|United StatesSecurities and Exchange
      CommissionWashington, D.C. 20549www.sec.gov
|--------------------------------------------------------------------------------------



|FORM 10-QSB
|-----------

[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the
Quarterly Period EndedMarch 31, 2005Commission File Number:
000-50411



CARTOON
ACQUISITION, INC.



|(Exact Name of Registrant asSpecified in its
    Charter)
|---------------------------------------------------------

Delaware
    
    20-0269287(State of Incorporation)
    
    (I.R.S. Employer Identification
      Number)




|One East Main StreetSuite 610Rochester, New York
      14614-1880(Address of Principal Executive
  Offices)
|-----------------------------------------------------------------------------------------------------------



|(585) 993-9930(Registrant's Telephone Number, including
      Area Code)Telecopier (585) 486-1423Electronic Mail:cartooninvestors@rochester.rr.com
|--------------------------------------------------------------------------------------------------------------------------------------------------

Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days Yes (2)X No ( 1)X

Indicate by
check mark whether the Registrant is a shell company (as defined 12b-2 of the
Exchange Act): Yes X

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS

Check
whether the Registrant filed all documents and reports required to be filed by
Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes___ No ___



|APPLICABLE ONLY TO CORPORATE
  ISSUERS
|--------------------------------------

State the
number of shares outstanding of each of the issuers classes of common equity,
as of the latest practicable date: Common Stock, par value $ 0.0001 per share,
200,001

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

---

APPLICABLE DISCLOSURES AND DISCLAIMERS.

This Report is a Quarterly Report for the
quarterly period ended March 31, 2005 and filed with the U. S. Securities and
Exchange Commission (the "Commission") on Form 10-QSB (this "Report") and
contains summaries of the material terms of prospective plans of operation and
the unaudited financial condition of the Registrant, which the Registrant
believes to be accurate. Such summaries are qualified in their entirety by
reference to any such documents. The Registrant has stated all of the material
facts necessary for the Commission and the public to make an informed decision
pertinent to the matters subject and to the disclosures herein by amendment
made.

INTEGRATED REPORTS TO SECURITY HOLDERS.

This information required by Form 10-QSB and
contained in this Report also contains certain information that was delivered to
shareholders of the Registrant and integrated herein. The Registrant has met the
requirements of General Instruction "D" of Form 10-QSB for integrating reports
to security holders herein, and, the Registrant has identified the appropriate
sections of this Report, accordingly, to identify such integrated information.
Because all of the integrated information satisfies the requirements of the
applicable items and/or instructions of Form 10-QSB, the information to the
Registrant's security holders is included in this Report and is being filed
electronically herewith. No further paper filing covering this integrated
information shall be filed with the Commission.

Moreover, because this Report contains information
to the Registrant's security holders that, ordinarily, is required to be
contained in an additional or independent report to security holders, the
Registrant is notifying its security holders of the location of additional
information, pursuant to Regulation 14A and/or Regulation 14C. In addition, the
Registrant is integrating the information that, ordinarily, was to have been
provided to the Commission and to the public on Schedule 14f-1, which the
Registrant was incapable of filing without unreasonable effort and
expense.

To the Registrant's security holders, please take
note: The Registrant is subject to the reporting requirements of section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, is obligated to file current, quarterly, annual, and
transitional reports, proxy statements, and other information with the
Commission, and is obligated to deliver copies of certain reports and filings by
mail to its shareholders and to certain other parties, as required by Federal
securities laws. Such reports, proxy statements, and other filings may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of said materials may be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 or
from the Commission's Web site, the electronic address for which iswww.sec.gov.

The Registrant shall permit its shareholders to
ask questions of and receive answers from the Registrant concerning any aspect
of the information contained in this Report, and, if necessary, to obtain
additional information pertaining to information to security holders integrated
in this Report, to the extent the Registrant possesses such information or to
the extent the Registrant can acquire such information without unreasonable
effort or unreasonable expense, in order to verify the accuracy of the
information contained in this Report to any of its shareholders. The Registrant
encourages its shareholders to contact it; if electronically, tocartooninvestors@rochester.rr.com, or, if by mail, to its mailing address,
which is Post Office Box 202, Wyoming, New York 14591-0202, or to the address of
its principal executive office, which is first written on the cover hereof. (The
Registrant cannot assure the public that its electronic mail (e-mail) address
will remain active or available for any period subsequent to the filing date of
this Report.)

- Page 2
-

---

NOTICE
OF EVENTS TO BE REPORTED AND TIME FOR FILING OF REPORT.

This Report contains information on the Registrant
as of the date and for the period ended on the cover hereof, as amended, except
for information contained in other reports, writings, filings, or schedules,
that may be incorporated herein by reference thereto, which the Registrant
guarantees to be accurate as of the dates of each such respective report,
writing, filing, or schedule.

MATERIALS INCORPORATED BY REFERENCE.

Prior to the filing of this Report by the
Registrant, the Registrant filed certain information with the Commission under
the cover of Form 8-K, for the current events that occurred on January 26, 2005
(and which was reported to and filed with the Commission on July 13, 2005). The
Registrant incorporates all of the information contained in said Form 8-K herein
by reference thereto. In addition, the Registrant's principal executive officer,
Randolph S. Hudson, filed a Schedule 13D on March 29, 2005, which outlined, in
some detail, Mr. Hudson's ambitions with regard to the development of the
Registrant and the development of its business, while he remained the
controlling shareholder-in-supermajority of the Registrant's common voting
equity securities; therefore, the Registrant incorporates said Schedule 13D (for
the purposes of referencing certain statements made therein) herein by reference
thereto.



|FURTHER UNDERTAKINGS.
|---------------------

The Registrant, for the events that occurred
during the period described herein, further agrees (a) to timely file an
amendment or amendments that reflect a change or changes in the facts or events
that, individually or collectively, represent a fundamental change in the
information contained in this Report on Form 10-QSB for the period in question,
and (b) to include any other information that may be pertinent to the events
described in this Report and obtained by the Registrant on a date beyond the
date of this Report.



|NO REVIEW BY THE
COMMISSION.
|----------------------------

The Registrant's corporate and financial
information presented in this Report have not been approved or disapproved by
the Commission. Further, the Commission has not passed upon the fairness or
merits neither of the subject transactions, nor upon the accuracy or adequacy of
the information contained in this Report, nor in any schedule, exhibit, or
supplement annexed hereto or incorporated herein by reference thereto. Any
representation to the contrary is unlawful.

- Page 3
-

---



|PART I  FINANCIAL
INFORMATION
|------------------------------

Certain statements contained in this Quarterly
Report for the quarterly period ended March 31, 2005 on Form 10-QSB (the
"Report"), including, without limitation, statements containing the words
"anticipates", "expects", "hopeful", and words of similar import, constitute
"forward-looking" statements. The Registrant cautions readers to not place undue
reliance on these forward-looking statements. The Registrant's actual results
could differ materially from those statements from those anticipated in these
forward-looking statements for many reasons, including certain risks associated
with the Registrant, its securities, and its prospective or future business
purpose or plan of operations, and that are described or set forth in this
Report, and in other documents the Registrant files with the U. S. Securities
and Exchange Commission (the "Commission"), which includes this Report, and all
amendments hereof.



|Item
      1. Financial Statements.
|-----------------------------------

The accompanying unaudited financial statements
have been prepared in accordance with the instructions on Form 10-QSB
(applicable to non-asset-backed, small business issuers), and, therefore, do not
include all of the information and footnotes that may be necessary for a
complete presentation and evaluation of the Registrant's financial position,
results of operations, cash flows and stockholders' deficit, in conformity with
generally accepted accounting principles. In the opinion of the Registrant's
senior executive management, all adjustments considered necessary for a fair
presentation of the results of operation and financial position of the
Registrant have been included and all such adjustments are of a normal recurring
nature. The operating results for the three months ended March 31, 2005 are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2005.



|CARTOON ACQUISITION,
      INC.(A Development Stage
      Company)Index to Financial
Statements
|-----------------------------------------------------------------------------------------------

PageFinancial
      Statements:Balance Sheets as of March 31, 2005(Unaudited) and December 31,
      2004
    
    5Statements of Operations for the threemonths ended March 31, 2005 and
      2004and for the period September 25,
      2003(date of inception) to March 31,
      2005(Unaudited)
    
    6Statements of Cash Flows for the threemonths ended March 31, 2005 and
      2004and for the period September 25,
      2003(date of inception) to March 31,
      2005(Unaudited)
    
    7Notes to Financial Statements
    
    8


- Page 4
-

---

CARTOON ACQUISITION,
      INC.(A Development Stage
      Company)Balance SheetsMarch 31,
    
    
    
    December 31,2005
    
    
    
    2004(Unaudited)AssetsCurrent assets:Cash and cash
      equivalents
    
    $
    
    -
    
    $
    
    -Prepaid
      expense
    
    
    
    140
    
    
    
    155Total current
      assets
    
    
    
    140
    
    
    
    155Other assets
    
    
    
    -
    
    
    
    -Total assets
    
    $
    
    140
    
    $
    
    155Liabilities and Stockholders' Equity
      (Deficiency)Current liabilities:Accounts payable and
      accrued expenses
    
    $
    
    2,608
    
    $
    
    50Total current
      liabilities
    
    
    
    2,608
    
    
    
    50Other liabilities
    
    
    
    -
    
    
    
    -Total
      liabilities
    
    
    
    2,608
    
    
    
    50Stockholders' equity
      (deficiency):Preferred stock, $.0001
      par value; 20,000,000 sharesauthorized, 0
      shares issued and outstanding
    
    
    
    -
    
    
    
    -Common stock, $.0001 par
      value; 100,000,000 sharesauthorized,
      200,001 shares issued and outstanding
    
    
    
    20
    
    
    
    20Additional paid-in
      capital
    
    
    
    399
    
    
    
    399Deficit accumulated during
      the development stage
    
    
    
    (2,887)
    
    
    
    (314)Total
      stockholders' equity (deficiency)
    
    
    
    (2,468)
    
    
    
    105


- Page 5
-

---

Total liabilities and
      stockholders' equity (deficiency)
    
    $
    
    140
    
    $
    
    155See notes to financial
      statements.


CARTOON ACQUISITION,
    INC.(A
      Development Stage Company)Statements of Operations(Unaudited)CumulativeDuring theDevelopmentThree Months
      Ended
    
    
    
    StageMarch 31,
    
    
    
    
    
    (September 25,
      20032005
    
    
    
    2004
    
    
    
    to March 31,
      2005)Revenues
    
    $
    
    -
    
    $
    
    -
    
    $
    
    -Expenses:General and
      administrative
    
    
    
    2,573
    
    
    
    15
    
    
    
    2,887Total
      expenses
    
    
    
    2,573
    
    
    
    15
    
    
    
    2,887Net loss
    
    $
    
    (2,573)
    
    $
    
    (15)
    
    $
    
    (2,887)Net loss per share, basic and
      diluted
    
    $
    
    (0.01)
    
    $
    
    (15.00)Weighted average number of
      commonshares outstanding, basic
      and diluted
    
    
    
    200,001
    
    
    
    1See Notes to Financial
      Statements


- Page 6
-

---

CARTOON ACQUISITION,
      INC.(A
      Development Stage Company)Statements of Cash Flows(Unaudited)CumulativeDuring
      theDevelopmentThree Months
      Ended
    
    
    
    StageMarch 31,
    
    
    
    (September 25,
      20032005
    
    
    
    2004
    
    
    
    to March 31, 2005)Cash flows from operating
      activities:Net
      loss
    
    $
    
    (2,573)
    
    $
    
    (15)
    
    $
    
    (2,887)Services
      rendered for common stock
    
    
    
    -
    
    
    
    -
    
    
    
    144Changes in
      operating assets and liabilities:Prepaid expense
    
    
    
    15
    
    
    
    (200)
    
    
    
    (140)Accounts payable and accrued expenses
    
    
    
    2,558
    
    
    
    (60)
    
    
    
    2,608Net cash
      provided by (used in)operating activities
    
    
    
    -
    
    
    
    (275)
    
    
    
    (275)Cash flows from investing
      activities
    
    
    
    -
    
    
    
    -
    
    
    
    -Cash flows from financing
      activities:Company
      expenditure paid byCompany attorney
    
    
    
    -
    
    
    
    275
    
    
    
    275Net cash
      provided by (used in)financing activities
    
    
    
    -
    
    
    
    275
    
    
    
    275Net increase (decrease) in
      cash
    
    
    
    -
    
    
    
    -
    
    
    
    -Cash and cash
      equivalents,beginning of
      period
    
    
    
    -
    
    
    
    -
    
    
    
    -Cash and cash equivalents,
      end of period
    
    $
    
    -
    
    $
    
    -
    
    $
    
    -


- Page 7
-

---

Supplemental disclosures
      of cash flow information:Interest
      paid
    
    $
    
    - $
    
    - $
    
    -Income taxes
      paid
    
    $
    
    - $
    
    - $
    
    -See notes to financial
      statements.




|CARTOON ACQUISITION,
      INC.
|-------------------------------

(A Development Stage Company)

Notes
to Financial Statements For the Three Months Ended March 31, 2005 and
2004

and For
the Period September 25, 2003 (Inception) to March 31, 2005
(Unaudited)

NOTE 1 
INTERIM FINANCIAL STATEMENTS

The
unaudited financial statements as of March 31, 2005 and for the three months
ended March 31, 2005 and 2004 and for the period September 25, 2003 (inception)
to March 31, 2005 have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with instructions to Form 10-QSB. In the opinion of management, the unaudited
financial statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial position as of
March 31, 2005 and the results of operations and cash flows for the periods
ended March 31, 2005 and 2004. The financial data and other information
disclosed in these notes to the interim financial statements related to these
periods are unaudited. The results for the three-month period ended March 31,
2005 are not necessarily indicative of the results to be expected for any
subsequent quarter of the entire year ending December 31, 2005. The balance
sheet at December 31, 2004 has been derived from the audited financial
statements at that date.

Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to the Securities and
Exchange Commissions rules and regulations. These unaudited financial
statements should be read in conjunction with our audited financial statements
and notes thereto for the year ended December 31, 2004 as included in our report
on Form 10-KSB.

NOTE 2 
ORGANIZATION

Cartoon
Acquisition, Inc. (the Registrant) was incorporated in the State of Delaware
on September 25, 2003. The Registrant has no products or services; the
Registrant is seeking a business to merge with or acquire.

On May 4,
2004, the Registrant effected a reverse stock split of 1 share for each
1,240,000 shares held, thereby decreasing the number of issued and outstanding
common shares from 1,240,000 to 1. All references to shares and per share
amounts in the accompanying financial statements have been presented to
retroactively reflect this reverse split.

NOTE 3 
BASIS OF PRESENTATION

- Page 8
-

---

The
Registrant has been presented as a development stage enterprise in accordance
with Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and
Reporting by Development Stage Enterprises. Since inception, the Registrants
have been limited to organizational efforts and filing a Registration Statement
on Form 10-SB with the Securities and Exchange Commission (SEC).

At March
31, 2005, the Registrant had negative working capital and a stockholders
deficiency of $2,468. For the period September 25, 2003 (inception) to March 31,
2005, the Registrant incurred net losses of $2,887. Further, the Registrant
failed to timely file periodic reports with the SEC subsequent to its filing of
its Registration Statement on Form 10-SB on October 3, 2003. These factors
create uncertainty as to the Registrants ability to continue as a going
concern. The Registrant is making efforts to acquire a business with assets and
operations. However, there is no assurance that the Registrant will be
successful in accomplishing this objective. The financial statements do not
include any adjustments that might be necessary should the Registrant be unable
to continue as a going concern.



|NOTE 4
       INCOME TAXES
|---------------------------

No provision
for income taxes has been recorded since the Registrant has incurred net losses
since inception.

|At March 31, 2005,
      deferred tax assets consist of: |  |   |  |      
|-------------------------------------------------------- |  | - |  | -----
|Net operating
      loss carry forward                   |  | $ |  | 982  
|Less valuation
      allowance                           |  |   |  | (982)
|Net                                                      |  | $ |  | -    

Based on
managements present assessment, the Registrant has not yet determined it to be
more likely than not that a deferred tax asset of $982 attributable to the
future utilization of the $2,887 net operating loss carry forward as of March
31, 2005 will be realized. Accordingly, the Registrant has provided a 100%
allowance against the deferred tax asset in the financial statements at March
31, 2005. The Registrant will continue to review this valuation allowance and
make adjustments as appropriate. The net operating loss carry forward expires in
years 2023, 2024, and 2025 in the amounts of $184, $130, and $2,573,
respectively.

Current
tax laws limit the amount of loss available to be offset against future taxable
income when a substantial change in ownership occurs. Therefore, the amount
available to offset future taxable income may be limited.



|NOTE 5
       CONTINGENCY
|--------------------------

On
January 25, 2005, the Registrants sole officer and director resigned as officer
and director and sold 185,000 of the 200,000 shares of the Registrant's common
stock owned by him to an unrelated third party for a promissory note in the
amount of $100,000. This promissory note does not bear interest, is due on or
before August 24, 2005, and is secured by the 185,000 shares of the Registrant's
common stock.

- Page 9
-

---

Item 2.
Managements Discussion and Analysis or Plan of Operations.

Some of the statements made in Part I, Item 2 of
this Report may be deemed to be "forward-looking" statements, as that term is
defined in Section 27A of the Securities Act of 1933 (15 U.S.C. 77z-2) and in
Section 21E of the Securities Exchange Act of 1934 (15 U.S.C. 78u-5), which are
referred to as "statutory safe harbor" provisions. Forward-looking statements
are not historical facts; rather, forward-looking statements are based upon the
opinions and estimates of the Registrant's management at the time such
statements are made. Every forward-looking statement is subject to inherent
risks and uncertainties that could cause the actual results to differ materially
from the plans, projections, or expectations expressed or implied by such
statement at the time the statement was made. The Registrant cautions the public
not to place undue influence on these forward-looking statements, which speak
only as of the date they were made and may not have been updated in further
filings, schedules, or reports required to be filed with the Commission, or with
any other body government.

