**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-QSB**




(Mark
      One)


[x] QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934




For
      the
      quarterly period ended December 31, 2006.


OR




[ 
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934




For
      the
      transition period from ________ to ________




**Commission
      File number 0-26845**





**Theater
      Xtreme Entertainment Group, Inc.**


-------------------------------------------------------------------------------------------------


(Exact
      name of small business issuer as specified in its charter)





Florida


------------------------------------------------------------------------------------------------


(State
      or
      other jurisdiction of incorporation or organization)





65-0913583


-------------------------------------------------------------------------------------------------


(IRS
      Employer Identification No.)





250
      Corporate Boulevard, Suites E & F, Newark, Delaware 19702


---------------------------------------------------------------------------------------------------


(Address
      of principal executive offices)





(302)
      455-1334


---------------------------------------------------------------------------------------------------


(Issuer’s
      telephone number)


N/A


------------------------------------------------------------------------------------------------------


(Former
      name, former address, and former fiscal year, if changed since last
      report)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past twelve months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for the past 90 days. _ X _
      Yes ___
      No





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


__
      Yes
      _X_ No





APPLICABLE
      ONLY TO CORPORATE ISSUERS





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: As of February 2, 2007, there were 19,842,425
      shares of common stock, $0.001 par value, issued and outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes ___ No X





**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**





Form
      10-QSB Index


December
      31, 2006













PagePart
                I:Financial
                InformationItem
                1.
            Financial
                Statements
            3Balance
                Sheet as of December 31, 2006 and June 30, 2006
                (Unaudited)
            3Statements
                of Operations for the Three and
                SixMonths
                Ended December 31, 2006 and 2005 (Unaudited)
            4Statement
                of Changes in Stockholders’ Equity/Deficit
                for theSix
                Months Ended December 31, 2006 (Unaudited)
            5Statement
                of Cash Flows for the Six Months
                EndedDecember
                31, 2006 and 2005
                (Unaudited)
            6Notes
                To Financial Statements (Unaudited)
            7Item
                2.
            Management’s
                Discussion and Analysis or Plan of
                Operation
            13Item
                3.
            Controls
                and Procedures
            15Part
                II:Other
                InformationItem
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            16Item
                6.
            Exhibits
            17Signatures
            
            18











**PART
      I**


**FINANCIAL
      INFORMATION**


**Item
      1. Financial Statements**


**THEATER
                  XTREME ENERTAINMENT GROUP, INC.****BALANCE
                  SHEETS****DECEMBER
                  31, 2006 AND JUNE 30, 2006**
  **DECEMBER
                  31**
              
              **JUNE
                  30,****2006**
              
              **2006****Assets**
              
              **(UNAUDITED)**
              
              **(AUDITED)**Current
                  Assets:Cash
                  and equivalents
              
              $
              803,622
              
              $
              466,481Accounts
                  receivable, net of allowance of $50,000, and $25,000
              
              
              304,275
              
              
              139,893Inventory
              
              
              630,886
              
              
              629,056Prepaid
                  expenses
              
              
              963,991
              
              
              132,679Other
                  current assets
              
              
              111,478
              
              
              15,441Total
                  current assets
              
              
              2,814,252
              
              
              1,383,550Property
                  and equipment, net
              
              
              523,761
              
              
              357,434Other
                  assets:Deposits
              
              
              48,954
              
              
              20,720$
              3,386,967
              
              $
              1,761,704**Liabilities
                  and Stockholders' Equity (Deficit)**Current
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              577,933
              
              $
              646,290Payroll
                  tax liabilities
              
              
              109,940
              
              
              58,715Current
                  portion of notes payable
              
              
              29,113
              
              
              19,129Non-convertible
                  debentures
              
              
              1,500,000
              
              
              -Deferred
                  franchise fees
              
              
              309,000
              
              
              279,000Deferred
                  sales
              
              
              916,305
              
              
              679,706Total
                  current liabilities
              
              
              3,442,291
              
              
              1,682,840Long-term
                  Liabilities:Notes
                  payable, net of current portion
              
              
              97,012
              
              
              47,163Total
                  long-term liabilities
              
              
              97,012
              
              
              47,163Total
                  liabilities
              
              
              3,539,303
              
              
              1,730,003Stockholders'
                  Equity (deficit):Preferred
                  stock, no par value, 5,000,000 shares authorized,no
                  shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock, $.001 par, 50,000,000 shares authorized;19,836,175,
                  19,122,342 shares issuedand
                  outstanding
              
              
              19,836
              
              
              19,122Additional
                  paid in capital
              
              
              5,145,627
              
              
              3,973,742Accumulated
                  deficit
              
              
              (5,317,799
              )
              
              (3,961,163
              )Total
                  stockholders' equity (deficit)
              
              
              (152,336
              )
              
              31,701$
              3,386,967
              
              $
              1,761,704





The
      accompanying notes are an integral part of these financial
      statements.


3





**THEATER
                  XTREME ENTERTAINMENT GROUP, INC.****STATEMENTS
                  OF OPERATIONS****THREE
                  AND SIX MONTHS ENDED DECEMBER 31, 2006 AND
                  2005**
  Three
                  Months Ended
              
              Six
                  Months EndedDecember
                  31
              
              December
                  312006
              
              2005
              
              2006
              
              2005Revenues
              
              $
              1,702,189
              
              $
              983,127
              
              $
              3,164,717
              
              $
              2,003,980Cost
                  of revenues
              
              
              1,014,866
              
              
              565,032
              
              
              1,947,460
              
              
              1,138,933Occupancy
                  expenses
              
              
              104,858
              
              
              78,204
              
              
              226,771
              
              
              153,152Selling,
                  general and administrative expenses
              
              
              1,206,042
              
              
              1,080,250
              
              
              2,262,504
              
              
              1,721,0312,325,766
              
              
              1,723,486
              
              
              4,436,735
              
              
              3,013,116Loss
                  from operations
              
              
              (623,577
              )
              
              (740,359
              )
              
              (1,272,018
              )
              
              (1,009,136
              )Interest
                  income
              
              
              358
              
              
              1
              
              
              600
              
              
              47Interest
                  expense
              
              
              (81,654
              )
              
              (1,371
              )
              
              (85,218
              )
              
              (2,617
              )Net
                  loss
              
              $
              (704,873
              )
              $
              (741,729
              )
              $
              (1,356,636
              )
              $
              (1,011,706
              )Basic
                  and diluted:Loss
                  per common share
              
              $
              (0.04
              )
              $
              (0.04
              )
              $
              (0.07
              )
              $
              (0.06
              )Weighted
                  average shares
              
              
              19,810,900
              
              
              17,428,594
              
              
              19,615,997
              
              
              17,105,708







The
      accompanying notes are an integral part of these financial
      statements.





