1 Item 2.     Description of Property 34 Item 3. Legal Proceedings 35 Item 4. Submission Of Matters To A Vote Of the Security Holders 37       Part II           Item 5. Market For Common Equity, Related Stockholder Matters And S Issuer Purchases Of Equity Securities 37 Item 6. Management's Discussion And Analysis Or Plan Of Operation 40 Item 7. Financial Statements 49 Item 8. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure 49 Item 8A. Controls And Procedures 52 Item 8B. Other Information 54       Part III           Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) Of the Exchange Act 55 Item 10. Executive Compensation 57 Item 11. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters 59 Item 12. Certain Relationships And Related Transactions 60 Item 13. Exhibits 61 Item 14. Principal Accountant Fees And Services 63       Signatures     [/TABLE]

i

PART I

Item 1.  Description of Business

Forward Looking Statements

This Report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those projected in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words ‘‘may,’’ ‘‘would,’’ ‘‘could,’’ ‘‘will,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘plan,’’ and ‘‘estimate,’’ as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties include, but are not limited to those described below under ‘‘Risk Factors.’’

As used in this Report, references to the ‘‘we,’’ ‘‘us,’’ ‘‘our’’ refer to TAG Entertainment Corp. unless the context indicates otherwise. TAG Entertainment Corp. may be referred to herein as ‘‘TAG.’’ Our wholly-owned subsidiary, TAG Entertainment USA, Inc. (formerly known as TAG Entertainment, Inc.) will be referred to herein as ‘‘TAG USA.’’ TAG and TAG USA may be collectively referred to in this Annual Report as ‘‘TAG.’’

Overview

TAG Entertainment Corp. and its wholly-owned subsidiary, TAG Entertainment USA, Inc. are engaged in the independent production of family oriented feature films, television programming and other entertainment products for theatrical, television and home video distribution. We also seek to acquire rights to other entertainment properties and film libraries. To date, we have produced and/or obtained the exclusive, worldwide distribution rights to a total of fifteen feature length motion pictures, which films have been produced either by TAG USA or certain limited partnerships. Of these films, three were produced during 2005 and one additional film is currently in preproduction. We have also acquired certain rights to additional feature length motion pictures of varying quality and commercial potential. In 2004, we produced 21 episodes of the television series Arizona Highways: The Television Series for local broadcast. We are currently seeking financing (as discussed below) to produce additional feature films and purchase other family films and entertainment assets. We also intend to acquire certain limited partnerships, including those that granted us the exclusive, worldwide distribution rights to their films, five of which are associated with our Chief Executive Officer. TAG USA was founded in 1999 by Steve Austin, our Chairman and Chief Executive Officer.

Strategy and Source of Revenues

Our strategy is to produce family oriented entertainment products (primarily feature length motion pictures) appealing to a wide segment of the United States and the international theatrical and television audience. We believe that this target group is more predictable in their entertainment preferences than other segments of the entertainment consumer market, and ‘‘evergreen’’ in that younger children are not as likely to reject a motion picture as dated or lacking well known, contemporary stars. Family films are less likely to generate controversy that might adversely reflect on us and harm the prospects for a successful distribution. These factors also allow us to produce, market and distribute feature length films with relatively modest budgets as compared to mainstream motion pictures directed towards an older, more mature audience.

Our revenues are derived from motion picture production and distribution fees, which includes theatrical, home entertainment, television and international distribution. Theatrical revenues are derived from the theatrical release of motion pictures in North America. Home entertainment revenues are derived from the sale of video and DVD releases of our own productions and acquired films, including theatrical releases and direct-to-video releases. Television revenues are primarily

derived from the licensing of our productions and acquired films to the domestic cable, free and pay television markets. International revenues are derived from the licensing of our productions and acquired films to international markets on a territory-by-territory basis. Our primary operating expenses include the following: direct operating expenses, such as amortization of production or acquisition costs, participation and residual expenses; distribution and marketing expenses, which primarily include the costs of theatrical ‘‘prints and advertising’’ and of video and DVD duplication and marketing; and general and administration expenses, which include salaries and other overhead.

Corporate History

We were formerly known as Power Marketing, Inc., which was originally incorporated under the laws of the State of Delaware on August 1, 1995. On November 22, 2004, we consummated a merger with TAG USA in which TAG USA merged with a wholly-owned subsidiary that we established for the purposes of the merger. As a result of the merger, TAG USA became a wholly owned subsidiary of Power Marketing and TAG USA common stockholders and warrant holders received approximately 21,450,000 shares of Power Marketing common stock (and warrants) in exchange for the shares of the TAG USA common stock (and warrants) that they owned. Shareholders of TAG USA owned approximately 90% of our outstanding shares of common stock immediately after the merger.

In connection with the merger, we changed our corporate name to TAG Entertainment Corp., all of our then-current officers and directors resigned and Mr. Austin, who was the majority shareholder, Chief Executive Officer and sole director of TAG USA became our Chief Executive Officer, Chief Financial Officer and sole director. During the 2005 fiscal year, we expanded our board to six directors, four of whom are independent. However, as of March 20, 2006, two of these directors resigned from their service on our board.

General Business Developments During the 2005 Fiscal Year

Bridge and Preferred Stock Financing

On March 30, 2005, we entered into a Securities Purchase Agreement with Satellite Strategic Finance Associates, LLC and Satellite Strategic Finance Partners, Ltd. under which we issued $1.0 million in aggregate principal amount of Senior Secured Notes and warrants to purchase 500,000 shares of common stock. We received gross proceeds of $1,000,000, which have been used for the production and distribution of films, including acquisition of additional product and/or distribution assets and for general working capital. The issuance of these securities was exempt from registration pursuant to Rule 506 promulgated under Section 4(2) of the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirement.  

On May 4, 2005, we completed a private placement with Satellite Strategic Finance Associates, LLC and Satellite Strategic Finance Partners, Ltd. of 5,000 shares of our 6% Series A Convertible Redeemable Preferred Stock, par value $.001 per share, and warrants to purchase 2,000,000 shares of common stock. The placement was made pursuant to a Securities Purchase Agreement, dated May 3, 2005 and the gross proceeds of this transaction were $5,000,000. We repaid out of the gross proceeds the secured notes that we issued to the investors in the bridge financing completed March 30, 2005 and described above. After payment of the notes and offering expenses in the amount of approximately $370,000, we received net proceeds of approximately $3,480,000 from this financing. We are using the net proceeds for the production, acquisition and distribution of feature films and general working capital. The Preferred Stock is convertible at the option of the holder into an initial aggregate amount of 2,000,000 shares of common stock, par value $.001 per share, at an initial conversion price of $2.50 per share; however, as described below, the conversion rate has been adjusted to $1.00. In addition, we are required to redeem the Preferred Stock (a) on its maturity date, which is three years from the issue date; (b) upon a change of control; or (c) if we commit a default under the transaction agreements. The warrants have an initial exercise price of $2.50 per share, are

immediately exercisable and expire in seven years. The sale of the Preferred Stock and warrants to the Investors was exempt from the registration provisions of the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act and/or Regulation D. Accordingly, these securities may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirement.  

Letter of Intent with Myriad Pictures

On March 30, 2005, we entered into a Letter of Intent to acquire a privately held company, Myriad Pictures, Inc., which is engaged in the film production and distribution business. The Letter of Intent provided for a purchase price of approximately $4,000,000, including an earnout payment of up to $2,000,000. In connection with the execution of the Letter of Intent, we provided Myriad with a short term loan of $250,000, bearing interest at the rate of 3% per annum, which Myriad was to use for working capital and to pay for its acquisition costs pending the closing (the ‘‘Myriad Loan’’). The Myriad Loan is secured by a lien on the assets of Myriad. As of February 23, 2006, we notified Myriad that we were terminating negotiations and the letter of intent, effective immediately. Pursuant to its terms, the Myriad Loan, less certain expenses incurred by Myriad and its principle stockholders, was repayable by March 30, 2006 and we have not received repayment as of the date hereof.

Interests in Limited Partnerships

In addition to feature films produced directly by TAG USA and four limited partnerships for which it acts as general partner, our Chief Executive Officer has formed five other limited partnerships and limited liability companies that have engaged TAG USA to produce and distribute five additional feature length films. These companies are each managed by Mr. Austin through separate affiliated companies. TAG USA also acts as the exclusive, worldwide distributor for both affiliated and unaffiliated limited partnerships formed for the purposes of financing various movie projects. We are considering offering to acquire all of our affiliated and certain unaffiliated limited partnerships for shares of our common stock. No letter of intent for these acquisitions has been signed and the terms of the proposed acquisitions have not been determined, and there can be no assurance we will be successful in completing the acquisitions. Furthermore, we may determine to acquire less than all of the limited partnerships and the structure of any particular acquisition has not been determined. However, in the event the acquisitions are completed, the interests of our shareholders will be diluted. The following table lists each of the limited partnerships that we are currently considering acquiring, the title of the motion picture it produced and the identity of its general partner.

Limited Partnership Motion Picture General Partner
Majestic Film Partners LP Castle Rock TAG USA
Majestic Film Partners II LP No Place Like Home TAG USA
Majestic Film Partners III LP Dumb Luck TAG USA
Majestic Film Partners IV LP Hansel & Gretel TAG USA
Animal Partners LP Miracle Dogs Steve Austin Productions, LLC
Family Film Partners VI, LP The Santa Trap Austin Family Entertainment, Inc
Fairy Tale Partners III, LP Red Riding Hood Austin Family Entertainment, Inc
Motocross Kids LP Moto X Kids Austin Family Entertainment, Inc
Downtown the Movie LP* Popstar American Film Ventures, LLC
Supercross The Movie LP* Supercross Enriching Entertainment, LLC
American Black Beauty LP American Black Beauty Austin Family Entertainment, Inc


* Denotes that the subject limited partnership is not affiliated with TAG, TAG USA or its Chief Executive Officer.


A description of these feature films produced and/or distributed are included below under the caption ‘‘Films Produced and/or Distributed by TAG USA.’’

Industry Overview

Motion Pictures

According to the Motion Picture Association of America (the ‘‘MPAA’’), the average theatrical (marketing and negative costs) costs of MPAA member companies (large studios) in 2005 remained in line with 2004 ($96.8 v. $96.2 million), but below the $100 million peak of 2003, despite increasing marketing costs of 5.2%. The average theatrical costs of MPAA members’ subsidiaries (defined as studio ‘‘classics’’ and specialty studios such as Fox Searchlight, Miramax) declined by 6.4% from about $40.4 million in 2004 to $37.8 million in 2005. With the exception of Supercross , we have limited our production costs to a maximum of $10 million for each of our motion pictures. Despite the limited resources generally available to independent studios, independent films have gained wider market approval and increased share of overall box office receipts in recent years. The motion picture industry consists of two principal activities: production and distribution. Production involves the development, financing and production of feature-length motion pictures. Distribution involves the promotion and exploitation of motion pictures throughout the world in a variety of media, including theatrical exhibition, home entertainment, television and other ancillary markets.

In its 2005 MPA Market Statistics for the U.S. Entertainment Industry, the MPAA found that the motion picture industry has continued its growth, both domestically and internationally and that, since 1991, box office receipts have steadily increased and has grown, overall, by almost $6 billion over the past 20 years. The MPAA Report shows that box office receipts increased from $7.66 billion in 2000 to a high of $9.54 billion in 2004 with a slight decrease in 2005 to $8.99 billion. The MPAA Report indicated that the global box receipts, though down from a high of $25 billion in 2004 remained robust at $23 billion in 2005, an amount 46% percent higher than the 2000 box office receipts of $16 billion. In 2005, an all time high was set when 8 movies (all but one was rated PG-13 or lower) each grossed over $200 million in the domestic box office. Total theater admissions, however, decreased from about 1.54 billion patrons in 2004 to 1.4 billion patrons in 2005, a decrease of about 8.7%. As a percentage of entertainment options available, movie going outdrew total attendance at theme parks, sporting events combined (1.4 billion to 468 million), the MPAA determined. We believe this industry performance and growth potential will enable us to successfully compete in this industry.

Television Programming

We believe that television programming also constitutes a growth market for us. The continued growth of the cable and satellite television markets, has increased demand for television programming in general. According to industry data, spending on cable and satellite television increased 10.2% to $76.9 billion in 2002. Cable and satellite television has been one of the most consistently fast-growing media segments over the past five years and spending is expected to increase through the near term. Based on such data, we believe that the increased capacity for channels on upgraded digital cable systems and satellite television has led to the launch of numerous new networks seeking programming to compete with traditional broadcast networks. We believe this will enable us to will enable us to successfully compete in this industry.