Certain statements contained in this section of
this Report may infer an impression of optimism about the Registrant's beliefs
and expectations, expressed through words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", "contemplates",
"prospective", "attempt", "proposed", and similar expressions or terms identify
forward looking statements.

2.1. Plan
of Operation.

On January 25, 2005, Randolph S. Hudson entered
into a private securities transaction with James W. Margulies; whereby, Mr.
Hudson purchased 185,000 shares of the Registrant's common voting equity
securities for $100,000, to become payable to Mr. Margulies under a non-interest
bearing promissory note, which was guaranteed by a pledge and security agreement
of Mr. Hudson's 185,000 shares in favor of Mr. Margulies in the event of Mr.
Hudson's default. Prior to the purchase date, the Registrant had two
shareholders: Mr. Margulies, who owned 200,000 shares of the Registrant's common
voting equity securities, and Tom Daniels, who owned one (1) share of the
Registrant's common voting equity securities. Following that certain private
securities transaction, Mr. Hudson controlled the Registrant, by ownership of
his shares in plurality, which ownership represented approximately 92.5% of the
Registrant's total issued and outstanding common voting equity securities.
Following the date of that certain transaction, the Registrant was represented
by three shareholders who, in the aggregate, owned 200,001 shares of the
Registrant's common voting equity securities.

On March 28, 2005, Mr. Hudson filed a Schedule 13D
with the Commission, which, among other things, indicated Mr. Hudson's
intentions in regard to the Registrant. (To the extent permitted by the
Commission's rules and regulations, the Registrant incorporates all or certain
portions of Mr. Hudson Schedule 13D filing, as may be applicable to this
tutorial to the public and to the Commission, herein by reference
thereto.)

To continue, in general, Mr. Hudson stated his
intentions were (a) to file all of the Registrant's delinquent reports with the
Commission, (b) to qualify by election new members to the Registrant's Board of
Directors, (c) to appoint one or more new senior executive officers to serve the
Registrant, and (d) to cause the Registrant to aggressively pursue the
consummation of a qualified business combination and/or to cause the Registrant
to engage in any business act or activity.

In retrospect, the resultant effects of that
certain transaction described hereinabove were: (a) a change in the Registrant's
Board of Directors, whereby Mr. Hudson, by a shareholder action effected by
written

- Page 10
-

---

consent
by less than the unanimous vote of all of the Registrant's shareholders, elected
Mr. Hudson to serve as the sole director of the Registrant, and (b) a change in
the senior executive management of the Registrant, whereby Mr. Hudson, acting as
the sole director, by a corporate action made to become effective by the
unanimous resolution of the Registrant's Board of Directors (of which Mr. Hudson
was and is the sole member), appointed Mr. Hudson to serve as the Registrant's
President, Chief Executive Officer, Secretary, Treasurer, and Chief Financial
Officer. As the result of these shareholder and corporate actions, certain risks
may become evident to the existing or new holders of the Registrant's common
stock; namely, Mr. Hudson is in the position to determine any plan of operation
for the Registrant, Mr. Hudson has the sole discretion of electing, appointing,
and/or terminating the employment of any additional directors and/or officers of
the Registrant, and, Mr. Hudson may act in any manner he, or his legal nominees,
determine to be suitable for the Registrant's ongoing development, or lack
thereof, with or without the threat of the effect of any acts or actions by
shareholders who may oppose Mr. Hudson's act or actions.

Upon the analysis of the Registrant's plan of
operation (forward from the date of this Report - not the actual filing date
hereof), by compulsion of its principal stockholder Mr. Hudson, it is the
Registrant's intent by the end of its 2005 calendar year: (a) to prepare and
file its delinquent reports as required by section 15(d) of the Exchange Act
with the Commission, (b) to aggressively pursue the purchase of a business or to
consummate the acquisition of a company engaged in an ongoing business
enterprise, (c) to effect a business combination with a qualified candidate, or
(d) any combination of the foregoing. In addition, it is the Registrant's intent
to establish a matrix, or several matrices, that would permit the Registrant to
enact reliable controls and procedures, as such controls and procedures are
defined in 17 CFR 22.307et seq.

From January 2005 through the end of the period
covered by this Report, the Registrant, independent of any outside, or third
party, sources of capital or credit accommodations, has been independently
incapable of satisfying its cash requirements to proceed with its plan of
operation. However, the Registrant has relied on its principal stockholder, Mr.
Hudson to make disbursements on its behalf, and, the Registrant has been able to
rely on certain third-party providers (persons known or introduced to Mr.
Hudson) to advance funds to the Registrant in order for it to aggressively
pursue its development objectives.



| | 2.2.
      Management's Discussion.
| | -----------------------------------

In general, the Commission and the public should
be informed that the Registrant has no operations or revenues. The Registrant
plans to seek business opportunity candidates; otherwise, the Registrant expects
to remain without operations and without accepting offers from any business
opportunity candidate.

As of March 31, 2005, the Registrant did not
engage in any negotiations with any specific entity regarding the possibility of
a business combination with the Registrant and that its sole officer and
director, or his associates, have had no preliminary contact or discussions with
and that there are no present plans, proposals, arrangements, or understandings
with any representatives of the owners of any business or company regarding the
possibility of an acquisition or merger transaction between the Registrant and
any other entity. In addition, from the date of the Registrant's inception
to-date, there have been no discussions, agreements or understandings with any
professional advisors, financial consultants, broker-dealers or venture
capitalists to assist the Registrant in locating a business opportunity.
Presently, or, in the least for the quarterly period ended March 31, 2005, it is
not the Registrant's intention to employ the services of any of those
individuals or entities. Instead, the Registrant will rely upon its sole officer
and director to effect those services normally provided by professional advisors
or financial consultants. Specifically, the Registrant's sole officer and
director will identify prospects through his present associations such as those
of his attorneys, business acquaintances, and similar persons. (The

- Page 11
-

---

Commission and the public should be informed that it is the
intention of the Registrant's sole officer and director to employ an investor
relations firm and a broker-dealer within the nine-month period following the
date of this Report.

The Registrant will not limit its search for a
business opportunity to any specific business, industry, or geographical
location. Depending on the qualification of any given business opportunity, the
Registrant may participate in virtually any kind of business. The Registrant's
sole officer and director anticipates the Registrant will participate in only
one potential business opportunity, as it has no assets and extremely limited
financial resources. To-date, the Registrant has not developed any criteria for
the selection of business opportunities. However, the Registrant's sole officer
and director will not select or enter into an asset acquisition, merger, or
share exchange agreement with a prospective candidate, unless such candidate can
provide audited financial statements and comply with all of the Commission's
reporting requirements. The Registrant's sole officer and director will have
complete discretion in selecting an appropriate business opportunity for the
Registrant, or for any subsidiary to be formed and organized to conduct business
for the Registrant.

Available business opportunities may exist in many
different industries, any of which could be in various stages of development.
Accordingly, comparative investigation and analysis of such business
opportunities is difficult and complex. The Registrant does not and will not
have any capital to attract the owners of business opportunities who desire
significant cash or other assets.

However, in contrast to the speculation of the
Registrant engaging in an ongoing business (through a business combination,
stock purchase, or asset acquisition) the Registrant's sole officer and director
believes that an opportunity may exist, whereby, the Registrant would be
acquired by a private company that does not wish to incur the cost and time
involved in an initial public offering or registration as a fully reporting
public company, however, that does desire its securities to be quoted on an
electronic or intermediary quotation system or to have its securities traded on
a regional or national exchange. The principal shareholders or owners of such
business opportunities will, however, incur significant legal and accounting
costs associated with the Commission's and with various state's securities
transaction reporting requirements, in addition to the legal cost of ancillary
agreements and other documents. The Exchange Act specifically requires that any
business opportunity candidate comply with all applicable reporting
requirements, including filing reports to disclose material events, periodic
reports, quarterly reports, and annual reports, most of which must be
accompanied by audited financial statements. The Registrant believes that there
is a demand by non-public corporations for shell corporations that are publicly
held registered companies. The Registrant's sole officer and director further
believes that demand for "shell" corporations has increased dramatically from
the date the Commission imposed stringent requirements on blank check companies
pursuant to Regulation 419 of the Act. The foregoing regulation has
substantially decreased the number of "blank check" offerings filed with the
Commission and, as a result, has stimulated an increased demand for these
so-called "shell" corporations. However, there is no assurance that the
foregoing assumption is accurate or correct. In conclusion, however, the
Registrant's sole officer and director has not conducted market research and is
not aware of any market data that would support any such perceived benefits for
a business opportunity owner.

The Registrant's plan of operations will be
conducted through the efforts of its principal shareholder, sole officer, and
sole director, Randolph S. Hudson, and, thus, will not require any additional
funds. It is anticipated that Mr. Hudson will furnish the Registrant with
business opportunity candidates. The Registrant has not, and does not, plan to
use any notices or advertisements in our search for business opportunities. Mr.
Hudson, on a case-by-case basis, will investigate specific business
opportunities and negotiate, hire an attorney, and draft and execute all
pertinent agreements, disclosure documents, and other instruments. Mr. Hudson
anticipates using his private attorney, Stephen D. Rogoff, of Rochester, New
York, for all of these functions, except for securities and securities-related
transactions, areas in

- Page 12
-

---

which Mr.
Rogoff does not customarily practice. The Registrant will not be able to expend
a significant amount of funds on a complete and exhaustive investigation.
Moreover, the Registrant may not discover certain adverse factors regarding such
a business opportunity due to its limited business experience in such
matters.

The Registrant will incur nominal expenses in
implementing its business plan, which will be paid out-of-pocket by its present
sole officer and director as interest-free loans to the Registrant, or, which
may be paid-out by certain individuals or entities whom or which may extend
credit accommodations to the Registrant under favorable terms and conditions.
However, the Registrant expects that repayment of these loans will be derived
solely from consummation of a business opportunity or from the sale of all or a
portion of Mr. Hudson's securities in the Registrant. The repayment of any loans
made to the Registrant will not impede, or be made conditional in any manner to,
consummation of a business opportunity. Mr. Hudson will loan money to the
Registrant, or arrange for loans to the Registrant by qualified third parties,
on an as-needed basis. Presently, if any such funds were required by the
Registrant, there would be no limit on the amount of monies he or they,
respectively, will loan the Registrant.

Prior to making a decision in a business
opportunity, the Registrant plans to obtain written materials regarding the
business opportunity including, a description of products, services, and that
company's history; management resumes; financial information; available
projections with related assumptions; evidence of existing patents, trademarks,
service marks, or rights thereto and of the foregoing; present and proposed
forms of compensation to management; a description of present and required
facilities; an analysis of risk and competitive conditions; and other relevant
information.

Further, prior to the location of a business
opportunity, the Registrant has no plans, proposals, arrangements, or
understandings with respect to the sale or issuance of additional securities.
Because the Registrant is in possession of virtually no assets and has extremely
limited, if non-existent, resources, the Registrant's sole officer and director
anticipates that for the Registrant to consummate any such asset acquisition,
stock purchase, merger, or share exchange, the Registrant will be required to
issue shares of its authorized but unissued common stock as the sole
consideration for any such venture, and, it is anticipated that any securities
issued in any such acquisition, business combination, or share exchange would be
issued in reliance upon an exemption from registration under applicable federal
and state securities laws. In some circumstances, however, as a negotiated
element of any prospective transaction, the Registrant may agree to register all
or a part of such securities immediately after the acquisition, business
opportunity, or share exchange is consummated or on a specified date thereafter.
If such registration occurs, (of which there can be no assurance) it will be
undertaken by the surviving entity after the Registrant has successfully
consummated an acquisition, stock purchase, merger, or share exchange, and after
it is no longer considered to be a "blank check" company.

The issuance of substantial additional securities
and their potential sale into any trading market which may develop in the
Registrant's securities (if any) may have a depressive effect on the future
value of its securities, if such a market develops, of which there is no
assurance. The completion of any asset acquisition, stock purchase, merger, or
share exchange, which utilizes the Registrant's common voting equity securities,
will result in a significant issuance of shares and substantial dilution to the
Registrant's present stockholders.

The Registrant does not anticipate any significant
changes in the number of its employees. For the time being, and for at least for
the nine-month period following the date of this Report, the Registrant's sole
officer and director does not plan to engage in research and development and
does not plan to purchase or sell plant or equipment.

- Page 13
-

---

The Registrant will seek to expand its operations
through consummation of a currently unidentified business opportunity, which
entails risks that purchasers of its securities will not have a basis to
evaluate.

Some of the risks that are presently analogous to
the Registrant and to the Registrant's shareholders (which have been reported on
a Form 8-K Current Report for the period ended January 26, 2005 (and filed with
the Commission on July 13, 2005) are as follows:

RISKS
ASSOCIATED WITH THE REGISTRANT, IN-GENERAL.

Expectation of Substantial Future Losses.The Registrant expects to incur
substantial further losses in the near future due to significant costs
associated with its ongoing business organization and development, including
costs associated with the prospective or definitive acquisition of any new
business enterprise or by evaluating and entering into a prospective or
definitive business combination. The Registrant can make no assurance that its
operations, if any, will ever generate sufficient revenues to fund its
evaluation or continuation of its, yet unrealized, operations, or that it will
ever generate positive cash flow from its operations, or that it will attain or
thereafter sustain profitability in any future period.

Speculative Nature of the Registrant's Prospective Future Business.The success of
the Registrant's organization and development, beyond the date of this Report,
and of any proposed plan or plans of operation, will depend largely on the type
of operation or operations, the then financial condition of the Registrant, and
then the integrity, capability, and character of the individuals who are, or
will be, appointed to serve as members of the Registrant's senior executive
management. While the Registrant's present Chief Executive Officer intends to
engage in the business purpose stated in the Registrant's most recent
registration statement, there can be no assurance that the Registrant will be
successful in conducting any such stated business, business purpose, or business
objective. Furthermore, in the event the Registrant elects to complete a
business combination, or similar non-bankruptcy reorganization (with or without
the proceeds from any future sale of any of its securities or debt instruments),
the success of the Registrant's operations may be dependent upon its senior
executive management's capability to secure capital or credit accommodations
from another individual, from a group of individuals, from an entity, or from a
combination of entities; any such possibility would subject the Registrant to
higher debt levels, the possibility of the encumbrance of all or part of the
Registrant's assets or properties (if it were to own or to let any assets or
properties), and numerous other factors, the results of which would be
unpredictable and beyond the Registrant's control. The merits of the
Registrant's undertakings must be evaluated in respect of the uncertainties and
complexities that may exist or be apparent in an early stage development company
with non-existent or extremely limited capital resources.

The
Registrant Does Not Anticipate Paying Dividends.The Registrant has not paid any dividends
to the holders of its common stock from the date of its incorporation. Moreover,
the Registrant does not anticipate disbursing a dividend to the holders of its
common voting equity securities during the nine-month period following the date
of this Report.

The
Registrant May Issue Shares for the Acquisition of its Properties; The
Registrant May Not Survive a Business Combination; Issuance of Future Shares May
Dilute Value of Stockholders' Stock.The Registrant's Certificate of Incorporation
authorizes the issuance of a maximum of 100,000,000 shares of common stock,
$0.0001 par value per share, and 20,000,000 shares of preferred stock, $0.0001
par value per share. As of the date hereof, there are 200,001 shares of common
stock outstanding and no shares of preferred stock outstanding. The Registrant
may issue substantial numbers of shares of either its common voting equity
securities or debt securities, or both, to pursue one or more business
opportunities, to effect a business combination with one or more entities, or to
enhance its assets. Such, or other, future issuance of all or part of the
remaining authorized common stock may result in

- Page 14
-

---

substantial dilution in the percentage of the Registrant's common
stock then held by the Registrant's existing shareholders. Moreover, any common
stock issued in the future may be valued on an arbitrary basis by the
Registrant's senior executive management. The issuance of the Registrant's
shares for future acquisitions may have the effect of diluting the value of
shares held by its shareholders, and might have an adverse effect on any future
market trading in the Registrant's securities. Moreover, if the Registrant's
senior executive management were to deem it necessary, for whatever reason, to
increase the Registrant's stated authorized capital, such further dilution would
have a greater effect upon the Registrant's shareholders, as is described
hereinabove, except, in addition to the potential dilution described
hereinabove, such added stated capital and resultant dilution may cause some
shareholders to own one or fewer shares, as the result of the collective effect
of the prospective future events described hereinabove.

The
Registrant's Management and Supermajority Shareholder, on a Preferential Basis,
May Authorize One or More Anti-Dilution Agreements to Favor Certain Shareholders
or Group of Shareholders.The holder-in- supermajority of the Registrant's common stock,
Randolph S. Hudson, may direct the Registrant's Board of Directors to enter into
each of one or more anti-dilution agreements with each of one or more of the
Registrant's current or future shareholders, depending on the rights and
preferences associated with their shares and under the relative terms governing
the subscription for their shares in the Registrant. If this were to occur, or,
if Mr. Hudson was to organize current or future shareholders to vote in accord
with him under a voting trust or other form of voting agreement, each of the
then existing minority shareholders, or each of the other shareholders whom or
which would not be a party to any such anti- dilution or voting agreements, may
have to acquiesce to Mr. Hudson's choice on the Registrant's plan of action, or
they may have to acquiesce to the voting group's plan or plans of action without
being able to input their suggestions for any plan for the Registrant's future
development.