4


**THEATER
                  XTREME ENTERTAINMENT GROUP, INC.****STATEMENT
                  OF STOCKHOLDERS' EQUITY
                  (DEFICIT)****SIX
                  MONTHS ENDED DECEMBER 31,
                  2006**
  Additional
              
              
              
              TotalCommon
              
              Paid-in
              
              Accumulated
              
              Stockholders'Stock
              
              Capital
              
              Deficit
              
              Equity
                  (Deficit)Balance
                  at June 30, 2006
              
              $
              19,122
              
              $
              3,973,742
              
              $
              (3,961,163
              )
              $
              31,701Issuance
                  of common stock, purchase of assets
              
              
              40
              
              
              39,960
              
              
              -
              
              
              40,000Issuance
                  of common stock, services rendered,net
                  of transfer agent and legal fees
              
              
              500
              
              
              424,500
              
              
              -
              
              
              425,000Vested
                  employee stock options
              
              
              -
              
              
              64,805
              
              
              -
              
              
              64,805Vested
                  non-employee stock options
              
              
              -
              
              
              4,780
              
              
              -
              
              
              4,780Issuance
                  of common stock, exercise of employeeoptions,
                  net of transfer agent and legal fees
              
              
              174
              
              
              60,440
              
              
              -
              
              
              60,614Issuance
                  of warrants,non-convertible
                  debentures
              
              
              -
              
              
              577,400
              
              
              -
              
              
              577,400Net
                  loss for the Six months endedDecember
                  31, 2006
              
              
              -
              
              
              -
              
              
              (1,356,636
              )
              
              (1,356,636
              )Balance
                  at December 31, 2006
              
              $
              19,836
              
              $
              5,145,627
              
              $
              (5,317,799
              )
              $
              (152,336
              )








The
      accompanying notes are an integral part of these financial
      statements.





5




**THEATER
                  XTREME ENTERTAINMENT GROUP, INC.****STATEMENTS
                  OF CASH FLOWS****SIX
                  MONTHS ENDED DECEMBER 31****(UNAUDITED)**
  2006
                
                2005**Cash
                  flows from operating
                  activities:**Net
                    Loss
                
                $
                (1,356,636
                )
                $
                (1,011,706
                )Adjustments
                    to reconcile net loss tonet
                    cash used in operating activities:Depreciation
                
                
                74,643
                
                
                50,390Issuance
                    of common stock for services
                
                
                -
                
                
                283,500Issuance
                    of common stock, purchase of assets
                
                
                40,000
                
                
                -Increase
                    in allowance for doubtful accounts
                
                
                25,000
                
                
                -Employee
                    stock option vesting for compensation
                
                
                64,805
                
                
                -Non-employee
                    stock option vesting for services
                
                
                4,780
                
                
                -Amortization
                    of deferred charges
                
                
                223,465Decrease
                    (Increase) in assetsAccounts
                    receivable
                
                
                (189,382
                )
                
                (6,443
                )Inventory
                
                
                (1,830
                )
                
                (64,544
                )Prepaid
                    expenses
                
                
                (52,377
                )
                
                815Other
                    current assets
                
                
                (96,037
                )
                
                -Increase
                    (Decrease) in liabilitiesAccounts
                    payable and accrued expenses
                
                
                (68,357
                )
                
                221,490Payroll
                    liabilities
                
                
                51,225
                
                
                1,805Due
                    to officer
                
                
                -
                
                
                (243
                )Deferred
                    franchise fees
                
                
                30,000
                
                
                204,000Deferred
                    sales
                
                
                236,599
                
                
                158,583Net
                    cash used in operating activities
                
                
                (1,014,102
                )
                
                (162,353
                )**Cash
                    flows from investing activities:**Deposits
                    on stores and corporate facilities
                
                
                (28,234
                )
                
                -Purchase
                    of property and equipment
                
                
                (30,362
                )
                
                (167,652
                )Net
                    cash used in investing activities
                
                
                (58,596
                )
                
                (167,652
                )**Cash
                    flows from financing activities:**Repayment
                    of notes payable
                
                
                (150,775
                )
                
                -Proceeds
                    from non-convertible debentures
                
                
                1,500,000
                
                
                -Proceeds
                    from convertible notes payable
                
                
                -
                
                
                22,650Proceeds
                    from issuance of common stock
                
                
                60,614
                
                
                487,473Net
                    cash provided by financing activities
                
                
                1,409,839
                
                
                510,123Net
                    decrease in cash
                
                
                337,141
                
                
                180,118Cash
                    and equivalents, beginning of period
                
                
                466,481
                
                
                112,874Cash
                    and equivalents, end of period
                
                $
                803,622
                
                $
                292,992**Supplemental
                    disclosure:**Cash
                    paid for interest
                
                $
                25,128
                
                $
                2,617**Supplemental
                    disclosure of non-cash****investing
                    and financing activites:**Liabilities
                    assumed as part of acquisition of property
                
                $
                2,598
                
                $
                -Liabilities
                    assumed as part of merger
                
                $
                -
                
                $
                13,026Acquisition
                    of property and equipmentby
                    issuance of notes payable
                
                $
                210,608
                
                $
                36,530Prepaid
                    consulting servicesby
                    issuance of common stock
                
                $
                425,000
                
                $
                -Deferred
                    financing chargesby
                    issuance of warrants
                
                $
                577,400
                
                $
                -




The
      accompanying notes are an integral part of these financial
      statements.


