UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

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

                   FOR THE TRANSITION PERIOD FROM JULY 1, 2002
                             TO DECEMBER 31, 2002.

                       Commission file number: 33-18143-D

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

                        PEAK ENTERTAINMENT HOLDINGS, INC.
                 (Name of small business issuer in its charter)

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

          NEVADA                                      87-0449399
--------------------------------------------------------------------------------
(State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

                           BAGSHAW HALL, BAGSHAW HILL
                        BAKEWELL, DERBYSHIRE, UK DE45 1DL
--------------------------------------------------------------------------------
              (Address of principal executive offices) (Zip Code)

      Issuer's telephone number: 44 1629 814555

      Securities registered under Section 12(b) of the Exchange Act: None.

      Securities registered under Section 12(g) of the Exchange Act: None.

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 90 past days. YES [ ] NO [ X ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

The issuer's revenues for the year ended December 31, 2002: $318,782.

The issuer's revenues for its most recent fiscal year (December 31, 2003):
$1,014,996.

The aggregate market value of voting and non-voting stock of the issuer held by
non-affiliates on April 1, 2004 was $2,475,608.40.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

As of April 22, 2003, we had 21,190,760 shares of common stock issued and
outstanding.

As of April 28, 2004, we had 24,431,288 shares of common stock issued and
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.
       TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]


<PAGE>


                        PEAK ENTERTAINMENT HOLDINGS, INC.

INTRODUCTORY STATEMENT

This transition report on Form 10-KSB is for the period July 1, 2002 to December
31, 2002. The discussion in this report concerns business and financial
condition of Peak Entertainment Holdings, Inc. (the "Company") as of December
31, 2002, after giving effect to the sale of the Company's former business in
April 2003 and the acquisition of Peak Entertainment Ltd. on April 22, 2003 in a
transaction viewed as a reverse acquisition. Under applicable accounting
principles, the historical financial statements of Peak Entertainment Ltd.
became those of the Company. Except where specifically referred to, the business
operations and financial results of the Company' former business are not
discussed.

TABLE OF CONTENTS

                                                                          Page
                                                                          ----

 PART I

 Item 1.   Description of Business                                           3
 Item 2.   Description of Property                                          13
 Item 3.   Legal Proceedings                                                13
 Item 4.   Submission of Matters to a Vote of Security Holders              13

 PART II

 Item 5.   Market for Common Equity and Related Stockholder Matters         14
 Item 6.   Management's Discussion and Analysis                             19
 Item 7.   Financial Statements                                             31
 Item 8.   Changes In and Disagreements With Accountants on Accounting
           and Financial Disclosure                                         57
 Item 8A.  Controls and Procedures.                                         58

 PART III

 Item 9.   Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act                59
 Item 10.  Executive Compensation                                           61
 Item 11.  Security Ownership of Certain Beneficial Owners and Management   62
 Item 12.  Certain Relationships and Related Transactions                   63
 Item 13.  Exhibits and Reports on Form 8-K                                 64
 Item 14.  Principal Accountant Fees and Services                           67

                                       2
<PAGE>


                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS

GENERAL OVERVIEW

Peak Entertainment Holdings, Inc. ("Peak Entertainment," "we," "us," or the
"Company") only recently began its current business operations. We have a
limited history of revenues and significant operational losses, as well as an
accumulated shareholder deficit, through December 31, 2002 and December 31,
2003.

On April 22, 2003, we sold our former telecommunications business and acquired
the media and entertainment business of Peak Entertainment, Ltd. Peak
Entertainment Ltd. is a United Kingdom registered company incorporated in
November 2001. In 2001, Peak Entertainment Ltd. was in its start-up stages. Peak
Entertainment Ltd. began its entertainment activities and licensing activities
in February 2002, and its consumer product activities in April 2002.

Prior to the submission of this transition report on Form 10-KSB, we were not
current on our reporting requirements under Section 15(d) of the Securities
Exchange Act. This transition report was required to be filed in September 2003
due to our election to change our fiscal year on June 5, 2003 to a December 31
year end. Accordingly, we have not been current on our reporting requirements
since September 2003 through the date of filing of this transition report.
Companies whose securities are quoted on the OTC Bulletin Board, such as us,
must be reporting issuers under the Securities Exchange Act of 1934, and must be
current in their reports under Section 13 or 15(d) of the Securities Exchange
Act in order to maintain price quotation privileges on the OTC Bulletin Board.
If we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board.

ORGANIZATION HISTORY

Peak Entertainment Holdings, Inc. was originally incorporated as Corvallis, Inc.
in the state of Nevada on September 28, 1987 to seek business opportunities.

On October 31, 2000, Corvallis and USAStarOne.Net, Inc., a Texas corporation,
entered into an Agreement and Plan of Reorganization by which Corvallis merged
with USAOneStar through a stock-for-stock exchange. USAOneStar was incorporated
on July 21, 2000, and was an Internet service provider using a network marketing
structure for distribution of its services. Corvallis issued 13,500,000 shares
valued at $13,500 in a stock-for-stock exchange for the 1,000,000 outstanding
shares of common stock of USAOneStar. Corvallis was the surviving entity in the
merger, and Corvallis changed its name to USAOneStar.Net, Inc. The shareholders
of USAOneStar, acquired 89.9% of the 15,005,000 shares outstanding immediately
after the share exchange.

On August 31, 2001, USAOneStar.Net, Inc. and Palladium Communications, Inc., a
Kentucky corporation, entered into an Agreement and Plan of Reorganization by
which USAOneStar acquired Palladium as a wholly-owned subsidiary through a
stock-for-stock exchange. Palladium was incorporated in April 23, 1998, and was
a reseller of telecommunications services. Pursuant to the agreement, USAOneStar
issued 183,000,000 common shares valued at approximately $700,000 to the
shareholders of Palladium in exchange for approximately 6,500 issued and
outstanding shares of Palladium, which represented 100% of that company's issued
and outstanding shares. Upon completion of the share exchange, Palladium's
shareholders held approximately 92% of the 199,000,000 shares of common stock
outstanding immediately after the share exchange. Subsequently, USAOneStar
changed its name to Palladium Communications, Inc.

On March 31, 2003, the Company effected a 100 for 1 reverse stock split. As a
result of the reverse split, the 211,907,574 shares of our common stock that
were issued and outstanding became 2,119,195 shares issued and outstanding.


                                       3
<PAGE>


Pursuant to an Asset Purchase Agreement, dated as of April 22, 2003, Palladium
Communications, Inc. sold for the purchase price of $75,000 substantially all of
its assets and certain liabilities to Palladium Consulting Group, LLC. The
assets sold to Palladium Consulting Group, LLC consisted of substantially all
assets related to the business operations of Palladium Communications, Inc.,
including all Palladium Communications, Inc.'s carrier agreements, sales agent
agreements, and equipment. The assets retained by Palladium Communications, Inc.
included its cash and notes receivable. The liabilities assumed by Palladium
Consulting Group, Inc. included payment for phone systems, equipment and a lease
for office facilities. The liabilities retained by the Company consisted
primarily of its outstanding debentures and the interest on the debentures. As a
result of the transaction, Palladium Communications, Inc. had no operating
business, and had substantially no assets and had significant liabilities
related primarily to retained convertible debentures.

On April 22, 2003, pursuant to an Agreement and Plan of Acquisition, Palladium
Communications, Inc., a Nevada corporation, acquired all of the outstanding
shares of Peak Entertainment Ltd., together with its subsidiaries, in exchange
for the issuance of 19,071,684 shares of Palladium Communications, Inc.'s common
stock to the holders of Peak Entertainment Ltd. The shares issued to the holders
of Peak Entertainment Ltd. constituted 90 percent of the outstanding shares of
Peak Entertainment Holdings, Inc.

Upon consummation of the acquisition of Peak Entertainment, Ltd., the founders
of Peak Entertainment, Ltd., Wilfred and Paula Shorrocks, were appointed
directors and officers of Palladium. The former directors and officers of
Palladium Communications resigned as of the acquisition date.

On May 14, 2003, Palladium changed its corporate name to Peak Entertainment
Holdings, Inc.

As of April 22, 2003, December 31, 2003, and April 27, 2004, we had 21,190,760,
21,774,212, and 24,431,288 shares of common stock issued and outstanding,
respectively.

BUSINESS OVERVIEW

Our business is in the development and sales of media and consumer products
targeted for the children's entertainment market. We maintain our executive
offices in Bakewell, England. We maintain a web site at:
http://www.peakentertainment.co.uk.

We operate primarily through our wholly-owned United Kingdom subsidiary, Peak
Entertainment Ltd., and its subsidiaries: Jusco UK Ltd, a United Kingdom
registered company; Jusco Toys Ltd, a Hong Kong registered company; Wembley
Sports Master Ltd., a United Kingdom registered company; and Cameo Collectables
Ltd, a United Kingdom registered company. We also utilize a wholly owned United
States subsidiary, Peak Entertainment Holdings LLC, a Delaware limited liability
company formed in April 2002.

STRATEGY

Our business plan is to develop, market and sell media content and related
consumer products focused on the children's entertainment market. Our planned
activities include the development, production and distribution of television
shows targeted for the children's entertainment market, the licensing of
intellectual property rights related to our entertainment products, and the
manufacturing and sales of consumer products related to our entertainment
products.

Our primary strength is in the conception and development of a character and
entertainment concept that we believe children will find appealing. Our business
objective is to develop a character or entertainment concept into a media
product, such as into a television show, a movie, or a book, and to build the
media product into a merchandisable consumer brand and either sell items
ourselves such as a video game, a toy, or apparel, or license merchandise rights
to third parties for manufacture and sale by third parties. We anticipate that
we will rely on third parties such as animation and television production
companies to co-produce entertainment shows, and broadcast companies to
broadcast our television shows.


                                       4
<PAGE>


We believe that this business model will enable us to develop a character and
product idea from its concept stages, through development, manufacturing, and
promotion stages, to the consumer product, while maintaining control of the
character concept and product ideas, so that we will be able to control and
coordinate broadcast, promotions and product launches.

STRUCTURE AND BUSINESS INITIATIVES

We operate through three business divisions: entertainment, licensing, and
consumer products.

ENTERTAINMENT DIVISION

As of December 31, 2002, our entertainment division was in its early start-up
stages. In 2002, we were in the very early stages of developing an entertainment
show based on our license for Monster In My Pocket. As of March 2004, our
entertainment division was working on three entertainment products, which were
in various stages of pre-production and production:

      o     Monster In My Pocket;

      o     The Wumblers; and

      o     Faireez.

We anticipate that this division will generate revenues from the distribution of
television shows to broadcasting companies and other media outlets. The key
costs for this division are substantial animation and production costs in
getting television episodes produced.

         MONSTER IN MY POCKET
         --------------------

Monster In My Pocket are miniature pocket-sized monster characters based upon
the history and heritage of 'Monsters' from Medusa, Mynator and Cyclops of
mythological times to the modern classics of Frankenstein, Dracula and Werewolf.