The
Registrant's Ability to Implement any Future Business Plan.The Registrant's present
business plan, modeled from the business purpose it last stated in its most
recently filed Form 10-SB Registration Statement, is to effect a business
combination with one or more qualified entities and/or to identify and enter
into a suitable business transaction with one or more entities. The success of
the Registrant's ability to effect its business plan, and its capability to
develop an operating-stage business, whereby, it would be required to timely
implement its entire plan of operations in its selected field of business would
require an effective planning and management process. The Registrant expects
that it will need to improve and expand its financial and managerial controls,
reporting systems, and operating procedures. If the Registrant experiences
delays or cost overruns in implementing these systems, or, if these systems are
not as effective as the Registrant anticipated they would be, the Registrant
could experience significant material and adverse difficulties and
effects.

Reliance on Key Personnel.The Registrant's future success will greatly
depend on the significant participation of Randolph S. Hudson, the Registrant's
key senior executive officer, and the Registrant may need to hire or retain
other professional, technical, operations, and administrative personnel, all of
whom will be hired, engaged, or retained by Mr. Hudson. The Registrant's future
success also will depend on the Registrant's ability to expand, integrate, and
retain its management team. Moreover, recruiting and retaining skilled personnel
is highly competitive. If the Registrant fails to retain, hire, and integrate
qualified employees, professionals, and consultants, the Registrant would not be
able to maintain and expand its future operations, if any then may exist.
Moreover, it is the Registrant's opinion that, should Mr. Hudson become unable
to serve on the Registrant's Board of Directors, and, should Mr. Hudson be
unable to remain employed as the Registrant's Chief Executive Officer, the
Registrant's current and future business objectives will not be timely or
satisfactorily realized.

Supermajority Control by Principal Stockholder.As of January 25, 2005,
Randolph S. Hudson became the Registrant's principal shareholder by purchasing
approximately 92.5% of the Registrant's

- Page 15
-

---

issued
and outstanding common stock under a private securities transaction with James
W. Margulies. As long as Mr. Hudson holds the number-in-supermajority of the
shares of the Registrant's outstanding common stock, he will be able to elect
the Registrant's entire Board of Directors and to remove any director, with or
without cause and without calling a special meeting. Any shareholders or
prospective investors of the Registrant will not be able to affect the outcome
of any shareholder vote. As a result, Mr. Hudson will control all matters
affecting the Registrant, including: (i) the composition of the Registrant's
Board of Directors and, through it, any determination with respect to the
Registrant's business direction and policies, including the appointment and
removal of its senior executive officers; (ii) the allocation of business
opportunities and resources that may be suitable for the Registrant; (iii) any
determinations with respect to future mergers or other future business
combinations; (iv) the Registrant's acquisition or disposition of assets; (v)
the Registrant's financing objectives; (vi) the disposition of any matter
relating to dividends, which may be entitled to holders of the Registrant's
common stock; and (vii) determinations with respect to the Registrant's tax
returns.

RISKS
ANALOGOUS WITH FUTURE ACQUISITIONS BY THE REGISTRANT.

Factors beyond the Registrant's Control.The Registrant anticipates that
a part of its plan of operations will rely on the acquisition of one or more
qualified entities and will rely on the Registrant to enter into one or more
business combinations. If the Registrant does conclude one or more acquisitions
and/or business combinations, numerous conditions beyond the Registrant's
control may substantially affect the success of any such acquisitions or
business combinations.

No
Shareholder Vote on Selection of Target Companies for Acquisition or for
Development.The Registrant's minority shareholders will not have an opportunity
to evaluate the specific merits or risks of any prospective acquisition or
prospective business combination proposed to the Registrant's Board of Directors
by the Registrant's Chief Executive Officer. As a result, shareholders and
future investors will be dependent on the judgment of Randolph S. Hudson, the
Registrant's current Chief Executive Officer, in connection with the selection
of the prospective business assets to be acquired or developed by the Registrant
and with the selection of one or more candidates with which the Registrant may
amalgamate. There can be no assurance that the determinations ultimately made by
Mr. Hudson will permit the Registrant to achieve its desired or desirable
business objectives. The number of businesses that the Registrant can acquire,
the number of business combinations the Registrant can effect, and the
diversification of such companies or businesses will, in the near and long
terms, be dependent on the amount of capital accommodations or structured credit
facilities, or both, the Registrant will be able to secure in a manner that will
not cause the Registrant to be adjudged insolvent or to promulgate a
determination by any qualified third-party that the Registrant is materially
under-capitalized.

RISKS
ANALOGOUS WITH THE ACQUISITION AND OPERATION OF ANY ONGOING
BUSINESS.

Although the Registrant is not presently engaged
in any ongoing business, from which it derives any revenues and income, it is
the intention of the Registrant's newly elected Chief Executive Officer,
Randolph S. Hudson, to effect one or more business combinations with one or more
suitable candidates and/or to start-up a new business or to acquire an existing
business. Consequently, the Registrant's shareholders and future investors
should be aware of the following certain risks, in the minimum, the Registrant
expects to encounter when engaging in any new or ongoing business that it may
start-up or acquire.

The
Registrant Has No Operating History In Operating any Business and its Present
Management's Business Experience is Limited to Certain Types of Operations.If the
Registrant entered any business enterprise, either a start-up or business with a
pre-existing base of operations, and,

- Page 16
-

---

either in
its name or through one or more subsidiaries it may form for that purpose, it
would have no operating history in conducting any ongoing business enterprise.
The Registrant's shareholders and prospective investors should consider the lack
of historical financial and operating information available on which to base
their evaluation of the Registrant's future performance. Because the Registrant
presently owns no assets, has no cash or other forms of capital reserves, and
has limited or no access to credible credit accommodations, the Registrant would
be at a significant disadvantage to establish a business or to continue in any
ongoing business concern. Further, the Registrant's shareholders and prospective
investors should consider the inherent risks, exposures, and difficulties that
are frequently encountered by small, struggling companies during their pre-
operating stages of development.

The Registrant's intentions to pursue its current,
stated business purpose, and/or to engage in a startup or ongoing business
transaction will require substantial expenditures, either from paid-in capital
or from suitable credit accommodations from credible funding sources. The
Registrant cannot assure its shareholders and prospective investors that it will
be able to raise sufficient capital, or to secure adequate financings, to fund
and/or to develop its objectives' prospects. Further, the Registrant cannot
assure its shareholders or prospective investors that any prospective business
opportunity, when so acquired, will be able to develop and retain consumer
demand or that such prospects will be remain fiscally sound and successful while
being owned and/or operated by the Registrant. Even under the best possible
scenario, the Registrant cannot assure its shareholders or prospective investors
that it will be able to generate sufficient revenues to offset the costs related
to any such acquisition or business combination, including the Registrant's own
general, administrative, and executive expenses. Thus, even if the Registrant's
plan would evolve, and could be implemented, ultimately, it may be unsuccessful
and unable to continue operations in any business.

Future
Activity; Risks of Passive Ownership.The Registrant, either on its own or by and
through one or more wholly owned subsidiaries formed for such purpose, intends
to engage in business by acquiring an existing business enterprise (either as an
asset acquisition or as the result of a business combination) or by starting up
a new business. If the Registrant engages in any business by and through a
subsidiary, substantially all of that subsidiary's prospective gross revenues
can be expected to be derived from its operations, as distinguished from any
operations that may be conducted directly by the Registrant.

Under any system or plan of operation through a
subsidiary, wholly owned or otherwise, the Registrant's shareholders and
prospective investors should be aware of the fact that any such subsidiary, most
likely, would operate under a different and independent system of management
from the Registrant, possibly employing officers and electing directors
different from those serving the Registrant. Moreover, the subsidiary will be
required to maintain separate and distinct administrative and operation's
structures, which would subject the subsidiary to its own significant expenses -
prior to its obligation to disburse its net revenues to the Registrant - which,
in turn would apply the funds in a manner consistent with its senior executive
management's decisions. If the subsidiary agreed to pay a part of its revenues
to the Registrant under some type of expense sharing or administrative
allocation method, the likelihood of two significant and adverse events could
occur: firstly, the allocation to the Registrant by the subsidiary may cause the
subsidiary to end up short on its accounts and unable to timely discharge its
liabilities and obligations, and, secondly, the allocation that could become
payable to the Registrant may not meet the Registrant's immediate administrative
and executive liabilities and obligations.

Alternatively, the Registrant could enter into one
or more joint ventures with one or more individuals or entities, each of whom or
which would represent a part of the ownership of any such asset or business. The
Registrant's shareholders and prospective investors should be aware that a
participant in a joint venture operation, or the holder of a joint venture
interest, typically has no independent administrative or operational authority
regarding the day-to-day workings of any such joint venture. Therefore,
unless

- Page 17
-

---

the
Registrant, or a subsidiary that would be formed for such purpose, would be able
to secure and enforce certain extraordinary rights under the joint venture or
partnership operating and/or management agreement(s), it can be expected the
Registrant may not be able to exercise any decision-making authority regarding
development and operation of the assets or business in which it may have an
interest.

Thus, in conclusion, the Registrant's strategy of
having others operate properties in which it operates through a subsidiary or in
which would retain a passive (joint venture or partnership) interest, may put
the Registrant, or any prospective operating subsidiary, at risk of being
subjected to the decisions of third- parties regarding all basic operating
matters, including the administration and operation of the Registrant, and, of a
more pressing concern, the contractual liability, and obligatory matters that
would directly and indirectly materially affect the Registrant. While the
Registrant would make every effort to secure contractual rights that would
permit it to protect and defend its assets and business, if it were ever to
acquire any such assets or business, there can be no assurance that such rights
would be sufficient or that the Registrant, or its contemplated operating
subsidiary, would be successful in achieving timely or favorable results.

In addition to its reliance on Mr. Hudson, as is
stated hereinabove, the Registrant will need to rely on Mr. Hudson, and upon the
aid of others with whom or with which Mr. Hudson has made, or will make,
satisfactory arrangements, to provide the Registrant with capital or credit
accommodations in the foreseeable future, on the terms and under the conditions
the Registrant's remaining shareholders may disagree to or oppose.



|Item
      3. Controls and Procedures.
|--------------------------------------

Some of the statements made in Part I, Item 3 of
this Report may be deemed to be "forward-looking" statements, as that term is
defined in Section 27A of the Securities Act of 1933 (15 U.S.C. 77z-2) and in
Section 21E of the Securities Exchange Act of 1934 (15 U.S.C. 78u-5), which are
referred to as "statutory safe harbor" provisions. Forward-looking statements
are not historical facts; rather, forward-looking statements are based upon the
opinions and estimates of the Registrant's management at the time such
statements are made. Every forward-looking statement is subject to inherent
risks and uncertainties that could cause the actual results to differ materially
from the plans, projections, or expectations expressed or implied by such
statement at the time the statement was made. The Registrant cautions the public
not to place undue influence on these forward-looking statements, which speak
only as of the date they were made and may not have been updated in further
filings, schedules, or reports required to be filed with the Commission, or with
any other body government.

Certain statements contained in this section of
this Report may infer an impression of optimism about the Registrant's beliefs
and expectations, expressed through words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", "contemplates",
"prospective", "attempt", "proposed", and similar expressions or terms identify
forward looking statements.

The Registrant (or the "Registrant") has one class
of securities registered under the Securities Exchange Act of 1934 (the
"Exchange Act"); namely, the Registrant's common stock, par value $0.0001 per
share. The Registrant is not an "asset-backed" issuer, as that term is defined
in 17 CFR 229.1101. In addition, the Registrant does not have any securities
registered, nor any offering pending or contemplated, under the Securities Act
of 1933 or the Investment Company Act of 1940 with the Commission.

Prior to the actual filing date hereof, the
Registrant did fail to file timely all of its reports to the Commission, which
were required to be filed by the Registrant pursuant to section 13(a) or section
15(d)

- Page 18
-

---

of the
Exchange Act. The Registrant attributes its delinquency in that regard to (a)
extreme limitations on its fiscal capabilities due to its lack of development
and engagement in an ongoing business enterprise (and, further in that extent,
because the Registrant was incapable of securing capital or credit
accommodations to permit it to conduct its operations), (b) unpredictability
with regard to its senior executive management's capability to have performed
its duties on a full-time or part-time basis in order to properly have
administered its affairs (to include the Registrant's incapability to hire and
retain qualified support and technical personnel), and (c) the Registrant's
inability to effectively (without undue effort and/or unreasonable expense)
gather, assemble, prepare, and disseminate the required information.

On or about January 25, 2005, with the principal
objective of aggressively pursuing the Registrant's development, Randolph S.
Hudson purchased approximately 92.5% of the Registrant's common voting equity
securities from James W. Margulies under a private securities transaction.
Although Mr. Hudson's administration of the Registrant has been plagued by many
of the same obstacles and circumstances as were experienced by the Registrant's
prior management and shareholders (surrounding the Registrant's delinquent
reporting and tardy development), it was and remains Mr. Hudson's principal
objectives to (a) to timely remedy the Registrant's delinquent filings with the
Commission and (b) immediately undertake his aggressive pursuit to develop the
Registrant.

In addition to the Registrant's dilemmas, from the
date the Registrant was required to file its initial reports, the Federal
legislature has adopted, revised, or amended certain Federal securities laws,
which the Commission is actively enforcing in order to prevent acts of frauds
that were demonstrated by some of this nation's largest companies, which, in
turn, caused great harm and financial loss to the investing public. Some of
these laws contained in the Code of Federal Regulations, include the
Sarbanes-Oxley Act of 2002, Regulation S-X (which governs accounting issues
applicable to reporting companies), the strict rules applicable to the Public
Company Accounting Oversight Board (the "PCAOB", which governs the Registrant's
non-certifying and certifying accountants), and a host of other changes to those
laws and to the U. S. Code applicable to securities and commodities markets. All
of the government's actions, and, of primary concern - all of the more stringent
and more actively policies of the Commission, have created significant new
reporting impositions on public companies to improve financial accounting,
corporate reporting, and personal accountability by a public company's senior
executive officers.

Consequently, prior to Mr. Hudson's purchase of
that certain percentage of the Registrant's stock (as was briefly described
hereinabove, and which was previously reported by Mr. Hudson on that certain
Schedule 13D filing, and, for the other reasons set forth hereinabove, the
Registrant did not have adequate, or had minimal, disclosure controls and
procedures in place. Historically, in times past, any company's system of
"checks and balances" would have been routinely handled by its certifying
accountant; however, because the Registrant was not actively engaged in its
operations, and for the other reasons mentioned hereinabove, the Registrant's
then certifying accountant was neither reviewing nor preparing the Registrant's
statements of financial conditions.

Fortunately, because the Registrant has been
dormant, in the opinion of the Registrant's present Chief Executive Officer (who
is also the Registrant's Chief Financial Officer), the Registrant's lack, or
exercise of disclosure controls and procedures did not cause any material effect
on any information, which was either prepared then or that is being prepared and
submitted to-date.

In conclusion of the aforesaid statements, prior
to January 25, 2005, in respect of the controls and procedures promulgated by 17
CFR 240.13a -15 and 17 CFR 240.15d -15:

|1. | The
      Registrant did not have adequate internal control over financial reporting
      (as defined in 17 CFR 240.13a-15); and
|-- | ---------------------------------------------------------------------------------------------------------------------------------
|  

- Page 19
-

---

|2. | In
      the absence of full-time senior executive management, the Registrant was
      unable to effectively evaluate the effectiveness by its senior executive
      management of its controls and procedures for what was to have been its
      quarterly report for this period, on the date this Report was originally
      due to have been filed.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  

Presently (the date on which this Report wasactuallyfiled), the Registrant's Chief Executive Officer, Randolph S.
Hudson, has established full disclosure controls and procedures. Some of these
remedies include the purchase of professional internal accounting software that
operates with multiple systems of entry that "check and cross-check" entries and
the engagement of a PCAOB-qualified accountant to perform non-certified
compilations, prior to delivering his results to the Registrant's
PCAOB-qualified certifying accountant.

With specific regard to internal control over
financial reporting by the Registrant and by the Registrant's senior executive
officers pursuant to the sub-sections enumerated in 17 CFR 228.308: (a) The
Registrant has at all times maintained adequate financial and non-financial
records, which fairly and accurately reflect the dispositions of the assets of
the Registrant, (b) the Registrant has at all times been able to provide more
than reasonable assurances that any such financial statements were capable of
being prepared under generally accepted accounting principles and that the
receipts and expenditure of the Registrant were being made only in accordance
with the authorizations of the senior executive management and by the
Registrant's Board of Directors, and (c) the Registrant has at all times been
able to provide reasonable assurances regarding the prevention or timely
detection of any unauthorized acquisition, use, or disposition of the
Registrant's assets, any of which could have caused a material effect on the
Registrant's financial statements.



|PART II - OTHER
INFORMATION
|---------------------------



|Item
      1. Legal Proceedings.
|--------------------------------

During the period being reported herein, the
Registrant was not a party to any legal action or proceeding, nor was any such
action or proceeding threatened against the Registrant.

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

The
information required by Item 2 of Part II of Form 10-QSB is not applicable to
this Report.



|Item
      3. Defaults upon Senior Securities.
|----------------------------------------------

The
information required by Item 3 of Part II of Form 10-QSB is not applicable to
this Report.

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

Some of the statements made in Part II, Item 4 of
this Report may be deemed to be "forward-looking" statements, as that term is
defined in Section 27A of the Securities Act of 1933 (15 U.S.C. 77z-2) and in
Section 21E of the Securities Exchange Act of 1934 (15 U.S.C. 78u-5), which are
referred to as "statutory safe harbor" provisions. Forward-looking statements
are not historical facts; rather, forward-looking statements are based upon the
opinions and estimates of the Registrant's management at the time such
statements are made. Every forward-looking statement is subject to inherent
risks and uncertainties that could cause the actual results to differ materially
from the plans, projections, or expectations expressed or implied by such
statement at the time the

- Page 20
-

---

statement was made. The Registrant cautions the public not to
place undue influence on these forward-looking statements, which speak only as
of the date they were made and may not have been updated in further filings,
schedules, or reports required to be filed with the Commission, or with any
other body government.