6


**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**





**Note
      1: Nature of Operations and Significant Accounting
      Policies**





*Basis
      of Presentations.* The
      accompanying unaudited financial statements have been prepared in accordance
      with U.S. generally accepted accounting principles for interim financial
      information and with the instructions for Form 10-QSB and Item 310(b) of
      Regulation S-B. Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments (consisting
      of normal recurring accruals) considered necessary for a fair presentation
      have
      been included. Operating results for the three and six months ending December
      31, 2006 are not necessarily indicative of the results that may be expected
      for
      the year ending June 30, 2007. The unaudited financial statements should be
      read
      in conjunction with the financial statements and footnotes thereto included
      in
      the Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30,
      2006.





*Nature
      of operation.* Theater
      Xtreme Entertainment Group, Inc. (the “Company”), a Florida corporation, is a
      retail store and franchise marketing company engaged in retail sales and
      distribution through the operation of its home cinema design centers, the sale
      of franchise stores and wholesale product distribution to franchisees. The
      Company opened its first Company retail store, “design center,” in September
      2003 in Newark, Delaware. In August 2004, the Company opened a second
      Company-owned design center in Wilmington, Delaware, a third in Bel-Air,
      Maryland in September 2005 and in July, 2006 acquired the business and assets
      of
      a fourth, in Leesport, Pennsylvania, from one of its former franchisees. The
      Company has sold twenty-two franchises, seven of which are open and operating
      as
      franchises and one now operating as a Company-owned store. The Company has
      designed and created large-format home theater entertainment systems offering
      new technology at prices affordable to many families. The Company expects to
      offer franchise licenses nationwide as well as open additional Company-owned
      stores in the Mid-Atlantic region.




*Use
      of Estimates.* The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from these estimates.





*Revenue
      Recognition.* Retail
      sales include all sales from Company-owned design centers. The following is
      a
      summary of earned revenues for the periods indicated:





Three
                Months ended December 31
            
            Six
                Months ended December 312006
            2005
            
            2006
            2005Retail
                sales
            $
                1,305,897
            $
                884,161
            
            $
                2,568,461
            $
                1,808,963Wholesale
                sales
            331,233
            61,052
            
            493,253
            128,076Franchise
                licenses and royalties
            65,059
            37,914
            
            103,003
            66,941Total
                revenues
            $
                1,702,189
            $
                983,127
            
            $
                3,164,717
            $
                2,003,980





Retail
      sales represent the sale and installation of home theater equipment to end
      users. In accordance with the SEC’s Staff Accounting Bulletin No. 104 (SAB 104)
“ *Revenue
      Recognition,”* the
      Company recognizes revenue when persuasive evidence of a customer arrangement
      exists or acceptance occurs, receipt of goods by customer occurs, the price
      is
      fixed or determinable, and the sales revenues are considered collectible.
      Revenue is recognized on such sales when the equipment is delivered and the
      installation is substantially completed. Generally, these events occur on the
      same date. Revenues are recognized pro rata on larger, more complex systems
      where installation occurs over a period of time.





7


**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**





Customer
      deposits on orders that are not completed are shown as deferred sales. Also
      included in deferred sales is an amount that represents the unexpired (unearned)
      portions of paid customer extended service contracts. In addition, the Company
      has deferred revenues from the sales of franchise licenses. Such revenues will
      be recognized when the related franchise design center opens for business,
      as
      that is when the Company has substantially completed its obligations to these
      franchisees.





The
      following is a summary of amounts included in deferred sales at December 31,
      2006 and June 30, 2006:


December
                31, 2006
            
            June
                30, 2006Deferred
                retail sales
            
            $
            890,877
            
            $
            656,130Unearned
                service contract revenue
            
            
            25,428
            
            
            23,576Total
                deferred sales
            
            $
            916,305
            
            $
            679,706





Net
        new
        sales orders were $1,544,875 and $2,805,060 for the three and six months
        ended
        December 31, 2006, respectively.
  *Loss
        Per Share*. The company follows SFAS 128, "Earnings Per Share," resulting in
        the presentation of basic and diluted earnings (loss) per share. For the
        three
        and six months ended December 31, 2006 and 2005, the basic and diluted loss
        per
        share are the same, because the assumed conversion of stock equivalents would
        be
        antidilutive as the Company experienced a net loss for these
        periods.
  *Income
        Taxes* .
        The
        Company accounts for income taxes under SFAS No. 109, “Accounting for Income
        Taxes,” which requires an asset and liability approach to financial accounting
        and reporting for income taxes. Deferred income tax assets and liabilities
        are
        computed annually for temporary differences between the financial statement
        and
        tax bases of assets and liabilities that will result in taxable or deductible
        amounts in the future based on enacted tax laws and rates applicable to the
        periods in which the differences are expected to affect taxable income.
        Valuation allowances are established when necessary to reduce deferred tax
        assets to the amount expected to be realized. Income tax expense is the tax
        payable or refundable for the period plus or minus the change during the
        period
        in deferred tax assets and liabilities.





*Advertising
      Costs.* Advertising
      and sales promotion costs are expensed as incurred. Advertising and promotional
      expense totaled $113,834 and $101,420 for the three months ended December 31,
      2006 and 2005, respectively and $287,616 and $225,240 for the six months ended
      December 31, 2006 and 2005, respectively.





*Stock-Based
      Compensation.* In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard SFAS No. 123 (revised 2004), *Share-Based
      Payment* (“SFAS
      No. 123(R)”). SFAS No. 123(R) supersedes APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      Generally, the approach in SFAS No. 123(R) is similar to the approach described
      in SFAS No. 123. However, SFAS No. 123(R) requires share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      income statement based on their fair values at the date of grant. Pro forma
      disclosure is no longer an alternative.





On
      January 1, 2006, the Company adopted SFAS No. 123(R) using the modified
      prospective method as permitted under SFAS No. 123(R). Under this transition
      method, beginning with the first calendar quarter of 2006, recognized
      compensation costs includes compensation cost for all non-forfeited share-based
      payments granted, based on the grant-date fair value estimated in accordance
      with the provisions of SFAS No. 123(R), and without regard to vesting. In
      accordance with the modified prospective method of adoption, the Company’s
      results of operations and financial position for the three and six months ended
      December 31, 2005 have not been restated.


