
       club combinations).  So we are realizing an average monthly
       profit in Cherry Hill of approximately $13,000.

                                    -8-
<PAGE>

     Recently we have renewed our efforts to utilize the Rascals Library of
Comedy Classics as a revenue source.  The Library contains over 200 hours of
live recordings of well-known comedians when they appeared at a Rascals
Comedy Club.  At times during our history we have broadcast portions of the
Library on pay-per-view television, sold home video recordings of shows in
the Library, and made shows available for download on the Internet.  During
2005 we obtained $30,000 in aggregate revenue from broadcasts of our comedy
on XM radio and Audible.com, each of which offers the Rascals Comedy
Classics in its menu of on-demand media, as well as from our position as the
exclusive stand-up comedy channel on Microsoft MSN Video.  These media
distribution channels currently provide only limited revenue, but it is
revenue obtained with almost no marginal expense, thus flowing directly into
earnings.

     The effect of our expansion is evident in the results reported in our
Statement of Operations.  During 2004 our revenue was derived from the
Cherry Hill club and six months of operations at the Montclair restaurant
and club.  Those two facilities provided all of our revenue for the  the
first quarter of 2005 as well.  In that first quarter or 2005 we reported
net sales of $446,703, compared to $34,551 in the first quarter of 2004,
when our only club operation was at the Hilton in Cherry Hill.  For the
remainder of 2005, however, after we added the dance clubs, our net sales
totaled $8,177,031.  Similarly our expanded operations produced gross profit
in  2005 of $5,421,024, compared to gross profit of only $735,211 in 2004.

     The revenue and gross profit figures reported for 2005 exclude the
results for two of the dance clubs we purchased in March as well as the
results of the Rascals Comedy Club that we opened at the Palisades Center in
May 2005.  Each of these three clubs was closed near the end of the year.
The results from those three operations, therefore, have been reported as
"discontinued operations" on our Statements of Operations.  A net loss of
$1,431,148 from the operations of those clubs and the disposal of their
facilities contributed to our overall net loss for the year.

     The transitions in our business plan have resulted in a marked
disparity between revenues and expenses.  During 2005 we incurred general
and administrative expenses totaling $47,932,906.  However, this included
only $7,416,775 in expenses that were or will be settled in cash.  The
remaining $40,516,131 in expenses during 2005 were settled by issuance of
stock.  This large expense for stock-based compensation arises from our
efforts to implement growth strategies for the future.  Our lack of cash
requires us to pay with stock both our executives and the network of
individuals who are assisting us in developing and implementing our business
plan, which results in a large expense for "stock issued for consulting
services."

     Headliners incurred an "interest expense" of $2,658,994 during 2005,
most of which was attributable to the notes we sold to Cornell Capital
Partners in the aggregate principal amount of $10,953,698.  The notes carry
a stated interest of 12% per annum.  However, the notes were sold at an
aggregate discount of $2,047,500. As a result, $541,774 of the interest
expense realized in 2005 was attributable to amortization of the discounts
given to Cornell Capital Partners when it purchased the notes from
Headliners.  The remaining $188,806 of the discount will be similarly
expensed during the five year term of the remaining debenture.

                                    -9-
<PAGE>

     On three occasions during 2005 we exchanged one or more notes issued
to Cornell Capital Partners for a replacement note on different terms.  As a
result of these refinancings, we incurred an additional $1,986,924 of
interest expense when we wrote-off the unamortized discounts on the notes
that were refinanced.  Finally, in November 2005 we agreed with Cornell
Capital Partners to exchange the convertible debenture then held by Cornell
for a new five-year debenture whose principal amount equals the principal of
the surrendered debenture plus accrued interest.  In connection with the
exchange, we issued to Cornell Capital Partners five year warrants to
purchase 10,000,000 shares of our common stock at $.20 per share.  Because
the warrants had a fair value of $1,460,000 and because the terms of the new
debenture included an embedded derivative, we recognized an expense of
$3,811,193 as "loss on extinguishment of debt" arising from this transaction.

     Our expenses remain disproportionate to our revenue, primarily due to
interest expense and consulting fees.  As a result, we realized a net loss
of $49,849,650 for 2005, compared to a net loss of $8,876,185 in 2004.
However, the new directions in our operations bode well for the future.  We
believe that the acquisition of the dance clubs, the opening of the new Red
Cheetah in Montclair, and our new ventures in media distribution of the
Rascals Library will combine to serve as a platform for profitable
operations.  We believe that is an achievable goal.

Liquidity and Capital Resources

     In order to obtain the funds necessary to acquire our six new dance
clubs and construct our facilities in Montclair and the Palisades Center, we
borrowed nearly $10 million from Cornell Capital Partners.  In addition, in
June 2005 we incurred an additional $3,000,000 debt to Cornell Capital
Partners in order to invest in the production and distribution of two
movies.  That arrangement provided that after we fully repaid Cornell
Capital Partners from our share of the net revenues of the movies, we would
retain a 6.8% interest in the net revenues.  In November 2005 we cancelled
that arrangement by transferring our interest in the movies to Cornell
Capital Partners in satisfaction of the $3,000,000 debt.

     At December 31, 2004, we owed Cornell Capital Partners $3,025,000.
Today the debt totals $8,192,309 plus accrued interest.  The debt is
represented by a Secured Convertible Debenture in that amount issued on
November 17, 2005. Headliners is not required to make any payment by the
Debenture until November 17, 2010, when it will have the option of
satisfying any principal and interest remaining outstanding in cash or with
common stock.  In the meantime, Cornell Capital Partners will have the right
to convert the principal and accrued interest on the Debenture into
Headliners common stock at a conversion price equal to 80% of the market
price at the time of conversion.
                                   -10-
<PAGE>

     With the proceeds of our sale of debt instruments to Cornell Capital
Partners, we have substantially alleviated our capital commitments.
Nevertheless, in addition to the ongoing expenses of operating its business,
Headliners had accounts payable and accrued expenses of $2,436,838 at
December 31, 2005, as well as being obligated on $1,209,369 in notes
payable.

     During 2005 our operations consumed $493,099 in cash.  However, our
operations in the first half of 2005 consumed $951,624 in cash, while
operations in the second half of 2005 produced $458,525 in cash.  The
improved cash flow in the second half of the year resulted from the fact
that we obtained full managerial control over the six new dance clubs in
that quarter.  Although we contracted to acquire the clubs at the end of
March, our relationship with the prior owners resulted in a litigation that
was not resolved until late in July 2005.  The dispute drained our cash
resources and prevented us from taking full advantage of the cash flow from
the clubs until August 2005.

     Now that we have undisputed control over the new dance clubs, we
expect that the cash flow from those clubs will be sufficient to enable us
to sustain our operations and meet the cash obligations noted above.  We do
not expect that we will require additional capital during the next twelve
months, except in connection with new development projects that we may
undertake.  At this time we have not committed to any specific new
development project nor obtained any financing commitment.

     Once we have passed the current period of rapid expansion, our capital
requirements will be much easier to control.  Once clubs are established,
they either operate profitably or they are closed.  So the capital
requirements of ongoing operations should not be significant.  Our plan is
to continue to expand, but at a pace commensurate with available capital and
capital commitments, either from equity sources or secured lending sources
that should become available once we have a portfolio of assets to offer as
collateral.

Critical Accounting Policies and Estimates

     In preparing our financial statements we are required to formulate
working policies regarding valuation of our assets and liabilities and to
develop estimates of those values.  In our preparation of the financial
statements for 2005, there were two estimates made which were (a) subject to
a high degree of uncertainty and (b) material to our results.  One was our
determination, detailed in Note 5 to the Consolidated Financial Statements,
that we should record a valuation allowance for the full value of the
deferred tax asset created by our net operating loss carryforward.  The
primary reason for the determination was our lack of certainty as to if and
when Headliners would commence profitable operations.  A second was our
determination, detailed in Note 2 to the Consolidated Financial Statements,
that we should write-off $2,877, 000 in prepaid consulting at December 31,
2005.  The primary reason for that determination was our uncertainty as to
whether we would continue to receive economic benefit from the consulting
contracts.
                                   -11-
<PAGE>

     We have made no material changes to our critical accounting policies
in connection with the preparation of financial statements for 2005.

Off-Balance Sheet Arrangements

     We do not have any "off-balance sheet arrangements," as defined in the
Regulations of the Securities and Exchange Commission.

Risk Factors That May Affect Future Results

     Our expectations regarding the future of Headliners will be realized
only if we are able to avoid the adverse effects of many risks and
contingencies.  You should carefully consider the risks described below
before buying our common stock.  If any of the risks described below
actually occurs, that event could have a substantial adverse effect on our
future financial results. Those adverse results, in turn, could cause the
trading price of our common stock to decline, and you could lose all or part
of your investment.

              I.  RISKS ATTENDANT TO OUR BUSINESS

     WE MAY NOT BECOME PROFITABLE.

     Headliners Entertainment Group has incurred substantial operating
losses during the past three years.  In order to achieve profitability it
will be necessary that we either expand operations to a point sufficient to
cover overhead or establish new sources of revenue.  Failing such
developments, it is likely that we will continue to sustain net losses.

     WE MAY BE UNABLE TO SATISFY OUR CURRENT DEBTS.

     At December 31, 2005 we had debts and liabilities that we must satisfy
with cash in excess of $3,600,000.  The cash flow from our operations may
not be sufficient to service those debts.  If we are unable to generate
sufficient cash to pay our debts or to negotiate extensions with our
creditors, our business will fail.

     CURRENT SHAREHOLDERS WILL SUFFER DILUTION AS A RESULT OF OUR FINANCING
ACTIVITIES.

     Cornell Capital Partners LP holds a Secured Convertible Debenture in
the principal amount of $8,192,309.  Headliners has no obligation to satisfy
the Debenture with cash.  Instead, Cornell Capital Partners intends to
convert the full amount of principal and interest into Headliners common
stock.  If any amount of principal remains unconverted on November 17, 2010,
Headliners may convert the remainder into common stock at that time or pay
the remainder in cash.  The conversion price will be 80% of the lowest
closing bid price during the five trading days preceding each conversion. At
the market price of $.05 on March 28, 2006, full conversion of the Debenture
would result in Headliners issuing an additional 163,846,180 shares, which
would represent 84% of the outstanding common shares.  Therefore, the
conversion of Secured Convertible Debenture by Cornell Capital Partners will
substantially dilute the interest of current shareholders in Headliners
equity.

                                    -12-
<PAGE>

     COMPETITION FROM WELL-CAPITALIZED COMPANIES INVOLVED IN THE COMEDY
CLUB BUSINESS COULD HINDER OUR GROWTH.

     The comedy club business is dominated by a small number of well-known,
well-financed  companies.  As we seek advantageous locations for our clubs,
we may face competition from one or more of these competitors.  If one of
these well-established competitors were to make a concerted effort to secure
a location, it would be very difficult for us to compete effectively. This
may limit our access to business opportunities.