Certain statements contained in this section of
this Report may infer an impression of optimism about the Registrant's beliefs
and expectations, expressed through words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", "contemplates",
"prospective", "attempt", "proposed", and similar expressions or terms identify
forward looking statements.

For the quarterly period ended March 31, 2005, the
Registrant did not submit any matters to a vote by security holders; however,
the Registrant's principal shareholder, Randolph S. Hudson, who beneficially
owns approximately 92.5% of the Registrant's common stock, did cause the
Registrant to effect certain corporate actions by his written consent by less
than the unanimous vote of the shareholders in lieu of a meeting; whereby he
elected himself to serve as a director of the Registrant. The action by written
consent in lieu of a meeting was held on January 25, 2005.

There were no settlements required to be made
between the Registrant and any other participant (as defined in Rule 14a-11 of
Regulation A under the Exchange Act), which terminated any solicitation subject
to Rule 14a-11.

No proxies were solicited from the Registrant's
shareholders and, as the result of the written consent by the Registrant's
principal shareholder; there was no solicitation in opposition to the
shareholders' nominee who was elected by the shareholders' action.

The Registrant must report that certain matters
were submitted to a vote of security holders during the period covered by this
Report; however, due to the Registrant's dilemmas in regard to its organization,
administration, and limitation on fiscal resources, the Registrant was unable to
timely file the required schedule to confirm the occurrence of certain corporate
actions that were effected by the Registrant's shareholders by written consent
in lieu of a meeting. The Registrant did however notify its shareholders of the
corporate actions by mail in the time permitted by Regulation 14A and/or
Regulation 14C, respectively.

Consequently, the Registrant is disclosing these
matters herein this item fourth of Part II of this Form 10-QSB, as
follows:

|4.1. | INFORMATION
      REQUIRED BY ITEMS OF SCHEDULE 14A.
      a. Date, Time,
      and Place Information.
|---- | ------------------------------------------------------------------------------------------------------
|    

A letter was furnished to the holders of record of
the common stock of the Registrant on or about February 7, 2005, to inform them
of certain corporate actions that ordinarily would have been considered to be a
submission of a matter to a vote of security holders, which was approved by the
less than the unanimous vote of the Registrant's shareholders, who acted by
written consent without a meeting, on January 25, 2005 (the "Shareholder
Actions").

A call for the Shareholder Actions was made by the
Registrant's principal beneficial owner, Randolph S. Hudson, who owns 185,000
shares (or approximately 92.5%) of the Registrant's issued and outstanding stock
(subject to a pledge and security agreement for a sum owed to James W.
Margulies, as more fully described hereinbelow).

- Page 21
-

---

Mr. Hudson entered into an agreement with James
Margulies on January 25, 2005, whereby Mr. Hudson purchased approximately 92.5%
of the Registrant's common stock from Mr. Margulies, who prior to that date
owned approximately 99.99% of the Registrant's common stock (the "Stock
Transaction"). As a condition of and to that transaction (which was reported by
the Registrant on a Form 8-K Current Report dated January 26, 2005 and filed on
July 13, 2005, a facsimile of which is annexed as an exhibit hereto), Mr.
Margulies tendered his resignation as the sole Director, President, Secretary,
and Treasurer of the Registrant. Mr. Hudson relied on the provisions set forth
in Section 223 of the General Corporation Law of Delaware as the basis to have
taken the Shareholder Actions that are subject to Regulation 14A and/or
Regulation 14C.

Mr. Hudson fixed the Record Date at the close of
business on January 25, 2005 for shareholders entitled to notice about the
Shareholder Actions that elected Mr. Hudson to serve on the Registrant's Board
of Directors.

The subject letter was first mailed to the
Registrant's shareholders on or about February 7, 2005 and was mailed to
shareholders to comply with the requirements of Section 14(c) of the Securities
Exchange Act of 1934 (the "Exchange Act") and to provide information to all of
the Registrant's shareholders in connection with the Shareholder Actions,
although the Registrant was not soliciting proxies nor written consents from its
shareholders in this regard.

The Registrant was incapable of complying with
other reporting requirements set forth in Schedule 14(c), in that the
Registrant's said compliance could not have been performed without significant
unreasonable and undue effort and without significant undue and unreasonable
expense by the Registrant; specifically, (1) the Registrant failed to notify the
Commission on either Schedule 14A or Schedule 14C of the events described
hereinabove, (2) the Registrant failed to timely file either a Schedule 14A or
Schedule 14C with the Commission for the events described hereinabove, and (3)
the Registrant notified all of its shareholders by means of the letter which is
described hereinabove and that is attached as an exhibit hereto and made a part
hereof by reference thereto.



|b.
      Dissenter's Right of Appraisal.
|----------------------------------------

Under the applicable provisions of the General
Corporation Law of Delaware, the Registrant's shareholders were not entitled to
exercise dissenter's rights of appraisal in connection with the Shareholder
Actions that are the subject of this item fourth. HOWEVER, THE REGISTRANT'S
SHAREHOLDERS WERE ABLE TO CONTEST THE DIRECTOR'S ELECTION AND THE REGISTRANT'S
SHAREHOLDERS WERE ABLE TO COMMENCE PROCEEDINGS TO DETERMINE THE VALIDITY OF THE
DIRECTOR'S ELECTION IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN SECTION 225
OF THE GENERAL CORPORATION LAW OF DELAWARE (8 DEL. C. § 225).

c. Voting
Securities and Principal Holders Thereof.

On January 25, 2005, in order to remain compliant
with the Registrant's Certificate of Incorporation, its Bylaws, and the
provisions governing the organization of Delaware corporations set forth in the
General Corporation Law of Delaware, the principal shareholder, Mr. Hudson,
acting in pursuance of the objectives set forth in Section 223 of the General
Corporation Law of Delaware (8 Del. C. § 223), took action as the principal
stockholder of the Registrant to undertake an action by the shareholders (a) to
elect a director to serve on the Registrant's Board, to replace Mr. Margulies,
who resigned as the result of the Stock Transaction, (b) to authorize
the

- Page 22
-

---

Registrant's Board of Directors to take any action the Registrant
required to comply with state and Federal securities laws, and (c) to permit the
Registrant's Board of Directors to take all steps necessary to establish and to
further the Registrant's plan of operation (as such plan was last reported by
the Registrant in its Form 10-SB Registration Statement, which was filed with
the Commission on October 10, 2003 and which became effective 60 days thereafter
by laps of time).

In pursuance of the aforesaid objectives, Mr.
Hudson fixed the Record Date for shareholders entitled to notice of the
Shareholder Actions, and proceeded to take shareholder action by written consent
in lieu of a meeting.

A shareholder action by written consent in lieu of
a meeting is permitted by Section 228 of the General Corporation Law of
Delaware.

The authorized Shareholder Actions required the
approval of a certain percentage of the holders of the Registrant's common
stock, respectively, in order to become effective.

|1) | The
      General Corporation Law of Delaware requires that a plurality of
      shareholder votes eligible to be cast in any election of directors is
      required to elect new directors of the Registrant (8 Del. C. § 216(3). Mr.
      Hudson's percentage ownership of the Registrant constituted a plurality of
      eligible votes cast by written consent in favor of these proposals.                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) | The
      General Corporation Law of Delaware requires that majority of shareholder
      votes eligible to be cast in any election is required and constitutes a
      quorum for the purpose of passing the measures in regard to the remaining
      items upon which the shareholders voted (8 Del. C. § 216(1). Mr. Hudson's
      percentage ownership in the Registrant constituted a majority of eligible
      votes cast by written consent in favor of these proposals.
|  

On January 25, 2005, one shareholder of the
Registrant, Randolph S. Hudson, who owned of record 185,000 shares of the
Registrant's common stock, which represents approximately 92.5% of the total
issued and outstanding voting equity securities of the Registrant, executed and
delivered to the Registrant his written consent authorizing and approving (a)
the election of Randolph S. Hudson to serve on the Registrant's Board of
Directors, (b) to authorize the Registrant's Board of Directors to take any
action the Registrant requires to comply with state and Federal securities laws,
and (c) to permit the Registrant's Board of Directors to take all steps
necessary to establish and to further the Registrant's plan of operation (as
such plan was last reported by the Registrant in its Form 10-SB Registration
Statement, which was filed with the Commission on October 10, 2003).
Accordingly, no vote or further action by the Registrant's shareholders is
required to approve the foregoing measures. The Registrant's shareholders whom
or which were not involved in the Shareholder Actions are being furnished with
this notice of approval.

Therefore, there was not a meeting of the
Registrant's shareholders and none was required under the applicable statutes of
the General Corporation Law of Delaware.

The Registrant is a duly formed and validly
existing Delaware corporation. The Registrant is subject to the reporting
requirements of section 13(a) and section 15(d) of the Exchange Act; however,
the Registrant has been delinquent in its reporting obligations during the 19
months prior to the filing of this Report, due to organizational issues,
recurring temporary financial hardships, and as the result of a
change-in-control. As of the date on the cover of this Report, the Registrant
used 14 Franklin Street, Suite 900, Rochester, New York, 14604-1506, as its
principal

- Page 23
-

---

|   | executive office address, and its mailing address is Post
      Office Box 202, Wyoming, New York, 14591-0202.
|-- | --------------------------------------------------------------------------------------------------------------
|  
|d. | Directors and Executive Officers.                                                                             
|  
|   | (1)                                                                                                           
|  
|   | (2)                                                                                                           
|  
|   |                                                                                                               
|  
|   |                                                                                                               
|  
|   |                                                                                                               
|  
|   |                                                                                                               
|  

- Page 24
-

---

office
address at 14 Franklin Street, Suite 900, Rochester. New York 14604, and (6) the
acting President, Secretary, Treasurer, and a Director of Second Mongolian
Mining Security Services, Inc., a non-distributing Federal Canadian corporation,
the securities of which are quoted (on an "unsolicited bids" basis) on the
Over-the-Counter Bulletin Board electronic intermediary quotation system in the
United States under the symbol "SEMLF", which is entitled to receive mail at
Post Office Box 202, Wyoming, New York 14591 and that uses a principal
registered office address at One Yonge Street, Suite 1801, Toronto, Ontario M5E
1W7 Canada.

Prior to his associations with the firms stated
hereinabove, Mr. Hudson served as a senior general partner of HNFC Capital
Markets and as a senior general partner of Alliant Corporate Strategies. During
the 21 years prior to his occupations and professional associations stated
hereinabove, Mr. Hudson was engaged as the key principal (or as the managing
general partner or as the controlling shareholder) in the following business
ventures: the ownership and operation of four new and used car dealerships (in
California and in Utah), two auto leasing companies (in California and in Utah),
five full service hotels (in New Mexico, in Texas, in Oklahoma, and in
California), 109 restaurants (located throughout the contiguous United States
and in Northern Mexico), three nightclubs (in California, in Utah, and in
Nevada), a chain of convenience stores (in Utah), a chain of stationery and
office-supply stores (located in California), a chain of coin-operated laundry
and dry-cleaning operations (throughout the Intermountain United States), one
regional ice cream manufacturing and distribution facility (in Utah), a chain of
retail ice cream and fountain operations (in Utah, in Nevada, and in
California), a chain of doughnut stores (in California and in Utah), a
moderately-sized gold and silver operation (in Nevada), and, finally, Mr. Hudson
owned 412 residential rental units (in Utah and in Washington).

|(e) | As
      of the date and for the period of this Report, Mr. Hudson was the sole
      director, principal shareholder, and acting President, Secretary, and
      Treasurer of Montana Acquisition Corporation, a United States corporation
      organized under the laws of the State of Delaware (Commission CIK
      0001124043), entitled to receive mail at Post Office Box 202, Wyoming, New
      York 14591 and that maintains an office address at 14 Franklin Street,
      Suite 900, Rochester. New York 14604, and the acting President, Secretary,
      Treasurer, and a Director of Second Mongolian Mining Security Services,
      Inc., a non- distributing Federal Canadian corporation, the securities of
      which are quoted (on an "unsolicited bids" basis) on the Over-the-Counter
      Bulletin Board electronic intermediary quotation system in the United
      States under the symbol "SEMLF", which is entitled to receive mail at Post
      Office Box 202, Wyoming, New York 14591 and that uses a principal
      registered office address at One Yonge Street, Suite 1801, Toronto,
      Ontario M5E 1W7 Canada.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

|(3) | Significant Employees. As of the date and for the period this
      Report, there are no persons who are not executive officers but who are
      expected by the Registrant to make significant contributions to the
      business of the Registrant.                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) | Family Relationships. As of the date and for the period of
      this Report, there are no directors, executive officers, or persons
      nominated to become directors or executive officers who are related;
      moreover, Randolph S. Hudson is the sole officer and director of the
      Registrant, thus, eliminating any relationship with any other person who
      may claim to be an officer and/or director of the Registrant.
|   

- Page 25
-

---

|(5) | Certain Legal Proceedings.
|--- | --------------------------
|   
|    | (a)                       
|   
|    | (b)                       
|   
|    |                           
|   
|    |                           
|   

- Page 26
-

---

per count
(in contrast to the Court's prior release of Mr. Hudson on his own recognizance
in this case) in order for Mr. Hudson to be released from the jailhouse. Mr.
Hudson, after serving six days in the Erie County Correctional Facility in
Alden, New York, posted the required cash bail and was released until his next
appearance in Court; whereby, Mr. Hudson's attorneys compelled him to agree to
settle with the State of New York and to pay the employees the approximately
$1,800 balance as payment-in-full for their purported wage claims against
Interstate. (In fairness to the Court, it should be noted that the Court
indicated its displeasure with the employees for their actions; however, the
Court's position was to enforce New York State Labor Law by compelling employers
to observe the law, regardless of the individual and unrelated matters-at-hand.)
It was the State's position that had the employees actually removed Interstate's
cash property without authorization; it should have been Interstate's position
to file criminal theft charges against the employees. However, the statutory
period for the filing of such charges had passed by the date Mr. Hudson reached
a settlement with the State of New York in this matter.

Resultant
Criminal Record. By the Court's acceptance of Mr. Hudson's settlement with the
State of New York, it was agreed that one year following the conviction date,
the State of New York would dismiss all criminal charges against Mr. Hudson and
expunge his record accordingly under an Adjournment and Contemplation of
Dismissal in the case.

(Mr. Hudson would like to state for the record
that during the 26 years prior to the date thereof, having had employed
approximately 4,000 individuals in three countries on his respective corporate
payrolls, at no time and for no reason were brought against him any actions by
any of his employees for any alleged violations of any states' or countries'
labor laws.)

|(c) | Orders, Judgments, and Decrees Involving Securities. During
      the five years preceding the date of the filing of this Report, Mr. Hudson
      has not been the subject of any proceeding that has resulted in any decree
      or final order prohibiting or mandating Mr. Hudson's cessation or desistance of any
      activities with respect to any Federal or states securities
      laws.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

However, in the ordinary course of business by one
of Mr. Hudson's companies, Mr. Hudson, by his ownership and control of Hudson
National Financial Corporation ("Hudson"), a former private corporation that he
controlled, was the subject of a certain complaint sworn against it and him by
one of then Hudson's clients, Red Mountain Energy, Inc., an Arizona corporation.
The complaint was filed on February 28, 2002 in the United States District Court
in Rochester, New York (the "Court") and styled "Red Mountain Energy, Inc. vs.
Hudson National Financial Corporation and Randolph S. Hudson". The complaint
alleged that Hudson failed to maintain an office in New York State and that
Hudson failed to perform its services to the client (the Plaintiff, Red
Mountain) as agreed to between Hudson and Red Mountain. The services principally
were comprised of Hudson's arrangement of a merger between Red Mountain with a
dormant or inactive publicly held company. The action sought to extort $250,000
from Hudson and Mr. Hudson. (A copy of the complaint may be obtained from the
Court on the U. S. Courts Pacer System or by writing to the U. S. District Court
at the U. S. Courthouse, 100 State Street, Room 2120, Rochester, New York 14614.
Please note that the there may be a nominal charge to obtain electronic
information or to obtain printed

- Page 27
-

---

copies,
as said fees are prescribed by the U. S. Courts system and by the U. S. District
Court in and for the Western District of New York, respectively.)

Mr. Hudson was alternately out-of-state and
outside of the United States for an extended period of time and was unable to
personally appear before the Court to answer the summons.

Consequently, on April 29, 2002, the Court entered a judgment by
default against the defendants for failure to appear or to otherwise defend
themselves as required by law. Nothing contained in the default judgment
restrains or prohibits Hudson or Mr. Hudson from engaging in any lawful
securities or securities-related transaction in any jurisdiction.

During the two and one-half years prior to the
period this Report, Mr. Hudson and other Hudson officers have been gathering
information and compiling evidence for use in an appeal of the existing case,
and/or to file a new complaint against Red Mountain; whereby Hudson and Mr.
Hudson will allege and argue that Red Mountain was nothing more than a "front"
by the principal organizers of Red Mountain to circumvent the Commission's
registration rules and regulations; Red Mountain never, in fact or in deed,
owned any real or personal property that would legally and ethically permit it
to represent any value in its securities, by trading them on any intermediary
quotation system or exchange. Moreover, Hudson and Mr. Hudson did achieve their
objectives for Red Mountain; it was only by Red Mountain's inability by failing
to produce documents that conclusively demonstrated that it owned certain
assets, which caused Hudson to not be able to effect a merger between Red
Mountain and the target dormant public company.