8


**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**








As
      a
      result of the adoption of SFAS No. 123(R), the Company’s net income was
      approximately $69,585 and $34,541 lower during the three and six months ended
      December 31, 2006, respectively, as a result of stock-based compensation
      expense. These amounts include $4,780 and $2,390 for the three and six months
      ended December 31, 2006, respectively, recognized on behalf of outside
      Directors. As of December 31, 2006, there was $333,221 of unrecognized
      compensation expense and $43,610 of unrecognized expenses for services related
      to non-vested market-based option share awards that are expected to be
      recognized through June 30, 2011.





Accordingly,
      no compensation cost was recognized for stock options issued during any period
      prior to January 1, 2006. Had compensation cost for the Company’s issuance of
      vested stock options been determined based on the fair value at grant dates
      for
      options consistent with the method of SFAS No. 123(R), the Company’s net loss
      and net loss per common share for the three and six months ended December 31,
      2005 would have been modified to the pro forma amounts indicated below. The
      Company uses the Black-Scholes option pricing model to calculate the grant
      date
      fair value of an award, with the following assumptions: no dividend yield,
      expected volatility, risk-free interest rate of from between 3.0% to 5.25%
      and
      expected option life of ten years.





Results
      for the three and six months ended December 31, 2005:





Net
                loss:
            
            Three
                months ended December 31, 2005
            
            Six
                months ended December 31, 2005As
                reported
            
            $
            (741,729
            )
            $
            (1,011,706
            )Pro
                forma
            
            $
            (760,849
            )
            $
            (1,030,826
            )Net
                loss per share:As
                reported
            
            $
            (0.04
            )
            $
            (0.06
            )Pro
                forma
            
            $
            (0.04
            )
            $
            (0.06
            )




Recently
      Issued Accounting Pronouncements.In June 2006, the Financial
      Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN
      48”), Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed
      guidance for the financial statement recognition, measurement and disclosure
      of
      uncertain tax positions recognized in an enterprise’s financial statements in
      accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax
      positions must meet a more-likely-than-not recognition threshold at the
      effective date to be recognized upon the adoption of FIN 48 and in subsequent
      periods. FIN 48 will be effective for fiscal years beginning after
      December 15, 2006 (the Company’s fiscal year 2008) and the provisions of
      FIN 48 will be applied to all tax positions under Statement No. 109 upon
      initial adoption. The cumulative effect of applying the provisions of this
      interpretation will be reported as an adjustment to the opening balance of
      retained earnings for that fiscal year. The Company is currently evaluating
      the
      potential impact of FIN 48 on its consolidated financial
      statements.




In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB
      No. 108”). SAB No. 108 addresses the process and diversity in practice
      of quantifying financial statement misstatements resulting in the potential
      build up of improper amounts on the balance sheet. The Company will be required
      to adopt the provisions of SAB No.108 in its fiscal year 2008. The Company
      currently does not believe that the adoption of SAB No. 108 will have a
      material impact on its consolidated financial statements.




In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
      (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring
      fair value and expands disclosures about fair valuemeasurements. The changes
      to
      current practice resulting from the application of this Statement relate to
      the
      definition of fair value, the methods used to measure fair value, and the
      expanded disclosures about fair value measurements. The Statement is effective
      for fiscal years beginning after November 15, 2007 (the Company’s fiscal
      year 2009) and interim periods within those fiscal years. The Company does
      not
      believe that the adoption of the provisions of SFAS No. 157 will materially
      impact its financial position and results of operations.




**Note
      2: Notes Payable**





On
      July
      1, 2006, the Company purchased the assets and business of its former franchisee,
      Theaters 4 U LLC, located in Leesport, Pennsylvania for a total consideration
      of
      $193,307. In consideration for the purchased assets, the Company paid $10,000
      cash, issued 40,000 shares of the Company’s common stock valued at $1.00 per
      share, or $40,000, assumed liabilities of $2,598 and issued a promissory note
      of
      $140,709. The Company satisfied and retired this obligation on December 31,
      2006.





During
      the six months ended December 31, 2006, the Company issued 400,000 warrants
      to
      purchase the Company’s stock at an exercise price of $1.00 and 560,000 warrants
      to purchase the Company’s common stock at an exercise price of $1.10, as more
      fully described in the paragraphs below.





On
      October 23, 2006, the Company entered into a Securities Purchase Agreement
      with
      two accredited investors (the “October Investors”) for the purchase of (i)
      $500,000 in non-convertible 10% debentures (the “October Debentures”) and (ii)
      warrants (the “October Warrants”) to purchase 400,000 shares of the Company’s
      common stock (the “October Financing”). The October Financing provided the
      Company with aggregate sales proceeds of $500,000. The Company anticipates
      that
      the proceeds of the October Financing net of transaction expenses will be used
      for general corporate purposes. The October Debentures mature on the earlier
      of
      November 13, 2007 and the date that the Company shall have received net proceeds
      from debt and/or equity financings of at least $2,000,000. The October
      Debentures bear interest at 10% per annum. The October Warrants have an exercise
      price of $1.00 per share


9


**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**





representing
      the fair value as of October 23, 2006. The Company has valued the October
      Warrants at $287,500 and will amortize this amount as additional financing
      costs
      over the time of the October Debentures. The Company used the Black-Scholes
      model to calculate the fair value of the warrants, with the following
      assumptions: no dividend yield, 45% volatility, risk-free interest rate of
      4.8%
      and expected warrant life of five years. The October Warrants are subject to
      a
      full ratchet price protection for their five-year life. The Company and the
      October Investors also entered into a Registration Rights Agreement pursuant
      to
      which the Company registered the common stock underlying the October Warrants.
      Each officer and director of the Company also entered into a 90-day lock-up
      agreement with the Investors pursuant to which they agreed not to sell, offer
      to
      sell, contract to sell, agree to sell, hypothecate, pledge, grant any option
      for
      sale or purchase or otherwise dispose of Company common stock or common stock
      equivalents. The Financing was made in reliance on an exemption from securities
      registration afforded by the provisions of Section 4(2) of the Securities Act
      of
      1933.