Competition

Motion picture production and distribution are highly competitive businesses. We face competition from companies within the entertainment business, as well as from alternative forms of leisure entertainment. We compete with the other major studios, numerous independent motion picture and television production companies, television networks and pay television systems for the acquisition of literary properties, the services of performing artists, directors, producers and other creative and technical personnel and production financing. Numerous organizations with which we compete in the motion picture industry have significantly greater financial and other resources than us.

The U.S. motion picture industry can be divided into major studios and independent companies, with the major studios accounting for a large majority of the number of theatrical releases. The major studios are MGM (including UA Films and Orion), The Walt Disney Company (including Buena

Vista, Touchstone and Miramax Films), Paramount Pictures Corporation, Sony Pictures Entertainment, Inc. (including Columbia Pictures), Twentieth Century Fox Film Corp., Vivendi Universal Entertainment LLP (including Universal Studios and Universal Focus) and Warner Bros. (including Turner, New Line Cinema and Castle Rock Entertainment). The major studios are typically large diversified corporations that have strong relationships with creative talent, exhibitors and others involved in the entertainment industry, and have global film production and distribution capabilities.

Historically, the major studios have produced and distributed the majority of high grossing theatrical motion pictures released annually in the United States. In addition, most of the studios have created or accumulated substantial and valuable motion picture libraries that generate significant revenues. These revenues can provide the major studios with a stable source of earnings that partially offset the variations in the financial performance of their current motion picture releases and other aspects of their motion picture operations.

The independent companies generally have more limited production and distribution capabilities than do the major studios. While certain independent companies may produce as many films as a major studio in any year, independent motion pictures typically have lower negative and marketing costs and are not as widely released as motion pictures produced and distributed by the major studios. Additionally, the independent companies may have limited or no internal distribution capability and may rely on the major studios for distribution and financing. These companies include Lions Gate Entertainment Corp., Dreamworks SKG and Newmarket Films.

In addition, our motion pictures compete for audience acceptance and exhibition outlets with motion pictures produced and distributed by other companies. As a result, the success of any of our motion pictures is dependent not only on the quality and acceptance of a particular picture, but also on the quality and acceptance of other competing motion pictures released into the marketplace at or near the same time. The number of films released by our competitors, particularly the other major film studios, in any given period may create an oversupply of product in the market, thereby potentially reducing our share of gross box office admissions and making it more difficult for our films to succeed.

Competition is also intense within the television industry. There are numerous suppliers of television programming, including the networks, the television production divisions of the major studios and independent producers, all of which compete actively for the limited number of available broadcast hours. Our programming competes with first-run programming, network reruns and programs produced by local television stations. Competition is also intense in supplying motion pictures and other programming for the pay television and home video markets. Numerous organizations with which we compete in the television industry have significantly greater financial and other resources than us.

Our Competitive Strengths and Strategy

Our strategy is to produce family oriented entertainment products (primarily feature length motion pictures intended for initial theatrical distribution) appealing to a wide segment of the United States and the international theatrical and television audience. As confirmed by box office receipts, the family entertainment market has consistently accounted for a large percentage of the annual gross revenues produced by motion pictures. For example, according to the MPAA, since 1968, nine of the top 10 grossing movies (based on U.S. Box Office figures) were all rated PG-13 or lower. Overall, sixteen of the top 20 grossing movies during same period were rated PG-13 or lower. In 2005, the top three grossing domestic box office films were , ‘‘Star Wars: Episode III Revenge of the Sith’’ ($380.3 million (rated PG-13);) ‘‘Harry Potter and the Goblet of Fire’’ ($289.2 million (rated PG-13)) and ‘‘The Chronicles of Narnia’’ ($288.8 million (rated PG )) all of which were family oriented movies, though each was, notably, the product of major studios with budgets in excess of one hundred million dollars ($100 Million). Overall, according to the MPAA, 18 of the top 20 grossing films of 2005 were rated PG-13 or lower. This trend, exhibiting a preference for family oriented films, is also manifested in the sale of home video devices, such as DVDs and videocassettes, where 16 of the top 20 highest grossing sales of such devices in 2004 are for films which were rated PG-13 or lower for gross sales of approximately $3.45 billion on a combined 14.55 million units sold.

We also believe that our target group is more predictable in their entertainment preferences than other segments of the entertainment consumer market, and ‘‘evergreen’’ in that younger children are not as likely to reject a motion picture as dated or lacking well known, contemporary stars. Family films are less likely to generate controversy that might adversely reflect on us and harm the prospects for a film’s successful distribution. These factors also allow us to produce, market and distribute feature length films with relatively modest budgets as compared to mainstream motion pictures directed towards an older, more mature audience.

We plan to build and capitalize on our film and television library by:
•  Producing new motion pictures and television series;
•  Aggressively marketing and repackaging our library’s titles;
•  Developing new distribution channels;
•  Acquiring additional motion pictures and television series;
•  Capitalizing on developments in technology; and
•  Exploiting international markets.


Production and Financing

Motion Pictures

The production of a motion picture requires the financing of the direct costs and indirect overhead costs of development, production and production related services. Direct production and production related service costs include film studio rental, cinematography, post-production costs and the compensation of creative, services and other production personnel. Distribution costs (including costs of advertising and release prints) are not included in direct production costs. The following general description is a simplified overview of the complex process of producing and distributing motion pictures and is intended to aid in understanding the motion picture business. This overview is provided for informational purposes only and does not describe what will necessarily occur in the production of a motion picture by us. During the film-making process, which may take, on the average, approximately 12 to 24 months from the start of the development phase to theatrical release, a film progresses through several stages. The four general stages of motion picture production are development, pre-production, principal photography and post-production. A brief summary of each of the four general movie production stages follows:

Development

In the development stage, underlying literary material for a motion picture project is acquired, either outright, through an option to acquire such rights or by engaging a writer to create original literary material. If the literary material is not in script form, a writer must be engaged to create a script. The script must be sufficiently detailed to provide the production company and others participating in the financing of a motion picture with enough information to estimate the cost of producing the motion picture. Projects in development do not always become completed motion pictures for a wide variety of reasons.

Pre-Production

During the pre-production stage, the production company usually selects a director, actors and other key creative and technical personnel, prepares a budget and secures the necessary financing. In cases involving unique or desired talent, commitments (sometimes known as ‘‘pay or play’’ commitments, under which talent must be paid certain fixed compensation, whether or not a picture is actually produced) must be made to keep performers available for the picture. Some pre-production activities may occur during development.

Principal Photography

Principal photography is the process of filming a motion picture and is the most costly stage in the production of a motion picture. Principal photography may take up to twelve weeks to complete

for some projects. Bad weather at locations, the illness of a cast or crew member, disputes with local authorities or labor unions, a director’s or producer’s decision to re-shoot scenes for artistic reasons and other often unpredictable events can materially delay the scheduled completion of principal photography and substantially increase its costs. Once a motion picture reaches the principal photography stage, it usually will be completed, unless the producer is shooting in increments as funds become available, a practice born out of necessity existing in the independent feature film world to some degree. The cost of assuring its completion can sometimes be insured by means of a bonding instrument commonly known as a completion bond. Completion bonds however will add substantially to the cost of producing a motion picture.

Post-Production

During the post-production stage, the editing of the raw footage and the scoring and mixing of spoken-word dialogue, music and sound effects tracks take place, and negative and positive master printing elements are prepared. Production costs incurred in connection with motion picture production are typically divided between above-the-line costs and below-the-line costs. Above-the-line costs include story rights and screenplay, fees to the producer and director and major members of the cast. Below-the-line costs include fees to creative personnel including the director of photography, production designer and casting director, production facilities (sound stage, film lab, editing room) and location rentals, equipment rentals, raw materials (raw film stock, set construction) and other costs incurred in principal photography and post-production costs, including the creation of special effects and music.

Financing

Independent production companies generally finance their production activities on a picture-by-picture basis. Sources of funds for independent producers include bank loans, ‘‘pre-licensing’’ of distribution rights in exchange for minimum guarantees, motion picture participation interests, joint ventures and public motion picture support programs which include tax funds, tax credit provisions, and other governmental sources of capital for the motion picture industry.

Independent production companies generally attempt to obtain all or a substantial portion of their financing for a motion picture prior to commencement of principal photography, at which point production costs begin to be incurred. Obtaining license agreements with a distributor or distributors prior to completion of a motion picture which provide for payment of a minimum guarantee (often referred to as the ‘‘pre-licensing’’ or ‘‘pre-selling’’ of motion picture rights), may enable the producer to obtain financing for its project by using the contractual commitment of the distributor to pay the minimum guarantee as collateral to borrow production funding. Independent production companies typically finance production of their motion pictures pursuant to financing arrangements with banks and other lenders in which the lender receives an assignment of the production company’s right to payments of minimum guarantees by its distributors upon the delivery of the completed motion picture. The lenders are granted a security interest in the motion picture until the financing has been repaid. The independent production company may also be able to acquire additional production funds through ‘‘gap financing’’, whereby a lender loans a portion of the production costs based on the company’s estimate of the value of certain distribution rights. When the motion picture is delivered, the independent production company collects the minimum guarantees and uses them to repay the lender. In addition, the independent production company receives a production fee and generally retains a participation in net revenues from distribution of the motion picture.

As part of obtaining motion picture financing, independent production companies may be required by their lenders and distributors who advance production costs to obtain a completion bond from an acceptable completion guarantor which names the lenders, distributors and other parties who advance production costs as beneficiaries. The guarantor guarantees the completion and delivery of the particular motion picture by a certain date and within an agreed budget and contingency and if the motion picture cannot be completed for the agreed upon budgeted cost, the completion guarantor is obligated to pay the additional costs necessary to complete and deliver the motion picture by the agreed upon delivery date. If the completion guarantor fails to complete and deliver such motion picture on time, the completion guarantor is required to pay the financiers and distributors, if

applicable, an amount equal to the aggregate amount the financiers and distributors have loaned or advanced to the independent producer.

Television Production

The production of television series programming involves the development of a format based on a creative concept or literary property into a television script, the hiring of talent, the filming or taping of the program and the technical and post-production work necessary to produce a finished program. Television producers may originate projects internally or acquire them from others. If a concept is deemed suitable for development, the studio, network or other producer typically commissions and pays for a script. Once a script is ordered, license agreements are negotiated with the potential broadcasters of such program. A pilot episode usually is ordered prior to the determination of whether a series will be produced.

Television production can generally be divided into two distinct markets: (a) network production, consisting of production for the broadcast networks (i.e., ABC, CBS, NBC, FOX, UPN and WB) and made-for-cable networks (i.e., pay and basic cable networks) and (b) first-run syndication production. In broadcast network and made-for-cable network production, a network generally orders a minimum number of initial episodes (approximately six to 13 episodes if produced for a broadcast network and approximately 13 to 22 episodes if produced for a cable network) of each new series for a license fee equal to a percentage of the program’s cost. The balance of the production cost for such shows (which is customarily lower for made-for-cable productions than for productions made for broadcast networks) is recouped through international sales and, if a series is successful, through syndication, second run domestic basic cable, and home entertainment sales. However, it may take up to four years until all the production costs are recouped. In the first-run syndication production business, a producer seeking to launch a new series, commits to produce a minimum number of episodes if the producer can ‘‘clear’’ the series by selling to individual television stations in sufficient markets throughout the country (generally comprising at least 75 percent of U.S. television households). Once produced, the episodes are immediately available for licensing to international broadcasters as well and can subsequently be licensed to a domestic basic cable network. This approach generally involves a lower production cost risk and earlier return on investment than the network production business; however, first-run syndicated programming generally reduces the potential total return on investment as compared to successful network production.

Feature Films and Television Series We Have Produced and Financed

Since our inception, we have produced and/or distributed a total of 15 films and 21 episodes of the Arizona Highways television series. Of these films, three were produced in 2005 and one additional film is in preproduction. We have produced these films either independently, while serving as the general partner of limited partnerships or on a contract basis on behalf of other limited partnerships, including (in certain cases) entities owned or controlled by our Chief Executive Officer. In each case, the limited partnership was created specifically for the purpose of serving as a vehicle to finance each particular film. Arizona Highways was produced directly by TAG USA for Robin Sewell Communications, which retained the distribution rights to the content. As described in detail below, the films we produce and/or distribute are typically financed through the sale (to unaffiliated investors) of limited partnership interests by the limited partnership entity that holds the ownership rights to the particular films. We have also raised capital for production costs through sales of equity or debt securities to accredited and or institutional investors in private placements pursuant to the exemption from registration provided by Regulation D under the Securities Act of 1933. In addition, we have been able to obtain substantial advances from our distributors for the production of certain of our motion pictures.