It should be noted that none of the actions or the
consequences or determinations resulting therefrom, which are stated
hereinabove, could subject Mr. Hudson or the Registrant to be deemed to fall
within the interpretation or connotations associated with the negative
distinctions of the disqualification provisions that are enumerated in 17 CFR
230.262; moreover, no person affiliated with the Registrant nor with the Mr.
Hudson in the transaction reported hereunder is subject to statutory
disqualification, as that term is defined in section 3(a)39 of the
Act.

|(6) | Audit Committee and Audit Committee Financial Expert. Prior
      to January 25, 2005, the Registrant did not have an audit committee.
      However, Randolph S. Hudson, the Registrant's principal shareholder after
      January 25, 2005, has established an audit committee. The audit committee
      consists of Mr. Hudson, who also serves as the Registrant's sole officer
      and director. Consequently, the Registrant has been led to believe (in
      accordance with the facts based on the reasons stated hereinbelow) that
      Mr. Hudson, although limited in his knowledge, is qualified to serve as an
      audit committee financial expert. Because Mr. Hudson is the Registrant's
      sole officer and director, he is not independent; and, the Registrant,
      within the 12-month period following the date of this Report, intends to
      appoint an independent person to serve on the Registrant's audit committee
      or on the Registrant's Board of Directors, until such date the Registrant
      is prepared to effect either a business combination, asset acquisition, or
      stock purchase transaction. It is the determination of the Registrant's
      Board of Directors, chiefly, because of the Registrant's extremely limited
      financial resources, that it would be difficult to engage a person or
      persons who would be capable of performing such functions, independent of
      their ownership in the Registrant, without the Registrant's capability to
      properly compensate any such person or persons.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

For the purpose of the determining Mr. Hudson's
qualification to serve as an audit committee financial expert, the Registrant
understands as the result of Mr. Hudson's

- Page 28
-

---

statements that (aa) Mr. Hudson has an understanding of generally
accepted accounting principles and the capability to read and understand
statements of financial condition, (bb) Mr. Hudson has the capability to assess
the general application of such principles in connection with the accounting for
estimates, accruals, and reserves, (cc) Mr. Hudson has had previous business
experience in preparing, auditing, analyzing, and evaluating statements of
financial condition that are comparable to the Registrant's accounting issues
and challenges, (dd) from his prior business experience, Mr. Hudson has
experience in implementing internal controls and procedures for financial
reporting, and (ee) Mr. Hudson has an understanding of audit committee
functions.

Mr. Hudson has acquired his knowledge in finance
from his education and experience, by overseeing and assessing the performance
of businesses' accounting departments, by creating, developing, and implementing
extensive financial and bookkeeping controls for his own businesses, and by his
general familiarity with the financial subject matter of the
Registrant.

|(7) | Certain
      Relationships and Related Transactions.
      During the
      two-year period prior to the date on the cover of this Report the
      following transactions occurred, whereby, certain relationships may be
      considered to exist:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

Generally, the Registrant has not and does not
intend to enter into any transactions with its senior executive management, or
any nominees for such positions. With the exception of the transactions listed
below, the Registrant has not and does not intend to enter into any transactions
with its beneficial owners (to the extent of the participation in the
Registrant's senior executive management by any beneficial owner).

For the period of this Report, the Registrant is
not a subsidiary of any parent company, nor does the Registrant own the stock in
any company that may be considered its subsidiary.

Although the Registrant has not and does not
intend to enter into any transactions with its senior executive management, or
nominees for such positions, it should be noted: for the calendar year ended
December 31, 2004, the Registrant utilized the offices of Margulies &
Levinson LLP, the law firm of which James W. Margulies, then the Registrant's
sole officer and director, is the principal, as its executive office address.
There was no rent charged the Registrant by Margulies & Levinson for such
use.

Furthermore, Mr. Margulies also served as the
Registrant's attorney. However, during his service as the Registrant's attorney:
(a) Mr. Margulies did not receive any compensation for his services rendered to
the Registrant (other than 200,000 shares of the registrant's common stock
valued at $20); (b) Mr. Margulies did not receive any compensation for his
employment by the Registrant; (c) Mr. Margulies did not receive any stipends or
service fees for his tenure on the Registrant's Board of Directors; (d) if it
was billed, the total combined invoices for his representation as the
Registrant's attorney would not have exceeded $60,000; and, (e) no members of
Mr. Margulies' family performed any work or services for the Registrant, and
were not elected, or nominated to be elected, to serve on the Registrant's Board
of Directors.

Although the Registrant has not and does not
intend to enter into any transactions with its senior executive management, or
nominees for such positions, it should be noted: for the quarterly period ended
March 31, 2005, the Registrant utilized the office of the Law Offices of Stephen
D. Rogoff, Esq., the law firm that represents Randolph S. Hudson, the
Registrant's principal stockholder, sole officer, and sole director, the use of
which is without charge or

- Page 29
-

---

|    | expense to the Registrant, provided, however, only for the
      period that Mr. Hudson remains the principal shareholder of the
      Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The Registrant issued 200,000 restricted shares of its common
      stock to James W. Margulies, its former President, Treasurer, Secretary,
      and sole director for his services rendered in the formation and
      organization of the Registrant, which was valued at $20. Other than this
      transaction, the Registrant has not entered into transactions with any
      other promoters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | Mr. Margulies originally acquired his shares with the intent
      to hold the shares for investment purposes and not with a view to further
      resale or distribution, except as permitted under exemptions from
      registration requirements under applicable securities laws. That mean that
      he would be unable to sell such securities either unless they are either
      registered with the Commission and with comparable agencies in the state
      where he resides, or that would be exempt from registration. The most
      widely used exemption from registration requirements is provided by the
      Commission's Rule 144, which requires a one year holding period prior to
      resale, and limits the quantities of securities that can be sold during
      any 90-day period.                                                                                                                                                                                                                                                                                                                                                         
|   
|    | On or about January 25, 2005, Randolph S. Hudson entered into
      a private securities transaction with James W. Margulies, the Registrant's
      former principal shareholder, sole officer, and director, whereby, Mr.
      Hudson purchased 185,000 shares, or approximately 92.5%, of the
      Registrant's common stock. Initially, Mr. Hudson acquired his shares with
      the intent to hold the shares for investment purposes and not with a view
      to further resale or distribution, except as would be permitted under an
      exemption from registration requirements under applicable securities laws.
      That means that he would be unable to sell such securities either unless
      they are registered with the Commission and with a comparable agency in
      the state where he resides, or that such shares would be exempt from
      further registration. The most widely used exemption from registration
      requirements is provided by the Commission's Rule 144, which requires a
      one year holding period prior to resale, and limits the quantities of
      securities that can be sold during any 90-day period.
|   
|    | The Registrant's currently serving sole officer and sole
      director, Mr. Hudson, is involved in other business activities and may, in
      the future become involved in other business opportunities. If a specific
      business opportunity becomes available, Mr. Hudson may face a conflict in
      selecting between the Registrant and his other business interests, some of
      which may be required to be performed for other reporting companies. The
      Registrant has not formulated a policy for the resolution of such
      conflicts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(8) | Compliance with Section 16(a) of the Exchange Act. The
      Registrant is a small business issuer with a class of equity securities
      registered pursuant to section 12(g) of the Exchange Act; the Registrant's
      senior executive officer has performed a review of beneficial ownership
      and has determined that all persons required to report their ownership of
      shares of the Registrant's common voting equity securities have timely and
      accurately filed such reports on either Form 3, Form 4, or Form 5 for the
      Registrant's calendar year ended December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   

- Page 30
-

---

The results of the investigation revealed that
200,000 shares of the Registrant's common stock is owned by James W. Margulies,
the Registrant's sole officer and director, and, Mr. Margulies timely filed the
requisite Form 3 report with the Commission in the period provided by
law.

Mr. Margulies did not file any late reports, nor
did he intentionally fail to file any required reports, in this regard to the
period that is subject hereof this Report. Mr. Margulies' ownership in the
Registrant was limited to 200,000 of the Registrant's common stock.

|(b) | Code of Ethics. As at March 31, 2005, the Registrant's Board
      of Directors did not adopt any form of a code of ethics that would apply
      to any of each of the Registrant's principal executive officer, principal
      financial officer, or the same person performing similar functions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

|(9) | Committees of the Board of Directors. (a) Audit
      Committee.
|--- | ----------------------------------------------------------------
|   

Prior to January 25, 2005, the Registrant did not
have an audit committee. However, Randolph S. Hudson, the Registrant's principal
shareholder after January 25, 2005, has established an audit committee. The
audit committee's member consists solely of Mr. Hudson, who also serves as the
Registrant's sole officer and director. Consequently, as the result of the
recent establishment (that being during the first calendar quarter of 2005) of
the audit committee, the audit committee had no meetings during the last
calendar year.

The principal function of the Audit Committee is
to make certain that all of the Registrant's financial records are accurate,
true, and complete, prior to the release of the Registrant's financial
information to its PCAOB-certified general accountant and to its PCAOB-certified
certifying accountant. In addition, the Audit Committee is responsible for
making certain that the Registrant maintains adequate controls for the
administration of all of the Registrant's financial books and records, including
the entries for all material and non-material financial and financially related
transactions of the Registrant.

For the period covered by this Report, the Audit
Committee has not reviewed and discussed the audited financial statements with
the Registrant's senior executive management; the Audit Committee has not
discussed the matters required to be discussed by SAS 61 with its certifying
accountant; the Audit Committee has received the written disclosures and the
letter from its certifying accountant required by the Independence Standards
Board Standard No. 1, however, it has received such written disclosures and the
letter on a later date (because the Registrant changed its certifying accountant
and because the Registrant prepared its reviewed statements of financial
condition for the period covered by this Report on a date beyond this period);
and, lastly, although on a later date (because the Registrant changed its
certifying accountant and because the Registrant prepared its reviewed
statements of financial condition for the period covered by this Report on a
date beyond this period), the Audit Committee recommended to the Board of
Directors that the reviewed statements of financial condition be included in the
Registrant's quarterly report for the period ended March 31, 2005 and that the
audited statements of financial condition be included in the Registrant's annual
report on Form 10-KSB for the calendar year ended December 31, 2004.

- Page 31
-

---

The Audit Committee is comprised of Randolph S.
Hudson, who also serves as the Registrant's sole director and sole
officer.

As of the date and for the period covered by this
Report, the Audit Committee does not have a written charter.

Because Mr. Hudson is the Registrant's sole
officer and director, he is not independent; and, the Registrant, within the
nine-month period following the date of this Report, intends to appoint an
independent person to serve on the Registrant's audit committee or on the
Registrant's Board of Directors, until such date the Registrant is prepared to
effect either a business combination, asset acquisition, or stock purchase
transaction. It is the determination of the Registrant's Board of Directors,
chiefly, because of the Registrant's extremely limited financial resources, that
it would be difficult to engage a person or persons who would be capable of
performing such functions, independent of their ownership in the Registrant,
without the Registrant's capability to properly compensate any such person or
persons.

During the Registrant's most recent calendar year,
the Registrant's Board of Directors did not convene for any regular or special
meetings; rather, the Registrant's sole director performed corporate actions by
one written consent action in lieu of a meeting. During the Registrant's most
recent calendar year, there were no committee meetings of the Board of
Directors, as there were no committees of, and empowered by, the Board of
Directors, and no extraordinary meetings were held by the Registrant's sole
director to conduct any such extraordinary activity or activities in respect of
any special action or actions by the Registrant's Board of Directors.

From the date of the Registrant's last annual
report on Form 10-KSB (for the year ended December 31, 2004), no member of the
Registrant's Board of Directors has declined to stand for reelection and there
has been no disagreement with any director of the Registrant on any matter.
However, James W. Margulies, the Registrant's former sole director prior to
January 25, 2005, did resign as the result of the change in control of the
Registrant; whereby, Randolph S. Hudson, the Registrant's currently serving sole
director was nominated and elected to serve on the Registrant's Board of
Directors by a shareholder action conducted by the written consent of less than
the unanimous vote of shareholders, and the subject hereof this section of this
Report. (A copy of Mr. Margulies' resignation is attached hereto as Exhibit 17
and incorporated herein by reference thereto.)

e.
Compensation of Directors and Executive Officers.

The Registrant's sole officer and director,
Randolph S. Hudson, has not and is not expected to receive any compensation for
his services to rendered to the Registrant; he has not received such
compensation from the date of his appointment, which was January 25, 2005, and
Mr. Hudson is not accruing any compensation pursuant to any agreement with the
Registrant.

Mr. Hudson, the Registrant's sole officer and
director will not receive any finder's fee, either directly or indirectly,
because of his efforts to implement the Registrant's business plan outlined
herein.

The Registrant has adopted no retirement, pension,
profit sharing, stock option, insurance, or other similar programs for the
benefit of any of its employees, specifically, for the benefit of its senior
executive officer or director.

- Page 32
-

---



| | f. Voting
      Procedures.
| | ---------------------------

The authorized Shareholder Actions required the
approval of a certain percentage of the holders of the Registrant's common
stock, respectively, in order to become effective.

|1) | The
      General Corporation Law of Delaware requires that a plurality of
      shareholder votes eligible to be cast in any election of directors is
      required to elect new directors of the Registrant (8 Del. C. § 216(3). Mr.
      Hudson's percentage ownership of the Registrant constituted a plurality of
      eligible votes cast by written consent in favor of these proposals.                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) | The
      General Corporation Law of Delaware requires that majority of shareholder
      votes eligible to be cast in any election is required and constitutes a
      quorum for the purpose of passing the measures in regard to the remaining
      items upon which the shareholders voted (8 Del. C. § 216(1). Mr. Hudson's
      percentage ownership in the Registrant constituted a majority of eligible
      votes cast by written consent in favor of these proposals.
|  

g.
Delivery of Documents to Security Holders Sharing an Address.

The Registrant delivered that certain letter to
shareholders, dated February 7, 2005, to two shareholders who share the same
address, James W. Margulies and Tom Daniels.

The Registrant mailed two letters, addressed and
delivered to each shareholder under separate cover to each shareholder named
above in regard to that certain shareholder letter.

That certain shareholder letter, attached as
Exhibit 22 hereto and incorporated herein by reference thereto, indicated that
shareholders may request additional information from the Registrant by mail,
which should be addressed to its executive office, to its mailing address, or,
electronically, to its e-mail address.

The Registrant provided its address and telephone
number on that certain shareholder letter, in order for the shareholders to be
able to contact or otherwise communicate with the Registrant independent of one
another.

That certain shareholder letter provided
information on how each of the aforementioned shareholders, who share an
address, may obtain further information from the Commission with respect to the
Registrant's required filings therewith.

4.2.
STATEMENT THAT PROXIES WERE NOT SOLICITED.

The following statement appeared prominently in
the letter that was mailed to the Registrant's shareholders:

"THE
COMPANY IS NOT ASKING FOR YOUR PROXY STATEMENT OR WRITTEN CONSENT AND YOU ARE
NOT REQUESTED TO SEND THE COMPANY A PROXY STATEMENT OR WRITTEN
CONSENT."

|4.3. | INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE
      ACTED UPON.
|---- | -------------------------------------------------------------------------------
|    

There existed a direct substantial interest by
Randolph S. Hudson, by his ownership of approximately 92.5% of the Registrant's
common voting equity securities, in the matter that was acted

- Page 33
-

---

upon by
the Shareholder Actions, which were effected by the written consent of less than
the unanimous approval of the Registrant's shareholders.

Mr. Hudson was nominated by himself, acting as the
principal shareholder of the Registrant, acting by written consent by less than
the unanimous vote of shareholders in lieu of a meeting; whereby, Mr. Hudson
nominated and elected himself to serve as the sole director of the
Registrant.

No shareholder of the Registrant informed the
Registrant, after delivery of that certain shareholder letter, that he opposed
the Shareholder Actions.



|4.4.
      PROPOSALS BY SECURITY HOLDERS.
|-----------------------------------------

In accordance with Schedule 14C, the Registrant is
not required to respond to the item of this name, because the shareholder action
was conducted by written consent and because the shareholder action was limited
to the election of directors.

4.5.
DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS.

The Registrant delivered that certain letter to
shareholders, dated February 7, 2005, to two shareholders who share the same
address, James W. Margulies and Tom Daniels.

The Registrant mailed two letters, addressed and
delivered to each shareholder under separate cover to each shareholder named
above in regard to that certain shareholder letter.

That certain shareholder letter, attached as
Exhibit 22 hereto and incorporated herein by reference thereto, indicated that
shareholders may request additional information from the Registrant by mail,
which should be addressed to its executive office, to its mailing address, or,
electronically, to its e-mail address.

The Registrant provided its address and telephone
number on that certain shareholder letter, in order for the shareholders to be
able to contact or otherwise communicate with the Registrant independent of one
another.

That certain shareholder letter provided
information on the method by which each of the aforementioned shareholders may
obtain further information from the Registrant and from the Commission with
respect to the Registrant's filings.

The Registrant is subject to the reporting
requirements of section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, is obligated to file
current, quarterly, annual, and transitional reports, proxy statements, and
other information with the Commission, and is obligated to deliver copies of
certain reports and filings by mail to its shareholders and to certain other
parties, as required by Federal securities laws. Such reports, proxy statements,
and other filings may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of said materials may be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or from the Commission's Web site, the electronic address
for which iswww.sec.gov.

The Registrant shall permit its shareholders to
ask questions of and receive answers from the Registrant concerning any aspect
of the information contained in this Report, and, if necessary, to obtain
additional information pertaining to information to security holders integrated
in this Report, to

- Page 34
-

---

the
extent the Registrant possesses such information or to the extent the Registrant
can acquire such information without unreasonable effort or unreasonable
expense, in order to verify the accuracy of the information contained in this
Report to any of its shareholders. The Registrant encourages its shareholders to
contact it; if electronically, tocartooninvestors@rochester.rr.com, or, if by mail, to its mailing address,
which is Post Office Box 202, Wyoming, New York 14591-0202, or to the address of
its principal executive office, which is first written on the cover hereof. (The
Registrant cannot assure the public that its electronic mail (e-mail) address
will remain active or available for any period subsequent to the filing date of
this Report.)



|SCHEDULE 14f-1
INFORMATION.
|---------------------------

The Registrant was required to report a change in
the majority of the Registrant's Directors on Schedule 14f-1; however, due to
the Registrant's dilemmas in regard to its organization, administration, and
severe limitation on fiscal resources, the Registrant was unable to timely file
the required schedule to confirm the occurrence of certain corporate actions
that were effected by the Registrant's shareholders by written consent in lieu
of a meeting. Consequently, the Registrant is disclosing the information
required by Schedule 14f-1 herein this item fifth of Part II of this Form
10-QSB, as follows:

NOTICE OF
CHANGE IN THE MAJORITY OF THE BOARD OF DIRECTORS.