Between
      November 15, 2006 and November 22, 2006, the Company executed and delivered
      debentures to three accredited investors (the “November Investors”) in the
      aggregate face amount of $300,000 (the “November Debentures”), the proceeds, net
      of transaction expenses, to be used for general corporate purposes. The November
      Debentures mature on November 30, 2007 and may be prepaid at any time in whole
      or in part upon payment of a fee equal to five percent (5%) of the amount of
      principal repayment. The November Debentures bear interest at 15% per annum.
      The
      November Debentures were sold to the Investors in reliance on an exemption
      from
      securities registration afforded by the provisions of Section 4(2) of the
      Securities Act of 1933.





On
      December 22, 2006, the Company entered into a Securities Purchase Agreement
      with
      Kinzer Technology, LLC. (the “December Investor”) for the purchase of (i) a
      $700,000 non-convertible 10% debenture (the “December Debenture”) and (ii)
      warrants (the “December Warrants”) to purchase up to 560,000 shares of the
      Company’s common stock (the “December Financing”). The December Financing
      provided Company with aggregate proceeds of $700,000. The proceeds of the
      December Financing, net of transaction expenses, will be used for general
      corporate purposes. The December Debenture matures on the earlier of November
      15, 2007 and the date that the Company shall have received net proceeds from
      debt and/or equity financings of at least $1,500,000. The December Debenture
      bears interest at 10% per annum. The December Warrants have an exercise price
      of
      $1.10 per share, representing the fair value as of December 22, 2006. The
      Company has valued the December Warrants at $289,900 and will amortize this
      amount as additional financing costs over the time of the December Debenture.
      The Company used the Black-Scholes model to calculate the fair value of the
      warrants, with the following assumptions: no dividend yield, 45% volatility,
      risk-free interest rate of 4.6% and expected warrant life of five years. The
      December Warrants are subject to a full ratchet price protection for the
      five-year life of the Warrants. The December Financing was made in reliance
      on
      an exemption from securities registration afforded by the provisions of Section
      4(2) of the Securities Act of 1933.




10


**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**








**Note
      3: Common Stock**





During
      the six months ended December 31, 2006, the Company issued 40,000 of its common
      shares at $ 1.00 per share for the purchase of certain assets pursuant to an
      asset purchase agreement dated July 1, 2006. See Note 2.





During
      the six months December 31, 2006, the Company issued 500,000 of its common
      shares at $ 0.85 per share for services rendered, which shall be amortized
      over
      a twelve month period, through August, 2007.




**Note
      4: Stock Option Plan**





In
      April,
      2005, shareholders holding a majority of the shares of the Company’s common
      stock approved the adoption of the Company’s 2005 Stock Option Plan (the
“Plan”). The Plan is designed to help the Company attract, motivate and retain
      high quality employees necessary to execute the Company’s business plans
      successfully. On December 21, 2005 shareholders holding a majority of the shares
      of the Company’s common stock approved an increase in the number of common
      shares allocated to the Plan to 2,000,000, up from 1,400,000 shares.
      Participation in the Plan is limited to employees and Directors.




At
      June
      30, 2006, under the 2005 Stock Option Plan, there were outstanding stock options
      to purchase 1,590,000 shares of the Company’s common stock. During the six
      months ended December 31, 2006, the Company granted stock options at an exercise
      price of $1.04 per share for 20,900 shares, in the aggregate, of the Company’s
      common stock to nine employees and granted an aggregate of 30,000 stock options
      at an exercise price of $1.12 to its three outside directors.





During
      the six months ended December 31, 2006, stock options to purchase 67,500 shares
      of the Company’s stock were forfeited due to termination of employment and stock
      options to purchase 173,833 shares of the Company’s common stock were exercised
      at an aggregate exercise price of $0.35 per share.





Accordingly,
      at December 31, 2006, there were 1,399,567 stock options outstanding under
      the
      2005 Stock Option Plan.


11


**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**








A
      summary
      of stock option transactions for the six months ended December 31, 2006 is
      as
      follows:


**Incentive
                  Stock Options**
              
              **Non-Qualified
                  Stock Options****Exercise
                  Price**
              
              **All
                  Non-**
              
              
              
              **Exercise
                  Price****All
                  ISO**
              
              **Vested**
              
              **Per
                  Common**
              
              **Qualified**
              
              **Vested**
              
              **Per
                  Common****Shares**
              
              **Shares**
              
              **Share**
              
              **Shares**
              
              **Shares**
              
              **Share**Balance,
                  June 30, 2006
              
              
              1,440,000
              
              
              268,750
              
              $
              0.35
                  to $1.00
              
              
              150,000
              
              
              37,500
              
              $
              0.35Granted
                  / vested during the period
              
              
              20,900
              
              
              169,166
              
              $
              1.04
              
              
              30,000
              
              
              -
              
              $
              1.12Exercised
                  during the period
              
              
              (173,833
              )
              
              (173,833
              )
              $
              0.35
              
              
              -
              
              
              -
              
              
              xxCancelled
                  / forfeit during the period
              
              
              (67,500
              )
              
              -
              
              $
              0.35
                  to $1.00
              
              
              -
              
              
              -
              
              
              xxBalance,
                  December 31, 2006
              
              
              1,219,567
              
              
              264,083
              
              $
              0.35
                  to $1.04
              
              
              180,000
              
              
              37,500
              
              $
              0.35
                  to $1.12




**Note
      5: Income Taxes**





Deferred
      income taxes reflect the net effect of an operating loss carryforward and
      temporary differences between the carrying amounts of assets and liabilities
      for
      financial reporting purposes and the corresponding amounts used for income
      tax
      purposes.