We have produced one film, ‘‘ The Retrievers ’’ directly and produced four other films through four consolidated limited partnerships (each of the Majestic Film Partners entities) for which we serve as general partner and we are entitled to receive a distribution fee. Of the other films produced by limited partnership entities that we do not control, five are for limited partnerships for which Steve

Austin, through an affiliated entity, serves as general partner. The remainder are limited partnerships that have an unaffiliated general partner. General partner fees are paid to the general partner, as described below under the caption ‘‘Limited Partnership Arrangements.’’ With respect to these unaffiliated motion pictures, we have entered into formal production and distribution agreements with the general partner. We include these projects in our library of family oriented feature films, which we present to distribution companies. We have, however, no ownership interests in these films.

With respect to each of the films referred to above, we serve as the producer and/or exclusive worldwide distributor for each and seek to arrange distribution with sub-licensees for the commercial exploitation of these films. Revenues received from the distribution and exploitation of these films are received directly by us or a sub-distributor. We have entered into distribution agreements with each of the limited partnerships for the worldwide distribution of the motion pictures by or on behalf of such limited partnerships, as described in the table set forth below under the heading ‘‘Films Produced and Distributed by TAG USA.’’ We will be paid normal and customary industry fees if and in the event it succeeds in arranging for distribution of these films.

Recent Motion Picture Production Activity

As summarized below, we recently produced three motion pictures. In addition, we have one additional film in pre-production. This table is provided for illustrative purposes only and the films may never be commercially distributed or completed. We have produced these films pursuant to production agreements we have entered into with non-affiliated limited partnerships that control the rights to the films.

Motion Picture Producer(s) Stage of Production Anticipated Release Date
The Legend of William Tell TAG USA Completed and available for delivery 2006
       
Wild Stallion TAG USA Post- Production 2006
       
Miracle Dogs 2 TAG USA Completed All Media —
Domestic — 2006
International — 2006


Limited Partnership Arrangements

The films we produce and distribute are typically financed films through the sale (to unaffiliated investors) of limited partnership interests in the limited partnerships that have been created as vehicles to finance each particular film. The limited partnership interests in the limited partnerships are offered by private placement to accredited investors who subscribe for the interests based on exemptions granted under the Securities Act of 1933.

Investors who subscribe to the limited partnership interests are entitled to recoup their investment and then share in the profits with TAG USA, depending on several factors. With respect to the limited partnerships, including those to which TAG USA is the general partner, in the event that the project succeeds in returning proceeds to the partnership from the commercial exploitation of the film, and to the extent funds are available, the limited partners are entitled to receive their money back out of 100% of the distributable cash of the limited partnership. The percentage to which a general partner is entitled typically ranges from 10%-25% of the distributable cash. Distributable cash is the gross partnership revenue minus the limited partnership operating expenses (including fees paid to the distributor), necessary reserves, all costs of the production of the film not paid by the partnership (such as loans) and any deferments or points entitlements. In each case, after the limited partners receive their capital contributions in full, plus interest (as applicable) distributable cash, if any, is typically divided between the general partner and the limited partners on a 60:40 ratio. The ratio may, however, vary depending on the limited partnership entity. The general partner may further distribute a percentage of available cash to third party distributors and licensees. As described previously, we may make an offer to acquire all of our affiliated and certain of the non-affiliated

limited partnerships for shares of our common stock. However, no letter of intent for these acquisitions has been signed, the terms of the proposed acquisitions have not been determined, and there can be no assurance we will be successful in completing the acquisitions.

Typically, under the distribution agreements between TAG USA and the limited partnerships, TAG USA will pay each of the limited partnerships 70% of all the gross receipts actually received by TAG USA in connection with the rental and exhibition of the movies in theatres, homes and television, which amount is reduced by amounts paid to third parties in the form of deferrals and deferments. Additionally, TAG USA may, in certain instances, receive royalties on the sale of each of the movies in DVD or other home video format, including videocassettes, which are typically on the following terms:
•  where the video devices are manufactured and distributed by TAG USA, it will retain 25% of all of the gross receipts received on the sale of such video devices which are sold and not returned;
•  where the video devices are distributed by TAG USA pursuant to a sublicense agreement with an affiliated entity (where TAG USA is more than 50% owner), then TAG USA will earn royalties equal to 25% of the affiliated entity’s gross receipts from the sublicensed distribution;
•  where the video devices are distributed by TAG USA pursuant to a sublicense agreement between TAG USA and a party other than an affiliated entity, then TAG USA will earn royalties equal to 75% of the third-party’s gross receipts from the sublicensed distribution exclusive of manufacturing charges and out-of-pocket expenses incurred in connection with the grant of the sublicense; and
•  where TAG USA markets the video devices directly to consumers then the royalties for such sales will be equal to the amounts of video devices sold and not returned multiplied by the average wholesale royalty (defined term in each contract) of video devices containing the picture.


Our Films and Television Series

Films Produced and/or Distributed by TAG and TAG USA

The films that we have produced and/or distributed are summarized below with principal talent and a brief synopsis for each production.

General Partner/
Limited Partnership		 Motion
Picture		 Production
Date		 Rating Cast and Director Synopsis
TAG USA / Majestic Film Partners LP (1) Castle Rock 1999 G Cast: Ernest Borgnine, Frank Gorshin, Pamela Bach, Wolf Larson, Alana Austin and Robert Velasco Director: Craig Clyde An unruly teenage girl and a young drifter, running from the law, find themselves thrown together in a harrowing struggle for survival.
TAG USA / Majestic Film Partners II LP (1) No Place Like Home 2000 G Cast: Judge Reinhold, Joanna Pacula, Bruce Weitz, Richard Moll, Adrienne Barbeau, Alana Austin and Clayton Taylor
Director: Craig Clyde		 After witnessing a celestial collision, two brothers stumble upon a strange young visitor.
TAG USA / Majestic Film Partners III LP (1) Dumb Luck 2000 G Cast: Scott Baio, Tracy Nelson, Richard Moll, Hal Linden, Eileen Brennan, Joey Miyashima, Todd Bridges and Bobby Edner
Director: Craig Clyde		 A simple blind date plunges a father and son headlong into a mystery full of lies, half-truths and deceptions


General Partner/
Limited Partnership		 Motion
Picture		 Production
Date		 Rating Cast and Director Synopsis
TAG USA / Majestic Film Partners IV LP (1) Hansel & Gretel 2001 PG Cast: Lynn Redgrave, Howie Mandel, Delta Burke, Gerald McRaney, Bobcat Goldthwait, Dakota Fanning, Alana Austin, Sinbad, Tom Arnold and Taylor Momsen
Director: Gary J. Tunnicliffe		 A fractured version of the popular fairy tale classic.
N/A Film produced directly by TAG USA The Retrievers 2001 G Cast: Robert Hays, Mel Harris, Alan Rachins, Alana Austin, Taylor Emerson, Betty White and Robert Wagner
Director: Paul Schneider		 A golden retriever is pregnant and leads its human family on an adventure that shows what it means to be a family.
Steve Austin Productions, LLC / Animal Partners LP (2) Miracle Dogs 2002 G Cast: Kate Jackson, Ted Shakelford, Stacy Keach, Rue McClanahan, Daniel Roebuck, Alana Austin, Wayne Rogers
Director: Craig Clyde		 Four puppies, recently abandoned in town, are in need of adoptive homes. The little dogs have a healing effect on people with illnesses.
Austin Family Entertainment, Inc. / Family Film Partners VI, LP (2) The Santa Trap 2002 G Cast: Shelley Long, Robert Hays, Dick van Patten, Corbin Bernsen, Stacy Keach, Amanda Pays, Adrienne Barbeau
Director: John Shepphird		 It is Christmas Eve and in a case of mistaken identity, Santa Claus is thrown in jail and must be freed in order to save Christmas.
Austin Family Entertainment, Inc. / Fairy Tale Partners III, LP (1) Red Riding Hood 2005 G Cast: Lainie Kazan, Joey Fatone, Deb Mazar, Daniel Roebuck, Henry Cavill Director: Randal Kleiser A contemporary musical version of the classic fairytale.
Austin Family Entertainment, Inc. / Motocross Kids LP (3) Moto X Kids 2003 PG Cast: Lorenzo Lamas, Josh Hutcherson, Gary Busey, Alana Austin
Director: Richard Gabai		 Evan Hanson needs to save a local dirt track from a motorcycle gang.
American Film Ventures / Downtown the Movie LP (5) Pop Star 2005 PG Cast: Aaron Carter, Alana Austin, Kimberly Kevon Williams, David Cassidy, Leif Garrett, Rick Overton, Tom Bosley
Director: Richard Gabai		 Teen popstar J.C McQueen gets caught playing strip poker with his attractive personal teacher and his parents send him back to ‘‘regular’’ school.
Enriching Entertainment / Supercross The Movie LP (4) Supercross 2005 PG-13 Cast: Aaron Carter, Steve Howey, Sophia Bush, Mike Vogel, Cameron Richardson, Darryl Hannah, Dan Roebuck, Jeremy McGrath
Director: Steve Boyum		 ‘‘Supercross’’ tells the story of two brothers who must overcome a series of emotional and physical obstacles to achieve success in the world of supercross motorcycle racing.
Austin Family Entertainment, Inc. / American Black Beauty LP (3) American Black Beauty 2005 G Cast: Dean Stockwell, Peter Jason, Leah Lail, Danielle Keaton, Chris Hunter, Ryan Locke
Director: Sam Pillsbury		 Life changes dramatically when Cheryl meets Black Beauty, a beautiful, fast and slightly temperamental young horse.
Wild Stallion Productions, LP / American Film Ventures, LLC (6) The Wild Stallion 2006 PG Cast: Robert Wagner, Paul Sorvino, Connie Selleca, Fred Ward, Miranda Cosgrove, Danielle Churchran Young girl, sent to stay with family friends at an Utah ranch, investigates mysterious disappearances of wild mustangs.
Animal Film Productions, LP / American Film Ventures, LLC(6) Miracle
Dogs 2		 2006 G Cast: Janine Turner, Patrick Muldoon, Leslie Ann Warren, Charles Durning and Jaleel White Young boy seeks to save lost dogs from pair of misfits.
Timeless Tales II LP / Enriching Entertainment, LLC (7) The Legend of William Tell 2006 G Cast: Ed Begley, Jr., Cindy Williams, Robert Torti, Adam Taylor Gordon A modern take on a timeless legend — a classic underdog story.


(1) TAG USA will receive fees and royalties for acting as the distributor, as described above, and it (or the general partner) will also receive a distribution from the limited partnership for its service as general partner, as described above under the caption ‘‘Limited Partnership Arrangements.’’
(2) TAG USA will receive fees and royalties as the distributor as described above. The general partner of the limited partnership will receive an initial distribution from the limited partnership equal to 25% of the distributable cash as well as a 60% distribution after the limited partners receive 100% of their capital contribution.
(3) TAG USA will receive fees and royalties as the distributor as described above. The general partner of the limited partnership will receive an initial distribution from the limited partnership equal to 10% as well as a 50% distribution after the limited partners receive 100% of their capital contribution, except in certain circumstance as applicable to the limited partners in this entity.
(4) TAG USA will receive fees and royalties as the distributor equal to 30% of the gross receipts generated by the film plus a producer fee of 30% of the gross receipts of the film. TAG USA will also be entitled to receive distributions pari passu with the limited partners, in proportion to its investment in the entity. After the limited partners receive 100% of their capital contribution, TAG USA and the general partner of the limited partnership will share equally all subsequent revenues unless TAG exercises its option to purchase the film outright.
(5) TAG USA will receive fees and royalties as the distributor equal to 30% of the gross receipts generated by the film plus a producer fee of 30% of the gross receipts of the film. The general partner of the limited partnership will receive an initial distribution from the limited partnership equal to 25% of the distributable cash as well as a 60% distribution after the limited partners receive 100% of their capital contribution.
(6) TAG USA will receive a distribution fee equal to 30% of gross revenues inclusive of any sub-distribution fees of up to 25%, not including expenses. TAG USA will also receive production fees to be paid in installments until the delivery of film.
(7) TAG USA expects to receive production and distribution fees for this motion picture on terms similar as to those that apply for the motion pictures designated at footnote 6, above.