We have a license for worldwide master rights from Morrison Entertainment Group,
Inc. for the use of "Monster In My Pocket" and related licenses, pursuant to a
license agreement dated February 25, 2002 between Morrison Entertainment Group,
Peak Entertainment, and Wilf and Paula Shorrocks. The contract, which covers a
twenty-year term, requires the payment of $500,000 to Morrison, at the rate of
$100,000 every six months, commencing on March 31, 2002. Of such amount,
$120,000 has been paid through March 31, 2004, and we have agreed with Morrison
to delay additional payment requirements at this time. We are entitled to 10% of
the revenues from the United States, 35% of the revenues from the United
Kingdom, and 40% of the revenues from other territories. Morrison Entertainment
Group is entitled to 60% of the revenues from the United States, 32.5% of the
revenues from the United Kingdom, and 30% of the revenues from other
territories. The Shorrocks are entitled to 30% of the revenues from the United
States, 32.5% of the revenues from the United Kingdom, and 32.5% of the revenues
from other territories. The revenue allocation refers to revenues from character
and merchandise licensing and sales activities, and the allocation is to be
adjusted for entertainment production financing terms. Any such royalty payment
shall be deducted from the $500,000 staged payments, assuming the royalties are
earned during the period when the staged payments are to be made.

We are informed by Morrison Entertainment Group that Monster In My Pocket is
already an established consumer products concept with a proven pedigree and
sales by others which have exceeded $200 million at retail.

We intend to expand the Monster In My Pocket product line with a new animated
television series using the Monster In My Pocket characters. Our production
team, in conjunction with our co-production partners, is to produce 26
thirty-minute episodes. As of March 2004, the television project is in
pre-production stages with our in-house computer graphics studio creating the
models, frames, characters and environments.


                                       5
<PAGE>


In June 2003, we entered a letter of intent agreement with Mainframe
Entertainment Inc., pursuant to which Mainframe is to provide 20%, approximately
$1,600,000, of funding to the project. Mainframe is to have sole television
distribution rights in Canada and is entitled to 100% of the television
distribution proceeds in Canada, and joint television distribution rights in the
United States and is entitled to 5% to 7.5% of the television distribution
proceeds in the United States. Mainframe is entitled to 35% of the gross
licensing and merchandising revenues in Canada, and 5% to 20% of the gross
licensing and merchandising revenues in the United States.

We are to provide $250,000 of funding, either in cash or services, for each of
the 26 episodes. The project is currently in pre-production with story boards
and models being prepared. We are actively seeking sources of financing to fund
the project, but have no such commitments to date. A delay in receipt of funding
will likely delay the timetable for production. Assuming the receipt of funding
by June 2004, we anticipate production for delivery of the first thirteen
episodes by April 2005 and the next thirteen by October 2005. If sufficient
funding is not available shortly, the timetable for production of the episodes
will likely be re-scheduled for completion for Fall 2005 or Spring 2006.

We intend to distribute this series of 26 animated programs in various markets.
We currently have a broadcast contract signed with Good Morning Television in
the United Kingdom (known as GMTV), for terrestrial broadcast rights for a
period of five years in the United Kingdom markets in exchange for an aggregate
license fee of $393,000 payable through July 2005. GMTV has committed to running
the episodes from October 2004 and throughout 2005.
We will seek to distribute to programs in other countries, including the United
States, although no such agreements have been reached to date.

In addition, we have an agreement with Character Option Ltd., a major United
Kingdom toy marketer, to distribute toys in the United Kingdom.

         THE WUMBLERS
         ------------

The Wumblers are a sweet natured, whimsical collection of cartoon characters.
The Wumblers is an educational and entertainment show geared toward preschool
aged children.

We entered into an entertainment production agreement, dated as of December 16,
2003, with The Silly Goose Company, LLC for the production of animated
television episodes for a certain intellectual property entitled "The Wumblers".
Pursuant to an agreement dated April 28, 2003, we are entitled to all
exploitation rights in The Wumblers including merchandise and distribution
rights. We are to finance or obtain financing for the episodes. Funding sources
will share copyright interests in the television episodes according to the
allocation of net proceeds. We will have the right to produce other episodes
based on the licensed intellectual property. We have the right to exploit the
licensed property worldwide in perpetuity. We are entitled to 35% to 40% of the
gross revenues, depending on the location from which revenues are generated and
the form of the source of revenues, whether television, music, or merchandise.
We and any financing partners are entitled to recoup all production and
marketing costs from gross revenues. Silly Goose is entitled to 31% of the net
proceeds.

On January 9, 2004, we entered into an Agreement for the Provision of Co
Production Services with Cosgrove Hall Films Ltd. whereby Cosgrove will provide
certain production services for the production of 52 eleven minute animated
episodes of The Wumblers. Cosgrove Hall Films will be paid for its production
services. The costs of the production of the episodes is projected to be
approximately $3,000,000.

As of March 2004, we have completed the production of one pilot episode of The
Wumblers. We anticipate that the remaining episodes will be completed by April
2005, subject to receipt of financing for production costs. We are actively
seeking sources of financing to fund the completion of this project.

We intend to distribute this series in various markets, initially in the United
States and the United Kingdom. No television distribution or broadcast
agreements have been reached to date.


                                       6
<PAGE>


         FAIREEZ
         -------

Faireez are fantasy fairy-tale creatures with magical powers.

Pursuant to terms of understanding with Moody Street Kids and Funbag Animation
Studios Inc., we have the worldwide distribution rights, excluding Canada and
Australia, and worldwide merchandising rights to an animated television series
project called The Faireez, at royalty rates of 35%-40% of gross revenues. The
license term is 25 years from December 2003 with an option to extend the term
for an additional 25 years.

This project is in the pre-production stages. There are 52 eleven minute
episodes currently planned. The project is anticipated to commence production in
or about June 2004 with the initial episodes available for distribution in or
about April 2005. The project is anticipated for completion in or about October
2005.

We intend to distribute this series in various markets, initially in the United
States and the United Kingdom. No television distribution or broadcast
agreements have been reached to date.

LICENSING DIVISION

This division is responsible for the licensing and sublicensing of intellectual
properties to and from third parties. We intend to license or sub-license our
products for use by others in other mediums, such as in video games, apparel,
toys, and other merchandise.

We entered into license agreements with Character Option Ltd. for Monster In My
Pocket products, with Toontastic Publishing for magazine use of our Pretty Pony
Club concepts, and with CCA Greetings for our Countin' Sheep products for use in
greeting cards.

We have an in-house licensing team headed by our licensing director, Alan
Shorrocks. We have entered into agreements with several international agents and
intend to further develop a network of international agents for the
international promotions of our products.

Our licensing division was still in its early start-up stages in 2002 and did
not generate significant revenues in 2002. We anticipate that this licensing
division will become much more active once we have produced sufficient episodes
of our entertainment products so that broadcasting of the shows can commence.
After broadcasting, and subject to a receptive audience, we believe that this
division may become our principal source of revenues.

The principal revenues for this division is anticipated to be a customary 35%
commission we receive from all revenue received from licensing entertainment
properties to broadcasters, toy and gaming companies, and other manufacturers
such as clothing and home entertainment. The division earns revenue from selling
licenses for our non-entertainment driven properties. The key costs for this
division are staff, travel, toy and good production costs, and costs for
attendance in annual toy and licensing trade shows internationally.

We intend to expand the licensing of our products through:

      o     A consumer public relations campaign; and

      o     Related marketing programs.

International toy fairs, such as MIP TV in Cannes, France in April 2004, have
provided an ideal forum to display our products. We will also attend the New
York Licensing Show in June 2004.


                                       7
<PAGE>


CONSUMER PRODUCTS

Our consumer products division commenced substantive activities in 2002 and
through 2003 and has historically been our primary source of revenues.

In 2002, our consumer products division sold the following products:

      o     Kewpie dolls in the United States market, commencing December 2002;
            and

      o     Pretty Pony Club products in the United Kingdom market, commencing
            December 2002.

As of March 2004, our consumer products division sold the following products:

      o     Countin' Sheep products in the United Kingdom markets since January
            2003;

      o     Mini Flora products in the United Kingdom market since January 2003;
            and

      o     Pretty Pony Club products in the United Kingdom market since
            December 2002.

KEWPIE - The Kewpie dolls are high quality collector dolls with porcelain look
vinyl heads and hands applied to period and themed costumes. The dolls are sold
in series, usually two per year, with a range of around 20 lines from a
catalogue to collectors and specialty doll shops. The dolls are sold in
presentation boxes with an official certificate of authentication and have been
in the market since 1916. We commenced selling the dolls in December 2002, and
we discontinued sales of dolls in January 2004. We do not believe that the
discontinuation of this product line will have a material effect on our
operations.

PRETTY PONY CLUB - Products sold consist of small mold ponies of various styles
and colors supplied in connection with magazine distribution by Toontastic.

COUNTIN SHEEP - Countin Sheep products are based upon a well-known 19th Century
cure for sleeplessness. The remedy has since become a legend passed down from
generation to generation and is well known by adults and children alike. This
product line is a unique range of toy merchandise. Every flock consists of 6
doll sheep, each with their own birthplace, date, personality trait, and number
branded patch. Each sheep is a limited edition, easily identifiable by its
authentic tag and distinctive individual features. The product line includes
gift cards and other merchandise.

MINI FLORA - Mini Flora are miniature-sized hand-crafted clay flowers resembling
some of the worlds most popular flora. The petals are made of a special clay
that has elastic properties allowing the flowers to be re-arranged. The product
line includes display stands and accessories.

Our consumer products division presently operates primarily through two
wholly-owned subsidiaries:

      o     Cameo Collectables - for the sale of gift and collectables items;
            and

      o     Jusco Toys - for the manufacture and production of toys and other
            consumer products.

      CAMEO COLLECTABLES
      ------------------

Cameo Collectables is our sales, marketing and distribution division responsible
for distribution and sales of consumer products from our license portfolio,
including Countin' Sheep and Mini Flora products. A sales support team of three
full time employees are responsible for customer services, invoicing and
administration.

      JUSCO TOYS
      ----------

Our Jusco Toys subsidiary works with third party manufacturers and distributors,
to make toys and other consumer products. We acquired Jusco Toys in April 2002,
to acquire its inventory and its manufacturing capabilities. Jusco will be used
primarily to manufacture products for third parties, some of which may be our
licensees.


                                       8
<PAGE>


      WEMBLEY SPORTSMASTER
      --------------------

This subsidiary is not currently active, and we do not anticipate that we will
utilize this division in fiscal year 2004. We acquired the assets of Wembley
Sportmaster primarily for its trademarks. Our future intent is to launch a range
of balls, leisure toys, inflatable pools and play products under the Wembley
Sportsmaster banner.

DESIGN STUDIO TEAM

In 2002, we set up an in-house design studio team, with designers and artists,
equipped with a state-of-the-art animation studio. The team is involved in
character creation, storyboard development, and animation production for our
Entertainment Division. The team is also involved in preparing marketing
literature for our Licensing Division, and toy design, packaging and display
solutions for our Consumer Products Division.