     LIABILITY FROM LAWSUITS BASED ON "DRAM SHOP" LAWS COULD EXCEED OUR
INSURANCE COVERAGE.

     In most states where Headliners locates clubs, there will be liquor
liability ("dram shop") laws.  These laws vary from state to state.  In
general, dram shop laws  impose liability on the proprietor of an
establishment for damage caused by a customer of the establishment, if the
service of alcoholic beverages by the establishment to that customer was a
cause of the damage and the establishment service was negligent or otherwise
culpable.  Since we will serve alcoholic beverages in all of our clubs, we
will be subject to the risk that lawsuits arising under dram shop laws could
produce judgments that exceed our insurance coverage and imperil our
capital.

              II.  RISKS ATTENDANT TO OUR MANAGEMENT

     OUR BUSINESS DEVELOPMENT WOULD BE HINDERED IF WE LOST THE SERVICES OF
OUR PRESIDENT.

     Eduardo Rodriguez is the President of Headliners Entertainment Group.
Mr. Rodriguez is the only executive employed on a full-time basis by
Headliners Entertainment Group.  Mr. Rodriguez is responsible for
strategizing not only our business plan but also the means of financing it.
If Mr. Rodriguez were to leave Headliners Entertainment Group or become
unable to fulfill his responsibilities, our business would be imperiled.  At
the very least, there would be a delay in the development of Headliners
Entertainment Group until a suitable replacement for Mr. Rodriguez could be
retained.

     HEADLINERS ENTERTAINMENT GROUP IS NOT LIKELY TO HOLD ANNUAL
SHAREHOLDER MEETINGS IN THE NEXT FEW YEARS.

     Delaware corporation law provides that members of the board of
directors retain authority to act until they are removed or replaced at a
meeting of the shareholders.  A shareholder may petition the Delaware Court
of Chancery to direct that a shareholders meeting be held.  But absent such
a legal action, the board has no obligation to call a shareholders meeting.
Unless a shareholders meeting is held, the existing directors elect
directors to fill any vacancy that occurs on the board of directors.  The
shareholders, therefore, have no control over the constitution of the board
of directors, unless a shareholders meeting is held.

     Since it became a public company in 1999, Headliners Entertainment
Group has never held an annual or a special meeting of shareholders.  The
Board of Directors of Headliners Entertainment Group consists of  the same
individuals who served in 2000.  Management does not expect to hold annual
meetings of shareholders in the next few years, due to the expense involved.
Therefore, any new members of the Board of Directors or any replacements for
current members will be nominated and elected by the present members of the
Board.
                                   -13-
<PAGE>

     RELATED PARTY TRANSACTIONS MAY OCCUR ON TERMS THAT ARE NOT FAVORABLE
TO HEADLINERS ENTERTAINMENT GROUP.

     The two members of our Board of Directors, Eduardo Rodriguez and
Michael Margolies, directly and through their families, control 55% of the
voting power of Headliners Entertainment Group.  For the foreseeable future,
therefore, they will control the operations of Headliners Entertainment
Group.  In the past they have been the Managers of limited liability
companies that were senior secured creditors of Headliners and that owned
the properties where Headliners' New Jersey restaurant clubs operated.  It
is possible that they will engage in other transactions with Headliners
Entertainment Group.  It is unlikely that they will obtain independent
confirmation that the terms of such related party transactions are fair.  If
the terms are unfair to Headliners Entertainment Group, the transactions
could harm our operating results.

Item 7.  FINANCIAL STATEMENTS

     The Company's financial statements, together with notes and the Report
of Independent Certified Public Accountants, are set forth immediately
following Item 14 of this Form 10-KSB.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

Item 8A. CONTROLS AND PROCEDURES

     The term "disclosure controls and procedures" is defined in Rules 13a-
15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").  The term refers to the controls and procedures of a
company that are designed to insure that information required to be
disclosed by a company in the reports that it files under the Exchange Act
is recorded, processed, summarized, and reported within the required time
periods.  Eduardo Rodriguez, our Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the effectiveness of the Company's
disclosure controls and procedures as of December 31, 2005.  Based on his
evaluation, he concluded that the controls and procedures in place at that
date were sufficient to assure that material information concerning the
Company which could affect the disclosures in the Company's reports filed
under the Exchange Act will be disclosed on a timely basis in those reports.

     No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.

Item 8B. OTHER INFORMATION

     None.

                                   -14-
<PAGE>

                                 PART III

Item 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

     This table identifies our management team.  Directors serve until the
next annual meeting of shareholders and until their successors are elected
and qualify.  Officers serve at the pleasure of the Board of Directors.

                                                            Director
Name                  Age        Position with the Company  Since
-----------------------------------------------------------------------
Eduardo Rodriguez     43         Chairman, Chief Executive   1998
                                  Officer, Chief Financial
                                  Officer

Michael Margolies     77         Secretary, Director         2001

     Eduardo Rodriguez has served as Chief Executive Officer of Headliners
since 1998.  Immediately prior to joining Headliners, Mr. Rodriguez served
as President of Lancaster Consultants, Inc., a company involved in financial
management and consulting.  From March 2005 until October 2005 Mr. Rodriguez
has also served as Chief Executive Officer of Global Concepts, Ltd.  (OTCBB:
GCCP),  a conglomerate primarily involved in providing warehousing and
transportation services in France.

     Michael Margolies became Vice Chairman and Secretary of Headliners in
January 2002, after having served on our Board of Directors for the prior
year.  Mr. Margolies resigned from his position as Vice Chairman in March
2005.  From 1998 until March 2005 Mr. Margolies was employed as Chief
Executive Officer of Global Concepts, Ltd., ,  a conglomerate primarily
involved in providing warehousing and transportation services in France.

Audit Committee

     The Board of Directors does not have an audit committee financial
expert.  The Board of Directors has not been able to recruit an audit
committee financial expert to join the Board of Directors because of the
Company's poor financial condition.

                                   -15-
<PAGE>

Code of Ethics

     The Company does not have a written code of ethics applicable to its
executive officers.  The Board of Directors has not adopted a written code
of ethics because there are so few members of management.

Compliance with Section 16(a) of the Exchange Act

     None of the directors, officers or beneficial owners of more than 10%
of Headliners' common stock failed to file on a timely basis reports
required during 2004 by Section 16(a) of the Exchange Act, except as
follows: Messrs. Rodriguez and Margolies each failed to file three reports
on Form 4 when due.

Item 10.  EXECUTIVE COMPENSATION

     This table itemizes the compensation we paid to Eduardo Rodriguez, who
served as our Chief Executive Officer during 2005, and to Michael Margolies,
who was our Vice Chairman during 2005.  There was no officer whose salary
and bonus for services rendered during the year ended December 31, 2003
exceeded $100,000.
                                                     Other
                             Year     Salary      Compensation
                             -------------------------------------
Eduardo Rodriguez........    2005    $  114,846  $ 12,505,200(1)
                             2004        22,000       572,654(2)
                             2003       145,228(3)     10,800(4)

Michael Margolies........    2005    $   30,768  $ 12,014,800(1)
                             2004        27,500       562,564(2)
                             2003       145,228(3)          0
______________________

(1)  During 2005 Headliners issued 12,765,000 shares of common stock to G&H
     Management, LLC in compensation for services rendered by Messrs.
     Rodriguez and Margolies.  The "compensation" reported in this table
     represents the market value of the shares on the date issued,
     allocated between the two executives in proportion to their families'
     respective equity interests in G&H Management.

(2)  Represents the percentage beneficial interest of the In April 2004 the
     Board of Directors waived the vesting conditions applicable to 1,000
     shares of stock issued to each of the executives. $560,000, the market
     value of the shares that vested, is included in "Other Compensation."
     The remaining "Other Compensation" represents premiums paid for health
     insurance.
(3)       Represents shares acquired in lieu of salary under the Employee Stock
          Purchase Plan.
(4)       Represents paid for health insurance and payments made to supply Mr.
          Rodriguez with an automobile.

                                   -16-
<PAGE>


     Employment Agreements

     From 2000 until 2005 Eduardo Rodriguez served as CEO of Headliners,
while Michael Margolies served as CEO of Global Concepts, Ltd., a public
company, and as Vice Chairman of Headliners.  In March 2005 Messrs.
Rodriguez and Margolies determined that they could best serve the interests
of both Headliners and Global Concepts by reorganizing the management
structure of both, so that Mr. Rodriguez would serve as Chairman and CEO of
both Headliners and Global Concepts, and Mr. Margolies would serve as
Secretary and Director of both entities.  In order to prevent conflicts that
might arise between an officer's duties to one corporation and his interest
in the other, the decision was made that the two officers would pool their
equity stakes in the two corporations.

     Accordingly, on March 7, 2005 Headliners entered into a "Joint
Management Agreement" with Global Concepts, Ltd., Eduardo Rodriguez, Michael
Margolies, The Rodriguez Family Trust and The Margolies Family Trust.  The
Joint Management Agreement contained the following provisions relevant to
Headliners:

     -    The Rodriguez Family Trust and The Margolies Family Trust agreed
          to organize a limited liability company: G&H Management, L.L.C..
          The Trusts, as well as Rodriguez and Margolies, contributed
          their Headliners shares to the Trust on August 15, 2005.
          Headliners will pay a fee of $5,000 per month to the limited
          liability company in compensation for the services of Rodriguez
          and Margolies.

     -    Headliners entered into five year Employment Agreement with
          Rodriguez.

     -    Margolies resigned from his position as Vice Chairman of
          Headliners.

     -    Headliners entered into a five year advisory agreement with
          Margolies.

     -    Rodriguez and Margolies agreed that they would each serve as
          members of Headliners' Board of Directors.  They also agreed to
          elect a third member, to be nominated by Rodriguez.

     -    Headliners, Rodriguez and Margolies agreed that until the death
          of Rodriguez or Margolies, the compensation and benefits paid by
          Headliners to Rodriguez will exceed the compensation and
          benefits paid by Headliners to Margolies by $175,000.

     -    Similar arrangements were made by Messrs. Rodriguez and
          Margolies with Global Concepts, Ltd.

                                    -17-
<PAGE>

     Headliners' Employment Agreement with Rodriguez provides that he will
serve as President.  His compensation will be $200,000 per annum plus an
automobile allowance of $1,000 per month.  The fee payable to Rodriguez will
continue for the term of the agreement, notwithstanding Rodriguez' death or
disability.  The agreement terminates on January 31, 2010, except that
Rodriguez covenanted that for one year after termination he will not engage
in activities that are competitive  with Headliners.