Feature Film Rights Acquired

In September 2002, TAG USA entered into an agreement with Faber International Films, Inc. to acquire certain rights to certain motion pictures that at one time comprised what was previously known as the Hemdale Pictures Library. Although the Hemdale Pictures Library, as acquired by TAG USA, does not include Hemdale’s most successful motion pictures such as ‘‘The Terminator’’, ‘‘Platoon’’ or ‘‘The Last Emperor’’, it consists of more than sixty-four feature length motion pictures of varying ages, histories, qualities and commercial potential. Among the rights which TAG USA acquired under the Faber Agreement, are the rights to distribute and exploit certain films theatrically, non-theatrically, by means of various forms of television and/or home video.

However, TAG USA did not acquire all rights in all media (and for all methods of distribution) to all of the motion pictures in the Hemdale Pictures Library. We have, however, re-acquired and/or extended some rights respecting motion pictures previously included in the Hemdale Pictures Library directly from the holders. Further, we are currently in negotiations with the producers of a number of other films that were originally within the scope of our agreement with Faber. We have typically agreed to revenue-sharing arrangements with the producer or grantor of the acquired motion picture regarding the proceeds derived from the successful distribution of these films.

The following table lists the motion pictures and their related rights which we acquired from third parties as well as the status of any distribution arrangements we have entered into in connection with these films.

Motion Picture Title Acquired Rights/Limitations Producer/Grantor Distribution Arrangements
The Princess & the Goblin Rights to all media in the U.S. 7 year term. Pennaeth Gwerthiant Rhaglenni/
S4C International		 UAV Corp.
Wrangler Television and home entertainment in the U.S. in perpetuity. Hemdale Pictures Corp. UAV Corp.
The Polar Bear King Television and home entertainment in the U.S. 7 year term. Screen Media Ventures LLC UAV Corp.
Shergar Home entertainment in the U.S. 7 year term. Blue Rider Entertainment, Inc. UAV Corp.
The Littlest Viking Rights to all media in the U.S. 7 year term. Odyssey Pictures N/A
Mosquito Rights to all media in the U.S. 7 year term. Icebound, Inc. Sci-Fi Channel
The Story of Christmas Rights to all media in the U.S. 7 year term. Hemdale Communications Inc. UAV Corp.


Television Series

In 2004, TAG USA produced and delivered 21 episodes of the television series Arizona Highways: The Television Series . We produced this series for Robin Sewell Communications and it is being exhibited through local television broadcasts. This production takes viewers to Arizona’s most spectacular destinations, exploring its landscape, history, culture and people. Each episode features vital information for tourists, including lodging, restaurants and activities for visitors. Our production of this series was undertaken on a work for hire basis and we recorded a total $404,000 in revenue from this arrangement.

Distribution

Motion Pictures

Distribution of a motion picture involves commercial exploitation in the U.S. and international licensing of the picture for:
•  theatrical exhibition,
•  videocassettes, laser discs and DVDs,
•  presentation on television, including pay-per-view, pay, network, syndication and basic cable, merchandising of the other rights in the motion picture, which may include books, soundtracks, and video games, and
•  non-theatrical exhibition, which includes airlines, cruise ships, hotels and armed forces facilities.


Production companies with distribution divisions, such as the major studios, typically distribute their motion pictures themselves. Production companies without distribution divisions typically retain the services of sales agents or distributors to exploit the motion pictures produced by them in various media and territories, or in all media and territories. Distribution companies may directly exploit distribution rights licensed to, or otherwise acquired by them, for example, by booking motion pictures with theatrical exhibitors or selling videocassettes to video retailers. Alternatively, they may grant sub-licenses to U.S. or foreign sub-distributors to exploit completed motion pictures.

A sales agent does not generally acquire distribution rights from the producer or other owner of rights in a motion picture or other content, but instead acts as an agent on behalf of the production company or rights owner to license distribution rights to such motion picture to territorial distributors in exchange for a sales agency fee, typically computed as a percentage of gross revenues from licenses arranged by the sales agent.

A territorial distributor generally licenses and takes a grant of distribution rights to the motion picture for a specified term in a particular territory and media, in exchange for a distribution fee calculated as a percentage of gross revenues generated from exploitation of the motion picture by the distributor. The territorial distributor often agrees to pay the rights owner of the content a certain advance or minimum guarantee upon the delivery of the completed motion picture, which amount is recouped by the territorial distributor out of revenues generated from the exploitation of the content in particular media or territories. After receiving its ongoing distribution fee and recouping the advance or minimum guarantee plus its direct release costs (primarily print and advertising costs), the territorial distributor pays all or a substantial portion of the remainder of revenues to the producer of such motion picture or the rights owner (commonly referred to as overages).

In addition to obtaining distribution rights in a motion picture for a limited duration, a distributor may also acquire all or a portion of the copyright in such motion picture or program or license certain distribution rights in perpetuity. Both major studios and independent motion picture companies often acquire motion pictures for distribution through a customary industry arrangement known as a ‘‘negative pickup.’’ Under a ‘‘negative pickup’’, the studio or independent motion picture company agrees to pay a specified minimum guaranteed amount to a production company upon completion of production and delivery of the motion picture in exchange for all rights to the motion picture.

Distribution expenses, which consist primarily of the costs of advertising and preparing release prints, are not included in production costs. These distribution expenses vary widely depending upon the extent of the release and the nature of the promotional activities.

In connection with the production and distribution of a motion picture, major studios and independent production companies generally grant contractual rights to actors, directors, screenwriters, owners of underlying rights and other creative and financial contributors to share in revenues from a particular motion picture. Except for the most sought-after talent, these third-party participations are generally payable after all distribution fees, distribution expenses, direct production costs and financing costs are recouped in full.

Distribution Cycle

Concurrently with their initial release in the U.S., motion pictures are generally released in Canada and may also be released in one or more other international markets. As a general matter, a motion picture that is released theatrically is typically available for distribution in other media during its initial distribution cycle as follows:

Marketplace / Media Number of months following initial US theatrical release
US Theatrical  
   
International Theatrical 0 – 4 months
U.S. Home Video (initial release) 4 – 6 months
U.S. Pay-per-view 6 – 9 months
International Home Video (initial release) 6 – 12 months
U.S. Pay Television 10 – 12 months
International Television (pay or free) 18 – 24 months
U.S. Free Television* 24 – 36 months


* Includes network, syndication and basic cable.


The release periods set forth above represent standard ‘‘holdback periods.’’ A holdback period with respect to a certain media in which the motion picture is being released represents a set period of time during which release of the motion picture in other media is prevented. This ‘‘holdback’’ is designed to allow the motion picture to maximize its revenues in the media in which it is currently being released. Holdback periods are often specifically negotiated with various distributors on a media-by-media basis; however the periods set forth above represent our estimate of customary current holdback periods in the motion picture industry.

A substantial portion of a motion picture’s total revenues is generated in a motion picture’s initial distribution cycle (generally the first five to seven years after the motion picture’s initial U.S. release), which typically includes theatrical, video, and pay and free television. However, commercially successful motion pictures generally continue to generate revenues from the re-licensing of distribution rights in certain media, including television and home video, and from the licensing of distribution rights with respect to new media and in emerging markets, in addition to the creation of derivative works based on the motion picture such as remakes, sequels and television series.

Although there has been a substantial increase over the past fifteen years in the revenues generated from the licensing of rights in media other than U.S. theatrical, such as home video, cable and pay-per-view, the theatrical success of a motion picture remains the most significant factor in generating revenues in foreign markets and in other media such as television and videocassettes. For example, retail video stores have been purchasing fewer copies of home videos of motion pictures that have not been theatrically released, and purchasing more copies of major studio theatrical successes.

Television Distribution

The U.S. television market is served by network affiliated stations, independent stations and cable systems, although the number of independent stations has decreased as many formerly independent

stations have become affiliated with new networks in recent years. During ‘‘prime time’’ hours, network affiliates primarily broadcast programming produced for the network. In non-prime time, network affiliates broadcast network programming, off-network programming, programming produced for distribution on a syndicated basis and programming produced by the local stations themselves. Independent television stations and cable networks, during both prime and non-prime time, produce their own programs and telecast off-network programs or first-run programs acquired from independent producers or syndicators. Syndicators generally are companies that sell programming to independent television stations and network affiliates that was produced or acquired by the syndicator for distribution. In addition to producing directly for television, we seek to license our current theatrical motion pictures for television exhibition through agreements pursuant to which our films will be distributed through television outlets.

Television distribution can occur through the following: domestic pay or free television, international pay or free television and cable and satellite channels.

Our Distribution Agreements

We license motion picture distribution rights to territorial distributors that offer our movies worldwide. We seek to continue to position ourselves as a supplier of family themed movies to U.S. domestic and international distributors. We believe that our reputation and that of our management enhances our competitive position in the global market for feature motion pictures. As discussed above, we produced the Arizona Highways television series for Robin Sewell Communications, which retained the distribution rights. During 2005, we entered into distribution agreements with unaffiliated limited partnerships for three new film projects.

The terms of our license agreements with territorial distributors vary depending on the territory involved and whether the agreement relates to the licensing of a single motion picture or several motion pictures pursuant to an ‘‘output’’ or multi-picture arrangement. Generally, our distributors are entitled to royalties based on a negotiated percentage of the revenues derived from the exploitation of our motion pictures and to recoup advances that they may have provided to us for production. A list of our principal distributors and individual distribution terms are summarized below:

Movie Distributor Territories Rights Media Term of Agreement
Castle Rock UAV Corporation (1) North America – English Speaking DVD/Home Video 7 years with 6 month sell-off period
  First Look Media (2) International, excluding Canada Cinematic, Television and Video 8 years from date of delivery of picture
Dumb Luck First Look Media (2) International, excluding Canada Cinematic, Television and Video 8 years from date of delivery of picture
  UAV Corporation (1) North America – English Speaking DVD/Home Video 7 years
No Place Like Home First Look Media (2) International, excluding Canada Cinematic, Television and Video 8 years from date of delivery of picture
  Sandstar Family Entertainment US and territories in English, Spanish, and French languages and English speaking Canada Direct Response – DVD and Video Cassettes sales 10 years
  UAV Corporation (1) North America – English Speaking DVD/Home Video 7 years


Movie Distributor Territories Rights Media Term of Agreement
The Retrievers Discovery Channel / Animal Planet US and Caribbean Exhibit, market,
sub-license, distribute film on Cable TV		 5 years
  Sandstar Family Entertainment US and territories in English, Spanish, and French languages and English speaking Canada Direct Response– DVD and Video Cassettes sales 10 years
  UAV Corporation (1) North America – English Speaking DVD/Home Video 7 years
  First Look Media (2) International, excluding Canada Cinematic, Television and Video 8 years from date of delivery of picture
  Feature Films for Families, f/k/a Rekab Sudskany LLC US and English speaking Canada DVD and Videocassettes 7 years
Hansel & Gretel Warner
Brothers Home Video (3)		 US and Canada and their territories Television, Home Video and Online 10 years
  Helkon International International   15 years
Miracle Dogs Sandstar Family Entertainment US and territories in English, Spanish, and French languages and English speaking Canada Direct Response – DVD and Video Cassettes sales 10 years
  UAV Corporation (1) North America – English Speaking DVD/Home Video 7 years
  Myriad Pictures, Inc. International, excluding Canada Cinematic, Television and Video 15 years
  Starz Entertainment Group (4) UUS and territories and the Bahamas Pay Television 24 months
  Showtime Networks (5) US and territories and the Bahamas, Bermuda and the Caribbean Basin Pay Television 24 months
The Santa Trap PAX Entertainment US and Territories Television Perpetuity
  UAV Corporation (1) North America – English Speaking DVD/Home Video 7 years
  Solo Entertainment International, excluding Canada Cinematic, Television and Video 10 years


Movie Distributor Territories Rights Media Term of Agreement
Red Riding Hood 20th Century Fox Home
Entertainment (6)		 US and Canada Theatrical (Test Release) and DVD / Home Video 7 years
  Solo Entertainment International All rights. 20 years
Moto X Kids 20th Century Fox Home
Entertainment (6)		 US and Canada DVD / Home Video 7 years
  Loews Cineplex US and Canada Limited Theatrical 3 years
  Warner Bros. Domestic Cable US and Canada TV rights for pay, free and basic 20 years
Pop Star Warner Bros. Domestic Cable US and Canada TV rights for pay, free and basic 20 years
  New Line Home Entertainment US and Canada All media and format rights (except the Warner Bros. TV Rights) 15 – 20 depending on media format
  7 Arts International International, excluding Canada Cinematic, Television and Video 10 years with option to extend
Supercross 20th Century Fox U.S. and Canada All media and formats 20 years
  7 Arts International International, excluding Canada Theatrical, Television and Video 15 years with option to extend
Shergar UAV Corporation (2) North America – English Speaking DVD/Home Video 7 years
Hemdale Titles UAV Corporation (7) North America – English Speaking DVD/Home Video 7 years
Wild Stallion Myriad Pictures (8) International All media and exhibition formats 10 years and upon meeting certain conditions an additional 5 years.
Miracle Dogs 2 UAV Corporation (9) US and Canada DVD / Home Video 7 years
  Myriad Pictures (9) International All media and exhibition formats 10 years and upon meeting certain conditions an additional 5 years.