The
      components of the deferred assets are as follows at December 31, 2006 and June
      30, 2006:





December
                31, 2006
            
            June
                30 2006Net
                operating loss tax benefit
            
            $
            2,039,000
            
            $
            1,539,000Non-deductible
                options and warrants
            
            
            80,000
            
            
            24,000Allowance
                for bad debt
            
            
            30,000
            
            
            8,000Less
                valuation allowance
            
            
            (2,149,000
            )
            
            (1,571,000
            )$
            0
            
            $
            0





A
      valuation allowance was required because the ultimate realization of deferred
      tax assets is dependent upon future taxable income and management believes
      that
      it is more likely than not that the deferred tax asset will not be realized
      through future taxable income. There is no income tax benefit for the losses
      for
      the six months ended December 31, 2006 and December 31, 2005, because management
      has determined that the realization of the net deferred tax asset is not assured
      and has created a valuation allowance for the entire amount of such
      benefits.





At
      June
      30, 2006, the Company had a net operating loss carryforward for Federal and
      state income tax purposes of approximately $3,837,000 which, if not used, will
      expire in the fiscal year ending June 30, 2027.


12


**THEATER
      XTREME ENTERTAINMENT GROUP, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(UNAUDITED)**








**Note
      6: Subsequent Events**





In
      January, 2007, the Company granted warrants to purchase 40,000 shares of the
      Company’s common stock at an exercise price of $1.00 to a consultant in
      consideration for services rendered.


13


**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation**





**Forward-Looking
      Information**





The
      following Management’s Discussion and Analysis should be read in conjunction
      with the Company’s unaudited financial statements and notes for the three and
      six month periods ended December 31, 2006 included herein and its audited
      financial statements and notes for the year ended June 30, 2006 included in
      its
      Annual Report on Form 10-KSB filed with the Securities and Exchange
      Commission.




This
      discussion and other sections of this Quarterly Report contain, in addition
      to
      historical information, forward-looking statements within the meaning of the
      Private Securities Litigation Reform Act of 1995. Forward-looking statements
      involve known and unknown risks, uncertainties and other factors, which may
      cause the Company’s actual results and the performance or achievements expressed
      or implied by these forward-looking statements to differ materially from such
      forward-looking statements. The forward-looking statements included in this
      report may prove to be inaccurate.




These
      statements are based on a number of assumptions concerning future events, and
      are subject to a number of uncertainties and other factors, many of which are
      outside its control. Actual results may differ materially from such statements
      for a number of reasons, including the effects of regulation and changes in
      capital requirements and funding and the other Risk Factors set forth in the
      Company’s Annual Report on Form 10-KSB for the year ended June 30, 2006. In
      light of the significant uncertainties inherent in these forward-looking
      statements, you should not consider this information to be a guarantee by us
      or
      any other person that the Company’s objectives and plans will be achieved. The
      Company does not undertake to update or revise its forward-looking statements
      even if experience or future changes make it clear that any projected results
      (expressed or implied) will not be realized.




**Overview**




The
      Company is a retail store and franchise marketing company engaged in retail
      sales and distribution through the operation of its home cinema design centers,
      the sale of franchise stores and wholesale product distribution to
      franchisees.




The
      Company’s design centers focus on the sale and installation of affordable large
      screen front projection in-home cinema rooms comprised of video and audio home
      theater components. A majority of its home theater systems is installed on-site
      at customer homes, with screen sizes ranging from 80 inches to over 12 feet.
      The
      Company also sells theater seating, interior décor items, accessories and its
      proprietary digital theater management system called OneViewTM. The Company
      targets its home theater system marketing toward a larger consumer base than
      traditional custom home theater companies and focuses on lower retail price
      points in a store setting where customers can easily encounter the complete
      home
      theater experience in a number of home settings.




The
      Company’s first retail store or “design center” opened on September 1, 2003 in
      Newark, Delaware and was built to resemble an actual movie theater. A separate
      distribution center, warehouse and administrative office facility opened in
      February 2004, also in Newark, Delaware. This multi-purpose facility provides
      installation and service, warehousing and product distribution, and other retail
      support services to a cluster of company-owned design centers in contiguous
      and
      surrounding areas. The Company anticipates that it will open additional
      Company-owned design centers in the Mid-Atlantic region in the
      future.




14


The
      following table sets forth the number of design centers:




**Theater
      Xtreme Entertainment** **Group** **,
      Inc.**




**Owned
                and**
              **Operated
                by the**
              **Company**
            **Franchised**
              **and
                Open**
            **Subtotal**
            **Franchised
                but**
              **Not
                Yet Open**
            **Total**Number
                of Design Centers
              at
                June 30, 2006
            3
            6
            9
            12
            21Additions
                and deletions in the three months ended September 30, 2006
            1
            -
            1
            1
            2Number
                of Design Centers
              at
                September 30, 2006
            4
            6
            10
            13
            23Additions
                and deletions in the three months ended December 31, 2006
            -
            1
            1
            1
            2Number
                of Design Centers
              at
                December 31, 2006
            4
            7
            11
            14
            25







The
      Company has a limited operating history for evaluating trends and
      seasonality.




**Results
      of Operations for the three months ended December 31, 2006 compared to the
      three
      months ended December 31, 2005**




Recognized
      sales for the three months ended December 31, 2006 were $ 1,702,189 compared
      to
      $983,127 for the three months ended December 31, 2005. Aggregate gross profit
      amounts and percentages were $687,323 and 40% for the three months ended
      December 31, 2006 as compared to $418,094 and 43% for the three months ended
      December 31, 2005. The following is illustrative for the three months ended
      December 31:




2006
            
            2005Sales
            
            Gross
                Profit
            
            %
            
            Sales
            
            Gross
                Profit
            
            %Retail
            
            $
            1,305,896
            
            $
            584,425
            
            
            45
            %
            
            $
            884,160
            
            $
            374,168
            
            
            42
            %Wholesale
            
            $
            331,233
            
            $
            37,839
            
            
            11
            %
            
            $
            61,052
            
            $
            6,012
            
            
            10
            %Franchise
            
            $
            65,059
            
            $
            65,059
            
            
            100
            %
            
            $
            37,914
            
            $
            37,914
            
            
            100
            %Total
            
            $
            1,702,189
            
            $
            687,323
            
            
            40
            %
            
            $
            983,127
            
            $
            418,094
            
            
            43
            %




The
      increase in sales from 2005 to 2006 reflects continued growth and the
      acquisition of the fourth Company-owned design center in Leesport, Pennsylvania.
      The fluctuation in gross profit percentages continues to reflect the nature
      of
      operations being in a startup stage and the increasingly significant mix impact
      of wholesale sales to franchisees.