CERTAIN LICENSE AGREEMENTS AND INTELLECTUAL PROPERTY RIGHTS

We have acquired the following rights from third parties:

      o     In My Pocket Rights (including Monster In My Pocket) Worldwide -
            from Morrison Entertainment Group, Inc., in a license agreement
            between Morrison Entertainment Group, Peak, and Wilf and Paula
            Shorrocks, dated February 25, 2002 for $500,000 in staged payments
            for a 20-year term. SEE "ENTERTAINMENT DIVISION--MONSTER IN MY
            POCKET" FOR ADDITIONAL TERMS.

      o     Shorrocks Portfolio Worldwide - various concepts from Wilf and Paula
            Shorrocks, in a license agreement dated April 30, 2002, in
            perpetuity for royalties of 10% of the net selling price, with a
            guaranteed minimum royalty of $1,000,000.

      o     Afro Ken - from SAN-X Co., Ltd., pursuant to a license agreement
            dated January 14, 2003. Under the agreement, we have the right to
            use copyrighted property Afro Ken, for marketing, distribution and
            sale of dolls. The license territory is The British Isles, including
            Ireland and its possessions. We are to pay royalties of 10% of gross
            sales. The minimum guarantee is UK (pound)10,000, of which the first
            advance was due on signing and a second advance is due on December
            31, 2004. The license term expires on December 31, 2004, with an
            option to renew for one year.

      o     The Wumblers - from The Silly Goose Company, LLC. We entered into an
            entertainment production agreement, dated as of December 16, 2003,
            with The Silly Goose Company, LLC for the production of animated
            television episodes for certain intellectual property entitled "The
            Wumblers". Pursuant to an agreement dated April 28, 2003, we are
            entitled to all exploitation rights in The Wumblers including
            merchandise and distribution rights. SEE "ENTERTAINMENT
            DIVISION--THE WUMBLERS" FOR ADDITIONAL TERMS.

      o     Faireez - Pursuant to terms of understanding with Moody Street Kids
            and Funbag Animation Studios Inc., we have the worldwide
            distribution rights, excluding Canada and Australia, and worldwide
            merchandising rights to an animated television series project called
            The Faireez. SEE "ENTERTAINMENT DIVISION--FAIREEZ" FOR ADDITIONAL
            TERMS.

We have licensed the following rights to third parties:

      o     Monster In My Pocket for electronic games - We entered into a
            license agreement, dated December 12, 2003, with Radica U.K. Ltd.
            Under the agreement, we licensed certain rights to Monster In My
            Pocket in connection with the sale of electronic handheld games. The
            license territory is the United Kingdom, Channel Islands and Eire.
            We are to receive royalties of 8% to 10% of the net selling price.
            The license term is three years.


                                       9
<PAGE>


      o     Pretty Pony Club - to Toontastic Publishing Ltd., pursuant to a
            license agreement dated December 5, 2002, and renewed in 2004. Under
            the agreement, we licensed the right to intellectual property called
            Pretty Pony Club in connection with the sale of comic books. The
            license territory is the United Kingdom and Eire. We are to receive
            royalties of 4% of the net sales price or 5% of the purchase price,
            depending on the manufacturer. We received an advance royalty of
            $4,025 in 2002, additional royalties of $17,159 in 2003 for the
            license period ended February 29, 2004, and an additional advance
            royalty of $2,500 in 2004 under the renewed license. There is no
            minimum guaranteed royalty under the renewed license. The license
            expires on February 28, 2005.

CERTAIN DISTRIBUTION AND SALES AGREEMENTS

We have granted the following distribution and sales rights:

      o     We entered into a distribution agreement, dated July 1, 2003, with
            Perfectly Plush Inc., a Canadian company, whereby Perfectly Plush
            would serve as exclusive distributor of our Countin' Sheep products
            in Canada. Under the agreement, Perfectly Plush is to pay us a
            royalty of 10% of the net selling price, which is included in the
            purchase shipment price. Perfectly Plush shall pay to us 25% of the
            value of the invoice on placement of order, 25% on release from port
            of shipment and the remaining balance on release of products from
            port of entry for orders on the first 54,000 pieces. For subsequent
            orders, Perfectly Plush shall pay us 25% of the value of the invoice
            on placement of order, 25% on release from port of shipment, 25% on
            release of products from port of entry, and the remaining balance
            within 45 days of receipt of shipment. The agreement expires on
            December 31, 2004.

      o     We entered into a distribution agreement, dated January 20, 2003,
            with Character Options Ltd., whereby it would serve as exclusive
            distributor of our `Monster In My Pocket' products in the United
            Kingdom, Channel Islands and Eire. Under the agreement, Character
            Options paid a non-refundable advance of UK (pound)100,000, credited
            against royalty payments, and is to pay us a royalty of 10% of the
            net selling price. We are entitled to a guaranteed minimum royalty
            of UK (pound)150,000 if 26 episodes of `Monster In My Pocket' are
            broadcast on GMTV or satellite television by December 31, 2004. The
            agreement expires on December 31, 2005.

      o     We entered into an agency agreement, dated February 4, 2003, with
            Colin Lisle & Associates Limited. The license territory is Asia
            Pacific (excluding Australia and New Zealand); Scandinavia; Belgium;
            France, Holland; Italy; Portugal; Spain; Austria; Czech Republic;
            Germany; Hungary; Poland; Romania; Russia; Switzerland; Greece;
            Israel; Turkey; Cyprus; Malta; South Africa; Middle East. The
            agreement expires on December 31, 2004. The commission rate is 6% of
            invoiced sales.

      o     We entered into a representation agreement, dated August 19, 2003,
            with Haven Licensing Pty Ltd. for the use of Monster In My Pocket
            Brand, excluding television and video distribution, in Australia and
            New Zealand. The commission rate is 30% of gross receipts. The
            agreement expires on December 31, 2006.

      o     We entered into a representation agreement, dated September 17,
            2003, with Character Licensing & Marketing for the use of Monster In
            My Pocket Brand, excluding television and video distribution, in
            South Africa. The commission rate is 30% of gross receipts. The
            agreement expires on September 16, 2005.

      o     We entered into a representation agreement, dated October 31, 2003,
            with Kidz Entertainment, for the use of Monster In My Pocket Brand,
            in the Nordic Region of Europe. The commission rate is 30% of gross
            receipts. The agreement expires on December 31, 2006.


                                       10
<PAGE>


COMPETITIVE ENVIRONMENT

We have many competitors internationally across three principal areas of our
proposed business: entertainment, licensing and consumer products.

Competitors includes large companies who operate with similar business
strategies as we do, but on a much larger scale, such as Vivendi with its
Universal Studios and Time Warner Inc. with Warner Brothers. These large
companies have an integrated business approach to their properties, with
television, film, licensed toys and merchandise, and have a competitive
advantage to their competitors because they own or are significant partners in
worldwide broadcast companies and have direct access to their consumers
internationally. Similarities can be observed within the United Kingdom with the
BBC who commission television shows, control their own channel and content, and
have their own licensing and consumer products division, BBC Worldwide, who
exploit the rights and place the content internationally.

Other competitors include companies who do not have their own broadcast
facilities, as we do not, and therefore do not enjoy the competitive advantages
that broadcast companies like Vivendi and Time Warner have. These smaller
broadcast-independent companies include H.I.T. Entertainment, 4 Kids
Entertainment, DIC Entertainment and Saban. These smaller firms have created
many of the well-known and popular properties, such as 4 Kids Entertainment's
Pokemon, H.I.T.'s Bob The Builder , and Saban's Power Rangers. Pokemon, since
its appearance in 1998, has generated sales of $15 billion through 2003. Both
Nickelodeon's Rugrats and Fox Kids/Saban's Power Rangers, both launched in 1992,
are well-known brands to this day.

Most of our competitors operate in the same three primary business lines as we
do, entertainment, licensing and consumer products, and do so on an
international scale. Successful companies have gained visibility through
coordinated marketing efforts in various segments of the market, and do not rely
on generating revenues from television licensing and distribution income alone,
but also on income from product licensing and merchandise sales. Successful
television shows in one territory tend to also be successful in other
territories, and the ability to license the brand and sell consumer products is
related to the popularity and the success of the television shows. Accordingly,
the same companies and the same brands tend to dominate the market in each of
the three business segments, entertainment, licensing and consumer products, of
the children's market.

Many companies and brands do not succeed in this highly competitive market. The
international broadcast arena has witnessed a demand for more and more content
over recent years as the proliferation of new television channels continues to
grow.

According to Screen Digest's 2001 study of the children's television business
"Broadcasters will spend an estimated $2.7 billion worldwide on producing,
commissioning and acquiring children's programs in 2001. But independent
producers and distributors have emerged as the pivotal players in the worldwide
children's television industry. Their role will become even more important as
funding from broadcasters stagnates." North America accounts for 40% of the
total children's television market, followed by Western Europe (33%) and Asia
(22%). According to a recent article published in the March 2004 issue of
Broadcast Magazine there are now over 240 television and cable channels
internationally dedicated to children's entertainment with over 150 of them
launching in the last three years. The focus therefore for us is to supply
quality children's programming to television broadcasters and this provide the
platform for an integrated business model, launching our intellectual properties
and opening up revenue streams from licensing and merchandising.

The licensing market for merchandise has a worldwide retail sales value of over
$108 billion annually according to a January 2004 TLL Licensing Business Study.
Although the licensing market declined 0.7% from 2002 to 2003, the TLL Licensing
Business Study predicts a 7.0% increase in 2004. A December 2003 Yale-Harvard
statistical survey, performed for the Licensing Industry Merchandising
Association-LIMA, reported that the licensing market overall in 2003 in North
America represented $7 billion in royalty income, which accounts for 66% of the
world wide sales of licensed merchandise.


                                       11
<PAGE>


We intend to participate in the toy market by licensing entertainment driven
properties to strategic partners, including large toy and entertainment
companies. We will also seek to sell directly to large general merchandisers and
toy retail chains, although we have no such agreements to date. According to the
National Purchase Diary (NPD), reported in January 2004, the toy market
worldwide in total was $76.9 billion in 2002 with $54.4 billion coming from
traditional toys and $22.5 billion coming from video games. North America
accounted for $34.5 billion of the traditional toy sales and $11.2 billion in
video games. In 2002, licensed toys comprised 29% of the $76.9 billion world
market for toys.

PRINCIPAL SUPPLIERS

In 2002, we were not dependent on any particular supplier.

DEPENDENCE ON MAJOR CUSTOMERS

In our fiscal year ended December 31, 2002, we were not dependent on any
particular customer.

GOVERNMENT REGULATION

Our toy and related products sold in the United States are subject to the
provisions of The Consumer Product Safety Act (the "CPSA"), The Federal
Hazardous Substances Act (the "FHSA"), The Flammable Fabrics Act (the "FFA"),
and the regulations promulgated thereunder. The CPSA empowers the Consumer
Product Safety Commission (the "CPSC") to take action against hazards presented
by consumer products, including the formulation and implementation of
regulations and uniform safety standards. The CPSC has the authority to seek to
declare a product "a banned hazardous substance" under the CPSA and to ban it
from commerce. The CPSC can file an action to seize and condemn an "imminently
hazardous consumer product" under the CPSA and may also order equitable remedies
such as recall, replacement, repair or refund for the product. The FHSA provides
for the repurchase by the manufacturer of articles which are banned. Consumer
product safety laws also exist in some states and cities within the United
States and in Canada, Australia and Europe. We vigorously seek to maintain
compliance with the CPSA, the FHSA, the FFA, international standards, and our
own standards. Notwithstanding the foregoing, there can be no assurance that all
of our products are or will be hazard free. Any material product recall could
have an adverse effect on our results of operations or financial condition,
depending on the product, and could affect sales of other products.