(1) UAV Corporation obtained the right to manufacture, distribute, promote, advertise and sell video devices for the following films: Miracle Dogs, The Retrievers, The Santa Trap, No Place Like Home, Castle Rock and Dumb Luck.
(2) First Look Media has the exclusive right to distribute, exhibit, sell, lease, license and otherwise exploit in foreign markets, excluding the U.S. and Canada the following movies: The Retrievers, Dumb Luck, No Place Like Home and Castle Rock.
(3) Time Warner Home Video was granted home video, television and online rights for this film.
(4) License agreement between All Channel Films, as agent for TAG USA, and Starz Entertainment Group.
(5) License agreement between All Channel Films, as agent for TAG USA, and Showtime Networks.
(6) 20th Century Fox Home Entertainment, Inc., has all rights to home video distribution and home video exhibition of the picture.


(7) UAV obtained the right to manufacture, distribute, promote, advertise, sell and otherwise exploit video devices showing a catalog of four movie titles. See table under the caption ‘‘Feature Film Rights Acquired.’’
(8) Distribution agreement between TAG USA and Animal Film Productions LP. Sub-distribution agreement between TAG and Myriad Pictures, Inc.
(9) Sub-distribution agreements between TAG USA and each of UAV Corporation and Myriad Pictures, Inc.


Theatrical Exhibition Market

The theatrical distribution of a motion picture, whether in the U.S. or internationally, involves the licensing and booking of the motion picture to theatrical exhibitors (movie theaters), the promotion of the motion picture through advertising and publicity campaigns and the manufacture of release prints from the motion picture negative. Expenditures on these activities, particularly on promotion and advertising, are often substantial and may have a significant impact on the ultimate success of the motion picture’s theatrical release.

In addition, such expenditures can vary significantly depending upon the markets and regions where the motion picture is distributed, the media used to promote the motion picture (newspaper, television and radio), the number of screens on which the motion picture is to be exhibited and the ability to exhibit motion pictures during peak exhibition seasons.

With a release by a major studio, the vast majority of these costs (primarily advertising costs) are incurred prior to the first weekend of the motion picture’s U.S. theatrical release, so there is not necessarily an ability to correlate these costs and the motion picture’s ultimate box office performance. In addition, the ability to distribute a picture during peak exhibition seasons, including the summer months and the Thanksgiving and Christmas holidays, and in the most popular theaters may affect the theatrical success of a motion picture.

While arrangements for the exhibition of a motion picture vary greatly, there are certain financial relationships generally applicable to theatrical distribution. Theater owners retain a portion of the admissions paid at the box office, generally referred to as ‘‘gross box office receipts.’’ The share of the gross box office receipts retained by them generally includes a fixed amount per week (in part to cover overhead), plus a percentage of receipts that generally escalates over time. The balance, generally referred to as ‘‘gross film rentals,’’ is remitted to the distributor.

As indicated in the table appearing under the caption ‘‘Our Distribution Agreements,’’ we entered into distribution arrangements for the theatrical exhibition of the following films in the United States: Red Riding Hood ( on a test basis), Moto X Kids ( on a limited basis), Popstar and Supercross. In 2005, Supercross was exhibited theatrically on a nationwide basis.

We have also entered into distribution arrangements for the theatrical exhibition of the following films internationally: Castle Rock, Dumb Luck, No Place Like Home, The Retrievers, Miracle Dogs, The Santa Trap, Red Riding Hood, Popstar , Supercross, Wild Stallion and Miracle Dogs 2 .

DVD and Video Markets

Home video distribution consists of the promotion and sale of DVDs and videocassettes to local, regional and national video retailers that rent or sell DVDs and videocassettes to consumers primarily for home viewing. Most motion pictures are initially made available at wholesale prices primarily to DVD and video rental stores that rent or sell the DVDs or the cassettes to consumers.

It is now common practice in the U.S. domestic market for major releases with broad appeal to be initially offered to retail chains at a price designed for sell-through rather than rental. This occurs only when it is believed that the ownership demand by consumers will result in a sufficient level of sales to justify the reduced margin on each home video device sold. In the past, owners of motion pictures did not share in rental income. However, distributors have recently begun to enter into revenue sharing arrangements with certain retail stores. Under such arrangements, videocassettes or DVDs are sold at a reduced price to retail stores (usually $6 to $10 per device) and a percentage of the rental revenue is then shared with the owners (or licensors) of the motion pictures. Home video arrangements in international territories are generally similar to those in the U.S. except that the wholesale prices may differ.

As indicated in the table appearing under the caption ‘‘Our Distribution Agreements,’’ we have entered into home video distribution arrangements for all of our titles.

Television Market

Television rights for motion pictures initially released theatrically are, if such motion pictures have broad appeal, generally licensed first to pay-per-view television for an exhibition period following initial video release, then to pay television, thereafter in certain cases to network television for an exhibition period, and then, in certain cases, to pay television again. These motion pictures are then syndicated to either independent stations or basic cable outlets.

Pay-per-view allows subscribers to pay for individual programs. Pay television allows cable television subscribers to view such services as HBO, Showtime, Starz/Encore, Canal+, BSkyB, Premiere, Telepiu, JSB or others offered by their cable system operators for a monthly subscription fee. Pay-per-view and pay television is now delivered not only by cable, but also by satellite transmission, and motion pictures are generally licensed in both such media.

Motion pictures are often packaged and licensed as a group for exhibition on television over a period of time and, therefore, revenues from these television licensing ‘‘packages’’ may be received over a period that extends beyond five years from the initial U.S. theatrical release of a particular motion picture. Motion pictures are also licensed and ‘‘packaged’’ by producers and distributors for television broadcast in international markets by government owned or privately owned television networks.

As indicated in the table appearing under the caption ‘‘Our Distribution Agreements,’’ we have entered into television distribution arrangements (either domestic or internationally) for all of our titles other than Red Riding Hood, Shergar and the titles we acquired from Hemdale.

The Internet

The continuing and improving capability to transmit large files through the internet via fast broadband connections either through cable, satellite or DSL connections will permit both the sales solicitation and eventually the actual delivery of motion pictures to licensees around the world. This model of efficiency expressed both in terms of the time required to effectuate sales presentations and the delivery of the physical elements comprising entertainment properties, their packaging as well as related publicity, advertising, promotion and marketing materials, will optimize the ability of movie companies to effectuate foreign sales on a basis that it not only cost efficient but one which enables them to eliminate the traditional intermediaries who otherwise may receive as much as thirty five percent (35%) to forty percent (40%) of the gross revenues after a deduction of traditional distribution costs. A digital means of delivery is by no means universally embraced and this methodology may not be ubiquitous for an undetermined period yet to come. However, it is clearly a form of delivery that motion picture companies would seek to embrace (due its efficiency and cost effectiveness) and utilize in the future both to enhance revenues and to decrease dependence on third party service providers. To date, we have only engaged in distribution arrangements for the exploitation of Hansel & Gretel over the internet.

Non-Theatrical and Other Rights

Motion pictures may be licensed for use by airlines, schools, public libraries, community groups, the armed services, correctional facilities, ships and others. Music contained in a motion picture may be licensed for sound recording, public performance and sheet music publication. Rights in motion pictures may be licensed to merchandisers for the manufacture of products such as toys, T-shirts, posters and other merchandise. Rights may also be licensed to create novels from a screenplay and to generate other related book publications, as well as interactive games on such platforms as CD-ROM, CD-I or other proprietary platforms. To date, we have not derived substantial revenue from arrangements described in this paragraph.

Intellectual Property

We are currently using the trademark ‘‘TAG Entertainment’’ in connection with films that we produce and distribute or license, both domestically and internationally. We regard our trademark as

valuable assets and believe that our trademark is an important factor in marketing our products. We own the copyright and all motion pictures that we produce and license the necessary rights from the rights-holder in connection with our distribution of films produced by third parties. In order to protect our intellectual property rights we rely on a combination of copyright and trademark laws, contract law, and other methods, such as the careful management of our licensing and distribution arrangements with third parties.

Government Regulation

Distribution rights to motion pictures are granted legal protection under the copyright laws of the United States and most foreign countries. These laws provide substantial civil and criminal sanctions for unauthorized duplication and exhibition of motion pictures. Motion pictures, musical works, sound recordings, art work, still photography and motion picture properties are separate works subject to copyright under most copyright laws, including the United States Copyright Act of 1976, as amended. We are aware of reports of extensive unauthorized misappropriation of videocassette rights to motion pictures which may include motion pictures distributed by us. Motion picture piracy is an industry-wide problem. The Motion Picture Association of America, an industry trade association, operates a piracy hotline and investigates all reports of such piracy. Depending upon the results of investigations, appropriate legal action may be brought by the owner of the rights. Depending upon the extent of the piracy, the Federal Bureau of Investigation may assist in these investigations and related criminal prosecutions.

Motion picture piracy is also an international problem. Motion picture piracy is extensive in many parts of the world, including South America, Asia including Korea, China and Taiwan, the countries of the former Soviet Union and other former Eastern bloc countries. In addition to the Motion Picture Association, the Motion Picture Export Association, the American Film Marketing Association and the American Film Export Association monitor the progress and efforts made by various countries to limit or prevent piracy. In the past, these various trade associations have enacted voluntary embargoes of motion picture exports to certain countries in order to pressure the governments of those countries to become more aggressive in preventing motion picture piracy. In addition, the United States government has publicly considered trade sanctions against specific countries that do not prevent copyright infringement of United States produced motion pictures. We cannot assure you that voluntary industry embargoes or United States government trade sanctions will be enacted. If enacted, these actions could impact the amount of revenue that we realize from the international exploitation of motion pictures depending upon the countries subject to and the duration of such action. If not enacted or if other measures are not taken, the motion picture industry as a whole, and our business in particular, may continue to lose an indeterminate amount of revenues as a result of motion picture piracy.

The Code and Ratings Administration of the Motion Picture Association assigns ratings indicating age-group suitability for theatrical distribution of motion pictures. We plan to submit our motion pictures for these ratings. In certain circumstances, motion pictures that we plan to submit for rating might receive restrictive ratings, including, in some circumstances, the most restrictive rating which prohibits theatrical attendance by persons below the age of seventeen. Unrated motion pictures, or motion pictures receiving the most restrictive rating, may not be exhibited in certain movie theaters or in certain locales, thereby potentially reducing the total revenues generated by these films. United States television stations and networks, as well as foreign governments, impose additional restrictions on the content of motion pictures which may restrict in whole or in part theatrical or television exhibition in particular territories. In 1997, the major broadcast networks and the major television production companies implemented a system to rate television programs. This television rating system has not had a material adverse effect on the motion pictures distributed by us. However, the possibility exists that the sale of theatrical motion pictures for broadcast on domestic free television may become more difficult because of potential advertiser unwillingness to purchase advertising time on television programs that are rated for limited audiences. We cannot assure you that current and future restrictions on the content of motion pictures may not limit or adversely affect our ability to exploit certain motion pictures in particular territories and media.

United States television stations and networks as well as foreign governments impose content restrictions on motion pictures that may restrict in whole or in part exhibition on television or theaters in a particular territory. There can be no assurance that such restrictions will not limit or alter our ability to exhibit certain motion pictures in such media or markets or that the cost to edit a particular motion picture would be prohibitive, thereby eliminating a possible revenue source for the motion picture.

Industry Compensation Arrangements

Most of the creative and production personnel that work on a movie are short-term employees or ‘‘for hire’’ contractors who are compensated for their services at a predetermined rate. It is also customary in the motion picture industry to pay contingent compensation over and above these fees to certain key employees and contractors. Customary contingent compensation arrangements in the industry include:
•  fixed deferrals;
•  residual payments; and
•  gross or net profit participations.


Fixed Deferrals.  Key creative personnel, including the director, producer, writer and actors, often negotiate fixed deferral payments of flat fees tied to a film’s financial returns. We have not granted any fixed deferrals and have no plans to do so.