15


Occupancy
      expenses for the three months ended December 31, 2006 were $104,858 compared
      to
      $78,204 for the three months ended December 31, 2005. The increase is generally
      attributable to the full six months impact of the Company’s Bel Air, Maryland
      design center and the acquisition of the fourth Company-owned design center
      in
      Leesport, Pennsylvania.




Selling,
      general and administrative expenses for the three months ended December 31,
      2006
      were $1,206,042 compared to $1,080,250 for the three months ended December
      31,
      2005. The increase relates to additional personnel and operating costs
      associated with the full quarter impact of the Company’s Bel Air, Maryland
      design center, the inclusion of the Company’s newly acquired Leesport,
      Pennsylvania design center in July, 2006 and the expansion of Company operations
      toward the creation of a national organization. Expenses for the three months
      ended December 31, 2006 include Advertising and Promotional expenses of $113,834
      compared to $101,420 spent during the three months ended December 31, 2005,
      owing to increased press release expense. Professional fees amounted to $392,020
      for the three months ended December 31, 2006 compared to $335,780 for the three
      months ended December 31, 2005 reflective of increased spending for legal fees
      related to capital financing and public trading issues. Personnel costs account
      for the majority of the remaining increase in selling, general and
      administrative expenses.




**Results
      of Operations for the six months ended December 31, 2006 compared to the six
      months ended December 31, 2005**




Recognized
      sales for the six months ended December 31, 2006 were $3,164,717 compared to
      $2,003,980 for the six months ended December 31, 2005. Gross profit amounts
      and
      percentages were $1,217,257 and 39% for the six months ended December 31, 2006
      as compared to $865,047 and 43% for the six months ended December 31, 2005.




The
      following is illustrative for the six months ended December 31:




2006
            
            2005Sales
            
            Gross
                Profit
            
            %
            
            Sales
            
            Gross
                Profit
            
            %Retail
            
            $
            2,568,461
            
            $
            1,054,238
            
            
            41
            %
            
            $
            1,808,963
            
            $
            786,128
            
            
            44
            %Wholesale
            
            $
            493,253
            
            $
            60,016
            
            
            12
            %
            
            $
            128,076
            
            $
            11,978
            
            
            9
            %Franchise
            
            $
            103,003
            
            $
            103,003
            
            
            100
            %
            
            $
            66,941
            
            $
            66,941
            
            
            100
            %Total
            
            $
            3,164,717
            
            $
            1,217,257
            
            
            39
            %
            
            $
            2,003,980
            
            $
            865,047
            
            
            43
            %




The
      increase in sales from
      2005
      to 2006reflects continued growth and the full six month impact of the
      Company’s Bel Air, Maryland Design Center as well as the acquisition of the
      fourth Company-owned design center in Leesport, Pennsylvania. The fluctuation
      in
      gross profit percentages continues to reflect the nature of operations being
      in
      a startup stage and the increasingly significant mix impact of wholesale sales
      to franchisees. Wholesale sales reflected 16% of total revenues for the six
      months ended December 31, 2006 as compared to only 6% of revenue for the six
      months ended December 31, 2005, and therefore almost three times the mix impact
      on gross margin.




Occupancy
      expenses for the six months ended December 31, 2006 were $226,771 compared
      to
      $153,152 for the six months ended December 31, 2005. The increase is generally
      attributable to the full six month impact of the Company’s Bel Air,
      Maryland Design Center as well as the acquisition of the fourth Company-owned
      design center in Leesport, Pennsylvania.




Selling,
      general and administrative expenses for the six months ended December 31, 2006
      were $2,262,504 compared to $1,721,031 for the six months ended December 31,
      2005. The increase relates to additional personnel and operating costs
      associated with the opening of the Bel-Air, Maryland design center in September,
      2005, the acquisition of the fourth Company-owned design center in Leesport,
      Pennsylvania, and the expansion of Company operations toward the creation of
      a
      national organization. Expenses for the six months ended December 31, 2006
      include Advertising and Promotional expenses of $287,616 compared to $225,040
      spent during the six months ended December 31, 2005 reflecting increased
      billboard and web advertising costs and press releases. Professional fees
      amounted to $579,741 for the six months ended December 31, 2006 compared to
      $393,293 for the six months ended December 31, 2005, reflective of increased
      spending for legal fees related to capital financing and public trading issues.
      Personnel costs account for the majority of the remaining increase in selling,
      general and administrative expenses.






16




**Liquidity**




The
      Company’s cash position increased to $803,622 at December 31, 2006 from $466,861
      at June 30, 2006. The loss for the six months ended December 31, 2006 of
      $(1,356,636) and the increase in accounts receivable of $(189,382) and the
      decrease in accounts payable ($68,357) were partially offset by an increase
      in
      deferred sales liabilities and the issuance of common stock for services and
      purchase of assets and issuance of warrants for debentures sold, resulting
      in a
      net cash used in operating activities of $(1,014,102).




During
      the six months ended December 31, 2006, the Company spent $240,940 for the
      acquisition of vehicles, store equipment, and leasehold improvements of which
      $210,608 was financed.




During
      the six months ended December 31, 2006, to finance its loss, capital
      expenditures, and changes in other working capital items, the Company increased
      its net notes payable by $1,559,833, issued 40,000 shares of its common stock
      at
      $1.00 per share in connection with the purchase of assets, and issued 500,000
      shares of its common stock at $0.85 per share for services. Also, during the
      six
      months ended December 31, 2006 employees and former employees exercised vested
      stock options providing $60,614 in net proceeds to the Company.




The
      Company’s cash flow from operations since inception has been and continues to be
      negative. If the Company does not raise a sufficient amount of capital, it
      may
      not have the ability to remain in business until such time, if ever, when it
      becomes profitable.