The Children's Television Act of 1990 and the rules promulgated thereunder by
the United States Federal Communications Commission, as well as the laws of
certain countries, place certain limitations on television commercials during
children's programming. We of course, seek to comply in all respects with these
laws and regulations.

COMPLIANCE WITH ENVIRONMENTAL LAWS

Not applicable.

RESEARCH AND DEVELOPMENT

The continuing development of new products and the redesigning of existing items
for continued market acceptance are key determinants of success in the toy and
entertainment product industry. In 2001 and 2002, in connection with our
start-up operations, $0 and $337,729, respectively, was incurred on activities
relating to the development, design and engineering of new products and their
packaging and to the improvement or modification of ongoing products. Much of
this work is performed by our internal staff of designers, artists and model
makers. In 2003, we did not expend any significant capital on research and
development activities.


                                       12
<PAGE>


EMPLOYEES

As of December 31, 2002, we employed a total of eight employees on a full-time
basis, five of which were management level employees.

ITEM 2.    DESCRIPTION OF PROPERTY

As of December 31, 2002, we leased approximately 3,000 square feet of space for
its Bakewell headquarters pursuant to a twelve-month lease expiring June 30,
2003, at approximately $4,000 per month. We also leased approximately 4,500
square feet of space for its warehouse and offices in Monrovia pursuant to a
lease expiring July 31, 2005, at approximately $3,000 per month.

As of April 2004, we lease approximately 3,000 square feet of space for our
Bakewell, England headquarters pursuant to a month-to-month lease at
approximately $5,760 per month. We believe that our present facilities are
adequate for our present purposes.

ITEM 3.    LEGAL PROCEEDINGS

We were are not a party to any material pending legal proceeding, other than
ordinary routine litigation incidental to our business in the year ended
December 31, 2002.

In January 2003, in connection with our purchase of Jusco Toys Ltd, a Hong Kong
registered company, from the administrators of Just Group Plc in 2002, the Hong
Kong Inland Revenue Department instituted a proceeding in January 2003 due to
incomplete revenue filings by Jusco Toysoccurring before our acquisition of
Jusco Toys. At the time, we did not believe the enquiry would have a material
effect on our operations. This enquiry has been determined in March 2004 at a
cost to the Company of $9,235.

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

Not applicable.


                                       13
<PAGE>


                                     PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common stock is quoted on the OTC Bulletin Board under the symbol "PKEH".
For the periods indicated, the following table sets forth the high and low bid
prices per share of common stock, adjusted to reflect a one-for-100 reverse
stock split effected on March 31, 2003. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.

Prices prior to April 22, 2003 are not related to our current business
operations, but reflect a predecessor business, Palladium Communications Inc., a
business that we sold in April 2003 and no longer conduct. SEE "OUR
BUSINESS--ORGANIZATION HISTORY."

Fiscal Quarter Ended            High Bid          Low Bid
--------------------            --------          -------

March 31, 2001                   $3.62              $1.31
June 30, 2001                     2.25               0.59
September 30, 2001                1.01               0.35
December 31, 2001                 1.01               0.16
March 31, 2002                    0.24               0.02
June 30, 2002                     0.035              0.001
September 30, 2002                0.015              0.004
December 31, 2002                 0.007              0.003
March 31, 2003                    0.003              0.001
June 30, 2003                     1.75               0.03
September 30, 2003                1.15               0.55
December 31, 2003                 0.80               0.40
March 31, 2004                    0.90               0.41

HOLDERS

As of April 22, 2003, we had approximately 494 record holders of our common
stock, excluding beneficial owners of common stock whose shares are held in the
names of various security brokers, dealers, and registered clearing agencies.

DIVIDENDS

We have never declared or paid any cash dividends on our common stock. We do not
anticipate paying any cash dividends to stockholders in the foreseeable future.
In addition, any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements, and such other factors
as the Board of Directors deem relevant.


                                       14
<PAGE>


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS IN 2002

                               Number of
                           securities to be
                              issued upon    Weighted average
                              exercise of     exercise price       Number of
                              outstanding     of outstanding      securities
                               options,          options,          remaining
                             warrants and      warrants and      available for
      Plan category             rights            rights        future issuance
      -------------             ------            ------        ---------------


Equity compensation plans            0               $ 0                 0
approved by securities
holders

Equity compensation plans            0                $0                 0
not approved by security
holders

Total                                0                $0                 0



TRANSFER AGENT

The transfer agent for our common stock is American Stock Transfer & Trust
Company.

RECENT SALES OF UNREGISTERED SECURITIES

For issuances prior to March 31, 2003, the number of shares issued has been
adjusted to reflect a one-for-100 reverse stock split effected on March 31,
2003.

Certain Sales by Former Business Prior to Reverse Acquisition
-------------------------------------------------------------

On February 5, 2002, we issued an aggregate of 7,000 common shares valued at
approximately $9,800 to twelve shareholders of NetMart 2020, Inc. in exchange
for approximately 2.1 million shares of that corporation. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.

On February 5, 2002, we issued an aggregate of 103,000 common shares to satisfy
debts under promissory notes. We issued 58,000 shares valued at approximately
$60,000 to DL Capital, Inc.; we issued 30,600 shares valued at approximately
$32,000 to The Wellesley Capital Group, LLC and issued 14,400 shares valued at
approximately $15,000 to The Jericho Group, LLC. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) under the Securities Act.

On February 28, 2002, we issued secured convertible debentures in the principal
amount of $200,000 to four accredited investors. The convertible debentures
carry a 12% interest rate and mature April 21, 2004, as amended. The debentures
may be converted into common shares and the amount of common shares will be
determined upon the market price of our shares at the time of conversion. We
also granted warrants to purchase 600,000 common shares, which expire through
February 28, 2005. In connection with the same transaction, on March 14, 2003,
the same investors funded an additional $15,000 and we issued $15,000 of
convertible debentures and warrants to purchase 45,000 shares of our common
stock. We relied on an exemption from registration for a limited offering to
accredited investors provided by Rule 506 of Regulation D of the Securities Act.

In March, 2002, we issued 7,500 common shares valued at $37,500 to NIR Group,
LLC for consulting services. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section 4(2)
under the Securities Act.


                                       15
<PAGE>


On April 22, 2003, following the sale of our former business, we acquired Peak
Entertainment Ltd. Under the terms of the agreement, we acquired 100 percent of
Peak Entertainment's stock in exchange for 19,071,684 shares of our common stock
to the 12 holders of Peak Entertainment common stock. Each of those persons
receiving shares of our common stock was an accredited investor as that term is
defined under Regulation D of the Securities Act of 1933, as amended. We relied
on an exemption from registration for a private transaction not involving a
public distribution provided by Section 4(2) under the Securities Act.

Sales by Current Business after Reverse Acquisition on April 22, 2003
---------------------------------------------------------------------

On April 22, 2003, immediately following the acquisition of Peak Entertainment,
to obtain funding for ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors for the sale of (i) $785,000 in
convertible debentures and (ii) warrants to buy 1,570,000 shares of common
stock. The investors are obligated to provide us with an aggregate of $785,000,
all of which has been funded to date. The debentures bear interest at 12%,
mature one year from the date of issuance, and are convertible into shares of
our common stock, at the selling stockholders' option, at the lower of (i) $1.00
or (ii) 50% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including the conversion date. Accordingly, there is in fact essentially no
limit on the number of shares into which the debentures may be converted. The
warrants are exercisable at a price of $0.31 per share. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.

In July 2003, pursuant to a consulting agreement with POW! Entertainment LLC and
Stan Lee, the Company issued to POW warrants to purchase 750,000 shares of our
common stock, exercisable for five years at $0.35 per share. Warrants to
purchase 375,000 shares vested upon execution of the consulting agreement, and
the remaining warrants to purchase the remaining 375,000 shares are to vest
after one year. After one year, POW has the right to demand registration of the
shares of common stock underlying the warrant at our expense. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.

The Company entered into a Cancellation of Debt in Exchange for Securities
Agreement, dated as of December 17, 2003, whereby the Company exchanged a debt
of $100,000 owed to Jack Kuessous in exchange for 583,333 shares of common stock
and 150,000 common stock purchase warrants exercisable for three years at $0.50
per share. Kuessous had loaned $100,000 to us in or about July 2003. We relied
on an exemption from registration for a private transaction not involving a
public distribution provided by Section 4(2) under the Securities Act.

The Company entered into an Amendment to the Consulting Agreement, dated as of
December 17, 2003, amending a July 2003 consulting agreement with Jack Kuessous
pursuant to which the Company issued to Kuessous warrants to purchase 240,000
shares of common stock, exercisable for three years at $1.20 per share. Under
the amendment, we issued warrants to purchase 240,000 shares of common stock,
exercisable for three years at $0.50 per share in exchange for the previously
issued warrants. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) under
the Securities Act.


                                       16
<PAGE>


On January 5, 2004, the Company completed a Settlement Agreement and Release
dated as of December 22, 2003 with The N.I.R. Group, LLC, AJW Partners, LLC, New
Millennium Capital Partners II, LLC, AJW Offshore, Ltd. (formerly known as
AJW/New Millennium Offshore, Ltd.), and AJW Qualified Partners, LLC (formerly
known as Pegasus Capital Partners, LLC). Under the agreement, the Company
exchanged $1,000,000 and 1,000,000 shares of our unregistered common stock in
return for the surrender of an aggregate of $208,500 principal amount of 12%
convertible debentures and warrants to purchase 645,000 shares of common stock,
issued pursuant to a Securities Purchase Agreement dated as of February 28,
2002, and an aggregate of $785,000 principal amount of 12% convertible
debentures and warrants to purchase 1,570,000 shares of common stock, issued
pursuant to a Securities Purchase Agreement dated as of April 22, 2003. The
$1,000,000 payment to the former debenture holders consisted of $500,000 in
cash, and $500,000 by promissory notes which was paid in full on March 22, 2004.
The agreement provides that, after a period of thirteen months, all of the
1,000,000 shares of common stock still owned at that time may be put to us at
$.75 per share, on an all-or-none basis, for a one month period. The Company
also paid for $10,000 of the former debenture holders' legal fees and expenses
in connection with the transaction. We relied on an exemption from registration
for a private transaction not involving a public distribution provided by
Section 4(2) under the Securities Act.

On January 5, 2004, the Company entered into Securities Purchase Agreements with
four accredited investors: Platinum Partners Global Macro Fund LP, Gary Barnett,
Millstones Brands Inc. and Dan Brecher. Pursuant to the agreements, the Company
sold $1,500,000 in 8% convertible debentures due January 5, 2007 and 3,000,000
common stock purchase warrants. The purchase price totaled $1,500,000, of which
$750,000 was paid in cash, and $750,000 by promissory notes. The principal
amount of the debentures, plus any accrued and unpaid interest on the
debentures, may be converted into shares of common stock at the conversion price
of $0.30 per share. The conversion price may be adjusted downward for issuances
of securities by the Company at prices below the lower of $.50 per common share,
or fair market value for such securities as determined at the time of issuance.
Annual interest payments on the debentures are due on January 7 of each year,
commencing with January 7, 2005. At the option of the Company, interest payments
may be accrued beyond the annual interest payment date, in which event the
debenture holder shall have the option to accrue the interest payment then due
for another interest payment period, or cause the Company to issue common stock
in exchange for interest. Unless upon 75 days prior written notice, the
debenture and warrant holder may not convert the debentures or warrants for
shares of common stock to the extent that such conversion would cause it to
beneficially own 4.9% or more of our then issued and outstanding common stock.
After the tenth consecutive business day in which our common stock trades at
$3.00 or greater, the warrants becomes redeemable at $0.10 per warrant. We
relied on an exemption from registration for a private transaction not involving
a public distribution provided by Section 4(2) under the Securities Act.