Residual Payments.  The principal collective bargaining organizations for personnel within the movie industry are: the Directors Guild of America, or DGA; the Writer’s Guild of America, or WGA; the Screen Actors Guild, or SAG; the American Federation of Musicians, or AFM; and the International Alliance of Theatrical Stage Employees, or IATSE. When a movie producer involves members of these organizations in a film, they are required to comply with certain residual payment obligations. These obligations are set forth in agreements between these organizations and the Alliance of Motion Picture and Television Producers (‘‘AMPTP’’) (which represents the major studios) and provide that a percentage of a film’s gross revenues in certain markets must be paid to these organizations for the benefit of their members. As an example, SAG currently requires payment of between 4.5% and 5.4% of the gross revenue attributable to videocassette exploitation and 3.6% of television exploitation, with no residuals due for theatrical exploitation.

We may be required to accrue and pay standard residual payments based on the collective bargaining agreements associated with our creative team. These residual payments are based upon gross revenues in certain markets and may therefore, depending upon our distribution arrangements, reduce our revenues in various markets and release windows. It is difficult to predict the specific impact on our overall returns as we have no way of predicting which release windows and which markets will achieve what relative levels of revenues, nor can we predict whether our arrangements with distributors might provide for flat fees or advance payments which would reduce or eliminate the impact of these residual obligations.

Profit Participations.  The last form of contingent compensation is a ‘‘profit participation,’’ which entitles the recipient to additional compensation based on the financial performance of a particular motion picture. Granting profit participation to certain key creative personnel is common for both larger studio films as well as smaller independent films. For independent movies, this form of contingent compensation is critical to attract quality creative personnel who work for less upfront compensation than they otherwise might receive on a larger, more costly movie. By paying this contingent compensation, producers are able to attract these high quality creative personnel while simultaneously reducing the upfront costs.

Profit participations are typically ‘‘gross’’ or ‘‘net.’’ Gross profit participation, granted in extremely rare cases where the importance of the actor or director is critical, is calculated based on gross revenues before any costs (such as, distribution fees, financing costs and other corporate costs) are deducted. Net profit participation is far more common, and is the arrangement we will be using to pay

contingent compensation. Net profit participation is calculated based on net revenues after deducting certain costs of a film, including distribution fees, financing costs and general corporate expenses. Thus, a gross profit participation receives a percentage of the first dollar received by a film before any costs are deducted, while a net profit participation receives a percentage of revenue remaining after certain costs are deducted.

Employees

As of December 31, 2005 we had five full-time employees. As is typical in motion picture production, we use short-term employees and independent contractors to produce our films. We plan to retain most of these short-term employees and independent contractors after we begin production, and most of our agreements with these employees and contractors will end by the time production is completed. We intend on hiring on a full-time basis a number of individuals to provide accounting, operational and other management services, including a full-time Chief Financial Officer.

Most of the unions and guilds within the movie industry that represent creative talent and necessary production personnel are parties to collective bargaining agreements with the AMPTP, which represents the major studios. Although we are not a member of the AMPTP, and therefore are not a party to any of the AMPTP’s collective bargaining agreements, these agreements serve as a reference point during our negotiations with unions, guilds and members of the production staff for any particular film.

RISK FACTORS

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information which summarizes all material risks, together with the other information contained in this Annual Report, before you decide to buy our common stock. If any of the following risks actually occur, our business would likely suffer. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related To Our Business And Industry

We have limited working capital and will need to raise additional capital in the future and our independent auditors have included a ‘‘going concern’’ opinion in their report.

At December 31, 2005, our cash and cash equivalents were minimal and we are in immediate need of additional capital. Although we raised $5.0 million in 2005 through the issuance of preferred stock, we will need additional funds to satisfy our expected cash needs for working capital and capital expenditures. Management believes that approximately $2.0 million will be required to cover our operating expenses and working capital requirements, including, but not limited to, marketing, sales, film productions, and operations, during the next twelve months.

Accordingly, we need substantial additional debt or equity financing and we intend to either undertake private placements of our securities, either as a self-offering or with the assistance of registered broker-dealers, or negotiate a private sale of our securities to one or more institutional investors. However, we currently have no firm agreements with any third-parties for such transactions and no assurances can be given that we will be successful in raising sufficient capital from any of these proposed financings. Further, we cannot assure you that any additional financing will be available or, even if it is available that it will be on terms acceptable to us. If additional funds are raised though the issuance of equity or debt securities, such additional securities may have powers, designations, preferences or rights senior to our currently outstanding securities and, in the case of additional equity securities, the ownership of our existing shareholders will be diluted. Any inability to obtain required financing on sufficiently favorable terms could have a material adverse effect on our business, results of operations and financial condition. If we are unsuccessful in raising additional capital and increasing revenues from operations, we will need to reduce costs and operations substantially. Further, if expenditures required to achieve our plans are greater than projected or if revenues are less than, or are generated more slowly than, projected, we will need to raise a greater amount of funds than currently expected. Our independent auditors have included a ‘‘going concern’’ explanatory paragraph in their report to our financial statements for the year ended December 31, 2005, citing recurring losses and negative cash flows from operations. Our capital needs in the future will depend upon factors such as market acceptance of our films and any other new films we release, the success of our independent distributors and our production, marketing and sales costs. None of these factors can be predicted with certainty.

We face substantial capital requirements since our business requires a substantial investment of capital.

The production, acquisition and distribution of motion pictures require a significant amount of capital. A significant amount of time may elapse between our expenditure of funds and the receipt of commercial revenues from or other contributions to our motion pictures. This time lapse requires us to fund a significant portion of our capital requirements from various financing sources. Although we intend to continue to reduce the risks of our production exposure through financial contributions from distributors and industry programs and other studios, we cannot assure you that we will continue to successfully implement these arrangements or that we will not be subject to substantial financial risks relating to the production, acquisition, completion and release of future motion pictures. If we increase (through internal growth or acquisition) our production slate or our production budgets, we may be required to increase overhead and/or make larger up-front payments to talent and consequently bear greater financial risks. Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

We have incurred losses in the past, which may continue. Failure to increase our revenue and keep our expenses consistent with revenues could prevent us from achieving and maintaining profitability.

We incurred losses of $1,845,000 and $3,871,000 for the fiscal years ended December 31, 2005 and 2004, respectively and there can be no assurance that we will be profitable in the future. We have expended, and will continue to be required to expend, substantial funds to pursue our business plan of producing and distributing feature-length motion pictures and other programming and enhancing marketing and sales efforts for these titles. In addition, we expect our general and administrative expenses in operating our business to increase in connection with our obligations as a reporting company under the Securities Exchange Act of 1934. In order to fund capital needs, we have issued our securities in private placements pursuant to applicable exemptions from registration under the Securities Act of 1933. Therefore, we will need to generate higher revenue from our motion pictures and other programming to achieve and maintain profitability and cannot assure you that we will be profitable in any future period. We have generated limited revenues since our inception, and do not expect to generate significant revenues within the next fiscal year. For the fiscal years ended December 31, 2005 and 2004, we had total revenue of approximately $3,879,000 and $2,059,000, respectively. Our prospects should be considered in light of the difficulties frequently encountered in operating as a independent producer and distributor in the motion picture industry and the substantial costs that are required for any company to successfully compete in this industry. Accordingly, there can be no assurance that we will be able to achieve profitable operations in future operating periods. If we need additional capital in the future and we are unsuccessful in finding financing, we may be required to severely curtail our operations, which would have a material adverse affect on our business.

Our Preferred Stock financing arrangement contains certain covenants that limit the way we can conduct business.

Our Series A Preferred Stock financing arrangement includes various covenants limiting our ability to incur or guarantee additional indebtedness, pay dividends and make other distributions, issue securities senior or equivalent to the Series A Preferred Stock and purchasing or redeeming shares of our common stock. We also granted the investors a participation right in future financings, subject to certain exemptions from these restrictions. These covenants may limit us in raising additional capital, competing effectively or taking advantage of new business opportunities. If we do not comply with these covenants, it could result in a default under the financing agreements, and unless we are able to negotiate an amendment, forbearance or waiver, we could be required to redeem the Series A Preferred Stock in full, which could have a material adverse effect on our business, results of operations and financial condition. Further, the Series A Preferred Stock matures and must be repaid in full three years from the issue date, unless it is converted prior to such time. We may not be able to generate sufficient cash flow to repay this amount, if required, and we may not be able to obtain additional financing or to refinance this obligation on terms acceptable to us, if at all. Any such failure could have a material adverse effect on our business, results of operations and financial condition.

Budget overruns and inherent risks in our business may adversely affect our financial condition.

We need to be efficient in the production of our motion pictures and television programming. Actual motion picture and television production costs often exceed their budgets, sometimes significantly. The production, completion and distribution of motion pictures and other programming are subject to a number of uncertainties, including delays and increased expenditures due to creative differences among key cast members and other key creative personnel or other disruptions or events beyond our control. Risks such as death or disability of star performers, technical complications with special effects or other aspects of production, shortages of necessary equipment, damage to film negatives, master tapes and recordings or adverse weather conditions may cause cost overruns and delay or frustrate completion of a production. If a motion picture or television program incurs substantial budget overruns, we may have to seek additional financing from outside sources to complete production. We cannot make assurances regarding the availability of such financing on terms

acceptable to us, and the lack of such financing could have a material adverse effect on our business, results of operations and financial condition.

In addition, if a motion picture or television program incurs substantial budget overruns, we cannot assure you that we will recoup these costs, which could have a material adverse effect on our business, results of operations and financial condition. Increased costs incurred with respect to a particular film may result in any such film not being ready for release at the intended time and the postponement to a potentially less favorable time, all of which could cause a decline in box office performance, and thus the overall financial success of such film. Budget overruns could also prevent a picture or program from being completed or released. Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition. Production costs and marketing costs are rising at a faster rate than increases in either domestic admissions to movie theatres or admission ticket prices, leaving us more dependent on other media, such as home video, television and foreign markets, and new media. If we cannot successfully exploit these other media, it could have a material adverse effect on our business, results of operations and financial condition.

Revenues and results of operations are difficult to predict and depend on a variety of factors.

The economic success of any motion picture or television program that we produce is, and our revenues and results of operations are, uncertain since the revenues derived from the distribution of a motion picture or television program (which do not necessarily cover production or distribution costs incurred) depend primarily upon its acceptance by the public. There can be no assurance that we will continually or consistently produce commercially successful motion pictures. Accordingly, our revenues and results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods. Any inability to achieve such commercial success could have a material adverse effect on our business, results of operations and financial condition. Commercial success of a motion picture or television program is dependent on a variety of factors, including critical reviews and public tastes, which we cannot anticipate with certainty. In addition, our revenues and results of operations depend significantly upon the timing of our releases, which we do not control and which are subject to a number of uncertainties. We can give no assurance that its production and release goals will be met in any period or that completion will occur in accordance with the anticipated schedule or budget. Therefore, it is difficult to predict the quarters in which motion pictures or other programs will be completed, and in turn, are available for release by a particular distributor. Depending on the ultimate timing and manner of release of motion pictures and television programs produced or co-financed by us, future revenues and results of operations may fluctuate significantly from period to period.

Our revenues and results of operations vary from quarter to quarter. If we fail to project accurately and experience significant revenue shortfalls, we could be forced to discontinue a portion or all of our operations.

Our revenues and results of operations depend to a significant degree upon the timing and receipt of revenue from licensing, production fees and distribution of motion pictures. While some of our licensing fees are paid immediately upon entering into the license agreements, much of these fees are deferred until the licensor’s production costs are recouped, which could significantly delay our receipt of these funds. Production fees are not earned until the production is begun and expenses related to the production are incurred. Furthermore, motion pictures often have long production cycles, making it difficult to predict when they will be completed and released for distribution. All of these factors make it difficult to predict with certainty when revenues might be received. Results in any particular quarter may not be indicative of results in subsequent periods. If, because of the variance in our quarterly operating results, we fail to plan or project accurately, we could be subject to unexpected revenue shortfalls. If we were unable to find financing to cover the revenue shortfalls, we could have to discontinue a portion or all of our operations for some period of time or even indefinitely.

Accounting practices used in our industry may accentuate fluctuations in operating results.

In addition to the cyclical nature of the entertainment industry, our accounting practices (which are standard for the industry) may accentuate fluctuations in our operating results. In accordance with

U.S. generally accepted accounting principles and industry practice, we amortize film costs using the ‘‘individual-film-forecast’’ method. Under this accounting method, we amortize film costs for each film based on the following ratio: Revenue earned by title in the current period/Estimated total revenues by title. We must review, and revise when necessary, our total revenue estimates on a title-by-title basis. This review may result in a change in the rate of amortization and/or a write-down of the motion picture asset to its estimated fair value. Results of operations in future years depend upon our amortization of our motion picture costs. Periodic adjustments in amortization rates may significantly affect these results. In addition, we are required to expense film advertising costs as incurred, but are also required to recognize the revenue from any motion picture over the entire revenue stream expected to be generated by the individual picture or television program. As a result, in the event our initial total revenue estimates for a title were too high, under the industry’s accounting method, we would immediately recognize the entire loss in instances where we expect that a motion picture will not recover our investment. Comparatively, the profit of a successful motion picture must be deferred and recognized over the entire revenue stream generated by the individual picture. Accordingly, our revenues and results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future period.