     Headliners' Advisory Agreement with Margolies provides that he will
consult with the Board of Directors and the President on matters of business
development, investor relations public relations and finance.  Headliners
will pay Margolies a fee of $25,000 per annum and provide him the same
benefits as are provided to Headliners' executive officers.  The fee payable
to Margolies will continue for the term of the agreement, notwithstanding
Margolies' death or disability.  The agreement terminates on January 31,
2010, except that Margolies covenanted that for one year after termination
he will not engage in activities that are competitive  with Headliners.

     Stock Options

     None of our officers or directors holds any options to purchase
Headliners securities.

     Compensation of Directors

     Our directors are reimbursed for out-of-pocket expenses incurred on
our behalf, but receive no additional compensation for service as directors.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information known to us with respect to
the beneficial ownership of our common stock as of the date of this
prospectus by the following:

     *  each shareholder known by us to own beneficially more than 5% of
        our common stock;

     *  each officer named in the Executive Compensation table above.

     *  each of our directors; and

     *  all directors and executive officers as a group.

     There are 30,000,052 shares of our common stock outstanding on the
date of this Report.  Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below have sole voting power
and investment power with respect to their shares,  subject to community
property laws where applicable.  Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission.

                                    -18-
<PAGE>

     In computing the number of shares beneficially owned by a person and
the percent ownership of that person, we include shares of common stock
subject to options or warrants held by that person that are currently
exercisable or will become exercisable within 60 days. We do not, however,
include these "issuable" shares in the outstanding shares when we compute
the percent ownership of any other person.

                         Amount and
                         Nature of
Name and Address         Beneficial        Percentage
of Beneficial Owner      Ownership(2)      of Class(3)
----------------------------------------------------------
Eduardo Rodriguez        12,637,061(4)        42.1%

Michael Margolies        16,637,061(4)(5)     55.5%

All Officers and
 Directors As a
 Group (2 persons)       16,637,061(4)(5)     55.5%

Kevin Waltzer               2,441,427          8.1%
17 Larkspur Lane
Newtown, PA 18940

Stanley Chason              2,000,000          6.6%
1203 Watervale Ct.
Pasadena, MD 21122

Anomaly Capital, LLC(5)     2,000,000(7)       6.6%
121 Monmouth St., Suite A
Red Bank, NJ 07701
____________________________________

(1)  Except as noted, the address of all shareholders is c/o
     Headliners Entertainment Group, Inc., 501 Bloomfield
     Avenue, Montclair, NJ 07042

(2)  All shares are owned of record unless otherwise indicated.

(3)  In determining Percentage of Class, all options and warrants
     currently exercisable by the Owner are deemed to have been
     exercised and all convertible securities are deemed to have been
     converted at current market price.

(4)  The shares beneficially owned by Messrs. Rodriguez and
     Margolies each include 12,637,061 shares owned of record
     by G&H Management LLC.  Mr. Rodriguez is the Manager of
     G&H Management.  The Rodriguez Family Trust owns 51% of
     the equity in G&H Management LLC.  The Trustee of The
     Rodriguez Family Trust is Mr. Rodriguez' spouse, and the
     beneficiaries of the Trust are his wife and children.  The
     remaining 49% of the equity in G&H Management LLC is owned
     by The Margolies Family Trust.  The Trustee of the
     Margolies Family Trust is Mr. Margolies' spouse, and the
     beneficiaries of the Trust are Mr. Margolies' spouse and
     children.
                                    -19-
<PAGE>

(5)  The shares beneficially owned by Mr. Margolies also include
     4,000,000 shares owned by The Margolies Family Trust.

(6)  Michael Salerno has sole voting and investment power over the
     shares held by Anomaly Capital, LLC.

(7)  The beneficial ownership shown does not include 7,500,000 shares
     that will be issued to Anomaly Capital in the event that
     Headliners defaults on its guarantee of a debt of Rascals
     Montclair, Inc. to Anomaly Capital, LLC.


Equity Compensation Plan Information

     The information set forth in the table below regarding equity
compensation plans (which include individual compensation arrangements) was
determined as of December 31, 2005.

                                   Number of                       Number of
                                   securities       Weighted       securities
                                   to be issued     average        remaining
                                   upon             exercise       available
                                   exercise of      price of       for future
                                   outstanding      outstanding    issuance
                                   options,         options,       under equity
                                   warrants and     warrants and   compensation
                                   rights           rights         plans
-------------------------------------------------------------------------------
Equity compensation
plans approved by
security
holders..........                         0               --            0


Equity compensation
plans not approved by
security holders*....                     0               --            0
                                    -------            -----          ---
Total............                         0               --            0
                                    =======            =====          ===


Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Rascals Montclair, Inc.

     In June 2003 Headliners' lease for the property in West Orange, New
Jersey on which Headliners operated a club and restaurant terminated.  For
several months, Headliners' management looked for a location where the club
and restaurant could be reopened.  However, because of Headliners' lack of
capital, landlords were unwilling to rent space to Headliners on favorable
terms and contractors were unwilling to extend credit to Headliners for
construction of the new facility.  Therefore Eduardo Rodriguez and Michael

                                   -20-
<PAGE>

Margolies, Headliners' officers, organized Rascals Montclair, Inc., which is
owned by The Margolies Family Trust, the Rodriguez Family Trust and Jerry
Pontones, Headliners' Director of Operations.  Rascals Montclair, Inc. then
entered into a lease for space in Montclair, New Jersey and proceeded to
develop a replacement for the West Orange club and restaurant.  The
Montclair club and restaurant opened in June 2004.

     The development of Headliners' financing relationship with Cornell
Capital Partners led to a change in the plan for development of the
Montclair facility.  It had originally been contemplated that Rascals
Montclair, Inc. would provide most of the funds needed to build the new
facility.  However, during 2004 Cornell Capital Partners agreed to advance
significant sums to Headliners as loans to be amortized through the put
procedure set forth in the Standby Equity Distribution Agreement.  With
these funds, therefore, Headliners provided most of the cash required to
complete the Montclair facility - approximately $1.1 million.  Accordingly,
on October 1, 2004 the owners of Rascals Montclair, Inc. transferred their
interests in that entity to Headliners for no consideration.

     Subsequently, however, Headliners found that the landlord who leased
the Montclair facility to Rascals Montclair had a lien on the stock of
Rascals Montclair that could not be removed.  For that reason, Headliners
returned ownership of Rascals Montclair to its founders.  At the same time,
however, Rascals Montclair engaged Headliners to manage the restaurant and
club in Montclair.  The contract provides that Headliners will receive all
of the revenue from the business and will pay all of the expenses of the
business.  The contract extends for the term of the lease, except that it
will terminate if the landlord ever forecloses on its lien on the stock of
Rascals Montclair.

     On February 3, 2006 Rascals Montclair, Inc. borrowed $300,000 from
Anomaly Capital, LLC.  Rascals Montclair issued a promissory note to Anomaly
Capital in the principal amount of $360,000.  The note calls for eighteen
payments of $20,000 in each month commencing April 2006.  The note does not
bear interest.  To induce Anomaly Capital to make the loan,  Headliners
issued 2,000,000 shares of its common stock to Anomaly Capital.  Headliners
also guaranteed the obligations of Rascals Montclair, Inc. to Anomaly
Capital, and secured its guaranty with a pledge of 7,500,000 shares of its
common stock.

     Loans to and from Global Concepts, Ltd.

     Global Concepts, Ltd. is a public company whose board of directors
consists of Eduardo Rodriguez and Michael Margolies, who are also the
members of Headliners board of directors.  In March 2005 Global Concepts,
Ltd. borrowed $400,000 from Headliners Entertainment Group, Inc., and used
the proceeds primarily to fund the operations of one of its subsidiaries.
Global Concepts gave a promissory note in the principal amount of $400,000
to Headliners.  The note called for interest at 10% per annum to be paid on
the first day of each month, commencing in April 2005, and for the principal
to be paid in eleven monthly installments of $33,333 and a final installment
of $33,337.  Payment of the principal was scheduled to commence on June 1,
2006.
                                   -21-
<PAGE>

     In August and September 2005 Global Concepts satisfied the note
payable to Headliners.  In addition, Global Concepts loaned approximately
$400,000 to Headliners in the Summer and Fall of 2005.  That loan was not
represented by any note, but was payable on demand.  Headliners satisfied
the loan in December 2005 by issuing 4,000,000 shares of common stock to
Global Concepts, Ltd.  Global Concepts, Ltd. then transferred the shares to
The Margolies Family Trust in partial satisfaction of a loan from the Trust
to Global Concepts.

Item 13.  EXHIBIT LIST AND REPORTS ON FORM 8-K

     (a) Financial Statements

Report of Independent Registered Public Accounting Firm         F-1

Consolidated Balance Sheets                                     F-2

Consolidated Statements of Operations                           F-3

Consolidated Statements of Shareholders' Equity                 F-4

Consolidated Statements of Cash Flows                           F-5

Notes to Consolidated Financial Statements                      F-7

     (b) Exhibit List

3-a    Articles of Incorporation, as amended on May 6, 1993 and August 9,
       1999 - Filed as an exhibit to the Company's Registration Statement on
       Form 10-SB and incorporated herein by reference.

3-a(1) Certificate of Amendment to Articles of Incorporation dated
       March 17, 2003 - filed as an exhibit to the Quarterly Report on
       Form 10-QSB for the period ended March 31, 2003 and incorporated
       herein by reference.

3-1(2) Certificate of Amendment to Articles of Incorporation dated May
       24, 2004 - filed as an exhibit to the Current Report on Form 8-K
       dated June 1, 2004 and incorporated herein by reference.

3-1(3) Certificate of Amendment to Articles of Incorporation dated
       March 3, 2005 - filed as an exhibit to the Annual Report on Form
       10-KSB for the year ended December 31, 2004 and incorporated
       herein by reference.

3-b    By-laws - Filed as an exhibit to the Company's Registration Statement
       on Form 10-SB and incorporated herein by reference.

10-a   Joint Management Agreement dated March 7, 2005 among Headliners
       Entertainment Group, Inc., Global Concepts, Ltd., Eduardo Rodriguez,
       Michael Margolies, The Rodriguez Family Trust and The Margolies Family
       Trust - filed as an exhibit to the Current Report on Form 8-K dated
       March 7, 2005 and incorporated herein by reference.

                                   -22-
<PAGE>

10-b   Amended and Restated Secured Convertible Debenture dated November 17,
       2005 issued by Headliners to Cornell Capital Partners, LP. - filed as
       an exhibit to the Current Report on Form 8-K dated November 17, 2005
       and incorporated herein by reference.

10-c   Amended and Restated Pledge and Escrow Agreement dated November 17,
       2005 between Headliners Entertainment Group, Inc. and Cornell Capital
       Partners, LP - filed as an exhibit to the Current Report on Form 8-K
       dated November 17, 2005 and incorporated herein by reference.

10-d   Amended and Restated Security Agreement dated November 17, 2005
       between Headliners Entertainment Group, Inc. and Cornell Capital
       Partners, LP - filed as an exhibit to the Current Report on Form 8-K
       dated November 17, 2005 and incorporated herein by reference.