On January 23, 2004, the Company entered into an agreement for services with
Vintage Filings, LLC. We issued 300,000 common stock purchase warrants,
exercisable for three years at $0.50 per share pursuant to the agreement. We
relied on an exemption from registration for a private transaction not involving
a public distribution provided by Section 4(2) under the Securities Act.

On January 29, 2004, we entered into a Securities Purchase Agreement with Shai
Stern. Pursuant to the agreement, we sold $50,000 in 8% convertible debentures
due January 29, 2007 and 100,000 common stock purchase warrants. The principal
amount of the debentures, plus any accrued and unpaid interest on the
debentures, may be converted into shares of common stock at the conversion price
of $0.30 per share. Annual interest payments on the debentures are due on
January 29 of each year, commencing with January 29, 2005. At our option,
interest payments may be accrued beyond the annual interest payment date, in
which event the debenture holder shall have the option to accrue the interest
payment then due for another interest payment period, or cause us to issue
common stock in exchange for interest. The warrants are exercisable at a price
of $0.50 per share. After the tenth consecutive business day in which our common
stock trades at $3.00 or greater, the warrants become redeemable at $0.10 per
warrant. We relied on an exemption from registration for a private transaction
not involving a public distribution provided by Section 4(2) under the
Securities Act.

On February 11, 2004, the Company entered into a financial advisor agreement
with Ameristar International Capital, Inc. We issued 100,000 shares of common
stock as an initial equity fee pursuant to the agreement. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.



                                       17
<PAGE>


On February 12, 2004, the Company issued 16,667 shares to William Ivers in
connection with business consulting services, related to preparation of a
written business plan, rendered by Mr. Ivers. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) under the Securities Act.

On February 12, 2004, the Company issued 20,000 shares to Lou Schneider in
connection with business consulting services, related to establishing potential
apparel-related licensing relationships with third parties, rendered by Mr.
Schneider. We relied on an exemption from registration for a private transaction
not involving a public distribution provided by Section 4(2) under the
Securities Act.

On February 12, 2004, the Company issued an aggregate of 20,409 shares in
connection with financial consulting services rendered by Rolin Inc. We relied
on an exemption from registration for a private transaction not involving a
public distribution provided by Section 4(2) under the Securities Act.

On March 10, 2004, the Company entered into Securities Purchase Agreements with
eleven accredited investors: Kenneth Grief, Wayne Saker, Gilad Ottensoser, Sam
Ottensoser, Boro Durakovic, JG Products, INC, Gerald Griffin, Al Lehmkuhl, Kevin
Bostenero, Eisenberger Investments, and David Herzog. Pursuant to the
agreements, the Company sold an aggregate of 1,000,000 shares of common stock
and 600,000 common stock purchase warrants, exercisable for three years at $0.75
per share, for the total purchase price of $500,000. Legend Merchant Group, Inc.
acted as the placement agent for these transactions. All of the purchasers were
preexisting customers of Legend Merchant Group. We paid Legend a fee of $25,000,
and 100,000 common stock purchase warrants exercisable for three years at $.50
per share and 60,000 common stock purchase warrants exercisable for three years
at $0.75 per share, for its services. We agreed to seek registration of the
resale of the shares of common stock and the shares underlying the warrants in
the amendment to our registration statement initially filed in February 2004. If
that registration statement becomes effective, but does not include the
investors' shares, the investors can demand that we will file a separate
registration statement seeking registration of the investors' securities, and we
will have ten days to file such a registration statement and we will need to pay
a $2,500 per day penalty for late filing of such registration statement. In the
event that the registration statement is not declared effective within the later
of 120 days from March 10, 2004 or thirty days after receipt of a last comment
letter from the S.E.C., we will be required to issue, as a penalty,
approximately 100,000 shares of common stock for each subsequent month period in
which the registration statement has not been declared effective. We relied on
an exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.

All of the above offerings and sales were deemed to be exempt under Section 4(2)
of the Securities Act of 1933, as amended. No advertising or general
solicitation was employed in offering the securities. The offerings and sales
were made to a limited number of persons, all of whom were accredited investors,
and transfer was restricted by the Company in accordance with the requirements
of the Securities Act of 1933. In addition to representations by the
above-referenced persons, we have made independent determinations that all of
the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.


                                       18
<PAGE>


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

                          "FORWARD-LOOKING" INFORMATION

This transition report on Form 10-KSB contains certain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, which represent our expectations and beliefs, including, but
not limited to statements concerning the Company's expected growth. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
such statement was made. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our control, and actual
results may differ materially depending on a variety of important factors.

                             INTRODUCTORY STATEMENT

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION SET FORTH IN THE AUDITED FINANCIAL STATEMENTS FOR THE TRANSITION
PERIOD ENDED DECEMBER 31, 2002.

Unless otherwise stated, the discussion and analysis refers to the business of
Peak Entertainment Ltd., which the Company acquired on April 22, 2003 in a
transaction viewed as a reverse acquisition, and does not refer to the
operations for the Company's former business which was sold in April 2003. Under
applicable accounting principles, the historical financial statements of Peak
Entertainment Ltd. became those of the Company.

SALE OF FORMER BUSINESS

Prior to April 2003, the Company was known as Palladium Communications Inc. and
conducted a telecommunications business.

In April 2003, the Company sold off substantially all of its assets and certain
of its liabilities to Palladium Consulting Group, LLC, in exchange for $750,000.
The assets sold consisted of substantially all of the Company's assets used in
its telecommunications business, including all of the Company's carrier
agreements, sales agent agreements, and equipment, which business the Company
discontinued on April 22, 2003. The assets retained by Palladium Communications,
Inc. included its cash and notes receivable which were nominal amounts. The
liabilities assumed by Palladium Consulting Group, Inc. consisted primarily of
payment for phone systems and other equipment and a lease for office facilities.
The Company retained substantially all of the liabilities, consisting primarily
of outstanding debentures and accrued interest. As a result of the transaction,
the Company was essentially a shell with no assets and with substantial
liabilities related to outstanding debentures.

On April 22, 2003, the Company acquired the business of Peak Entertainment Ltd.,
a United Kingdom company, by acquiring all of the outstanding shares of Peak
Entertainment Ltd.

The purpose of these transactions was to try to create some value for the
Company's shareholders. It is the understanding of the Company's current
management that the former principals of the Company sought to discontinue its
business operations as a publicly-held entity, and the principals of Peak
Entertainment Ltd. sought access to financing, which it had difficulty doing as
a privately-held company.

CURRENT BUSINESS

The Company's business operations are primarily in three areas of the children's
entertainment and leisure market: production of television shows; licensing of
entertainment concepts and characters; and sale of merchandise products. Since
inception, the Company has not generated significant revenues and it will
require substantial working capital to execute its business plan.


                                       19
<PAGE>


The Company's current business plan is centered on the production of television
shows geared for the children's entertainment market. Once the Company's planned
television shows are produced, the Company believes that it can generate revenue
through the sale of broadcast rights of those shows. The Company also intends to
license intellectual property rights created from the television shows and offer
for sale merchandise related to the television shows.

The year ended December 31, 2002 was primarily a start-up period for the Company
through most of the year. The Company did not generate any significant revenue,
which has to be expected as the Company did not commence active sales of its
products until the last few months of 2002.

In 2002, the Company focused on seeking intellectual property licenses and
acquisitions of properties from third parties, including from the Company's
founders, upon which the Company sought to establish its business model. The
Company also sought to develop relationships with third parties for potential
production of television shows. In 2002, the Company established its business
strategy and proposed course of business, and set up its basic operation
structure.

In 2002, the Company purchased the assets of Jusco Toys Ltd. and Wembley
Sportsmaster Ltd. from the administrators of Just Group Plc. In 2002, Just Group
Plc was undergoing administration, a process similar to bankruptcy in the United
States. These assets represented only a small portion of Just Group Plc. The
Company viewed such assets as essentially building blocks that would be useful
in the Company's proposed business.

The Company's initial operations were funded primarily by cash advances from the
Company's founders. Towards the end of 2002, the Company realized that it needed
to seek significant capital resources from third parties to fund its proposed
operations. In about November 2002, the Company undertook initiatives to seek
financing. As of December 31, 2002, the Company's proposed growth plans were
limited by its lack of capital.

As of December 31, 2002, the Company's plans for 2003 were to grow its consumer
products sales in 2003, as the Company did not have sufficient financial
resources to further its proposed entertainment products, and also to seek
capital from third parties, and until the Company raised sufficient capital to
produce its planned television show for Monster In My Pocket, the Company did
not expect to generate any significant revenues from any of its lines of
business. As of December 31, 2002, the Company believed that it may be necessary
to alter its business plan if the Company was unable to attract interest in and
capital for production of its business activities, particularly for its proposed
entertainment products.

RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002

The first three quarter of 2002 was a period of set up, with the Company not
generating any revenues while incurring costs and expenses.

REVENUES
--------

Net revenues for the six months ended December 31, 2002 were $318,782, all of
which was generated in the last fiscal quarter of 2002. As the Company did not
generate any revenues in 2001, there is no basis for comparison.


                                       20
<PAGE>


A breakdown of revenues by the Company's business divisions is set forth in the
table below.

Division                                    2002 Revenue ($)
                                           (July - December)
                                           -----------------
Entertainment/ Production                         Nil
Licensing Arrangements                          $ 7,808
Character Related Consumer Products             310,974
         Total Revenues                         318,782

The Company generated revenues of $318,782 from sales of consumer goods, being,
primarily for this period certain toy related items that the Company acquired,
along with the first batch of sales for Countin Sheep and Keewpie Dolls.. These
sales were achieved in the last quarter of the year as the preceding periods
were focused on structuring the business and assembling a portfolio of
intellectual property rights raising finance and devising the business plan and
strategy. As of December 31, 2002, the Company expected to build on this initial
sales base by appointing distributors domestically and internationally in 2003.

Licensing revenue for the six months ended December 31, 2002 was related to
advance royalties from a licensing agreement for Pretty Pony Club with a
publishing company, `Toontastic Ltd, for United Kingdom comic book rights.

The entertainment division conducted substantially no operations in 2002. As of
December 31, 2002, the Company was in preliminary negotiations with various
parties for the production of several television shows.

Revenues from the Company's sales of consumer products, which only commenced in
the last quarter of 2002, were significantly insufficient to generate enough
cash flow to cover the Company's operating expenses and proposed business
activities for the year. Even if, for comparative purposes only, that the
Company generated similar revenue levels for the first three fiscal quarters in
2002, the Company would still have operated at a loss in 2002.