We face substantial competition in all aspects of our business.

We are smaller and less diversified than many of our competitors.  As an independent distributor and producer, we constantly compete with major U.S. and international studios. Most of the major U.S. studios are part of large diversified corporate groups with a variety of other operations, including television networks and cable channels, that can provide both the means of distributing their products and stable sources of earnings that may allow them better to offset fluctuations in the financial performance of their motion picture and television operations. In addition, the major studios have more resources with which to compete for ideas, storylines and scripts created by third parties as well as for actors, directors and other personnel required for production. The resources of the major studios may also give them an advantage in acquiring other businesses or assets, including film and television content libraries, that we might also be interested in acquiring. Our inability to compete successfully could have a material adverse effect on our business, results of operations and financial condition.

These competitors include Universal Pictures, Warner Bros. (which includes New Line Cinema and Castle Rock Entertainment), Twentieth Century Fox, Sony Pictures Entertainment (which includes Columbia Pictures and TriStar Pictures), Paramount Pictures, the Walt Disney Company (which includes Buena Vista Pictures Distribution, Touchstone Hollywood Pictures and Miramax) and MGM (which includes Metro Goldwyn Mayer Pictures and United Artist Pictures). We also compete with independent producers and distributors, including, among others, Lions Gate Entertainment, New Regency, Imagine Entertainment, Village Roadshow, Icon Productions, Jersey Films and Mandalay Pictures. Many of these companies have a variety of operations in addition to the production of motion pictures including television network libraries and cable channels which can provide a means of distributing their products and providing a stable source of revenues to offset fluctuations in the financial performance of their motion picture operations. We rely almost exclusively on our motion picture operations for our revenues.

The risks of competition exist in all stages of motion picture production and distribution.  Motion picture and television program acquisition, production and distribution are highly competitive businesses, and we cannot assure you that we will continue to compete effectively in these businesses. If we are unable to compete effectively, it will have an adverse effect on our business as a whole. In the production phase, competition will affect our ability to obtain the services of preferred performers and other creative personnel, including script writers and designers. We also compete with others for financing of production efforts. We will be competing with the producers of other films and programs in arranging for distribution in the domestic theatrical marketplace and in other markets and media and obtaining advertising space and time. In the distribution phase, competition will limit the availability of release dates and theaters required for the successful distribution of a film. A potential film or television series will be competing directly with other motion pictures and television series and

indirectly with other forms of public entertainment. We will compete with numerous larger motion picture and television program production companies and distribution companies that have substantially greater resources, larger and more experienced production and distribution staff and established histories of successful production and distribution of motion pictures and television programs.

The motion picture industry is highly competitive and at times may create an oversupply of motion pictures in the market.  The number of motion pictures released by our competitors, particularly the major U.S. studios, may create an oversupply of product in the market, reduce our share of box office receipts and make it more difficult for our films to succeed commercially. Oversupply may become most pronounced during peak release times, such as school holidays and national holidays, when theatre attendance is expected to be highest. If we release our films during peak release times, our potential revenues for a particular release may be reduced and we cannot guarantee that we can release our films during more advantageous times. In addition to production or other delays that might cause us to alter our release schedule, a change in the schedule of a major studio may force us to alter the release date of a film because we cannot always compete with a major studio’s larger promotion campaign. Any such change could adversely impact a film’s financial performance. In addition, if we cannot change our schedule after such a change by a major studio because we are too close to the release date, the major studio’s release and its typically larger promotion budget may adversely impact the financial performance of our film. The foregoing could have a material adverse effect on our business, results of operations and financial condition.

The limited supply of motion picture screens compounds this product oversupply problem. Currently, a substantial majority of the motion picture screens in the U.S. typically are committed at any one time to only 10 to 15 films distributed nationally by major studio distributors. In addition, as a result of changes in the theatrical exhibition industry, including reorganizations and consolidations and the fact that major studio releases occupy more screens, the number of screens available to us when we want to release a picture may decrease. If the number of motion picture screens decreases, box office receipts, and the correlating future revenue streams, such as from home video and pay and free television, of our motion pictures may also decrease, which could have a material adverse effect on our business, results of operations and financial condition.

Technological advances may reduce our ability to exploit our motion pictures and television series.  The entertainment industry in general and the motion picture industry in particular continue to undergo significant technological developments, including video-on-demand. This rapid growth of technology combined with shifting consumer tastes could change how consumers view our motion pictures and television series. For example, an increase in video-on-demand could decrease home video rentals. Other larger entertainment distribution companies will have larger budgets to exploit these growing trends. We cannot predict how we will financially participate in the exploitation of our motion pictures and other programming through these emerging technologies or whether we have the right to do so for certain of our library titles. If we cannot successfully exploit these and other emerging technologies, it could have a material adverse effect on our business, results of operations and financial condition.

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Our intellectual property rights are critically important to our business. We rely on a combination of copyright, trademark and trade secret laws, contract law, and other methods to protect our content, license rights, proprietary technology and information but there can be no assurance that such laws will provide sufficient protection to us. Our ability to compete depends, in part, upon successful protection of our intellectual property. We do not have the financial resources to protect our rights to the same extent as major studios and our efforts to protect our intellectual property may not be adequate. We also attempt to protect proprietary and intellectual property rights to our productions by licensing and distribution arrangements with reputable international companies in specific territories and media for limited durations. Despite these precautions, existing copyright and trademark laws afford only limited practical protection in certain countries. We may also distribute

our products in other countries in which there is only limited copyright or trademark protection. As a result, it may be possible for unauthorized third parties to copy and distribute our productions or certain portions or applications of our intended productions, which could have a material adverse effect on our business, results of operations and financial condition.

There also can be no assurance that third parties will not copy or otherwise obtain and use our content or other intellectual property rights without our authorization or that we will be able to continue to maintain rights to our intellectual property. The failure to protect our intellectual property rights may have a material adverse effect on our business, results of operations, and financial condition. Litigation may also be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation, regardless of the validity or the success of the claims, could result in substantial costs and the diversion of resources and could have a material adverse effect on our business, results of operations and financial condition. We cannot assure you that infringement or invalidity claims will not materially adversely affect our business, results of operations and financial condition. Finally, there can be no assurance that such actions will result in the successful protection of our rights.

Piracy of motion pictures, including digital and internet piracy, may reduce the gross receipts from the exploitation of our films.

Motion picture piracy is extensive in many parts of the world, including South America, Asia, the countries of the former Soviet Union and other former Eastern bloc countries. Additionally, as motion pictures begin to be digitally distributed using emerging technologies such as the internet and online services, piracy could become more prevalent, including in the U.S., because digital formats are easier to copy. As a result, users can download and distribute unauthorized copies of copyrighted motion pictures over the internet. In addition, there could be increased use of devices capable of making unauthorized copies of motion pictures. As long as pirated content is available to download digitally, many consumers may choose to download such pirated motion pictures rather than pay to view motion pictures. Piracy of our films may adversely impact the gross receipts received from the exploitation of these films, which could have a material adverse effect on our business, results of operations and financial condition. See also the discussion above under the caption ‘‘Government Regulation.’’

We rely upon key vendors and suppliers.

We currently have only a limited number of employees and we outsource many of our requirements such as production, post-production and distribution services to unaffiliated third parties. Therefore, we are reliant upon these third parties’ successful execution of these critical services. To the extent that these providers fail to perform or are unable to meet unexpected requirements (such as rapid growth), substantial damage to our brand, reputation and future business prospects could result.

We have a limited operating history and unproven business model.

Due to the relatively early stage of our operations, it is difficult to evaluate the business and our prospects. Our revenue potential is unproven and the business model is evolving. TAG USA has only been in business since 1999 and has a limited operating history. Further, the scope of the business proposed by TAG is more extensive than our historical operations, including operating as a public company, and therefore encompass a great degree of execution risk. Accordingly, investors have only limited operating and financial information relating to our business to evaluate our performance and future prospects.

Our success depends on external factors in our industries.

Our success depends on the commercial success of motion pictures and television series, which is unpredictable.  Operating in the motion picture and television industries involves a substantial degree of risk. Each motion picture or television program is an individual artistic work, and inherently

unpredictable audience reactions primarily determine commercial success. Generally, the popularity of our motion pictures and programs depends on many factors, including the critical acclaim they receive, the format of their initial release, for example, theatrical or direct-to-video, the actors and other key talent, their genre and their specific subject matter. The commercial success of our motion pictures also depends upon the quality and acceptance of motion pictures that our competitors release into the marketplace at or near the same time, critical reviews, the availability of alternative forms of entertainment and leisure activities, general economic conditions and other tangible and intangible factors, many of which we do not control and all of which may change. We cannot predict the future effects of these factors with certainty, any of which factors could have a material adverse effect on our business, results of operations and financial condition.

In addition, because a motion picture’s performance in ancillary markets, such as home video and pay and free television, is often directly related to its box office performance, poor box office results or poor television ratings may negatively affect future revenue streams. Our success will depend on the experience and judgment of our management to select and develop new investment and production opportunities. We cannot make assurances that our motion pictures will obtain favorable reviews or ratings, that our motion pictures will perform well at the box office or in ancillary markets. The failure to achieve any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

Our distributors’ failure to promote our films and programs may adversely affect our business.  The profitable distribution of a motion picture or television program depends in large part on the availability of one or more capable distributors who are able to arrange for appropriate advertising and promotion, proper release dates and bookings in first-run and other theaters. The decisions of our distributors regarding the timing of release and promotional support of our motion pictures and programs are important in determining their success. We do not control the timing and manner in which our licensed distributors distribute our motion pictures or programs. Any decision by those distributors not to distribute or promote one of our motion pictures or to promote our competitors’ motion pictures, to a greater extent than they promote ours could have a material adverse effect on our business, results of operations and financial condition. Moreover, we cannot assure that profitable distribution arrangements will be obtained for our films or programs or that they can or will be distributed profitably. If we attempt to self-distribute our films (arrange for our own theater bookings and other releases), there is no assurance that theaters or other venues will be available to exhibit or sell the motion picture or that the agreements reached with such theaters would meet our pre-agreement expectations.

We could be adversely affected by strikes or other union job actions.  We are directly or indirectly dependent upon highly specialized union members who are essential to the production of motion pictures and television programs. A strike by, or a lockout of, one or more of the unions that provide personnel essential to the production of motion pictures and television programs could delay or halt our ongoing production activities. Such a halt or delay, depending on the length of time, could cause a delay or interruption in our release of new motion pictures or programs which could have a material adverse effect on our business, results of operations and financial condition.

If the carrying value of our intangible assets is not recoverable, an impairment loss must be recognized which would negatively affect our financial results.

We will continue to evaluate our intangible assets, including goodwill, acquired product rights, and other intangible assets, whenever events or circumstances occur which indicate that these assets might be impaired. We have acquired limited partnership interests in five limited partnerships from the holders of such interests in consideration for shares of our common stock. We have issued 675,219 shares of our common stock in such transactions and acquired limited partnership interests valued at $688,000. We hold a 14.2% position in Animal Partners, L.P., which was valued at $425,000 and a 5.9% position in Family Film Partners VII, LP valued at $200,000. We will recognize an impairment charge based on the amounts of these investments if we determine, in accordance with generally accepted accounting principles, that the carrying value of these assets exceeds the undiscounted future cash flows expected from such assets as well as upon the eventual disposition of such assets. If an asset is

considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

We will need to manage our growth.

We have a limited operating history and will to need expand our operations rapidly to implement our business plans. This growth has and will continue to place significant strain on our managerial, operational, financial, and other resources. To the extent that available resources are unable to meet demand, we may be required to make additional material investments in our operations and personnel to do so.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley act could have a material adverse effect on our ability to report our financial results timely and accurately.

Section 404 of the Sarbanes-Oxley Act requires management’s ongoing review and evaluation of our internal controls, and will require management to report on our internal controls and our independent auditors to attest to the effectiveness of our internal controls. In connection with the merger of Power Marketing and TAG USA in November 2004, we have adopted certain measures in connection with our ongoing efforts to improve our control processes and corporate governance and intend to adopt and implement additional measures that may be required. These changes are required to effect the transition of our company from a privately-held corporation to a public company that files period reports under the Securities Exchange Act of 1934. As a private company, TAG USA was not required to adopt the types of internal control procedures that a public company must adopt and maintain. Accordingly, since the merger, we have begun implementing various measures to enhance existing policies, or implement new ones, so as to have an effective system of internal controls over financial reporting. We are incurring, and will continue to incur, substantial additional expense and diversion of management’s time as a result of performing the internal control systems evaluation, testing and remediation required in order to comply with the requirements of Section 404 of the Sarbanes-Oxley Act.