10-e   Shopping Center Lease dated November 28, 2003 between Eklecco LLC and
       Palisades Comedy LLC d/b/a Rascals Comedy Club for premises in the
       Palisades Center, West Nyack, NY - filed as an exhibit to the
       Registration Statement on Form SB-2 (333-116117) and incorporated
       herein by reference

10-f   Management Agreement dated June 7, 2005 among Headliners Entertainment
       Group, Inc., Rascals Montclair, Inc., Irrevocable Margolies Family
       Trust, Irrevocable Rodriguez Family Trust and Gerry Pontones - filed
       as an exhibit to the Registration Statement on Form SB-2 (333-116117)
       and incorporated herein by reference

10-g   Settlement Agreement dated July 22, 2005 among Headliners, Paul
       Butler, Jon B. Field, Jon H. Field, and JHF Properties, LLC.- filed as
       an exhibit to the Current Report on Form 8-K dated July 22, 2005 and
       incorporated herein by reference

21     Subsidiaries -    Rascals Comedy Club Stage Door Grill, Inc.
                         D.E.M. Amusements, Inc.
                         Rascals Cherry Hill, Inc.
                         Palisades Comedy LLC
                         1133 Sycamore Street LLC
                         4115 Mill Street LLC
                         296 N. Stone LLC
                         6107 Ridgewood Rd LLC
                         1299 Farnam St LLC
                         JP 4th Street Live LLC

31      Rule 13a-14(a) Certification

32      Rule 13a-14(b) Certification

                                   -23-
<PAGE>

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Audit Fees

     Bagell, Josephs & Company LLC billed $37,400 to the Company for
professional services rendered for the audit of our 2005 financial
statements and $18,000 for professional services rendered for the audit of
our 2004 financial statements..

     Audit-Related Fees

     Bagell, Josephs & Company LLC billed $7,500 to the Company in 2005 and
$0 in 2004 for assurance and related services that are reasonably related to
the performance of the audit or review of the quarterly financial
statements.

     Tax Fees

     Bagell, Josephs & Company LLC billed $0 to the Company in 2005 and
$0 in 2004 for professional services rendered for tax compliance, tax advice
and tax planning.

     All Other Fees

     Bagell, Josephs & Company LLC billed $0 to the Company in 2005
and $0 in 2004 for services not described above.

     It is the policy of the Company's Board of Directors that all
services other than audit, review or attest services, must be pre-approved
by the Board of Directors.  All of the services described above were
approved by the Board of Directors.

                                   -24-
<PAGE>
                  BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
                         Certified Public Accountants

                             High Ridge Commons
                               Suites 400-403
                         200 Haddonfield Berlin Road
                         Gibbsboro, New Jersey 08026
                     (856) 346-2828  Fax (856) 346-2882

          REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders
and Board of Directors
Headliners Entertainment Group, Inc.
Montclair, New Jersey

We have audited the accompanying consolidated balance sheet of
Headliners Entertainment Group, Inc. and Subsidiaries (the "Company")
as of December 31, 2005 and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows
for the years ended December 31, 2005 and 2004. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with standards of the Public
Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free
of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements.  An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial
statement presentation.  We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Headliners Entertainment Group, Inc. and Subsidiaries as of
December 31, 2005 and the consolidated results of its operations,
changes in stockholders' equity (deficit), and cash flows for the years
ended December 31, 2005 and 2004 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements for the year ended
December 31, 2005 have been prepared assuming that the Company will
continue as a going concern.   As discussed in Note 2 to the
consolidated financial statements, the Company has sustained operating
losses and capital deficits that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2.  The consolidated financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.


/s/BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
--------------------------------------------
BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
Gibbsboro, New Jersey

March 29, 2006

             MEMBER OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
                        CENTER FOR PUBLIC COMPANY AUDIT FIRMS (CPCAF)
                        NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
                        PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
                        FLORIDA STATE BOARD OF ACCOUNTANCY

                                                                F-1
<PAGE>

            Headliners Entertainment Group, Inc. and Subsidiaries
                        Consolidated Balance Sheet
                            December 31, 2005

Assets

Current Assets
 Cash (Note 1)                           $   243,671
 Inventory                                   102,620
 Assets to be disposed of (Note 12)          179,000
 Prepaid expenses                            125,038
                                           ---------
 Total Current Assets                        650,329


Property and equipment, net
 (Notes 1 and 4)                           4,295,521

Goodwill (Notes 1 and 14)                    384,062
Intangible assets (Notes 1 and 14)           357,387
Security deposit                               6,500
                                           ---------
 Total Assets                              5,693,799
                                           =========
Liabilities and Stockholders' Deficit

Current Liabilities
 Accounts payable and accrued expenses     2,436,838
 Notes payable (Note 5)                    1,209,369
                                           ---------
 Total Current Liabilities                 3,646,207

Convertible debentures, net of premium
 (Note 15)                                 8,433,416
Fair value of embedded derivative
 (Notes 1 and 15)                          2,389,423
                                          ----------
 Total Liabilities                        14,469,046
                                          ----------
Commitments and Contingencies

Stockholders' Deficit
 Common stock, authorized 500,000,000
  shares, $.001 par value, 26,104,589
  shares issued and outstanding
  (Notes 1, 3 and 10)                         26,105
 Additional paid-in capital               58,580,514
 Prepaid consulting (Notes 1 and 3)          (28,000)
 Accumulated deficit                     (67,353,866)
                                          ----------
 Total Stockholders' Deficit              (8,775,247)
                                          ----------
Total Liabilities and Stockholders'
 Deficit                                 $ 5,693,799
                                          ==========



See notes to the consolidated financial statements.
                                                                F-2

        Headliners Entertainment Group, Inc. and Subsidiaries
                Consolidated Statements of Operations


                                            Year Ended December  31,
                                         ------------------------------
                                              2005            2004
                                         -------------   --------------
Net Sales (Note 1)                        $  8,623,734     $  1,317,898

Costs and Expenses
 Cost of sales                               3,202,710          582,687
                                           -----------      -----------
Gross Profit                                 5,421,024          735,211
                                           -----------      -----------
General and Administrative expenses
 General and administrative expenses         7,416,775        3,650,133
 Stock based compensation (Notes 3 and 7)   40,516,131        5,795,849
                                           -----------      -----------
Total General and Administrative Expenses   47,932,906        9,445,982
                                           -----------      -----------
Other Income (Expense)
 Loss on debt extinguishment                (3,811,193)               -
 Interest expense                           (2,658,994)        (126,812)
 Other income                                  274,678              740
 Gain from sale of intangible asset            288,889                -
                                          -----------      -----------
Total Other Income (Expense)                (5,906,620)        (126,072)
                                           -----------      -----------
Loss From Continuing Operations Before
 Income Tax Provision                      (48,418,502)      (8,836,843)

Provision for Income Taxes (Note 1 and 6)            -                -
                                           -----------      -----------
Loss From Continuing Operations            (48,418,502)      (8,836,843)
                                           -----------      -----------
Discontinued Operations
 Loss from discontinued operations
  (net of tax effect of $0)                   (526,449)         (21,267)
 Loss on disposal of discontinued
 operations (net of tax effect of $0)         (904,699)         (18,075)
                                           -----------      -----------
Loss From Discontinued Operations           (1,431,148)         (39,342)

Net Loss                                  $(49,849,650)    $ (8,876,185)
                                            ==========        =========

Earnings (Loss) Per Share From
 Continuing Operations                    $      (4.19)    $    (107.96)
Earnings (Loss) Per Share From
 Discontinued Operations                         (0.12)           (0.48)
                                           -----------      -----------
Earnings (Loss) Per Share                 $      (4.31)    $    (108.44)
                                           ===========      ===========
Weighted Average Number of Common
 Shares Outstanding                         11,554,633           81,858


See notes to the consolidated financial statements.
                                                                F-3
<PAGE>

            Headliners Entertainment Group, Inc. and Subsidiaries
             Consolidated Statements of Stockholders' (Deficit)
<TABLE>
                                                                                                          Total
                            Common Stock                                                               Stockholders'
                        ---------------------    Paid-in    Accumulated    Prepaid       Deferred        Equity
                        Shares        Amount     Capital     (Deficit)     Consulting    Compensation   (Deficit)
                       -------------------------------------------------------------------------------------------
<S>                     <C>           <C>        <C>          <C>           <C>          <C>           <C>
Balance -
 December 31, 2003      10,731,731  $  10,732  $ 9,263,091 $ (8,628,031) $ (1,729,849) $ (1,120,000) $ (2,204,057)

Issuance of stock       68,975,697     68,975    1,400,586            -             -             -     1,469,561

Stock issued for
 services               17,850,000     17,850    1,128,650            -             -             -     1,146,500

Stock issued for
 deposit                 7,000,000      7,000       (7,000)           -             -             -             -

Stock issued for
 consultant services
 to be provided         20,800,000     20,800    1,741,200            -    (1,762,000)            -             -

Stock issued for
 conversion of debt
 and accrued expenses   64,370,534     64,371    2,479,326            -             -             -     2,543,697

Stock issued to
 employees                 250,000        250       37,250            -             -             -        37,500

Amortization of
 deferred compensation           -          -            -            -             -     1,120,000     1,120,000

Amortization of
 prepaid consulting              -          -            -            -     1,533,339             -     1,533,339

Write-off of prepaid
 consulting for
 which no future
 benefit will be
 received                        -          -            -            -     1,958,510             -     1,958,510

Effect of 1:1,000
 reverse stock split  (189,787,984)  (189,788)     189,788            -             -             -             -

Net Loss                         -          -            -   (8,876,185)            -             -    (8,876,185)
                     --------------------------------------------------------------------------------------------
Balance -
 December 31, 2004         189,978 $      190  $16,232,891 $(17,504,216)  $         -    $        -  $ (1,271,135)
                     --------------------------------------------------------------------------------------------
Stock issued for
 services                5,768,500      5,769   12,733,362            -             -             -    12,739,131

Stock issued for
 consultant services
 to be provided          1,900,000      1,900    2,903,100            -    (2,905,000)            -             -

Stock issued for
 conversion of debt      4,111,111      4,111      294,115            -             -             -       298,226

Stock issued to
 employees              13,365,000     13,365   24,886,635            -             -             -    24,900,000

Stock issued for
 acquisition               770,000        770      301,565            -             -             -       302,335

Issuance of warrants             -          -    1,228,846            -             -             -     1,228,846

Write-off of prepaid
 consulting for
 which no future
 benefit will be
 received                        -          -            -            -     2,877,000             -     2,877,000

Net loss                         -          -            -  (49,849,650)            -             -   (49,849,650)
                      -------------------------------------------------------------------------------------------
Balance -
 December 31, 2005      26,104,589  $  26,105   $58,580,51  (67,353,866)  $   (28,000)    $       -  $ (8,775,247)
                      ===========================================================================================

</TABLE>
                                                                F-4
See notes to the consolidated financial statements.