As of December 31, 2002, the Company only recently commenced its operations and
did not generate any revenues until the last quarter of 2002. The Company does
not have historical revenues as a basis for comparison. The Company, based on
operations through 2002, had no basis for determining any current or future
trends or demands, nor future operating performance. Until the Company has
entered into agreements for the production of planned television shows and has
completed such production, the Company will not be in position to generate any
significant revenues from the sales of broadcast rights for the shows, and the
Company does not have an adequate basis for projecting revenues, nor identifying
trends or demands. This applies for all main lines of the Company's business, as
the Company's business is expected to be centered around its entertainment
products.

COST OF REVENUE
---------------

Cost of sales for the six months ended December 31, 2002 were $270,483. This
provided a gross profit of $48,299 which as a percentage represented 15% of net
revenue. As of December 31, 2002, the Company had inventory with a net book
value of $238,058 and an expected sales value in excess of $363,000. The Company
acquired the inventory when the Company acquired Jusco Toys Ltd. As of December
31, 2002, it was envisaged that this inventory will be sold by the second
quarter of 2003. It is now envisaged that this inventory will be sold by the
completion of fiscal 2004.

As of December 31, 2002, the Company expected to incur increased cost of revenue
for the sale of consumer products in future years, primarily due to increased
marketing efforts. The Company anticipated that such cost of revenue would
increase in direct relation to an increase in revenues.


                                       21
<PAGE>


In 2002, the Company did not incur costs for its entertainment division. As of
December 31, 2002, the Company anticipated that its cost of revenue with respect
to its entertainment division and its consumer product division would increase
significantly in 2003 and even more in 2004, as the Company planned to acquire
additional licenses and enter into television production agreements, as well as
commence actual production of television show episodes. The Company anticipates
that the cost of revenue for its entertainment products would initially increase
in relation with the Company's entertainment revenues, until such time that the
television episodes are completed, at which time the significant costs will have
been incurred. Since costs for the Company's entertainment division would
comprise mostly of non-recurring episode production costs, the Company expects
such costs to decrease as a percentage of revenues as the Company could sell
broadcast rights to the shows to multiple markets at little additional cost.

GROSS PROFIT
------------

Gross profit for the SIX months ended December 31, 2002 was $48,299, or 15% of
revenues. As of December 31, 2002, the Company expected gross profit to increase
as a percentage of revenue as the Company enters into more licensing
arrangements and derives revenues from those arrangements, which was not
expected to add significant additional costs to the Company.

OPERATING EXPENSES
------------------

Operating expenses for the six months ended December 31, 2002 were $769,681,
which represented 241% of revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative costs were $707,134 for the six months ended December 31, 2002,
which represented 222% of revenues. The relatively high percentage is
attributable to sales for the year only being realized in the final quarter of
2002. The following table summarizes the costs incurred in 2002.

                                  Expense ($)
Operation                        (Approximate)           % of total cost
                                 -------------           ---------------
Employee Compensation              $245,013                    35%
Occupancy Costs                     $62,463                     9%
Legal & Professional                $91,398                    13%
General Cost (including travel)    $308,260                    43%
TOTAL                              $707,134

General costs consisted primarily of $46,363 relating to overseas travel.
International travel is an important aspect of the business, as the Company is
headquartered in the United Kingdom, and needs to meet with licensors,
licensees, distributors, sales agents, financiers, and production partners in
the United States, Europe and Asia, as well as raise the profile of the Company
at trade shows internationally.

Another significant portion of selling, general and administrative expenses are
legal and professional fees which accounted for approximately 13% of the total
expenses. These costs include those arising from the acquisition of Jusco Toys
Ltd and Wembley Sportmaster Ltd from the administrators of Just Group Plc. As of
December 31, 2002, the Company expected to incur increased legal and
professional in the future years in connection with financing activities,
licensing activities, and other business activities.


                                       22
<PAGE>


By year end 2002, the Company had eight employees, and had plans to hire
additional personnel, primarily animators and administrators. Employee related
costs can be expected to increase significantly in the future as the Company
also intends pay its two founders, who worked for minimal amounts in 2002, at
appropriate compensation rates, as well as hire additional management level
personnel.

Occupancy costs for office facilities can be expected to remain relatively
constant or slightly increase in future years. The Company is based in the
United Kingdom, and has no present plans to obtain additional facilities of any
significant size in future years. At a future year, not expected to occur prior
to fiscal year 2005, the Company may see the need to add to its animation
studio.

Operating expenses can be expected to increase substantially in future years as
the Company's grows its operations and plans for more products in future years.
The primary category of future increases is expected to incur in connection with
television production costs, marketing and advertising expenses, and employee
compensation,

DEPRECIATION AND AMORTIZATION. In 2002, the Company purchased equipment and made
investments in trademarks, website development costs and licensing rights.
Accordingly, depreciation and amortization for the six months ended December 31,
2002 was $62,547. Depreciation and amortization can be expected to increase in
direct relationship with the Company's capital spending on equipment and
expansion of the Company's investments in trademarks, website development costs
and licensing rights.

NET LOSS
--------

Net loss for the six month period ended December 31, 2002 was $696,727, or
$0.037 per share. The loss in 2002 is after crediting a foreign currency
conversion gain of $43,913, and debiting a cost for interest charges of $19,258.

Operating losses for the six months ended December 31, 2002 was $721,382. The
loss is due to incurrence of significant start up costs in 2002. That costs
significantly outweighed revenue for this period was expected since the Company
only commenced sales activities in the last quarter of 2002. Operating losses
can be expected to increase in the next several years since the Company is still
in the early stages of operations, and has yet to commence its planned
entertainment activities, which will be the primary focus of the Company in
future years, and will require the expenditure of significant costs, as
television production costs are high.

LIQUIDITY AND CAPITAL RESOURCES

CASH REQUIREMENTS
-----------------

The Company's revenues in 2002 were insufficient to cover its operating
expenses. In 2002, the Company was dependent primarily on loans from the
Company's officers to sustain operations.

As of December 31, 2002, the Company believed that it would need operating
capital of approximately $1,000,000 in the next twelve months to maintain its
current operations, and anticipated that it would need additional working
capital of at least $2,500,000 in the next twelve to twenty four months to
engage in the production of its Monster In My Pocket entertainment project.
Additionally, for each additional entertainment project that the Company
commences in the future, the Company would need additional working capital of
approximately $2,000,000 to $3,000,000 for each such entertainment project.


                                       23
<PAGE>


As of December 31, 2002, we had commitments for capital and other expenditures
aggregating $3,470,944 included in current and long term liabilities, payable
over a maximum 20 year period. Those commitments and the amounts payable in 2003
are summarized in the following table.

<TABLE>
<CAPTION>
Contractual                Liability as of   Agreement Terms         Amount payable in 2003       Notes
Obligations                12/31/02

<S>                        <C>               <C>                     <C>                          <C>
Short term loan -          $264,600          20% interest per        $264,600, plus interest      We intend to repay the loan
CK Supermarkets                              annum, secured by                                    in 2004 by selling inventory.
                                             certain inventory
Accounts Payable -Various  $578,835          Various (composed       $578,835                     All current liabilities are
                                             significantly of                                     within the contract terms
                                             various ordinary                                     and will be paid in
                                             business expenses, as                                accordance with the contract
                                             well as legal,                                       terms.
                                             accounting, and other
                                             professional fees).

Stock holders' advances    $894,193          No pre-set payment      $0.00                        In 2004, we entered into a
account - Shorrocks                          terms.                                               promissory note, payable in
                                                                                                  installments. First payment due on
                                                                                                  1/2005 and to be repaid in full
                                                                                                  not later than 2008.

Short Term License -       $300,000          Varying royalty terms   $300,000                     Payment terms currently
Morrison Entertainment                       - 30-60%.  Guarantee                                 being renegotiated.
Long Term                                    of $500,000.

                           $200,000
Other - including Tax &    $233,316                                  $233,316
Social security and
accruals
Long Term License -        $1,000,000        10% royalty payable     $0.00                        Pay from royalties from
Shorrocks                                    quarterly in                                         licenses to third parties
                                             perpetuity. over the term of the                     establish a minimum
                                             Guarantee of contract. $1,000,000,                   quarterly royalty payment
                                             with no established payment In                       for the payment of the
                                             2004, the Company amended term. the                  guarantee.
                                             license agreement to

TOTAL                      $3,470,944                                $3470,944
</TABLE>


You will note that $894,193, or 26% of the total, is committed to the principals
of the Company, as evidenced by a promissory note and a long-term license, as
amended in 2004 to set forth a more understandable and predictable repayment
schedule.


                                       24
<PAGE>


In addition to the commitments set forth in the table above, the Company needs
to raise approximately $2,500,000 in capital to finance the production of the 26
television episodes of the entertainment project Monster In My Pocket.

As of December 31, 2002, the Company anticipated meeting its short-term and
long-term liquidity needs through the internal cash flows generated by ongoing
sales growth of its consumer products division, and, once produced, from the
sale of broadcast rights and the licensing of rights to its entertainment
project Monster In My Pocket. As of December 31, 2002, the Company believed that
it needed to seek outside financing to fund the production of the entertainment
project since it had limited revenues from operations. Until the Company's
entertainment project could be financed and full television production
activities commenced, the Company intended to seek short-term financing from
outside sources and rely upon the limited revenues generated from its sales of
consumer products.

SOURCES AND USES OF CASH
------------------------

For the six months ended December 31, 2002, the Company had a net operating loss
of $721,382, and an overall net loss of $696,727. The Company experienced
neutral cash flow for the year ended December 31, 2002. At December 31, 2002,
the Company had $9,870 in cash and had a working capital deficit of $262,706.

In 2002, the Company did not use or depreciate the moulds and tooling acquired
from the acquisition of Jusco Toys Ltd, due to an enquiry from the Hong Kong
Inland Revenue Department. The enquiry concerned the non-submission of certain
tax computations to ascertain taxes payable by the prior owners of Jusco Toys.
This was unknown to the Company until after the Company acquired Jusco Toys from
the administrators of Just Group Plc. This enquiry has been determined in March
2004 at a cost to the Company of $9,235, and the Company now can utilize the
moulds and tooling and depreciate the equipment.

     SOURCES AND USES OF CASH FROM OPERATING ACTIVITIES
     --------------------------------------------------

Cash flows from operating activities resulted in negative cash flows of $262,706
for the six months ended December 31, 2002. The negative cash flow was offset by
an increase in current assets of $63,338 and $159,555. Accounts payable related
primarily to significant legal and other professional fees. The Company expects
to continue to experience an increase in accounts payable in the next few years
until the Company is in position to produce its entertainment products and
generate revenues from the sales of broadcast rights and licensing rights from
its entertainment products.

As of December 31, 2002, it was necessary for the Company to obtain capital from
outside sources to allow the Company to move forward with its operations and
proposed new products. The Company believed that its future growth was dependent
on the degree of success of current operations in generating revenues to pay for
certain basic operating expenses, the ability to pay for obligations under the
contractual terms of its existing obligations, and the ability to obtain
financing from outside sources.