This information is being furnished to all holders
of record as of the close of business on January 25, 2005 of the common voting
equity securities and preferred debt securities of Cartoon Acquisition, Inc., a
United States corporation organized under the laws of the State of Delaware (the
Registrant), in accordance with the requirements of Section 14(f) of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and the United
States Securities and Exchange Commission's (the Commission) Rule
14f-1.

This information was to have been mailed to the
Registrant's shareholders as of the Record Date on or about February 7, 2005;
however, because of the Registrant's incapability to mail this information to
its shareholders without unreasonable effort and expense, the Registrant,
pursuant to the satisfaction of the requirements enumerated in General
Instruction D of Form 10-QSB, the Registrant is integrating this information in
this Report.

This information is considered to be an integrated
report to security holders and shall be deemed to be filed with the Commission
by its inclusion in this Form 10-QSB.

"NO VOTE
OR OTHER ACTION BY THE REGISTRANT'S STOCKHOLDERS WAS REQUIRED IN RESPONSE TO
THIS INFORMATION AND THE REGISTRANT IS NOT SOLICITING PROXIES."



|INTRODUCTION.
|-------------

This statement pursuant to Section 14(f) of the
Exchange Act, as amended (the Statement) is being disseminated to the
shareholders of the Registrant as a report to security holders integrated in
this Form 10-QSB Report, in connection with the transactions described more
fully hereinbelow, which resulted in a change of control of the Registrant and
in a change in the majority of the Registrant's Board of Directors.



|The
      Transaction(s).
|-------------------------

On January 25, 2005, Randolph S. Hudson entered
into a Common Stock Purchase Agreement (the "Common Stock Purchase Agreement")
with James W. Margulies pursuant to which Mr. Hudson agreed to purchase 185,000
shares of the Registrants common stock (the "Shares") in exchange for the
issuance

- Page 35
-

---

of a
Promissory Note in principal the amount of $100,000 (the "Note") to become
payable to Mr. Margulies under the terms thereunder (the Shares and the Note,
collectively referred to herein as the "Purchase Documents").

There are no material relationships between the
Registrant or its affiliates and any of the parties of the Common Stock Purchase
Agreement. This transaction was consummated on January 25, 2005.

No part of the consideration used to acquire the
majority of the Registrants Shares was from a loan that was in any way
associated with the Registrant, and is in no manner an obligation of the
Registrant.

In connection with the transaction(s), the
Registrant was required to appoint a new director, namely, Mr. Hudson, to the
Registrant's Board of Directors, because Mr. Margulies was required to submit
his resignation pursuant to the terms of the Common Stock Purchase Agreement.
Such appointment was to have scheduled to become effective at the end of a
10-day period, which was to have followed the date on which a Schedule 14f-1 was
filed with the Commission and mailed to the Registrant's stockholders of record.
The Schedule 14f-1 was to have been mailed to the stockholders on or about
February 7, 2005. (The 10-day Period was to have ended on or about February 17,
2005.) (It should be noted the Registrant mailed a letter to its shareholders in
partial conformity with Regulation 14A and/or Regulation 14C, which the
Registrant's principal executive officer, Mr. Hudson, was of the understanding
would satisfy the requirements of notification pursuant to Regulation 14A and/or
Regulation 14C in this regard. A copy of that certain letter to shareholders is
attached as Exhibit 22 hereof, and was mailed to all of the Registrant's
shareholders on or about February 7, 2005.)

Effective January 25, 2005, the Registrant's
former sole officer and sole director, being one and the same, Mr. Margulies,
resigned his position and Mr. Hudson, by the written consent of the Board of
Directors in lieu of a meeting was also appointed to serve as the Registrants
new President, Chief Executive Officer, Secretary, Chief Administrative Officer,
Treasurer, and Chief Financial Officer.

The Purchase Documents are attached as exhibits to
this Report, and, also, they were contained in Mr. Hudson's Schedule 13D report
to the Commission on March 28, 2005

The discussion of the Purchase Documents, and of
each ancillary document related to the transaction between Mr. Margulies and Mr.
Hudson set forth herein, are qualified in their entirety by reference to the
respective exhibit attached hereto and made a part hereof by reference
thereto.



|CHANGES IN MAJORITY OF
DIRECTORS.
|---------------------------------

As a part of the transaction between Mr. Margulies
and Mr. Hudson, the following changes to the Registrants Board of Directors and
officers did occur:

- James W. Margulies
  resigned as the Registrant's sole officer and director on January 25,
  2005.
- Randolph S. Hudson
  was elected to serve as the Registrant's sole director on January 25, 2005
  and was appointed
  to serve as the Registrant's sole officer, to fill various positions,
  effective January 25, 2005.



|INFORMATION REGARDING THE
COMPANY.
|----------------------------------

Please read this information carefully. It
describes the general terms of the transaction(s) and contains certain
biographical and other information concerning the executive officers and
directors after the closing of the transaction(s). Additional information is
contained in the Schedule 13D report filed with the Commission on March 28, 2005
regarding that certain transaction. All of the Registrant's filings

- Page 36
-

---

may be
inspected without charge at the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, or may be obtained on the
Commissions website atwww.sec.gov.

EXECUTIVE
      COMPENSATION.SUMMARY COMPENSATION
      TABLE.LONG
      TERM COMPENSATIONANNUAL COMPENSATION
    
    AWARDS
    
    
    
    PAYOUTSAllOther
    
    Restricted
    
    
    
    
    
    OtherAnnual
    
    Stock
    
    Securities
    
    LTIP
      Compen-Name and
    
    Principal
    
    
    
    Salary
    
    Bonus
      Compensation Awards
    
    Underlying
    
    Payout sationPosition
    
    
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    Options/SARs($)
    
    ($)


James
      W. Margulies(1)
    
    
    
    2004
    
    -0-
    
    -0-
    
    $20
    
    -0-
    
    -0-
    
    -0-
    
    -0-Randolph S.
    
    Hudson(2)
    
    
    
    2005
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    -0-


|(1) | As
      of December 31, 2004, Mr. Margulies was the sole officer and director of
      the Registrant.                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Mr.
      Hudson was appointed as the Registrant's sole officer, to fill various
      positions, and was elected to serve as the Registrant's sole director on
      January 25, 2005. However, Mr. Hudson is not entitled to receive
      compensation by the Registrant as of the date of this Report.
|   



|STOCK OPTION GRANTS AND
EXERCISES.
|----------------------------------

For the Registrants most recent calendar year
ended December 31, 2004, the Registrant did not issue any options or Stock
Appreciation Rights to any officers, employees, or directors.

EMPLOYMENT
AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-INCONTROL
ARRANGEMENTS.

Currently, the Registrant has no employment
agreements with any of its senior executive officers, nor any compensatory plans
or arrangements resulting from the resignation, retirement, or any other
termination of any of its senior executive officers, from a change-in-control,
or from a change in any senior executive officers responsibilities following a
change-in-control.



|COMPENSATION OF DIRECTORS.
|--------------------------

As of the date and for the period covered by this
Report, the Registrant does not pay its directors for attending meetings of the
Board of Directors, although the Registrant expects to adopt a director
compensation policy in the future. The Registrant has no standard arrangement
pursuant to which the directors of the Registrant are compensated for any
services provided as a director or for committee participation or special
assignments, if any, or as may become applicable in the future.

EXERCISES
OF STOCK OPTIONS AND YEAR-END OPTION VALUES.

No share purchase options were exercised by the
Registrants officers, directors, or other persons during the calendar year
ended December 31, 2004.

- Page 37
-

---



|BENEFIT PLANS.
|--------------

The Registrant does not have a long-term incentive
plan nor does the Registrant have a defined benefit, pension plan, profit
sharing or other retirement plan, although the Registrant may adopt one or more
of such plans in the future.



|DESCRIPTION OF VOTING
SECURITIES.
|---------------------------------

As of the date on the cover of this Report, the
Registrant has 200,001 voting shares of capital stock issued and outstanding,
the holder of each of which is entitled to one vote per share. The Registrant
has no shares of preferred stock issued.

SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth information as of
March 31, 2005 with respect to the beneficial ownership of the outstanding
shares of Registrants common voting equity securities by (i) each person known
by Registrant who will beneficially own five percent (5%) or more of the
outstanding shares; (ii) the officers and directors of the Registrant; and (iii)
all the aforementioned officers and directors as a group.

Beneficial ownership is determined in accordance
with the rules of the Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options,
warrants or convertible securities exercisable or convertible within 60 days of
March 31, 2005 are deemed outstanding for computing the percentage of the person
or entity holding such options, warrants or convertible securities but are not
deemed outstanding for computing the percentage of any other person, and is
based on 200,001 common shares issued and outstanding on a fully diluted basis,
as at March 31, 2005.

|                     |  |                                                 |  | Amount    |  | and        |  |                       
|-------------------- |  | ----------------------------------------------- |  | --------- |  | ---------- |  | ----------------------
|                     |  |                                                 |  | Nature    |  |            |  |                       
|                     |  | Name and
      Address                          |  | Of        |  | Beneficial |  | Percent Of
      Class
|Title of
      Class |  | Of Beneficial
      Owners                      |  | Ownership |  | (1)       
|                    
|Common Stock         |  | Randolph S. Hudson (2)
      (3)                |  | 185,000   |  |            |  | 92.5%                 
|Common Stock         |  | James W. Margulies
      (4)                    |  | 15,000    |  |            |  | 7.499%                
|                    
|                     |  | All officers and directors
      as a group (2) |  | 185,000   |  |            |  | 92.5%                 
|                     |  |                                                 |  |           |  |            |  |                       

|(1) | The
      number of outstanding shares of common stock of the Registrant for
      purposes of calculating the percentages is 200,001.
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Mr.
      Hudson is the Registrant's sole officer and director.                                                                       
|   
|(3) | Mr.
      Hudson's mailing address is Post Office Box 202, Wyoming, New York
      14591-0202.                                        
|   
|(4) | Mr.
      Margulies' mailing address is 30100 Chagrin Boulevard, Suite 250, Pepper
      Pike, Ohio 44124.                            
|   



|DIRECTORS AND EXECUTIVE
OFFICERS.
|---------------------------------

After the closing of the transactions between
Messrs. Margulies and Hudson, there were certain changes in the composition of
the Registrant's Board of Directors and offices of its senior executive
officers. Mr. Hudson, who was nominated and elected to serve as the sole member
of the Registrant's

- Page 38
-

---

Board of
Directors, will serve as a director until a new qualified director or qualified
directors is/are duly nominated and elected to serve pursuant to the
Registrant's Certificate of Incorporation, Bylaws, and/or applicable federal or
state laws, by operation of law, until he resigns, or until he is removed from
office.

The following information sets forth specific
information regarding the Registrants current sole officer and sole and
director.

APPOINTMENT OF NEW OFFICERS AND DIRECTORS.

In connection with the transaction between Messrs.
Margulies and Hudson, effective January 25, 2005, Mr. Margulies resigned as
President, Chief Executive Officer, Secretary, Treasurer, and Chief Financial
Officer of the Registrant. Further, effective January 25, 2005, Mr. Margulies
resigned as then the Registrant's sole director.

On January 25, 2005, the Board of Directors
appointed Randolph S. Hudson to serve as the Registrant's President, Chief
Executive Officer, Secretary, Chief Administrative Officer, Treasurer, and Chief
Financial Officer. The Board of Directors also appointed Mr. Hudson as the new
Director on the Board, to replace the vacancy created by Mr. Margulies'
resignation.

As of the date of this Report, Mr. Hudson's
principal occupation was that of a business consultant and as a developer and
principal of business entities that are engaged in both commerce and in
industry. As of the date on the cover of this Report, Mr. Hudson served as (1)
the co-managing senior general partner of Union First Capital Markets, a New
York general partnership, which is entitled to receive mail at Post Office Box
202, Wyoming, New York 14591 and that maintains an office at 233 Alexander
Street, Second Floor, Rochester, New York 14607; (2) the sole proprietor of
Corporate Strategies and Logistics, ade factofictitious business conducted by Mr. Hudson,
which is entitled to receive mail at Post Office Box 202, Wyoming, New York
14591 and that is entitled to receive mail at 11601 Biscayne Boulevard, Suite
201, North Miami, Florida 33181, (3) the incorporator, principal organizer,
Chairman of the Board, President, and Chief Executive Officer of Hudson National
Financial Corporation, ade factoUtah corporation in the process of becoming reinstated as a Utah
corporation, which is entitled to receive mail at Post Office Box 202, Wyoming,
New York 14591, (4) the principal organizer of a prospective restaurant and bar
operation that is proposed to be located at 2205 Buffalo Road in Gates, New
York, which will be owned by ade factoOklahoma corporation to be renamed Consumers
Hospitality Corporation, which is entitled to receive mail at Post Office Box
202, Wyoming, New York 14591), (5) the acting President, Secretary, Treasurer,
and Director of Montana Acquisition Corporation, a United States corporation
organized under the laws of the State of Delaware, entitled to receive mail at
Post Office Box 202, Wyoming, New York 14591 and that maintains an office
address at 14 Franklin Street, Suite 900, Rochester. New York 14604, and (6) the
acting President, Secretary, Treasurer, and a Director of Second Mongolian
Mining Security Services, Inc., a non-distributing Federal Canadian corporation,
the securities of which are quoted (on an "unsolicited bids" basis) on the
Over-the-Counter Bulletin Board electronic intermediary quotation system in the
United States under the symbol "SEMLF", which is entitled to receive mail at
Post Office Box 202, Wyoming, New York 14591 and that uses a principal
registered office address at One Yonge Street, Suite 1801, Toronto, Ontario M5E
1W7 Canada.

Prior to his associations with the firms stated
hereinabove, Mr. Hudson served as a senior general partner of HNFC Capital
Markets and as a senior general partner of Alliant Corporate Strategies. During
the 21 years prior to his occupations and professional associations stated
hereinabove, Mr. Hudson was engaged as the key principal (or as the managing
general partner or as the controlling shareholder) in the following business
ventures: the ownership and operation of four new and used car dealerships (in
California and in Utah), two auto leasing companies (in California and in Utah),
five full service hotels (in New Mexico, in Texas, in Oklahoma, and in
California), 109 restaurants (located throughout the

- Page 39
-

---

contiguous United States and in Northern Mexico), three nightclubs
(in California, in Utah, and in Nevada), a chain of convenience stores (in
Utah), a chain of stationery and office-supply stores (located in California), a
chain of coin-operated laundry and dry-cleaning operations (throughout the
Intermountain United States), one regional ice cream manufacturing and
distribution facility (in Utah), a chain of retail ice cream and fountain
operations (in Utah, in Nevada, and in California), a chain of doughnut stores
(in California and in Utah), a moderately-sized gold and silver operation (in
Nevada), and, finally, Mr. Hudson owned 412 residential rental units (in Utah
and in Washington).

As of the date and for the period of this Report,
Mr. Hudson was the sole director, principal shareholder, and acting President,
Secretary, and Treasurer of Montana Acquisition Corporation, a United States
corporation organized under the laws of the State of Delaware (Commission CIK
0001124043), entitled to receive mail at Post Office Box 202, Wyoming, New York
14591 and that maintains an office address at 14 Franklin Street, Suite 900,
Rochester. New York 14604, and the acting President, Secretary, Treasurer, and a
Director of Second Mongolian Mining Security Services, Inc., a non-distributing
Federal Canadian corporation, the securities of which are quoted (on an
"unsolicited bids" basis) on the Over-the-Counter Bulletin Board electronic
intermediary quotation system in the United States under the symbol "SEMLF",
which is entitled to receive mail at Post Office Box 202, Wyoming, New York
14591 and that uses a principal registered office address at One Yonge Street,
Suite 1801, Toronto, Ontario M5E 1W7 Canada.



|COMMITTEES.
|-----------

With the exception of the newly created Audit
Committee, the Registrant's Board of Directors does not currently have any other
committees.

AUDIT
COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT DISCLOSURE.

Prior to January 25, 2005, the Registrant did not
have an audit committee. However, Randolph S. Hudson, the Registrant's principal
shareholder after January 25, 2005, did establish an audit committee. The audit
committee's sole member is Mr. Hudson, who also serves as the Registrant's sole
officer and director. Consequently, as the result of the recent establishment
(that being during the first calendar quarter of 2005) of the audit committee,
the Audit Committee had no meetings during the last calendar year.

The principal function of the Audit Committee is
to make certain that all of the Registrant's financial records are accurate,
true, and complete, prior to the release of the Registrant's financial
information to its PCAOB-certified general accountant and PCAOB-certified
certifying accountant. In addition, the Audit Committee is responsible for
making certain that the Registrant maintains adequate controls for the
administration of all of the Registrant's financial books and records, including
the entries for all material and non-material financial and financially related
transactions of the Registrant.