The
      Company plans to continue to expand revenue by increasing the number of
      Company-owned design centers, by selling additional franchises, and by
      increasing the product distribution network to franchisees. Although the
      Company-owned design centers produce positive store operating profits in the
      aggregate, and although the franchised design centers provide revenue and
      profits to the Company in the form of royalty payments and profits from
      wholesale sales, the Company’s profits generated from these activities are not
      adequate to offset the Company’s aggregate overhead expenses. To rectify this
      shortfall, the Company either needs to reduce overhead expenses or increase
      the
      number of profitable operating stores to the point where the aggregate
      contribution from such stores offsets the Company’s overhead expense. There is
      no assurance that the Company will be able to do so.




Future
      capital requirements and the adequacy of available funds will depend on numerous
      factors and risks, including the successful expansion and increase in the number
      of Company-owned design centers, the sale of Company franchises on a national
      level, the successful development of internally branded products for
      distribution to franchisees, and the results of risks associated with the
      Company’s ability to establish meaningful consumer market identification,
      branding and penetration, its ability to adapt to rapid technological changes,
      and its ability to successfully compete against intense competitive pressures
      from potentially larger, better capitalized future competitors when such
      competitors enter the Company’s market segment. Further, the Company’s results
      of operations and resulting capital requirements will be affected by a wide
      variety of additional factors and risks including, but not limited to general
      economic conditions, decreases in average selling prices over the life of any
      particular product, new product and technology introductions, the ability to
      acquire sufficient quantities of a given product in a timely manner, the ability
      to develop and maintain critical strategic supply and co-marketing relationships
      and the ability to safeguard intellectual property.








17




In
      the
      event the Company’s plans change or its assumptions change or prove to be
      inaccurate or the funds available prove to be insufficient to fund operations
      at
      the planned level (due to further unanticipated expenses, delays, problems
      or
      otherwise), the Company could be required to obtain additional funds through
      equity or debt financing, through strategic alliances with corporate partners
      and others, or through other sources in order to successfully continue to
      implement its business strategies.




The
      Company does not have any committed sources of additional financing, and there
      can be no assurance that additional funding will be available on acceptable
      terms, if at all. If adequate funds are not available, the Company may be
      required to delay, scale back, or eliminate certain aspects of its business
      plan
      or current operations or attempt to obtain funds through arrangements with
      collaborative partners or others that may require us to surrender rights to
      Company methods, technologies, product development projects, certain products
      or
      existing markets. If adequate funds are not available, the business, financial
      condition and results of operations of the Company will be materially and
      adversely affected.




The
      Company has plans to increase the number of employees and/or independent
      contractors employed, contingent upon its ability to have sufficient funds
      to
      continue to implement its business strategies. The Company anticipates
      significant additional capital expenditures during the coming year in connection
      with the costs of increasing the number of Company-owned design centers, the
      anticipated cost of expanding and replicating the multi-purpose facility and
      the
      costs of implementing and possibly manufacturing Company branded products for
      distribution to franchisees and directly to retail customers.




The
      Company’s current policy is to invest its cash reserves in bank deposits,
      certificates of deposit, commercial paper, corporate notes, U.S. government
      instruments or other investment-grade instruments.




There
      can
      be no assurance that the Company will be able to implement its business
      strategies successfully or that profitability will ever be achieved. The
      Company expects that its future operating results will fluctuate significantly
      from year to year and will be impacted by factors beyond its
      control.




**Item
      3. Controls and Procedures.**





An
      evaluation was performed under the supervision and with the participation of
      the
      Company’s principal executive officer and principal financial officer of the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
      the Exchange Act) as of December 31, 2006. The evaluation revealed to the
      Company’s principal executive officer and principal financial officer that the
      design and operation of the Company’s disclosure controls and procedures were
      effective as of December 31, 2006.




There
      have been no significant changes in the Company’s internal controls over
      financial reporting that have materially affected, or are reasonably likely
      to
      materially affect, the Company’s internal control for the period covered by this
      Quarterly Report on Form 10-QSB.







18


**PART
      II**


**OTHER
      INFORMATION**





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





During
      the six months ended December 31, 2006, the Company issued 40,000 of its common
      shares at $ 1.00 per share, with net proceeds of $40,000, for the purchase
      of
      the Leesport, Pennsylvania franchise assets pursuant to an asset purchase
      agreement dated July 1, 2006.





During
      the six months ended December 31, 2006, the Company issued 500,000 of its common
      shares at $ 0.85 per share, with net proceeds of $425,000, for investor services
      rendered.





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





On
      November 21, 2006, the Company held its annual meeting during which the
      shareholders elected the following individuals as Directors of the Company
      for a
      one-year term, all of whom were incumbent Directors:





**Name**
            
            **Votes**
              **For**
            **Votes**
              **Against**
            **Abstained**Scott
                R. Oglum
            
            12,970,664
            0
            100Justin
                L. Schakelman
            
            12,970,764
            0
            0David
                R. Hludzinski
            
            12,970,764
            0
            0W.
                James Ludlow
            
            12,970,764
            0
            0H.
                Gregory Silber
            
            12,970,764
            0
            0





Additionally,
      at its November 21, 2006 annual meeting, shareholders voted on the following
      proposal:





**Proposal**
            
            **Votes**
              **For**
            **Votes**
              **Against**
            **Abstained**To
                appoint Morison Cogen as the Company’s independent
                auditors
            
            12,914,490
            0
            56,274





**Item
      6. Exhibits**





**Exhibit**
            **Description
                of Exhibit**31.1
            Certification
                pursuant to Rule 13a-14(a) of the
                Securities Exchange Act of 1934, as amended executed by the Chief
                Executive Officer of the Company.31.2
            Certification
                pursuant to Rule 13a-14(a) of the
                Securities Exchange Act of 1934, as amended executed by the Chief
                Financial Officer of the Company.32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                executed
                by the Chief Executive Officer of the Company.32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                executed
                by the Chief Financial Officer of the Company.





19


**SIGNATURES**





In
      accordance with the requirements of the Securities Exchange Act of 1934, the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.





THEATER
                  XTREME ENTERTAINMENT GROUP, INC.February
                  14, 2007
              By:/s/
                  Scott R. OglumScott
                  R. OglumChairman
                  of the Board and Chief Executive OfficerBy:/s/
                  James J. VincenzoJames
                  J. VincenzoChief
                  Financial Officer








20