           Headliners Entertainment Group, Inc. and Subsidiaries
                    Consolidated Statements of Cash Flows


                                            Year Ended December  31,
                                         ------------------------------
                                              2005            2004
                                         -------------   --------------
Cash Flows From Operating Activities
 Continuing Operations
 Loss From Continuing Operations         $ (48,418,502)  $   (8,836,843)


Adjustments to Reconcile Loss to
 Net Cash Used in Operating Activities
 Depreciation                                  762,670           51,531
 Stock based compensation                   37,639,131        1,184,000
 Loss on extinguishment of debt              3,811,193                -
 Gain from sale of intangible assets          (288,889)               -
 Amortization of deferred compensation               -        2,653,339
 Amortization of debt discounts                541,774                -
 Amortization of debt premium                   (4,106)               -
 Write-off of prepaid consulting             2,877,000        1,958,510
 Write-off of unamortized discounts
  and accrued interest from debt
  extinguishments                            1,986,924                -
 Decrease (Increase) in Assets
  Deferred charges                                   -                -
  Security deposit                               3,500          (10,000)
  Prepaid expenses                             (94,284)          (1,500)
  Inventory                                     71,373                -
 Increase (Decrease) in Liabilities
  Accounts payable and accrued expenses        619,117         (334,465)
                                            ----------       ----------
 Cash Used in Continuing Operations           (493,099)      (3,335,428)
                                            ----------       ----------
Discontinued Operations
 Loss from discontinued operations          (1,431,148)         (39,342)
Adjustments to Reconcile Income to Net
 Cash Provided by Operating Activities
 Decrease in net assets of discontinued
   operations                                  941,900           61,815
                                            ----------       ----------
Cash (Used in) Provided by Discontinued
 Operations                                   (489,248)          22,473
                                            ----------       ----------
Net Cash Used in Operating Activities         (982,347)      (3,312,955)
                                            ----------       ----------
Cash Flows From Investing Activities
 Cash paid for investment in LLC's          (1,400,000)      (2,275,000)
 Purchase of property and equipment           (252,085)      (1,223,859)
 Cash paid for construction in progress              -         (558,876)
                                            ----------       ----------
Net Cash Used in Investing Activities       (1,652,085)      (4,057,735)
                                            ----------       ----------
Cash Flows From Financing Activities
 Repayment of notes payable                   (514,335)               -
 Proceeds from notes payable                   435,880          605,260
 Repayment on officer loans                          -          (15,143)
 Proceeds from common stock issued                   -        1,469,561
 Proceeds from convertible debentures        2,927,500                -
 Proceeds from equity line of credit                 -        5,340,000
                                            ----------       ----------
Net Cash Provided by Financing Activities    2,849,045        7,399,678
                                            ----------       ----------
Net Increase in Cash and Equivalents           214,613           28,988

Cash and Equivalents at Beginning of Period     29,058               70
                                            ----------       ----------
Cash and Equivalents at End of Period      $   243,671      $    29,058
                                            ==========       ==========

See notes to consolidated financial statements.
                                                                F-5



          Headliners Entertainment Group, Inc. and Subsidiaries
                   Consolidated Statements of Cash Flows

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Cash paid during the year for:
  Interest                                 $         -      $         -
                                            ==========       ==========
  Income taxes                             $   23,836       $         -
                                            =========        ==========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 During the year ended December 31, 2005, the Company issued a $4,500,000
 promissory note in exchange for $427,500 in cash and the extinguishment of
 an outstanding  obligation of $3,025,000.  Additionally, a discount on the
 note of $1,047,500 was recorded.

 During the year ended December 31, 2005, the Company acquired al of the
 rights, title and interest in six limited liability companies.  In
 connection with the acquisition, the Company issued notes payable
 aggregating $718,435 and issued common stock valued at $301,565.

 During the year ended December 31, 2005, the Company issued a convertible
 debenture in the amount of $3,000,000 in exchange for $2,500,000.  The
 debenture was discounted by $500,000.  The net proceeds of $2,500,000 were
 disbursed directly to a movie production company, pursuant to a subscription
 agreement dated June 28, 2005, in exchange for movie participation rights.
 Subsequently, the Company sold its participation rights to the debenture
 holder in exchange for full settlement of the $3,000,000 debenture and
 accrued interest of $150,000.  The unamortized discount as the time of the
 sale was $361,111.  The sale resulted in a gain of $288,889.

 During the year ended December 31, 2005, the Company issued a convertible
 debenture in the amount of $7,953,698 in exchange for the extinguishment of
 a promissory note of $4,500,000, a convertible debenture in the amount of
 $3,000,000 and accrued interest of $453,698.

 During the year ended December 31, 2005, the Company issued a convertible
 debenture in the amount of $8,192,309 in exchange for extinguishment of a
 $7,953,698  convertible debenture and accrued interest of $238,611.

 During the year ended December 31, 2005, the Company converted $15,000 of a
 convertible debenture into 111,111 shares of common stock.

 During the year ended December 31, 2005, the Company converted $283,226 of a
 note payable into 4,000,000 shares of common stock.

 During the year ended December 31, 2005, the Company issued 1,900,000 shares
 of common stock valued at $2,905,000 for prepaid consulting services.

 During the year ended December 31, 2004, the Company issued 20,800 shares of
 common stock for $1,762,000 of prepaid consulting services.

 During the year ended December 31, 2004, the Company converted $159,052 of
 accrued expenses into 2,000 shares of common stock.

 During the year ended December 31, 2004, the Company converted $69,645 of
 notes payable into 1,000 shares of common stock.

 During the year ended December 31, 2004, the Company converted $2,315,000 of
 its equity line of credit into 61,371 shares of common stock.


 See notes to consolidated financial statements.
                                                                F-6


           Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1)

Basis of Presentation and Business

   Headliners Entertainment Group, Inc. was organized as a Delaware corporation
   in 1992.  It is currently engaged in the business of owning and operating
   entertainment facilities.  These facilities consist of comedy clubs that
   operate under the trade name "Rascals" and night clubs that operate under one
   of the following trade names: "Banana Joe's", "Margarita Mama's", "Red
   Cheetah", "Parrot Beach" or "Cactus Cafe".  Headliners also owns a library of
   comedic performances recorded in its clubs and license this library to
   distributors for replay or reprint.

   These financial statements are presented on a consolidated basis and include
   the results of operations of the parent corporation, Headliners Entertainment
   Group, Inc., and its wholly owned subsidiaries (collectively, the "Company"),
   Palisades Comedy, LLC, formed in 2004 to own and operate a comedy club in
   Nyack, NY, Rascals Stage Door Grill, Inc., Rascals Montclair, Inc., Rascals
   Cherry Hill, Inc., 6107 Ridgewood Road, LLC, 4th Street Live, LLC, 1133
   Sycamore Street, LLC, 296 Stone Street, LLC, 4115 Mill Street, LLC and 1299
   Farnam, LLC.  Each of the aforementioned LLC's were acquired by Headliners in
   an acquisition accounted for under the purchase method on April 1, 2005.
   During 2005, the clubs operating under Palisades Comedy, LLC and 296 Stone
   Street, LLC were closed and on January 2, 2006, the club operating under 1299
   Farnam, LLC was closed.  In 2004, the club operating under Rascals Stage Door
   Grill, Inc. was closed.  These closed clubs have been accounted for as
   discontinued operations in the accompanying consolidated financial
   statements.

   All intercompany accounts and transactions have been eliminated.

   Cash and Cash Equivalents

   Cash equivalents are comprised of certain highly liquid investments with a
   maturity of three months or less when purchased.  At December 31, 2005, the
   Company had no cash equivalents.

   Property and Equipment, Depreciation and Amortization

   Property and equipment is presented at cost.  Depreciation is computed
   utilizing the straight-line method over the estimated useful lives of the
   assets: 5-15 years for Machinery and Equipment and Furniture and Fixtures.
   Amortization of leasehold improvements is computed utilizing the straight-
   line method over the lesser of the remaining lease term or the useful
   life of the leasehold.

   Advertising

   The Company expenses advertising costs as incurred.  Advertising costs for
   the years ended December 31, 2005 and 2004 were $217,912 and $99,259,
   respectively.

   Concentrations

   The Company maintains cash balances at financial institutions.  The balances
   are insured by the Federal Deposit Insurance Corporation up to $100,000.  All
   cash balances were fully insured at December 31, 2005.
                                                                F-7

     
<PAGE>
        Headliners Entertainment Group, Inc. and Subsidiaries
                  Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1), 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 those estimates.

   Earnings (Loss) Per Share

   Earnings (Loss) per common share represents the amount of earnings (loss) for
   the period available to each share of common stock outstanding during the
   reporting period.  Diluted earnings (loss) per share reflects the amount of
   earnings (loss)  for the period available to each share of common stock
   outstanding during the reporting period, while giving effect to all dilutive
   potential common shares that were outstanding during the period, such as
   common shares that could result from the potential exercise or conversion
   of securities into common stock.  The computation of diluted earnings (loss)
   per share does not assume conversion, exercise, or contingent issuance of
   securities that would have an antidilutive effect on earnings (loss) per
   share.

   Potential future dilutive securities include 10,000,000 shares issuable under
   outstanding warrants as of December 31, 2005.

   Income Taxes

   The Company accounts for income taxes using the liability method.  Under this
   method, deferred tax assets and liabilities are determined based on
   differences between financial reporting and tax bases of assets and
   liabilities and are measured using tax rates and laws expected to be in
   effect when the differences are expected to reverse.  Valuation allowances
   are provided against deferred tax assets for which it has been determined the
   assets will not be realized.

   Revenue Recognition

   The Company accounts for revenue from license agreements by amortizing the
   up-front license fee over the life of the agreement. As of December 31, 2005,
   the Company has not received any up-front license fees.  Revenues from
   royalties are recognized upon the sale by the licensee with whom the Company
   has licensing agreements.  As of December 31, 2005 and 2004, the Company
   recognized $30,000 and $12,000 of revenue from license agreements,
   respectively.

   The Company accounts for the revenue from its VIP Platinum memberships by
   deferring the up-front fee and recognizing the revenue ratably over the
   membership term, generally one year.  As of December 31, 2005, the Company
   did not recognize any revenue from its VIP Platinum membership.

   The Company's comedy and night clubs recognize revenue from the sale of
   alcoholic beverages, food, cover charges and merchandise at the point-of-sale
   upon receipt of cash or credit card charge.  As the Company is paid by cash
   or credit card charge, there are no accounts receivable or allowance for
   doubtful accounts at the date of these financial statements.

   Inventories

   Inventories consist of alcoholic beverages, food, and company merchandise.
   Inventories are valued at the lower of cost or market.  Cost of the inventory
   is measured on the first in, first out ("FIFO") method.