For the period covered by this Report, the Audit
Committee has not reviewed and discussed the audited financial statements with
the Registrant's senior executive management; the Audit Committee has not
discussed the matters required to be discussed by SAS 61 with its certifying
accountant; the Audit Committee has received the written disclosures and the
letter from its certifying accountant required by the Independence Standards
Board Standard No. 1, however, it has received such written disclosures and the
letter on a later date (because the Registrant changed its certifying accountant
and because the Registrant prepared its reviewed statements of financial
condition for the period covered by this Report on a date beyond this period);
and, lastly, although on a later date (because the Registrant changed its
certifying accountant and because the Registrant prepared its reviewed
statements of financial condition for the period covered by this Report on a
date beyond this period), the Audit Committee recommended to

- Page 40
-

---

the Board
of Directors that the reviewed statements of financial condition be included in
the Registrant's quarterly report for the period ended March 31, 2005 and that
the audited statements of financial condition be included in the Registrant's
annual report on Form 10-KSB for the calendar year ended December 31,
2004.

The Audit Committee is comprised of Randolph S.
Hudson, who also serves as the Registrant's sole director and sole
officer.

As of the date and for the period covered by this
Report, the Audit Committee does not have a written charter.

Because Mr. Hudson is the Registrant's sole
officer and director, he is not independent; and, the Registrant, within the
nine-month period following the date of this Report, intends to appoint an
independent person to serve on the Registrant's audit committee or on the
Registrant's Board of Directors, until such date the Registrant is prepared to
effect either a business combination, asset acquisition, or stock purchase
transaction. It is the determination of the Registrant's Board of Directors,
chiefly, because of the Registrant's extremely limited financial resources, that
it would be difficult to engage a person or persons who would be capable of
performing such functions, independent of their ownership in the Registrant,
without the Registrant's capability to properly compensate any such person or
persons.



|MEETINGS OF THE BOARD OF
DIRECTORS.
|-----------------------------------

The Board of Directors took action by unanimous
written consent in lieu of a meeting on January 25, 2005 to nominate and elect
Randolph S. Hudson to serve as the Registrant's President, Chief Executive
Officer, Secretary, Chief Administrative Officer, Treasurer, and Chief Financial
Officer.

SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

Section 16(a) of the Exchange Act requires the
Registrant's officers, directors, and persons who beneficially own more than 10%
of the Common Stock to file reports of ownership and changes in ownership with
the Commission. These reporting persons also are required to furnish the
Registrant with copies of all Section 16(a) forms they file. Based solely on the
Registrants review of these reports or written representations from certain
reporting persons, during the calendar year ended December 31, 2004, and during
the current calendar year, the Registrant believes that all filing requirements
applicable to the Registrants officers, directors, greater-than-ten-percent
beneficial owners and other persons subject to Section 16(a) of the Exchange Act
were met.

The Registrant is a small business issuer with a
class of equity securities registered pursuant to section 12 of the Exchange
Act; the Registrant's senior executive officer has performed a review of
beneficial ownership and has determined that all persons required to report
their ownership of shares of the Registrant's common voting equity securities
have timely and accurately filed such reports on either Form 3, Form 4, or Form
5 for the Registrant's calendar year ended December 31, 2004.

Section
16(a) Beneficial Ownership Reporting Compliance.

After performing its required due-diligence, the
Registrant has determined the persons required to report their ownership of
shares of the common voting equity securities of the Registrant for the most
recent calendar year (ended December 31, 2004) have done so.

- Page 41
-

---

The results of the investigation revealed that
200,000 shares of the Registrant's common stock is owned by James W. Margulies,
the Registrant's sole officer and director, and, Mr. Margulies timely filed the
requisite Form 3 report with the Commission in the period provided by
law.

Mr. Margulies did not file any late reports, nor
did he intentionally fail to file any required reports, in this regard to the
period that is subject hereof this Report. Mr. Margulies' ownership in the
Registrant was limited to 200,000 of the Registrant's common stock.



|Code of
      Ethics.
|---------------------

As at March 31, 2005, the Registrant's Board of
Directors did not adopt any form of a code of ethics that would apply to any of
each of the Registrant's principal executive officer, principal financial
officer, or the same person performing similar functions.

CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

During the two-year period prior to the date on
the cover of this Report the following transactions occurred, whereby, certain
relationships may be considered to exist:

Generally, the Registrant has not and does not
intend to enter into any transactions with its senior executive management, or
any nominees for such positions. With the exception of the transactions listed
below, the Registrant has not and does not intend to enter into any transactions
with its beneficial owners (to the extent of the participation in the
Registrant's senior executive management by any beneficial owner).

For the period of this Report, the Registrant is
not a subsidiary of any parent company, nor does the Registrant own the stock in
any company that may be considered its subsidiary.

Although the Registrant has not and does not
intend to enter into any transactions with its senior executive management, or
nominees for such positions, it should be noted: for the calendar year ended
December 31, 2004, the Registrant utilized the offices of Margulies &
Levinson LLP, the law firm of which James W. Margulies, the Registrant's sole
officer and director, is the principal, as its executive office address. There
was no rent charged the Registrant by Margulies & Levinson for such
use.

Furthermore, Mr. Margulies also served as the
Registrant's attorney. However, during his service as the Registrant's attorney:
(a) Mr. Margulies did not receive any compensation for his services rendered to
the Registrant (other than the 200,000 shares of the registrant's common stock
valued at $20); (b) Mr. Margulies did not receive any compensation for his
employment by the Registrant; (c) Mr. Margulies did not receive any stipends or
service fees for his tenure on the Registrant's Board of Directors; (d) if it
was billed, the total combined invoices for his representation as the
Registrant's attorney would not have exceeded $60,000; and, (e) no members of
Mr. Margulies' family performed any work or services for the Registrant, and
were not elected, or nominated to be elected, to serve on the Registrant's Board
of Directors.

Although the Registrant has not and does not
intend to enter into any transactions with its senior executive management, or
nominees for such positions, it should be noted: for the quarterly period ended
March 31, 2005, the Registrant utilized the office of the Law Offices of Stephen
D. Rogoff, Esq., the law firm that represents Randolph S. Hudson, the
Registrant's principal stockholder, sole officer, and director, the use of which
is without charge or expense to the Registrant, provided, however, only for the
period that Mr. Hudson remains the principal shareholder of the
Registrant.

- Page 42
-

---

The Registrant issued 200,000 restricted shares of
its common stock to James W. Margulies, its former President, Treasurer,
Secretary, and sole director for his services rendered in the formation and
organization of the Registrant, which was valued at $20. Other than this
transaction, the Registrant has not entered into transactions with any other
promoters.

Mr. Margulies originally acquired his shares with
the intent to hold the shares for investment purposes and not with a view to
further resale or distribution, except as permitted under exemptions from
registration requirements under applicable securities laws. That mean that he
would be unable to sell such securities either unless they are either registered
with the Commission and with comparable agencies in the state where he resides,
or that would be exempt from registration. The most widely used exemption from
registration requirements is provided by the Commission's Rule 144, which
requires a one year holding period prior to resale, and limits the quantities of
securities that can be sold during any 90-day period.

On or about January 25, 2005, Randolph S. Hudson
entered into a private securities transaction with James W. Margulies, the
Registrant's former principal shareholder, sole officer, and director, whereby,
Mr. Hudson purchased 185,000 shares, or approximately 92.5%, of the Registrant's
common stock. Initially, Mr. Hudson acquired his shares with the intent to hold
the shares for investment purposes and not with a view to further resale or
distribution, except as would be permitted under an exemption from registration
requirements under applicable securities laws. That means that he would be
unable to sell such securities either unless they are registered with the
Commission and with a comparable agency in the state where he resides, or that
such shares would be exempt from further registration. The most widely used
exemption from registration requirements is provided by the Commission's Rule
144, which requires a one year holding period prior to resale, and limits the
quantities of securities that can be sold during any 90-day period.

The Registrant's currently serving sole officer
and director, Mr. Hudson, is involved in other business activities and may, in
the future become involved in other business opportunities. If a specific
business opportunity becomes available, Mr. Hudson may face a conflict in
selecting between the Registrant and his other business interests, some of which
may be required to be performed for other reporting companies. The Registrant
has not formulated a policy for the resolution of such conflicts.



|LEGAL PROCEEDINGS.
|------------------

The Registrant is not aware of any legal
proceedings in which purchasers, any director, officer, or any owner of record
or beneficial owner of more than five percent (5%) of any class of the common
voting securities of the Registrant, or any affiliate of purchaser, or of any
such director, officer, or affiliate of the Registrant, or any security holder,
is a party adverse to the Registrant or has a material interest adverse to the
Registrant.



|Item
      5. Other Information
|-------------------------------

Some of the statements made in Item 5 of this
Report may be deemed to be "forward-looking statements", as that term is defined
in Section 27A of the Securities Act of 1933 (15 U.S.C. 77z-2) and in Section
21E of the Securities Exchange Act of 1934 (15 U.S.C. 78u-5), which are referred
to as "statutory safe harbor" provisions. Forward-looking statements are not
historical facts; rather, forward-looking statements are based upon the opinions
and estimates of the Registrant's management at the time such statements are
made. Every forward-looking statement is subject to inherent risks and
uncertainties that could cause the actual results to differ materially from the
plans, projections, or expectations expressed or implied by such statement at
the time the statement was made. The Registrant cautions the public not to place
undue influence on these forward-

- Page 43
-

---

looking statements, which speak only as of the date they were made
and may not have been updated in further filings, schedules, or reports required
to be filed with the Commission, or with any other body
government.

Certain statements contained in this section of
this Report may infer an impression of optimism about the Registrant's beliefs
and expectations, expressed through words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", "contemplates",
"prospective", "attempt", "proposed", and similar expressions or terms identify
forward looking statements.

|5.1. | NOTIFICATION OF PROSPECTIVE RISKS TO SHAREHOLDERS OF THE
      REGISTRANT.
|---- | --------------------------------------------------------------------------
|    
|     | a.                                                                        
|    
|     | b.                                                                        
|    
|     | c.                                                                        
|    
|     |                                                                           
|    
|     |                                                                           
|    

- Page 44
-

---

|d. | Notification of the Registrant's Failure to File a Schedule
      14f-1.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The Registrant did not timely file a report on Schedule
      14f-1; however, the Registrant has incorporated the information herein. It
      was the interpretation of the Registrant's principal executive officer,
      sole director, and principal shareholder, Randolph S. Hudson that Schedule
      14f-1 needed only to have been filed if the facts to have been reported on
      Schedule 14f-1 varied from those facts required to have been filed on
      Schedule 13D, which was timely filed with the
  Commission.
|  
|   | (1) Risk Attendant to the Registrant's Delinquency. In
      addition to other, significant risks the                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  

5.2.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES.

On January 25, 2005, James W. Margulies, then the
Registrant's senior executive officer and sole director resigned as the result
of a contractual obligation that resulted from the effect of a private
securities transaction, whereby Randolph S. Hudson purchased approximately 92.5%
of the Registrant's issued and outstanding common voting equity securities. The
Registrant does not consider the accounting determinations that bound Mr.
Margulies' resignation to be categorized as becoming subject to the definition
of a plan of termination described in paragraph 8 of FASB Statement of Financial
Accounting Standards No. 146 (Accounting for Costs Associated with Exit or
Disposal Activities); nevertheless, the Registrant will clarify Mr. Margulies'
entitlements hereinbelow.

Facts. The Registrant has not registered, nor does
it sponsor or co-sponsor, any type or form of stock option plan, stock incentive
plan, employee compensation plan, employee incentive plan, or other comparable
plans under which it would compensate employees, either on a current or deferred
basis. Heretofore, the Registrant has not filed any registration statement with
the Commission on Form S-8, or otherwise, for any compensation or award plan or
program. Moreover,

|a. | Mr.
      Margulies was not entitled to receive any compensation for his employment
      as the sole officer of the Registrant, nor was Mr. Margulies entitled to
      receive any stipend or payment for his service to the Registrant by
      serving on its Board of Directors.                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. | Mr.
      Margulies was not entitled to receive shares of (i) any common voting
      equity securities in the Registrant or (ii) any debt securities,
      convertible or otherwise, of the Registrant, for his employment by, or for
      his services rendered to, the Registrant, which were not theretofore
      issued and delivered to him.
|  
|c. | Mr.
      Margulies did also professionally represent the Registrant as its General
      Counsel, for which he claimed no payment or other compensation was due him
      by the Registrant.                                                                                                                                                        
|  

Consequently, the Registrant does not expect to
incur any direct or indirect financial obligations as the result of Mr.
Margulies' departure.

- Page 45
-

---

|5.3. | MATERIAL
      MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS.
      a. Purchase of
      Supermajority Interest in the Registrant by Randolph S. Hudson.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|    

Although the constituent instruments defining the
rights of the holders of the Registrant's registered common voting equity
securities have not, as of the date hereof, been materially modified, and,
although the rights evidenced by the Registrant's registered common voting
equity securities (which common voting equity securities constitute the entire
and single class of common stock the Registrant is authorized to issue) have
not, as of the date hereof, been materially limited or qualified by the issuance
or modification of any other class of the Registrant's registered common voting
equity securities. The Registrant's shareholders and the public should be aware
that a private securities transaction that effectuated the change-in-control of
the Registrant may impair, or otherwise limit, in the overall, the action or
actions, or the attempt to act, by the Registrant's existing shareholders, or
prospective investors, as follows, except by any act or action by the
Registrant's shareholders that may be offset by litigation or by an action that
could be categorized those acts or actions promulgated by persons or entities
exercising their rights as dissenters' (which rights are enumerated in the
General Corporation Law of Delaware; Delaware being the domestic jurisdiction
that enfranchised the Registrant).

Notwithstanding the Registrant's statements made
hereinabove, on January 25, 2005, Randolph S. Hudson purchased approximately
92.5% of the Registrant's common stock from the Registrant's former principal
shareholder, James W. Margulies.



|5.4.
      CHANGES IN CONTROL OF REGISTRANT.
|--------------------------------------------

On January 25, 2005, a change in control of the
Registrant occurred. Fundamentally, Randolph S. Hudson, an individual
principally residing in the State of New York, did enter into that certain
Common Stock Purchase Agreement, dated January 25, 2005 (that "Stock Purchase
Agreement"), with James W. Margulies of Pepper Pike, Ohio. [A facsimile of that
Stock Purchase Agreement is annexed as Exhibit 99.1(a) hereof.] Under the terms
of that Stock Purchase Agreement, Mr. Hudson purchased 185,000 shares, or
approximately 92.5%, of the Registrant's common voting equity securities (the
Registrant's "Common Stock") for $100,000, which was to be paid in accordance
with the terms of a certain promissory note, of even date with that Stock
Purchase Agreement (that "Note"). [A facsimile of that Note is annexed as
Exhibit 99.1(b) hereof.] In addition, Mr. Hudson secured his obligation to Mr.
Margulies by delivering that certain Pledge and Security Agreement, dated
January 25, 2005 (that "Pledge Agreement") to Mr. Margulies as part of the
closing documents for the transaction. [A facsimile of that Pledge Agreement is
annexed as Exhibit 99.1(c) hereof.]

Mr. Hudson claims beneficial ownership of the
Registrant's Common Stock described hereinabove; he is not a member of any
voting trust or similar group, whereby, in the company of other shareholders, he
would not vote in any manner on any given issue; he has the sole power to vote,
or to direct the vote, and the sole power to dispose of, or to direct the
disposition of, his 185,000 shares of the Registrant's Common Stock. There are
no persons or entities that share Mr. Hudson's power to vote, nor that may
direct the power to vote, nor that hold power to dispose of, nor that direct the
power to dispose of, any of the shares of the Registrant's Common Stock that he
claims to beneficially own.

The source of the funding used by Mr. Hudson is
that of his personal obligation; and, no commercial, or other traditional
banking, sources of financing or credit accommodations were used in consummating
the transaction; moreover, Mr. Hudson did not act on behalf of any third party,
nor will any third party directly pay Mr. Hudson's obligation to Mr.
Margulies.

- Page 46
-

---

|     | Prior to Mr. Hudson's purchase of the Registrant's Common
      Stock, Mr. Margulies owned 99.99% of the Registrant's Common Stock, and
      served the Registrant as its sole director, President, Secretary, and
      Treasurer. As a condition to Mr. Hudson and Mr. Margulies entering into
      that Stock Purchase Agreement, among other things, Mr. Margulies was
      required to tender his resignation to the Registrant's Board of Directors
      and shareholders, which resignation became effective on January 25, 2005.
      [A copy of Mr. Margulies' resignation is annexed as Exhibit 17
      hereof.]                                                                                                                                                                                                          
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     | Following Mr. Hudson's purchase of the Registrant's Common
      Stock, Mr. Margulies retained 15,000 shares, or approximately 7.5%, of the
      Registrant's Common Stock. No voting agreement nor other arrangement
      exists between Mr. Hudson and Mr. Margulies with respect to voting their
      respective shares of the Registrant's Common Stock, nor is any such
      arrangement anticipated to occur in the near future.                                                                                                                                                                                                                                                                                                                                                                                                
|    
|     | However, the Registrant notifies its shareholders, any
      prospective investors, and the public that should Mr. Hudson fail to
      satisfy his obligation to Mr. Margulies under the terms of that Note by
      default not remedied, or, should Mr. Hudson default under the terms of
      that Note and should Mr. Margulies not forbear the obligation by agreeing
      to revised terms satisfactory to both he and Mr. Hudson, then, Mr.
      Margulies may proceed against the collateral identified in that Pledge
      Agreement; namely, the 185,000 shares of the Registrant's Common Stock.
      Under this scenario, depending on the manner in which, and with whom, Mr.
      Margulies proceeded to realize the collateral under that Pledge Agreement,
      a change in control of the Registrant would occur.
|    
|     | Mr. Hudson understands that his obligation, beyond the date
      of his purchase of the Registrant's Common Stock, requires him to perform
      further undertakings regarding his ownership of the Common Stock. To that
      extent, Mr. Hudson, acting individually, and as a shareholder of the
      Registrant, intends to timely comply with all of the Commission's rules
      and regulations limited to the applicable disclosures required and
      associated with his beneficial ownership of the Registrant's Common
      Stock.                                                                                                                                                                                                                                                                                      
|    
|5.5. | DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
      DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|     | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    

As a condition contained in that certain Common
Stock Purchase Agreement (that "Stock Purchase Agreement"), Mr. Margulies agreed
to resign his position as the sole Director and his positions as President,
Secretary, and Treasurer of the Registrant, which collective resignations became
effective on January 25, 2005. [A facsimile of that Stock Purchase Agreement is
annexed as Exhibit 99.1(a) hereof. Furthermore, a facsimile of Mr. Margulies'
resignation is annexed as Exhibit 17 hereof.] Consequentially, Mr. Margulies'
resignation was not the result of an involuntary termination, nor was his
resignation the result of any disagreement between him and the Registrant.
Lastly, as his resignation was as the result of a contractual obligation under a
private securities transaction, his choice was not of that to stand for
reelection.