                                       25
<PAGE>


As of December 31, 2002, management expected to satisfy the Company's liquidity
needs on a short-term basis through the continuing support of the directors,
outside financings, and the subsequent expected sales growth from the Company's
various company activities. The Company anticipated meeting its long-term
liquidity needs through the internal cash flows generated by ongoing sales
growth from projects such as its current entertainment project Monster In My
Pocket. Furthermore, the Company will attempt to limit its long-term liquidity
needs through the continuance of cost control measures applied to our
operations.

     SOURCES AND USES OF CASH FROM INVESTING ACTIVITIES
     --------------------------------------------------

Cash flows from investing activities resulted in negative cash flows of $150,955
in the six months ended 2002. Cash used in investing activities was significant
in 2002, because the Company as a start-up company used cash to acquire assets
essential for the Company's start-up business stage. Cash applied to investing
activities for the six months ended December 31, 2002 consisted of capital
purchase of plant and equipment of $22,968, and the purchase of intangibles in
the form of license agreements for intellectual property rights amounted to
$127,987.

Cash for the Company's start-up expenses was obtained primarily from cash
advances from two of our directors, Wilf and Paula Shorrocks.

     SOURCES AND USES OF CASH FROM FINANCING ACTIVITIES
     --------------------------------------------------

Cash flows from financing activities resulted in positive cash flows of $453,667
in the six months ended December 31, 2002. The primary source of funds was loans
from the Company's officers. In future years, the Company intends to continue to
rely upon capital raised from third party investors in private placements to
fund the Company's operations, as well as any entertainment production financing
partners it can obtain. Entertainment production financing partners will share
in the proceeds of the sale of the produced product.

SHORT TERM BORROWINGS. We had net cash provided from short term financing
agreements in 2002 totaling $264,600. This was an agreement to provide working
capital on a short-term basis secured against certain inventory of our
subsidiary, Jusco UK Limited.

The debt was originally due on January 10, 2003. At December 31, 2003, the
balance was $266,835 without accrued interest. It is envisaged that the loan
will be repaid in 2004 from revenues from the sale of inventory.

STOCKHOLDER ADVANCES. From time to time, Mr. and Mrs. Shorrocks loaned money to
Peak Entertainment to fund day-to-day operations, as well as for the acquisition
of certain properties. Since company inception through December 31, 2002, the
Shorrocks loaned to the Company an aggregate of $972,386 and the Company repaid
$78,193 to the Shorrocks in 2002. As of December 31, 2002, the Company owed
$894,193 to the Shorrocks. These monies were loaned without interest and did not
have a due date, and were due on demand.

As of December 31, 2003, the Shorrocks are owed $916,634. In March 2004, the
Company gave the Shorrocks an unsecured promissory note for the monies due
establishing a repayment schedule. The amount due is to be repaid in
installments, consisting of six periodic payments of $25,000 from January 31,
2005 through September 30, 2006, two payments of $100,000 on March 31, 2007 and
September 30, 2007, and the balance due on January 31, 2008. The promissory note
provides for earlier repayment of any unpaid balance subject to various future
financial results of the Company, such as the Company obtaining a shareholders'
equity in excess of 150% of the amount due, or positive net income from
operations in excess of 150% of the amount due.

CASH MANAGEMENT

The Company will use its cash to meet certain expenses necessary to operate,
such as payment of employee salaries, taxes, and ordinary business expenses such
as office rent. The Company will also use cash to make payments on short term
borrowings, contractually obligated payments on license arrangements and other
accounts payable, although the Company will seek to renegotiate the timing and
payment schedule of certain license arrangements.


                                       26
<PAGE>


After paying for ordinary expenses, to the extent that the Company has available
cash, including cash received from financing arrangements, significantly all of
its cash will be applied to the production of the television episodes. We have
been in negotiations with co-production partners for all of our television
episodes. The total cost of each show will be formalized by way of a cash flow
budget, payable over a period of 12 to 36 months. This will be monitored in
detail. It will be a requirement of any of our partners to supply us with an
actual budget statement on a monthly basis compared to the agreed budget. It is
imperative that the Company does not increase the budget by significant amounts
and that it tries to keep within the budget as much as it can. We have
implemented tight procedures to ensure that the cash management has sufficient
controls.

PLAN OF OPERATIONS TO ADDARESS GOING CONCERN

In their reports dated April 22, 2004, the Company's independent auditors stated
that the Company's financial statements for the period July 1, 2002 to December
31, 2002, were prepared assuming that the Company would continue as a going
concern. The Company's ability to continue as a going concern is an issue raised
as a result of recurring losses from operations, cash flow deficits and a net
capital deficiency. As a result of the foregoing, the auditors have expressed
substantial doubt about the Company's ability to continue as a going concern.

The Company's ability to continue as a going concern is subject to the Company's
ability to generate a profit or obtain necessary funding from outside sources,
including obtaining additional funding from the sale of securities, incurrence
of debt, increasing sales or obtaining loans from various financial institutions
where possible. The Company's continued net operating losses and stockholders'
deficit increases the difficulty in meeting such goals and there can be no
assurances that such methods will prove successful.

As of December 31, 2002, the primary issues management sought to focus on in the
immediate future to address this matter included:

      o     a reverse acquisition with a publicly-held company;

      o     seeking institutional investors for equity investments in the
            Company;

      o     initiating negotiations to secure short term financing through
            promissory notes or other debt instruments on an as needed basis; o
            focusing on, and continue to expand revenues, through the sales of
            consumer products, rather than on entertainments projects; o
            renegotiate payments terms of existing contractual obligations; o
            issue securities of the Company in lieu of cash for certain services
            performed for the Company; and o consider third-party licensing of
            the products.

To address these issues, in 2003, the Company completed a reverse acquisition
with a publicly-held company, and the Company entered into an agreement for the
sale of convertible debentures. Additionally, the Company has discussed
renegotiation of payments terms of certain existing contractual obligations. As
of December 31, 2003, the Company continued to experience losses from
operations, cash flow deficits and a net capital deficiency.


                                       27
<PAGE>


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The accounting policies are
described in the notes to the consolidated financial statements included in this
document for the six months ended December 31, 2002.

Certain significant accounting policies and estimates inherent in the
preparation of our financial statements include policies and estimates with
regards to revenue recognition, capitalization of film and television costs, and
currency.

(1) Revenue Recognition.
    --------------------

Revenues from the production of television entertainment is recognized in
accordance with Statement of Position 00-2 "Accounting by Producers or
Distributors of Film". Under this guidance, the Company recognizes revenue from
the sale of television entertainment when all of the following conditions are
met:

                (a)        persuasive evidence of a sale or licensing
                           arrangement with a customer exists,
                (b)        the television episode is complete and in accordance
                           with the terms of the arrangement, has been delivered
                           or is available for immediate and unconditional
                           delivery,
                (c)        the license period of the arrangement has begun and
                           the customer can begin its exploitation, exhibition
                           or sale, and
                (d)        the arrangement fee is fixed or determinable.

Revenue from character licensing arrangements is recognized over the life of the
agreement. Revenue from the sale of character related consumer products is
recognized at the time of shipment when title of the products passes to the
customer. Amounts received in advance are recorded as unearned revenue until the
earnings process is complete.

This accounting treatment has not been material in the Company's operations
through December 31, 2002. From time to time, the Company expects to receive
funds in advance to produce television show episodes, the production of which
could take from one to three years. Advances received will not be recorded as
revenues until the revenue recognition conditions are met.

(2) Film and Television Costs.
    --------------------------

The Company capitalizes the costs of developing film and television projects in
accordance with Statement of Position 00-2 "Accounting by Producers or
Distributors of Film". These costs will be amortized using the
individual-film-forecast-computation method, which amortizes costs in the same
ratio that current period actual revenue bears to estimated remaining
unrecognized ultimate revenue at the beginning of the current fiscal year.

The Company has recorded no amortization to date as revenue has yet to be
recognized.


                                       28
<PAGE>


(3) Functional currency and treatment of foreign currency translation.
    ------------------------------------------------------------------

Due to the majority of the Company's operations being based in the United
Kingdom, the British Pound has been selected as the Company's functional
currency.

Transactions denominated in foreign currencies are translated at the year-end
rate with any differences recorded as foreign currency transaction gains and
losses and are included in the determination of net income or loss. The Company
has translated the financial statements into US Dollars. Accordingly, assets and
liabilities are translated using the exchange rate in effect at the balance
sheet date, while income and expenses are translated using average rates.
Translation adjustments are reported as a separate component of stockholders'
equity (deficit).

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 145, Rescission of SFAS
Nos. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections. SFAS No.
4 required all gains and losses from the extinguishment of debt to be reported
as extraordinary items and SFAS No. 64 related to the same matter. SFAS No. 145
requires gains and losses from certain debt extinguishment not to be reported as
extraordinary items when the use of debt extinguishment is part of a risk
management strategy. SFAS No. 44 was issued to establish transitional
requirement for motor carriers. Those transitions are completed; therefore SFAS
No. 145 rescinds SFAS No. 44. SFAS No. 145 also amends SFAS No. 13 requiring
sale-leaseback accounting for certain lease modifications. SFAS No.145 is
effective for fiscal years beginning after May 15, 2002. The provisions relating
to sale-leaseback accounting are effective for transactions after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material impact on the
Company's financial position or results of operations.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination cost and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance provided by EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" is replaced by
this Statement. Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. Management does not anticipate
that the adoption of this Statement will have a significant effect on the
Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 addresses the disclosures to be made
by a guarantor in its interim and annual financial statements about its
obligations under guarantees. The disclosure requirements in this interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of FIN 45 did not have a material effect on the
Company's financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transaction and Disclosure". This statements amends SFAS No 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensations. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosure requirements
in both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Company adopted the disclosure provisions of this
standard.


                                       29
<PAGE>


In January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation
of Variable Interest Entities" and in December 2003, a revised interpretation
was issued (FIN No. 46, as revised). In general, a variable interest entity
("VIE") is a corporation, partnership, trust, or any other legal structure used
for business purposes that either does not have equity investors with voting
rights or has equity investors that do not provide sufficient financial
resources for the entity to support its activities FIN 46, As revised, requires
a VIE to be consolidated by a company if that company is designated as the
primary beneficiary. The interpretation applies to VIEs created after January
31, 2003, and for all financial statements issued after December 15, 2003 for
VIEs in which an enterprise held a variable interest that it acquired before
February 1, 2003. The adoption of FIN 46, as revised, did not have a material
effect on the Company's financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", SFAS No 149 amends SFAS No. 133
for decisions made by the FASB's Derivatives Implementation Group other FASB
projects dealing with financial instruments, and in response to implementation
issues raised in relation to the application of the definition of a derivative.
This statement is generally effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designed after June 30, 2003.
The adoption of SFAS 149 did not have material effect on the Company's financial
position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," SFAS No 150
clarifies the definition of a liability as currently defined in FASB Concepts
Statement No. 6, "Elements of Financial Statements," as well as other planned
revisions. This statement requires a financial instrument that embodies an
obligation of an issuer to be classified as a liability. In addition, the
statement establishes standards for the initial and subsequent measurement of
these financial instruments and disclosure requirements. SFAS 150 is effective
for financial instruments entered into or modified after May 31, 2003 and for
all other matters, is effective at the first interim period beginning after June
15, 2003. The adoption of SFAS 150 did not have a material effect on the
Company's financial position or results of operations.