                                                                F-8
           Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1), Continued

   Goodwill and Other Intangible Assets

   Goodwill represents the excess of the purchase price over the fair value of
   the net assets acquired and is evaluated annually for impairment.
   Indefinite-lived intangibles are not amortized, but are evaluated annually
   impairment.  Future events could cause the Company to conclude that
   impairment indicators exist and that goodwill and other intangible assets
   associated with our acquired businesses in impaired.

   Derivative Instruments

   The Company has an outstanding convertible debt instrument that contains an
   embedded derivative feature.  The Company accounts for these embedded
   derivatives in accordance with SFAS No. 133, "Accounting for Derivative
   Instruments and Hedging Activities", and EITF Issue No. 00-19, "Accounting
   for Derivative Financial Instruments Indexed to, and Potentially Settled in,
   a Company's Own Stock".  In accordance with the provisions of SFAS No. 133
   and EITF Issue No. 00-19, the embedded derivatives required to be bifurcated
   from the debt instrument and recorded as a liability at fair value on the
   consolidated balance sheet.  Changes in the fair value of the derivatives are
   recorded at each reporting period and recorded in net gain (loss) on
   derivative, a separate component of the other income (expense).  As of
   December 31, 2005, there was no change in the fair value of the derivatives.

   Stock Based Compensation

   Financial Accounting Statement No. 123 ("SFAS No. 123), Accounting for Stock
   Based Compensation, encourages, but does not require companies to record
   compensation cost for stock-based employee compensation plans at fair value.
   The Company has chosen to continue to account for stock-based compensation
   using the intrinsic method prescribed in Accounting Principles Board Opinion
   No. 25, Accounting for Stock Issued to Employees, and related inter-
   pretations.  Accordingly, compensation cost for stock options is measured as
   the excess, if any, of the quoted market price of the Company's stock at the
   date of the grant over the amount an employee must pay to acquire the stock.
   The Company  has adopted the "disclosure only" alternative described in SFAS
   123 and SFAS 148, which require pro forma disclosures of net income and
   earnings per share as if the fair value method of accounting had been
   applied.

   As required by Statement No. 123 the Company accounts for stock issued for
   services to non-employees by reference to the fair market value of the
   Company's stock on the date of issuance as it is the more readily
   determinable value.

   The Company accounts for the prepaid value of consulting services in accor-
   dance with EITF 00-18, "Accounting Recognition for Certain Transactions
   Involving Equity Instruments Granted to Other Than Employees".

   Reclassification

   Certain amounts in the 2004 financial statements have been reclassified to
   conform with 2005 financial statement presentation.  The reclassification had
   no effect on the net loss reported for the year ended December 31, 2004.

GOING CONCERN (NOTE 2)

   The accompanying consolidated financial statements have been prepared on a
   going concern basis, which contemplates the realization of assets and the
   satisfaction of liabilities and commitments in the normal course of business.
   As reflected in the consolidated financial statements, the Company has
   incurred recurring net losses from operations, an accumulated deficit, and
   recurring negative cash flows from operations.  Further, at December 31,
   2005, current liabilities exceed current assets by $2,995,878 and total
   liabilities exceed total assets by $8,775,247.

   These factors all raise substantial doubt about the ability of the Company to
   continue as a going concern.

   Management's plan in regard to the going concern issues it to raise capital
   through the sale of the Company's stock.  In addition, the Company is
   focusing on developing a significant number of clubs to achieve an efficient
   level of operations.
                                                                F-9

            Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements

COMMON STOCK ISSUED FOR SERVICES (NOTE 3)

   During 2005 the Company issued 7,668,500 fully vested, non-forfeitable shares
   of common stock to various consultants for services.  1,900,000 of the shares
   issued were for $2,905,000 of services that extend in to the future and are
   amortized monthly over the period of the agreement, ranging from one to three
   years.  5,768,500 of the shares issued were for $12,739,131 of services
   performed in 2005 and charged to operations in 2005.  All shares issued were
   valued at the fair market value at the date of the agreement, as there was no
   readily determinable value for the consulting services provided or to be
   provided.

   During 2004 the Company issued 38,650 fully vested, non-forfeitable shares of
   common stock to various consultants for services.  20,800 of the shares
   issued were for $1,762,000 of services that extend in to the future and are
   amortized monthly over the period of the agreement, ranging from one to five
   years.  17,850 of the shares issued were for $1,146,500 of services performed
   in 2004 and charged to operations in 2004.  All shares issued were valued at
   the fair market value at the date of the agreement, as there was no readily
   determinable value for the consulting services provided or to be provided.

   Due to factors that may lead to uncertainty regarding the future economic
   benefit of the prepaid consulting services $2,877,000 and $1,958,510 of
   prepaid consulting services have been charged to operations for the years
   ended December 31, 2005 and 2004, respectively.

PROPERTY AND EQUIPMENT (NOTE 4)

   A summary of property and equipment is as follows:

   Leasehold Improvements          $  3,916,762
   Machinery and Equipment              459,526
   Furniture and Fixtures             1,047,149
                                      ---------
   Total                              5,423,437
   Less:  Accumulated Depreciation    1,127,916
                                      ---------
                                   $  4,295,521
                                      =========

   Depreciation expense was $820,366 and $51,531 for the years ended December
   31, 2005 and 2004, respectively.

NOTES PAYABLE (NOTE 5)

   Notes payable at December 31, 2005 consist of the following:

   Note payable of $119,000 at 16% interest per annum.  This note is currently
   in litigation.

   Note payable of $388,769 at 12% interest per annum.  This note has no
   specific repayment terms.  As of December 1, 2005, this note includes accrued
   interest of $74,414.

   Note payable issued in connection with an amendment to a settlement agreement
   for the acquisition of LLC's.  Consisted of five weekly payments of $74,687,
   which commenced on August 3, 2005, eleven weekly payments of $20,000, which
   commenced on November 8, 2005, and 8 weekly payments of $15,000 which
   commenced on December 27, 2005, with a final payment of $5,000 on January 17,
   2006.  The note was non-interest bearing.  As of December 31, 2005, the
   outstanding balance on the note was $204,100.

   In March of 2005, the Company loaned $400,000 to another publicly traded
   entity whose Chief Executive Officer was also the Chief Executive Officer of
   Headliners Entertainment Group, Inc.  The loan bears interest at the rate of
   10% per annum.  The interest is to be paid on the first day of each month,
   commencing April 2005. The note was to be repaid in eleven monthly
   installments of $33,333 commencing on June 1, 2006.  A final payment in the
   amount of $33,337 is due on May 1, 2007.  The note plus accrued interest of
   $13,377 was repaid during the three months ended  September 30, 2005.
   Subsequent to the loan being repaid, the Company received advances

                                                                F-10

            Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements

NOTES PAYABLE (NOTE 5) (Continued)

   from the other publicly traded entity aggregating $283,226.  On December 22,
   2005, the Company issued 4 million shares to the other publicly traded
   entity in full settlement of the $283,226 of advances.

   During 2004, a shareholder loaned the Company $497,500.  This loan is due on
   demand and bears no interest.

INCOME TAXES (NOTE 6)

   Provision for income taxes consist of the following:

                                           December 31,
                                       --------------------
                                          2005       2004

                 Current
                  Federal               $    -     $    -
                  State                      -          -
                                         -----      -----
                  Total                 $    -     $    -
                                         =====      =====

   The components of the Company's deferred tax asset is as follows:


                 Deferred tax asset          $ 26,547,000
                 Less:  Valuation Allowance   (26,547,000)
                                               ----------
                 Net Deferred Tax Asset      $          -
                                               ==========

   Due to the uncertainty of profitable operations, and the restrictions and
   limitations on the usage of the Company's net operating losses, a valuation
   allowance for the full amount of the deferred tax asset has been recorded.
   At December 31, 2005, the valuation allowance increased $21,817,000 over the
   preceding period.

   A reconciliation of the federal statutory tax amount to the Company's actual
   tax amount for the year ended December 31, 2005 and 2004 is as follows:


                                            December 31,
                                       ----------------------
                                         2005          2004

                 Statutory Benefit       34%           34%
                 Loss for Which No
                  Benefit was Received  (34%)         (34%)
                 Non Deductible Expenses  -             -
                                        ----          ----
                 Effective Rate           -             -
                                        ====          ====

   The Company has available at December 31, 2005, unused net operating loss
   carryforwards that may be applied against future federal and state income
   tax and that expire as follows.
                                                                F-11

            Headliners Entertainment Group, Inc. and Subsidiaries
                Notes to the Consolidated Financial Statements

INCOME TAXES (NOTE 6) (Continued)

                                                    Amount of Unused
                                                     Operating Loss
                                                      Carryforward
                                               --------------------------
                                                 Federal         State
    Expiration during year ending December 31,
                                  2007         $         -   $    12,000
                                  2009                   -       585,000
                                  2010                   -     2,953,000
                                  2011                   -     8,495,000
                                  2012                   -    49,849,000
                                  2020              12,000             -
                                  2022             587,000             -
                                  2023           2,953,000             -
                                  2024           8,497,000             -
                                  2025          49,849,000             -
                                                ----------    ----------
                                               $61,898,000   $61,894,000
                                                ==========    ==========


COMMITMENTS AND CONTINGENCIES (NOTE 7)

  Operating Leases

  The Company leases its corporate offices, entertainment clubs and certain of
  its liquor licenses under operating leases expiring in various years through
  2014.

  Minimum future rental payments under non-cancelable operating leases having
  remaining terms in excess of 1 year as December 31, 2005, for each of the next
  5 years and in the aggregate are:


                         Year Ending
                                2006         $ 1,155,174
                                2007           1,166,092
                                2008           1,051,408
                                2009             736,108
                                2010             747,980
                          Thereafter           1,472,014
                                               ---------
                                             $ 6,328,776
                                               =========



  Certain operating leases provide for renewal options for periods from 5 to 10
  years at the time of renewal.  In the normal course of business, operating
  leases are generally renewed or replaced by other leases.

  Certain of the operating leases also contain a provision for contingent rental
  payments based on monthly gross revenues.  For the year ended December 31,
  2005, the Company did not meet any contingent rentals based on monthly gross
  revenues.

  Rent expense for the years ended December 31, 2005 and 2004 was $1,462,487 and
  $79,915.

                                                                F-12

          Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements


COMMITMENTS AND CONTINGENCIES (NOTE 7) (Continued)

  Joint Management Agreement

  On March 7, 2005 the Company entered into a joint management agreement with
  Global Concepts, Ltd., Eduardo Rodriguez, Michael Margolies, The Rodriguez
  Family Trust and the Margolies Family Trust.  Global Concepts, Ltd is a
  publicly traded company of which Michael Margolies is the President.  The
  joint management agreement has replaced the employment contracts previously
  entered into with the Company's President and Vice Chairman and Secretary.