- Page 47
-

---

However, the Registrant, acting in accordance with
U.S. Federal securities laws, (a) provided Mr. Margulies with a copy of the
disclosures it made herein and elsewhere, and (b) requesting Mr. Margulies to
furnish the Registrant with a letter that would have to state whether he agrees
or disagrees, and the specific details of his agreement or disagreement, with
the Registrant's statements hereon, which the Registrant, upon its receipt of
Mr. Margulies' reply, agrees to promptly file with Commission.

Election of Randolph S. Hudson as Director and
Appointment as President, Secretary, and Treasurer. On January 25, 2005,
Randolph S. Hudson purchased 185,000 shares, or approximately 92.5%, of the
Registrant's common voting equity securities (the Registrant's "Common Stock")
from James W. Margulies. [The specific terms of the stock purchase transaction
are more fully described in "Section 5.4 Changes in Control of Registrant"
hereinabove.] As a condition of that transaction, and to not hinder Mr. Hudson's
objective to organize and further develop the Registrant, Mr. Margulies agreed
to resign his positions as the President, Secretary, and Treasurer of the
Registrant, which resignation became effective on January 25, 2005.

In furtherance of that transaction between Messrs.
Hudson and Margulies, a corporate action effected by the unanimous written
consent of directors in lieu of a meeting of the Registrant's Board of Directors
was done on January 25, 2005, whereby, Mr. Hudson was nominated and unanimously
elected to serve on the Registrant's Board of Directors. By that written
consent, the Board of Directors, again, acting in unanimity, appointed Mr.
Hudson to serve in the positions of the Registrant's President and Chief
Executive Officer, and to fill, in an interim or temporary capacity (the term of
such appointment undetermined by the Registrant's Board of Directors as of the
date of this Report), the positions of Secretary, Chief Administrative Officer,
Treasurer, and Chief Financial Officer, pending the Board's expected ongoing
evaluation of qualified candidates and the subsequent employment of the person
or persons that it will employ to fill those positions on a later date, as the
Registrant's business and organization further develops.

The Registrant and Mr. Hudson have not entered
into any formal employment agreement, and there is no understanding between Mr.
Hudson and the Registrant with regard to his prospective compensation or other
remuneration, as of the date of this Report.

As of the date and for the period covered by this
Report, Mr. Hudson's principal occupation was that of a business consultant and
developer and he was the principal of business entities that are engaged in both
commerce and in industry. As of the date of this Report, Mr. Hudson served as
(1) the co-managing senior general partner of Union First Capital Markets, ade
factoNew York
general partnership, which is entitled to receive mail at Post Office Box 202,
Wyoming, New York 14591 and that maintains an office at 233 Alexander Street,
Second Floor, Rochester, New York 14607; (2) the sole proprietor of Corporate
Strategies and Logistics, a fictitious business conducted by Mr. Hudson, which
is entitled to receive mail at Post Office Box 202, Wyoming, New York 14591 and
that is entitled to receive mail at 11601 Biscayne Boulevard, Suite 201, North
Miami, Florida 33181, (3) the incorporator, principal organizer, Chairman of the
Board, President, and Chief Executive Officer of Hudson National Financial
Corporation, ade factoUtah corporation, which is entitled to receive mail at Post Office
Box 202, Wyoming, New York 14591, (4) the principal organizer of a prospective
restaurant and bar operation that is proposed to be located at 2205 Buffalo Road
in Gates, New York, and that is scheduled to be owned by ade factoOklahoma corporation to be
renamed Consumers Hospitality Corporation, which is entitled to receive mail at
Post Office Box 202, Wyoming, New York 14591), (5) the acting President,
Secretary, Treasurer, and Director of Montana Acquisition Corporation, a United
States corporation organized under the laws of the State of Delaware, entitled
to receive

- Page 48
-

---

mail at
Post Office Box 202, Wyoming, New York 14591, and that maintains an office
address of

14
Franklin Street, Suite 900, Rochester. New York 14604, and (6) the acting
President, Secretary, Treasurer, and a Director of Second Mongolian Mining
Security Services, Inc., a non-distributing Federal Canadian corporation, the
securities of which are quoted (on an "unsolicited bids" basis) on the
Over-the-Counter Bulletin Board electronic intermediary quotation system in the
United States under the symbol "SEMLF", which is entitled to receive mail at
Post Office Box 202, Wyoming, New York 14591, and that uses a principal
registered office address of One Yonge Street, Suite 1801, Toronto, Ontario M5E
1W7 Canada.

Prior to his associations with the firms stated
hereinabove, Mr. Hudson served as a senior general partner of HNFC Capital
Markets and as a senior general partner of Alliant Corporate Strategies. During
the 21 years prior to his occupations and professional associations stated
hereinabove, Mr. Hudson was engaged as the key principal (or as the managing
general partner or as the controlling shareholder) in the following business
ventures: the ownership and operation of four new and used car dealerships (in
California and in Utah), two auto leasing companies (in California and in Utah),
five full service hotels (in New Mexico, in Texas, in Oklahoma, and in
California), 109 restaurants (located throughout the contiguous United States
and in Northern Mexico), three nightclubs (in California, in Utah, and in
Nevada), a chain of convenience stores (in Utah), a chain of stationery and
office-supply stores (located in California), a chain of coin-operated laundry
and dry-cleaning operations (throughout the Intermountain United States), one
regional ice cream manufacturing and distribution facility (in Utah), a chain of
retail ice cream and fountain operations (in Utah, in Nevada, and in
California), a chain of doughnut stores (in California and in Utah), a
moderately-sized gold and silver operation (in Nevada), and, finally, Mr. Hudson
owned and personally 412 residential rental units (in Utah and in
Washington).

Of Mr. Hudson's current or prior business
relationships, only Montana Acquisition Corporation, a Delaware corporation
("Montana"), is required to file reports pursuant to section 13(a) or section
15(d) of the Exchange Act. However, Montana, under Mr. Hudson's control and
direction, is in the process of organizing its business and affairs for further
development; thus, as of the date hereof, Montana is delinquent in its reporting
obligations to the Commission and Montana's common stock does is not quoted on
any intermediary quotation system and does not trade on any regional, national,
or international exchange or market trading or quotation system.

No other person, and no other entity, with whom or
with which the Registrant has conducted, or plans on conducting, its business,
is related to Mr. Hudson; specifically, no officer, no director, and no person
being considered to serve as an officer or to become elected as a director is,
in any manner, related to Mr. Hudson.

Certain
Relationships and Related Transactions. During the two-year period prior to the
date hereof, the Registrant has been a party to the following transactions,
under which the individual named hereinbelow has had a direct and indirect
material interest, and under which such transactions it could be asserted that a
certain relationship between the named individual and the Registrant existed
under one or more related transactions.

James W. Margulies, acting as the sole Director
and as the President, Secretary, and Treasurer of the Registrant (who also owned
200,000 shares, or approximately 99.99%, of the Registrant's total issued and
outstanding common stock, also served as the Registrant's attorney. However,
during his service as the Registrant's attorney: (a) Mr. Margulies did not
receive any compensation for his services rendered to the Registrant; (b) Mr.
Margulies did not receive any compensation for his employment by the Registrant;
(c) Mr. Margulies did not receive any stipends or service fees for his tenure on
the Registrant's Board of Directors; (d) if it was billed,

- Page 49
-

---

the total
combined invoices for his representation as the Registrant's attorney would not
have exceeded $60,000; and, (e) no members of Mr. Margulies' family performed
any work or services for the Registrant, and were not elected, or nominated to
be elected, to serve on the Registrant's Board of Directors.

The Registrant has determined that Mr. Margulies
and Mr. Hudson were the only individuals with whom the possibility of a certain
relationship could exist during the two-year period prior to the date of this
Report.

|5.6. | CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS, OR RELATIONSHIPS
      WITH RESPECT TO SECURITIES OF THE ISSUER.
|---- | ---------------------------------------------------------------------------------------------------------
|    
|     | a.
      Indemnification of Randolph S. Hudson and the Seller.                                           
|    

The readers hereof should be informed that insofar
as indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers, controlling persons, and beneficial owners of
the Registrant, Mr. Hudson and the Registrant have been advised that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities than the payment by the Registrant
of expenses incurred or paid by a director, officer, controlling person, or
beneficial owner of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, controlling person,
or beneficial owner in connection with the transaction reported on this Report,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

Notwithstanding the statement hereinabove, as
provisions to that certain Common Stock Purchase Agreement (more fully described
in Item 1 hereof), the following events have occurred:

|(1) | The
      seller of the Registrant's securities, which are the subject of the
      transaction being reported in this Report, agreed to indemnify and hold
      the purchaser (Randolph S. Hudson), his counsel, and his agents harmless
      against and in respect of any and all losses, liabilities, damages, and
      expenses whatsoever, including legal fees, incurred in investigating,
      preparing, or defending against any litigation (whether or not involving a
      third party), commenced or threatened, or any claim whatsoever, and any
      and all amounts paid in settlement of any claim or litigation, as and when
      incurred, (i) arising out of, based upon, or in connection with any breach
      of any representation, warranty, covenant, or agreement of seller
      contained in that certain Common Stock Purchase Agreement or of the
      Registrant contained in that certain Common Stock Purchase Agreement; or
      (ii) arising out of, based upon, or in connection with any and all claims
      relating to the business, properties, assets, and/or operations of the
      Registrant which arose prior to the closing of the transaction, which is
      the subject of the transaction reported in this Report; provided, however,
      the seller's and the Registrant's maximum joint (total) liability pursuant
      to that certain Common Stock Purchase Agreement, or otherwise, shall be
      the total cash payments actually received by seller from Mr. Hudson
      pursuant to that certain Common Stock Purchase Agreement and under the
      promissory note, which was issued in conjunction with that certain Common
      Stock Purchase Agreement; and
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Under that certain Common
      Stock Purchase Agreement, Mr. Hudson agreed to indemnify and hold the
      seller and his heirs, successors and assigns harmless against and in
      respect of any and all losses, liabilities, damages, and expenses
      whatsoever, including legal fees, incurred in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   

- Page 50
-

---

investigating, preparing, or defending against any litigation
(whether or not involving a third party), commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation, as and when incurred, (i) arising out of, based upon, or in
connection with any breach of any representation, warranty, covenant, or
agreement of Mr. Hudson contained in that certain Common Stock Purchase
Agreement, in that certain Pledge Agreement, and under that certain Note, all of
which were a part of the transaction that is being reported on this
Report.

The indemnification provisions described
hereinabove shall only apply to a claim, which is commenced or threatened within
one year from the closing date of the transaction that is being reported in this
Report.

|b. | Due-Diligence by Purchaser. Mr. Hudson was given a full
      opportunity to ask questions of, and to receive answers from, the
      officers, agents, and representatives of the seller and of the Registrant
      concerning the financial condition and the corporate history and status of
      the Registrant and to obtain such other information that Mr. Hudson and
      his professional advisors desired in order to evaluate the purchase of the
      Registrant's common voting equity securities, which are the subject of the
      transaction that is being reported on this Report. All such questions were
      answered to the full satisfaction of Mr. Hudson.                                                                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|c. | Purchaser's Acknowledgment of Risks. Mr. Hudson acknowledges
      that, on the date he consummated the purchase of the Registrant's
      securities he understood: the Registrant was not conducting business,
      other than to seek a business combination with a qualified entity; the
      Registrant had no assets; that in purchasing the Registrant's common
      voting equity securities, he was making a highly speculative and risky
      investment; and that he may lose his entire investment in the securities
      of the Registrant. As the holder-in-supermajority of the Registrant's
      common voting equity securities following the closing of the transaction
      that is being reported on this Report, Mr. Hudson understood that the
      Registrant is obligated to file quarterly, annual, transitional, and
      current reports with the Commission and that the Registrant is delinquent
      in its filings under its reporting obligations to the SEC.
|  
|d. | Purchaser's Agreement to Remedy Registrant's Failure to
      Report. As a provision of that certain Common Stock Purchase Agreement
      (more fully described in Item 1 hereof), following the satisfactory
      closing of the stock sale and purchase transaction, Mr. Hudson agreed to
      compel the Registrant to timely bring current all of its quarterly,
      transitional, and annual reports, which were required to have been filed
      by the Registrant with the Commission from the date the Registrant became
      subject to the reporting requirements of section 13(a) or 15(d) of the
      Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                             
|  
|e. | Mr.
      Hudson has the sole power to (1) vote or direct the vote of 185,000
      shares, par value $0.0001 per share, of the Registrant's common voting
      equity securities (the Registrant's common stock), (2) dispose of or to
      direct the disposition of 185,000 shares, par value $0.0001 per share, of
      the Registrant's common voting equity securities (the Registrant's common
      stock), and (3) does not share his power to vote or to direct the vote and
      does not share his power to dispose of or to direct the disposition of any
      of the shares that he beneficially owns, which are being reported on this
      Report.                                                                                                                                                                                                                                                                                                                               
|  
|f. | The
      most recent transaction regarding the Registrant's securities, which is
      the subject of the report being filed on this Report is:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  

- Page 51
-

---

|(1) | Purchase of Registrant's Securities. The purchase of
      185,000 shares of the Registrant's common stock, par value $0.0001 per
      share; whereby, Mr. Hudson and James W. Margulies (the seller of the
      Shares of the common voting equity securities, which are the subject
      hereof) entered into a private securities transaction under a Common Stock
      Purchase Agreement dated January 25, 2005, a representative EDGAR copy of
      which is annexed as an exhibit hereto. It should be prominently noted
      that, as of the date hereof, Mr. Hudson (the purchaser under that certain
      Common Stock Purchase Agreement) has not received the minute books of the
      Registrant, the stock transfer ledger of the Registrant, the certificate
      or certificates for the Shares he purchased under that certain Common
      Stock Purchase Agreement, nor any other corporate books, records, ledgers,
      or records-of-account of the Registrant.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Payment for Stock in the Registrant. Among other things,
      that certain Common Stock Purchase Agreement required Mr. Hudson to issue
      a negotiable non-interest bearing Promissory Note to Mr. Margulies, in
      principal the sum of $100,000, to serve as full and complete payment for
      the Shares subject hereof. Mr. Hudson is required to pay Mr.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | Margulies said sum on or before May 24, 2005, by virtue
      of the terms of a promissory note (the "Note"), unless he and Mr.
      Margulies agree, by amendment, to more suitable terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | Pledge of Shares as Security for Payment. In the event
      Mr. Hudson does not timely pay Mr. Margulies said sum on or before said
      date, Mr. Margulies may reclaim the Shares of the Registrant pursuant to a
      Pledge and Security Agreement that was issued by Mr. Hudson on even date
      with the Common Stock Purchase Agreement and the Promissory Note. (A
      representative EDGAR copy of the Pledge and Security Agreement is annexed
      as an exhibit hereto.) Under that certain Pledge Agreement, Mr. Hudson
      maintains all voting rights on the Registrant's Shares, until his payment
      of the obligation represented by that certain Note, unless an extension
      has been granted by the holder thereof, or until his default thereunder.
      In the event Mr. Hudson permanently defaults on his obligation to Mr.
      Margulies, and, if Mr.                                                                                             
|   
|    | Margulies does not forbear any immediate collection
      proceedings under the obligation by permitting Mr. Hudson to amend the
      terms of the Note and the Pledge Agreement, the Registrant's Shares, and
      all rights thereunder, shall revest in Mr. Margulies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   



|Item
      6. Exhibits and Reports on Form 8-K
|----------------------------------------------

|(a) | Exhibits                                                               
|--- | -----------------------------------------------------------------------
|   
|    | The following is a list of exhibits being filed with this
      Report.
|   
|    | 17.1                                                                   
|   
|    | 20.1                                                                   
|   
|    | 99.1                                                                   
|   

99.1(a) Form 8-K Exhibit: Hudson Stock Purchase Agreement

99.1(b) Form 8-K Exhibit: Hudson Promissory Note

99.1(c) Form 8-K Exhibit: Hudson Pledge and Security Agreement

99.1(d)
Form 8-K Exhibit: Margulies' Resignation

31.1
    Principal Executive Officer's "302" Certification31.2
    Principal Financial Officer's "302" Certification32.1
    Chief
      Executive Officer's "906" Certification32.2
    Chief
      Financial Officer's "906 Certification




|(b)
      Reports on Form 8-K.
|------------------------------

- Page 52
-

---

There was one report on Form 8-K filed by the
Registrant during the subject period being reported on this Form 10-QSB. The
subject Form 8-K report, including the exhibits therewith filed, and is annexed
to this Report beginning with Exhibit 99.1et seq.



|SIGNATURES
|----------

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.

Dated:
February 14, 2006 for the Quarterly Period Ended March 31, 2005.



|By Order of the Board of Directors:CARTOON ACQUISITION,
      INC.
|------------------------------------------------------------------



RANDOLPH
S. HUDSONChief Executive OfficerChief Financial Officer

- Page 53
-

---