We are undertaking a comprehensive effort to comply fully with these requirements. This effort includes documenting, evaluating the design of and testing the effectiveness of our internal controls over financial reporting. During this process, we may identify deficiencies in our system of internal controls over financial reporting that may require remediation. As described in Item 8 of this Annual Report on Form 10-KSB, our former independent auditing firm, Grobstein, Horwath & Co, LLP, in its resignation letter to us, made statements indicating the existence of weaknesses in our internal control over financial reporting. Due to the ongoing improvement, evaluation and testing of our internal controls, there can be no assurance that any deficiencies identified may not be material weaknesses that we would be required to report. Readers should review this risk factor within the context of the discussion regarding our change of independent accountants and auditors in Item 8 of this Annual Report on Form 10-KSB.

If we are unable to conclude that our internal controls over financial reporting are effective, our ability to obtain additional financing on favorable terms and our access to capital markets could be materially and adversely affected, which could materially and adversely affect our business and financial condition. In addition, if we are unable to conclude our internal controls or disclosure controls are effective, current and potential stockholders could lose confidence in our financial reporting and our stock price could be negatively impacted.

We are dependent upon the continued employment of our founder.

For the foreseeable future, we will be largely dependent upon the personal efforts and abilities of our Chief Executive Officer, Steve Austin, to coordinate, implement and manage our business plans and programs. Our loss or unavailability of his services would likely have a material adverse affect on our business, operations and prospects. Although we are currently negotiating the terms of an employment agreement with Mr. Austin, we do not currently have an employment agreement with

him and no assurances can be given that we will enter into an employment agreement with him. Therefore, Mr. Austin may terminate his relationship with us at any time with or without cause or prior notice. In the event Mr. Austin’s employment with us ends, we may need to cease operation.

Mr. Austin has extensive control over us.

At the present time, our Chief Executive Officer, Steve Austin, owns more than 50% of our outstanding common stock. Mr. Austin is also currently our only executive officer and is the Chairman of the board of directors. This position gives Mr. Austin extensive control over the company and the right to determine who will serve as our officers and directors in the future. Although we have established a board of directors with independent directors and intend to hire other persons to serve in an executive capacity, readers should consider Mr. Austin’s equity ownership in us and position of control in determining whether to invest in us. These factors should be considered in the context of our negotiation of an employment agreement with Mr. Austin. See ‘‘Employment Agreements.’’

Mr. Austin owns and controls certain limited partnerships which we may acquire.

Mr. Austin controls the entity which is the general partner of certain limited partnerships that we have proposed to acquire. Mr. Austin receives compensation from the limited partnerships for services he renders to each of them and may benefit from our consummation of the proposed acquisitions of the limited partnerships. This concentration of control in Mr. Austin must be considered in determining whether to invest in us. The limited partners have not currently agreed to be acquired by us and the terms of the acquisition are still being considered. There can be no assurance any acquisition will be completed. In such an event, we will have a continuing obligation to these limited partnerships.

Failure to attract and retain qualified personnel may adversely affect our business.

We believe that our performance and future success will depend in large part upon our ability to attract and retain additional highly skilled creative, technical, sales, marketing and financial personnel, especially those with experience in the motion picture industry. If we do not succeed in attracting skilled personnel or in retaining our current personnel, our business could be adversely affected. Competition for such individuals, especially creative and technical talent, is intense. We have in the past experienced, and expect to continue to experience, difficulty in hiring highly skilled employees with appropriate qualifications.

The investors in the limited partnerships are entitled to recoup their investment before we receive meaningful earnings.

The feature films that we have produced to date, with one exception, were financed through the creation of limited partnerships with unaffiliated investors. Generally, these investors are entitled to be repaid the entire principal amount of their investments before we share in any profits derived from each of the films, other than distribution fee and production fee that TAG USA may be entitled to before remitting the balance of the proceeds to the limited partnership entity. After the limited partners recoup their investment, profits, if any, are typically divided between TAG USA (where it acts as the general partner to the limited partnership) and the limited partners on a 60:40 ratio. The ratio may, however, vary depending on the limited partnership entity. Earnings, therefore, may be insufficient to allow us to receive any distributions, and if we do receive a distribution, it may be delayed for a significant period of time. We intend to finance future feature films through a combination of bank, equity or debt financing.

We have limited the liability of our directors.

Our certificate of incorporation includes provisions eliminating the personal liability of our directors, except for breach of a director’s duty of loyalty to us or our shareholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, and in

respect of any transaction in which a director receives an improper personal benefit. These provisions pertain only to breaches of duty by directors as such, and not in any other corporate capacity, e.g., as an officer. As a result of the inclusion of such provisions, neither we nor our shareholders may be able to recover monetary damages against directors for actions taken by them which are ultimately found to have constituted negligence or gross negligence in the carrying out of their fiduciary duties, although it may be possible to obtain injunctive or other equitable relief with respect to such actions. If equitable remedies are found not to be available to shareholders in any particular case, shareholders may not have an effective remedy against the challenged conduct. We believe that, based upon recent developments in the market for directors’ and officers’ liability insurance, such provisions are necessary to attract and retain qualified individuals to serve as directors. In addition, such provisions will allow directors to perform their duties in good faith without concern for the application of monetary liability on a retroactive basis in the event that a court determines their conduct to have been negligent or grossly negligent. On the other hand, such provisions significantly limit the potential remedies available to us or a shareholder, and it is possible that the protection afforded by such provisions may reduce the level of diligence or care demonstrated by such directors.

Risks Related To Our Stock

Our common stock may be subject to the ‘‘Penny Stock’’ rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

Shares of our common stock may be considered to be ‘‘penny stocks’’ as defined in the Exchange Act, which are stocks that are traded in the over-the-counter market on the OTC Bulletin Board and have a price less than $5.00 per share, subject to certain exemptions. As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the price of the shares of our common stock. In addition, the ‘‘penny stock’’ rules adopted by the Commission under the Exchange Act subject the sale of the shares of common tock to certain regulations which impose sales practice requirements on broker-dealers. For example, broker-dealers selling such securities must, prior to effecting the transaction, provide their customers with a document that discloses the risks of investing in such securities. Included in this document are the bid and offer price quotes for the penny stock and the number of shares to which the quoted prices apply; the brokerage firm’s compensation for the trade and the compensation received by the individual salesperson for the trade. If the person purchasing the securities is someone other than an accredited investor or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer’s account by obtaining information concerning the customer’s financial situation, investment experience and investment objectives. The broker-dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in such securities. Accordingly, the Commission’s rules may limit the number of potential purchasers of shares of our common stock. In addition, certain state securities laws impose restrictions on transferring ‘‘penny stocks’’ and as a result, the ability of investors to sell their shares of common stock may be impaired.

We have not paid dividends on our common stock and investors may not receive a return on an investment in our stock.

We anticipate that for the foreseeable future, earnings will be retained for the development of our business. Accordingly, we do not anticipate paying dividends on our common stock in the foreseeable future. The payment of future dividends will be at the sole discretion of our Board of Directors and will depend on our general business condition.

There are outstanding a significant number of shares available for future sales under rule 144.

As of December 31, 2005, there are 21,189,948 issued and outstanding shares of our common stock. Of this amount, approximately 12.9 million shares may be deemed to be ‘‘restricted shares’’ and, in the future, may be sold in compliance with Rule 144 under the securities Act of 1933, as

amended. Rule 144 provides that a person holding restricted securities for a period of one year may sell in brokerage transactions an amount equal to 1% of our outstanding common stock every three months. A person who is a ‘‘non-affiliate’’ of TAG and who has held restricted securities for over two years is not subject to the aforesaid volume limitations. Possible or actual sales of our common stock by certain of our present shareholders under Rule 144 may, in the future, have a depressive effect on the price of our common stock in any market which may develop for such shares.

There are a significant number of outstanding options and warrants, the exercise of which may have a dilutive effect on the price of our common stock.

As of December 31, 2005, there were outstanding and immediately exercisable options to purchase 2,142,526 shares of common stock, at an average exercise price of $2.00 per share and warrants to purchase 5,220,781 shares of common stock exercisable at average price of approximately $1.41 per share. The exercise of these securities will cause dilution to our shareholders and the sale of the underlying common stock (or even the potential of such exercise or sale) may have a depressive effect on the market price of our securities. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of the outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to it than the exercise terms provided by the outstanding options and warrants.

Our Series A Preferred Stock financing may result in dilution to our common stockholders.

Dilution of the per share value of our common shares could result from the conversion of most or all of the 6% Series A Redeemable Preferred Stock we issued to the selling stockholders. There are currently outstanding 5,000 shares of our Series A Preferred Stock, which were initially convertable into a total of 2,000,000 shares of common stock. Although these securities were issued at the initial conversion rate of $2.50, the decline in the market price of our common stock has resulted in an adjustment of the conversion price to the floor amount of $1.00. Accordingly, the holders of our outstanding shares of Series A Preferred Stock are able to convert these shares into an aggregate of 5,000,000 shares of our common stock. Holders of our common stock will experience substantial dilution from the conversion of the Series A Preferred Stock. In the event the conversion price is lower than the actual trading price on the day of conversion, the holder could immediately sell all of its converted common shares, which would have a dilutive effect on the value of the outstanding common shares. Furthermore, the significant downward pressure on the trading price of our common stock as Series A Preferred Stock holders converted these securities and sell the common shares received on conversion could encourage short sales by the holders of Series A Preferred Stock or other shareholders. This would place further downward pressure on the trading price of our common stock. Even the mere perception of eventual sales of common shares issued on the conversion of the Series A Preferred Stock could lead to a decline in the trading price of our common stock.

Our common stock has low trading volume and any sale of a significant number of shares is likely to depress the market price.

Our common stock is traded on the OTC Bulletin Board and the trading volume of our common stock has been limited. Because of this limited trading volume, shareholders may not be able to quickly sell any significant number of their shares even after an exemption becomes available, and any attempted sale of a large number of our shares will likely have an adverse impact on the price of our common stock. Because of the limited number of shares being traded, the per share price is subject to volatility and may continue to be subject to rapid price swings in the future.

The price of our common stock may be volatile, and a shareholder’s investment in our common stock could suffer a decline in value.

There has been significant volatility in the market price of our common stock, and this volatility may continue in the future. In addition, there is a greater chance for market volatility for securities that trade on the OTC Bulletin Board as opposed to a national exchange or on the Nasdaq Stock Market. This volatility may be caused by a variety of factors, including generally lower trading

volume. In addition to events and circumstances beyond our control, the price of our common stock is likely to be subject to wide fluctuations in response to certain factors, including, but not limited to, the following:
•  quarter to quarter variations in results of operations;
•  announcements of new motion pictures;
•  competitors’ announcements of new motion pictures;
•  general conditions in the entertainment industry;
•  litigation involving us; or
•  investor and customer perceptions and expectations regarding our motion pictures, plans and strategic position and those of our competitors and customers.


Additionally, the public stock markets experience extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons often unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.

Our executive officers and certain stockholders own a significant percentage of our stock, and as a result, the trading price for our shares may be depressed and these stockholders can take actions that may be adverse to your interests.

Our executive officers and directors, beneficially own, in the aggregate, approximately 64.4% of our common stock, assuming the conversion and exercise of all convertible securities held by such persons. In addition, the holders of our Series A Preferred Stock are the beneficial owners of a significant amount of convertible securities. This concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Although the Series A Preferred Stockholders contractually agreed to not convert or exercise the securities held by them if such event would cause their percentage ownership of our common stock to exceed 4.99%, these security holders, acting together, will have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders could dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.

We have authorized shares of undesignated preferred stock.

Our certificate of incorporation authorizes the issuance of up to 500,000 shares of ‘‘blank check’’ preferred stock, with such designation rights and preferences as may be determined from time to time by the Board of Directors. We issued 5,000 shares of Series A Preferred Stock in a private sale which we consummated on May 4, 2005, which shares have rights and preferences senior to our common stock. These rights and preferences are described in detail elsewhere in this Annual Report on Form 10-KSB. Subject to the rights of the holders of the Series A Preferred Stock, our Board of Directors is empowered, without shareholder approval, to issue additional shares of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock. In the event of such issuances, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of TAG.