  Per the joint management agreement, the Rodriguez Family Trust and the
  Margolies Family Trust organized a limited liability company.  The Trusts, as
  well as Rodriguez and Margolies, contributed their shares of the Company to
  the limited liability company on August 15, 2005.  The Company will pay a fee
  of $5,000 per month to the limited liability company in compensation for the
  services of Rodriguez and Margolies.  Also, the Company entered into a five
  year employment agreement with Rodriguez, a five year advisory agreement with
  Margolies, Margolies resigned from his position as Vice Chairman and Margolies
  and Rodriguez agreed to serve as members of the Company's board of directors.

  During the year ended December 31, 2005, the Company granted the limited
  liability company an aggregate 12,600,000 shares of common stock valued at
  $23,200,000.

  The Company's employment agreement with Rodriguez provides that he will serve
  as President for an annual compensation of $200,000 and an automobile
  allowance of $1,000 per month.  The employment agreement terminates on January
  31, 2010.

  The Company's advisory agreement with Margolies provides that he will consult
  with the board of directors and the President on matters of business
  development, investor relations, public relations and finance.  The Company
  will pay Margolies and annual fee of $25,000 for his services.  The advisory
  agreement terminates on January 31, 2010.

                                                                F-13


<PAGE>
          Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements

FAIR VALUE OF FINANCIAL INSTRUMENTS (NOTE 8)

  The carrying amount of cash,  inventory, prepaid expenses, accounts payable
  and deferred income and credits approximates fair value because of the short
  maturity of these instruments.  The fair value of the Company's debt
  obligation approximates its carrying value and is based on the current rates
  offered to the Company for debt of the same remaining maturities with similar
  collateral requirements.

LIMITATIONS (NOTE 9)

  Fair value estimates are made at a specific point in time, based on relevant
  market information and information about the financial statement.  These
  estimates are subjective in nature and involve uncertainties and matters of
  significant judgement and therefore cannot be determined with precision.
  Changes in assumptions could significantly affect the estimates.

STOCK BASED COMPENSATION (NOTE 10)

  During the years ended December 31, 2005 and 2004, the Company issued 600,000
  and 250,000 common shares, respectively to various employees as additional
  compensation.  The shares were valued as of the date of issuance and amounted
  to $380,000 and $37,500, respectively.

  On May 21, 2004, the Company issued common stock purchase warrants to its
  President and Vice Chairman.  An aggregate of 165,000 warrants were issued.
  Each warrant entitles its holder to purchase 1 common share at an exercise
  price of $90.00 per share.  The Company accounted for the warrants under APB
  Opinion No. 25, Accounting for Stock Issued to Employees.  No stock-based
  employee compensation cost is reflected in the net loss, as the warrants had
  an exercise price equal to the market value of the underlying common stock on
  the date of the grant.  The following table illustrates the effect on net
  loss and loss per share if the Company had applied the fair value recognition
  provisions of FASB Statement No. 123, "Accounting for Stock Based
  Compensation" to Stock Based Employee Compensation.  In 2005, the President
  and Vice Chairman surrendered these warrants to the Company.

                                          Year Ended
                                       December 31, 2004
                                       -----------------
         Net loss, as reported           $ (8,876,185)
         Deduct: Total stock-based
          employee compensation
          expense determined under
          fair value based method         (12,540,000)
                                           ----------
                                         $(21,416,185)
                                           ==========

         Loss Per Share - as reported    $    (108.44)
                                           ==========

         Proforma                        $    (261.63)
                                           ==========
  The Company has estimated the fair value of the warrants using the Black-
  Scholes option-pricing model.  The following assumptions were used:

                      Interest rate         2.57%
                      Dividend yield        0.00%
                      Expected volatility   200%
                      Expected life         2 years

                                                                F-14


<PAGE>
          Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements

WARRANTS (NOTE 11)

  A summary of the warrant activity for the two years ended December 31, 2005
  is set forth below:

                                                            Weighted
                                                             Average
                                          Warrants       Exercise Price
                                         ----------     ----------------
  Outstanding at January 1, 2004                 2        $   193,000
  Granted                                  165,000              90.00
  Exercised                                      -                  -
  Canceled/Expired                               1             43,000
                                        ----------         ----------
  Outstanding at December 31, 2004         165,001              90.00
  Granted                               10,000,000                .20
  Exercised                                      -                  -
  Canceled                                 165,001              90.00
                                        ----------         ----------
  Outstanding at December 31, 2005      10,000,000        $       .20
                                        ==========         ==========

  The 10,000,000 outstanding warrants as of December 31, 2005 expire on November
  17, 2010 and were issued in connection with a convertible debenture (See Note
  15).

DISCONTINUED OPERATIONS (NOTE 12)

  During 2005, the Company decided to cease operations at three locations.  The
  locations at Tucson, AZ and Palisades, NJ were closed due to declining sales
  and costly rents.  The location at Omaha, NE was closed due to the Company
  deciding not to renew it's lease upon expiration due to declining sales.  The
  discontinued operations from these locations generated sales of $1,396,951
  and $0 in 2005 and 2004, respectively and an operating loss of $526,449 and
  $0 in 2005 and 2004, respectively.

  During 2004, the Company decided to cease operations at its Ocean, NJ
  location, effective in the first quarter of 2004.  The decision to cease
  operations was based on the decline in sales and major renovations needed for
  the building.  The prior years operating activities of the Ocean, NJ location
  have been reclassified to discontinued operations in the accompanying State-
  ment of Operations.  The discontinued operations generated sales of $294,750
  and $818,853 in 2004 and 2003, respectively and an operating loss of $21,267
  in 2004 and operating income of $47,511 in 2003.

  During 2003, the Company ceased operations at its West Orange, NJ location.
  The decision to cease operations was based on the expiration of the lease
  and the landlord's decision to sell the property.  The 2003 operating
  activities of the West Orange, NJ location have been reclassified to
  discontinued operations in the accompanying Statement of Operations.  In
  2003, the discontinued operations generated sales of $1,206,750 and
  operating income of $192,436.

  Assets to be disposed of at December 31, 2005 consist of liquor licenses
  and are expected to be sold during 2006.
                                                                F-15

      
<PAGE>
      Headliners Entertainment Group, Inc. and Subsidiaries
                Notes to the Consolidated Financial Statements

NEW ACCOUNTING PRONOUNCEMENTS (NOTE 13)

  SFAS 123 (revised 2004) "Share-Based Payment" (SFAS 123R)

  In December 2004, the FASB issued SFAS 123R, "Share-Based Payment." SFAS 123R
  requires entities to recognize compensation expense in an amount equal to the
  fair value of share-based payments granted to employees.  The statement
  eliminates the alternative to use the intrinsic value method of accounting
  previously available under Accounting Principles Board (APB) Opinion No. 25.
  The statement is effective as of the first interim or annual period beginning
  after June 15, 2005, with early implementation permitted.  A cumulative effect
  of a change in accounting principle is recorded for the effect of initially
  applying the statement.

  The Company will implement SFAS 123R in the first quarter of 2006 using the
  modified prospective method.  This method requires us to record compensation
  expense for all awards we grant after the time of adoption and to recognize
  the unvested portion of previously granted awards that remain outstanding at
  the time of adoption as the requisite service is rendered.  The compensation
  cost will be based on the grant date fair value of the equity award.  The
  Company does not expect a material impact to consolidated financial statements
  from the adoption of SFAS 123R.

BUSINESS COMBINATIONS (NOTE 14)

  On March 29, 2005, the Company entered into a Consolidated Acquisition Agree-
  ment with Paul Butler and JHF Property Holdings, LLC ("JHF").  Pursuant to the
  Consolidated Acquisition Agreement, effective March 31, 2005, the Company
  acquired all of the rights, title and interest in five limited liability
  companies and the right to receive the net income of a sixth limited liability
  company.  The Consolidated Acquisition Agreement, provided for the Company to
  acquire ownership of the sixth limited liability company at a future date.
  Each of the limited liability companies operates an entertainment complex
  consisting of a dance club and other facilities, one each in Cincinnati,
  Kansas City, Tucson, Jackson, Louisville and Omaha.

  In accordance with the Consolidated Acquisition Agreement, the Company and JHF
  commenced development of a comedy club utilizing the Rascals trademark in
  Hampton, VA.  JHF was responsible for supervising the development and
  construction of the club for a fee and the Company retained all of the rights,
  title and interest in the club.

  The consideration paid to JHF for the acquisition of the five limited
  liability companies, the right to receive the net income of the sixth
  limited liability company and the development and construction of the
  Hampton, VA comedy club consisted of $3,675,000 in cash payments, a 0%
  convertible debenture due on March 31, 2008 in the principal amount of
  $5,000,000 and 7,000 shares of the Company's common stock.

  Additionally, the Consolidated Acquisition Agreement contained provisions
  under which, JHF would manage the seven properties.  In consideration for
  the management services, the Company issued common stock with a market value
  of $2,300,000 to JHF.  The Company has committed that if the proceeds
  realized by JHF from selling the shares are less than $2,300,000, the
  Company will issue additional shares until JHF realizes $2,300,000.
  Additionally, the Company agreed to make weekly cash payments to JHF for
  their management services.
                                                                F-16


<PAGE>
         Headliners Entertainment Group, Inc. and Subsidiaries
             Notes to the Consolidated Financial Statements

BUSINESS COMBINATIONS (NOTE 14), Continued

  On July 22, 2005, the Company entered into a Settlement Agreement with JHF
  Property Holdings, LLC, Paul Butler, Jon B. Field and Jon H. Field
  (collectively, "JHF").  The Settlement Agreement settled a lawsuit that the
  Company had brought against JHF alleging fraud and breach of contract.  The
  settlement Agreement contained the following provisions, which amended the
  terms under which the Company acquired the six limited liability companies.
  The acquisition has been recorded in the accompanying financial statements
  effective, April 1, 2005, in accordance with these amended terms:

  (1) The Company's ownership of the limited liability companies that own the
      six dance clubs has been acknowledged.

  (2) The Company assigned to JHF all of its interest in the comedy club
      built in Hampton, VA.

  (3) JHF surrendered the $5,000,000 convertible debenture issued to them
      pursuant to the Consolidated Acquisition Agreement.

  (4) The Company's agreement with JHF to manage the clubs has been terminated.

  (5) All of the Company's payment obligations under the Consolidated
      Acquisition Agreement have been terminated.  In lieu thereof, the
      Company agreed to pay to JHF:

      (a) five weekly payments of $74,687 (totaling $373,435), commencing on
          August 3, 2005;

      (b) $20,000 per week for eleven consecutive weeks commencing on November
          8, 2005;

      (c) $15,000 per week for eight consecutive weeks commencing on December
          20, 2005;

      (d) Final payment of $5,000 on February 21, 2006.

      The aggregate acquisition price for the six clubs was $4,695,000 which
      included cash in the amount of $3,675,000 ($2,275,000 paid in 2004 and
      $1,400,000 paid in 2005), 777,000 shares of the Company's commons stock
      valued at $301,565 (which represents the proceeds realized by JHF from
      the sale of stock issued to them) and issuance on non interest bearing
      notes payable to JHF aggregating $718,435 (see 5, above).  The balance
      due on these notes at December 31, 2005 is $204,100.  (SEE NOTE 4).

      The transaction was accounted for as an acquisition of the six limited
      liability companies under the purchase method of accounting in accor-
      dance with Statement of Financial Accounting Standards. No. 141,
      Business Combinations.  Under the purchase method of accounting, the
      total purchase price is allocated to the net tangible and intangible
      assets acquired by the Company in connection with the transaction, based
      on their fair values as of the completion of the transaction.  The excess
      cost over the net tangible and identifiable intangible assets in allocated
      to goodwill.
                                                                F-17


<PAGE>
             Headliners Entertainment Group, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

BUSINESS COMBINATIONS (NOTE 14), Continued


  The following is a summary of the final purchase price allocation of the
  assets acquired and liabilities assumed in conjunction with the acquisition
  based upon their estimated fair market values.

             Inventory                           $   173,993
             Fixed assets                          3,998,062
             Other current assets                     29,254
             Liquor licenses                         179,393
             Trade names                             220,000
             Goodwill                                384,063
             Accounts payable and accrued expenses  (289,765)
                                                   ---------
             Total Purchase Price                $ 4,695,000
                                                   =========

  The fixed assets acquired at fair value consist of leasehold improvements of
  $3,175,000 and are being amortized over the term that includes required lease
  periods and renewals that are deemed to be reasonably assured, generally three
  to thirteen years.  Of the $179,393 of liquor licenses acquired, $96,387 are
  owned by the entities acquired and have been determined to have an indefinite
  life.  The remaining liquor licenses of $83,006 are leased and are being
  amortized over the term that includes required lease periods and renewals that
  are deemed to be reasonably assured, generally three to thirteen years.  The
  trade names acquired of $220,000 have been determined to have an indefinite
  life.

  The results of operations for the six acquired limited liability companies for
  the period after March 31, 2005 are included in the Company's consolidated
  financial statements.  Following are pro forma amounts assuming that the
  acquisition was made on January 1, 2004.  These unaudited pro forma results
  are not necessarily indicative of the actual results of operations that would
  have been achieved nor are they necessarily indicative of future results of
  operations.

                                           For the Years Ended December 31,
                                           --------------------------------
                                                2005            2004

                   Net Sales                $  10,020,683    $ 12,671,725
                   Net Loss                 $ (49,455,065)   $ (8,985,975)
                   Loss Per Share From
                    Continuing Operations   $       (4.29)   $    (109.80)

  CONVERTIBLE DEBENTURES (NOTE 15)

  On January 25, 2005, the Company issued a promissory note in the amount of
  $4,500,000, bearing interest at 12% per annum to the same holder of a
  $3,025,000 promissory note which was outstanding at December 31, 2004,  In
  exchange for the promissory note, the note holder paid the Company $427,500
  and surrendered the $3,025,000 promissory.  Additionally, the Company
  discounted the note by $1,047,500 which was being amortized to interest
  expense through the redemption date of the note.  The $4,500,000 promissory
  note was to be repaid in monthly installments of $750,000 plus accrued
  interest commencing on August 25, 2005.
                                                                F-18


<PAGE>
          Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements

  CONVERTIBLE DEBENTURES (NOTE 15), Continued

  This exchange was accounted for in accordance with EITF 96-19, "Debtor's
  Accounting for a Modification or Exchange of Debt Instruments".  EITF 96-19
  requires a debt exchange that results in a substantial modification of terms
  to be accounted as a debt extinguishment.  EITF 96-19 defines a substantial
  modification of terms as the present value of the cash flows under the terms
  of the new debt instrument being more than 10% different from the present
  value of the remaining cash flows of the original debt instrument.
  Furthermore, when a substantial modification of terms exists, the new debt
  instrument is required to be reported at fair value.  The exchange of the
  $3,025,000 promissory note for the $4,500,000 promissory note resulted in a
  substantial modification of terms.  Although the exchange was substantial no
  gain or loss was recorded due to the new promissory notes fair value being
  equivalent to its face value.

  On March 21, 2005, the Company issued a convertible debenture in the amount of
  $3,000,000, bearing interest at 12% per annum.  In exchange for the
  convertible debenture, the Company received $2,500,000.  The note was
  discounted by $500,000.  The discount was being amortized to interest
  expense through the redemption date of the note.  The $3,000,000 convertible
  debenture was to be repaid in thirty monthly installments of $100,000 plus
  accrued interest.

  On August 19, 2005, the Company issued a $7,953,698 convertible debenture in
  exchange for the extinguishment of the January 25, 2005 promissory note of
  $4,500,000, the March 21, 2005 convertible debenture of $3,000,000 and accrued
  interest of $453,698.  The August 19, 2005 debenture bears interest at 12% per
  annum and was due in monthly installments of $400,000 plus accrued interest
  commencing December 1, 2005.

  The exchange of the $4,500,000 promissory note, $3,000,000 convertible
  debenture and accrued interest of $453,698 for the $7,953,698 convertible
  debenture did not result in a substantial modification of terms as defined in
  EITF 96-19.   Consequently, except for a loss of $540,509 from writing off
  the unamortized discounts which has been included in interest expense, no
  other gain or loss has been recognized in this exchange.

  On November 18, 2005, the Company issued an $8,192,309 convertible debenture
  in exchange for the August 19, 2005 $7,953,698 convertible debenture and
  accrued interest of $238,611.  The $8,192,309 convertible debenture bears
  interest at the rate of 10% per annum.  The collateral pledged by the Company
  to secure this convertible debenture includes all of the Company's assets and
  100,000,000 shares of the Company's common stock.  The interest and principal
  is due on November 16, 2010.  The convertible debenture may be converted into
  shares of the Company's common stock at the option of the holder at any time.
  The conversion price is equal to 80% of the lowest closing bid price of the
  Company's common stock of the five trading days immediately preceding the
  conversion date.  In connection with this exchange, the Company issued to the
  holder a warrant to purchase 10,000,000 shares of the Company's common stock
  at an exercise price of $0.20 per share.  The warrant expires on November 17,
  2010.

  The exchange of the $7,953,698 convertible debenture and accrued interest of
  $238,611 for the $8,192,309 convertible debenture resulted in a substantial
  modification of terms as defined in EITF 96-19.  Consequently, the exchange
  was accounted for as a debt extinguishment and a loss of $3,811,193 was
  recorded as a result of valuing the $8,192,309 convertible debenture at fair
  value.
                                                                F-19

  
<PAGE>
        Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements

  CONVERTIBLE DEBENTURES (NOTE 15), Continued

  The warrants issued in connection with the $8,192,309 convertible debenture
  have been valued at $1,460,000 based on a Black-Scholes calculation using
  the following assumption:

       Fair market value of stock           $  0.15
       Exercise price                          0.20
       Dividend yield                          0.00%
       Risk free interest rate                 4.46%
       Expected volatility                     200%
       Expected life                          5 Years


  In accordance with APB 14, "Accounting for Convertible Debt and Debt Issued
  with Stock Purchase Warrants", the proceeds of the $8,192,309 convertible
  debenture have been allocated to the convertible debt and the warrants based
  on their relative fair values.

  In accordance with SFAS 133,"Accounting for Derivative Instruments and Hedging
  Activities" and EITF 00-19, Accounting for Derivative Financial Instruments
  Indexed to, and Potentially Settled in, a Company's Own Stock", the
  conversion feature associated with the $8,192,309 convertible debenture
  represents an embedded derivative.  The Company has recognized the embedded
  derivative in the amount of $2,389,423 as a liability in the accompanying
  consolidated balance sheet and has measured it at its estimated fair value.
  The estimated fair value of the embedded derivative has been calculated based
  on a convertible debt pricing model using the following assumptions:

       Coupon rate                          12%
       Share price                          $0.15
       Expected volatility                  200%
       Risk free interest rate              4.46%
       Market rate of interest              12%
       5 day option value


  Changes in the fair value of the embedded derivative are recorded at each
  reporting period and recorded in net gain (loss) on derivative, a separate
  component of other income (expense).  As of December 31, 2005, there was no
  change in the fair value of the embedded derivative.

  The recognized loss from the exchange of debt resulted in a premium to the
  convertible debenture of $3,811,193.  The allocation of the proceeds of the
  convertible debenture to the warrants and the recognition of the embedded
  derivative resulted in discounts to the convertible debenture of $1,228,846
  and $2,389,423, respectively.  The net premium of $192,924 is being amortized
  to interest through November 16, 2010 using the effective interest method.
  The unamortized premium at December 31, 2005 is $188,806.

  On July 5, 2005, the Company issued a convertible debenture in the amount of
  $67,289.  The debenture bears interest at the rate of 18% per annum and is due
  June 20, 2007.  The debenture is convertible at the option of the holder into
  common shares of the Company at a price per share equal to 95% of the average
  of the closing bid prices of the Company's common stock for the five trading
  days immediately preceding the conversion date.  On October 17, 2005, the
  holder converted $15,000 of this debenture into 111,111 shares of common
  stock.  The outstanding balance of this debenture at December 31, 2005 was
  $52,289.  The embedded derivative of this conversion feature was de minimis.

                                                                F-20

             Headliners Entertainment Group, Inc. and Subsidiaries
                Notes to the Consolidated Financial Statements

SUBSEQUENT EVENT (NOTE 16)

  In February 2006, the Company issued a $360,000 non-interest bearing
  promissory note in exchange for $300,000.  Additionally, in consideration for
  making the loan, the Company issued the note holder 2,000,000 shares of
  common stock valued at $160,000.  The note is due in eighteen monthly
  installments of $20,000 commencing April 1, 2006. The effective interest rate
  of this note is 79%.

  In February 2006, the Company issued 1,000,000 shares of common stock to the
  landlord of its Montclair, NJ facility in settlement of $70,000 of rental
  obligations. The shares were valued at their fair market value on the date of
  issuance.

  In February 2006, the Company issued 2,000,000 shares to a  note holder in
  settlement of $140,000 of debt.  The shares were valued at their fair market
  value on the date of issuance.




                                  SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                              Headliners Entertainment Group, Inc.

                              By: /s/ Eduardo Rodriguez
                              ------------------------------------------
                              Eduardo Rodriguez, Chief Executive Officer


In accordance with the Exchange Act, this Report has been signed below on
April 4, 2006 by the following persons, on behalf of the Registrant and
in the capacities and on the dates indicated.


/s/ Eduardo Rodriguez    Chief Executive Officer, Chief Financial Officer,
    Eduardo Rodriguez     Chief Accounting Officer

/s/ Michael Margolies    Director
    Michael Margolies