                                       30
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

PEAK ENTERTAINMENT HOLDINGS, INC

Combined Financial Statements

For the period July 1, 2002 to December 31, 2002


                                       31
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

COMBINED FINANCIAL STATEMENTS FOR THE PERIOD JULY 1, 2002 (INCEPTION) TO
DECEMBER 31, 2002

CONTENTS

PAGE:

F-1           Independent auditors' report

F-2           Combined balance sheet

F-3           Combined statement of operation

F-4           Combined statement of comprehensive loss

F-5           Combined statement of changes in stockholders' equity (deficit)

F-6           Combined statement of cash flows

F-7           Notes to Combined financial statements


                                       32
<PAGE>


INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS OF PEAK ENTERTAINMENT HOLDINGS, INC

We have audited the accompanying combined balance sheets of Peak Entertainment
Holdings, Inc as of December 31, 2002, and the related combined statements of
operations, comprehensive loss, stockholders' equity (deficit) and cash flows
for the period July 1, 2002 to December 31, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Peak
Entertainment Holdings, Inc as of December 31, 2002, and the combined results of
its operations and its cash flows for the period July 1, 2002 to December 31,
2002, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the combined
financial statements, the Company has suffered recurring losses from operations,
cash flow deficits and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

GOODBAND VINER TAYLOR
SHEFFIELD, ENGLAND
APRIL 22, 2004


                                       F-1


                                       33
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC
                                                          December 31,
COMBINED BALANCE SHEET                                        2002
----------------------                                    ------------

ASSETS

Current Assets
--------------

Cash and cash equivalents                                 $     9,870
Accounts receivable                                            63,341
Inventories                                                   238,058
Other current assets                                               --
                                                          -----------
Total current assets                                      $   311,269

Plant and equipment, net                                      136,538
Intangible assets, net of amortization                      1,984,159
                                                          -----------
                                                          $ 2,431,966
                                                          ===========
LIABILITIES AND  STOCKHOLDERS' EQUITY/(DEFICIT)

Current Liabilities
-------------------

Short term borrowings                                     $   264,600
Accounts payable                                              578,835
Stockholders' advances account                                894,193
License fees payable                                          300,000
Other accrued liabilities                                     233,316
                                                          -----------
Total current liabilities                                 $ 2,270,944

Long Term Liabilities
---------------------

License fees payable                                        1,200,000
                                                          -----------
Total long term liabilities                               $ 1,200,000

Stockholders' Equity (deficit)
------------------------------

Common stock, par value $0.01 - 900,000,000 shares
 authorized, 19,071,684 shares issued and outstanding     $    19,075
Additional paid in capital                                    (19,072)
Retained earnings (deficit)                                  (967,451)
Other comprehensive income
                                                              (71,530)
                                                          -----------
Total stockholders' equity (deficit)                       (1,038,978)
                                                          -----------
                                                          $ 2,431,966
                                                          ===========



See accompanying notes to combined financial statements.

                                       F-2
                                       34
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

COMBINED STATEMENT OF OPERATIONS
--------------------------------
                                         Period July 1, 2002 to
                                            December 31, 2002
                                         ----------------------
Revenue
  Character related consumer products            310,974
  Character licensing arrangements                 7,808
                                             -----------
Net revenue                                      318,782

Cost of Revenue
  Cost of goods sold                             270,483
                                             -----------
Total cost of revenue                            270,483

Gross profit                                      48,299

Operating expenses
  Selling, general and administrative            707,134
  Depreciation and amortization                   62,547
                                             -----------
Total operating expenses                         769,681
                                             -----------

Loss from operations                            (721,382)

Foreign exchange - gain                           43,913

Interest expense                                 (19,258)
                                             -----------
Net loss                                        (696,727)
                                             ===========

Basic and diluted net loss per share         $     0.037


Weighted average common shares
outstanding                                   19,071,684
                                             ===========


See accompanying notes to consolidated financial statements.

                                       F-3
                                       35
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

COMBINED STATEMENT OF COMPREHENSIVE LOSS
----------------------------------------

                                           Period July 1, 2002 to
                                              December 31, 2002
                                           ----------------------


Net loss                                          $(696,727)

Cumulative translation adjustment                   (54,315)
                                                  ---------
Comprehensive loss                                $(751,042)
                                                  =========



See accompanying notes to consolidated financial statements.

                                       F-4
                                       36
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                    Accumulated
                                                      Additional      Retained         Other
                                         Common       paid in         Earnings     comprehensive
                           Shares         stock        capital        deficit         income         Total
                         -----------   -----------   -----------    -----------    -------------  -----------

<S>                       <C>          <C>           <C>            <C>            <C>            <C>
Issuance of shares                 2   $         3            --    $        --    $        --    $         3

Stock split, effective
 April 22, 2003           19,071,682        19,072       (19,072)            --             --             --

Net Loss                          --            --            --       (270,724)       (17,215)      (287,939)

                         -----------   -----------   -----------    -----------    -----------    -----------
Balance, June 30, 2002    19,071,684        19,075       (19,072)      (270,724)       (17,215)      (287,939)

Net loss                          --            --            --       (696,727)            --       (696,727)
Cumulative
translation
adjustment                        --            --            --             --        (54,315)       (54,315)
                         -----------   -----------   -----------    -----------    -----------    -----------
Balance, December
31, 2002                  19,071,684   $    19,075   $   (19,072)   $  (967,451)   $   (71,530)   $(1,038,978)
                         ===========   ===========   ===========    ===========    ===========    ===========
</TABLE>




See accompanying notes to consolidated financial statements.

                                       F-5
                                       37
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

COMBINED STATEMENT OF CASH FLOWS
--------------------------------
                                                           July 1, 2002 to
                                                          December 31, 2002
                                                          -----------------
Cash flows from operating activities:

Net loss                                                    $ (696,727)

Adjustments  to reconcile  net loss to net cash used in
 operating activities:
Depreciation                                                     3,341
Amortization of intangible assets                               59,206
Foreign exchange gain                                          (43,913)

Changes in working capital:
Accounts receivable                                            (63,338)
Inventories                                                   (189,278)
Other current assets                                            29,723
Accounts payable and other accrued liabilities                 638,286
                                                            ----------
Net cash used in operating activities                         (262,706)
                                                            ==========
Cash flows from investing activities:

Purchase of plant and equipment                                (22,968)
Purchase of intangibles                                       (127,987)
                                                            ----------
Net cash used in investing activities                         (150,955)
                                                            ==========
Cash flows from financing activities:

Short term borrowings, net                                     264,600
Stockholders advances account                                  189,067
                                                            ----------
Net cash provided from financing activities                    453,667
                                                            ==========
Cumulative translation adjustment                              (50,196)
                                                            ==========
Decrease in cash and cash equivalents                          (10,190)
Cash and cash equivalents, beginning of year                    20,060
                                                            ----------
Cash and cash equivalents, end of year                      $    9,870
                                                            ==========
Supplemental disclosure of cash flow information
Interest paid                                               $       65
                                                            ==========
Purchase of licenses  through  issuance of
long term liabilities                                       $1,500,000
                                                            ==========

                                       F-6
                                       38
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


1             DESCRIPTION OF BUSINESS AND FUTURE PROSPECTS

              Peak Entertainment Holdings, Inc, formerly Peak Entertainment
              Limited was formed on November 20, 2001 and is an integrated media
              group focused on children. Its activities include the production
              of television entertainment, character licensing and consumer
              products development, including toy and gift manufacturing and
              distribution. Integration enables Peak Entertainment Holdings, Inc
              to take a property from concept to consumer in-house, controlling
              and coordinating broadcast, promotions and product launches (toys,
              apparel, video games, etc.) to build market momentum and worldwide
              brand quality.

              The accompanying financial statements have been prepared assuming
              that the company will continue as a going concern. As explained
              below, the Company has sustained recurring operating losses, cash
              flow deficits and has a net capital deficiency as of December 31,
              2002. On April 22, 2003, the Company completed a reverse
              acquisition with a public shell and has become a public company
              with access to the US capital markets. Immediately following the
              reverse acquisition, the Company entered into an agreement for the
              issuance of up to $785,000 in convertible debentures and warrants
              to purchase 1,570,000 shares of the company's common stock.

              The Company has developed a business plan to increase revenue by
              capitalizing on its integrated media products. However, the
              company must obtain funds from outside sources in fiscal 2003 to
              provide needed liquidity and successfully implement its business
              plan. Presently, the Company has no firm commitments from outside
              sources to provide these funds. These factors raise substantial
              doubt about the Company's ability to continue in existence. The
              financial statements do not contain any adjustments that might
              result from the outcome of this uncertainty. While the Company is
              optimistic that it can execute its business plan, there can be no
              assurance that;

              A      increased sales necessary to obtain profitability will
                     materialize, and

              B      the Company will be able to raise sufficient cash to fund
                     the additional working capital requirements.

2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              (A)    Principals of Consolidation and Combination

                     The accompanying combined financial statements include the
                     accounts of Jusco Toys Ltd, Jusco UK Ltd, Wembley
                     Sportsmaster Ltd and Cameo Collectables Ltd after
                     elimination of inter-company transactions and balances.
                     Jusco Toys Ltd, Jusco UK Ltd and Wembley Sportsmaster Ltd
                     are wholly-owned subsidiaries of Peak Entertainment
                     Holdings, Inc, which is owned by Wilfred and Paula
                     Shorrocks. Cameo Collectables Limited was formed on August
                     20, 2002 and is owned by Wilfred and Paula Shorrocks. The
                     financial statements of Cameo Collectables Ltd have been
                     combined with Peak Entertainment Holdings, Inc as both
                     entities were under common control, until February 7, 2003
                     when Peak Entertainment Holdings, Inc acquired the whole of
                     the share capital in Cameo Collectables Limited.

                                       F-7
                                       39
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


              (B)    Basis of preparation

                     The financial statements have been prepared on a going
                     concern basis, the validity of which depends upon future
                     funding being available. The validity of the going concern
                     concept is also dependent upon the continued support of the
                     directors.

                     Should such support be withdrawn and funding not made
                     available, the company may be unable to continue
                     operations. Adjustments would have to be made to reduce the
                     value of assets to their recoverable amount to provide for
                     any further liabilities which might arise and to reclassify
                     fixed assets as current assets.

              (C)    Risks and Uncertainties

                     The entertainment/media industry is highly competitive. The
                     Company competes with many companies, including larger,
                     well capitalized companies that have significantly greater
                     financial and other resources. The Company's success is
                     dependent upon the appeal of its entertainment products.
                     Consumer preferences with respect to entertainment products
                     are continuously changing and are difficult to predict.
                     Therefore, the Company's success will depend on its ability
                     to redesign, restyle and extend the useful life of products
                     and to develop, introduce and gain customer acceptance of
                     new entertainment products. The company's ability, or
                     inability, to manage these risk factors could influence
                     future financial and operating results.

              (D)    Revenue Recognition

                     The Company generates revenues from three distinct sources;
                     the license fees generated from the production of
                     television entertainment, character licensing and sales of
                     character related consumer products. Revenues from the
                     production of television entertainment is recognized in
                     accordance with Statement of Position 00-2 "Accounting by
                     Producers or Distributors of Film". Under this guidance,
                     the Company recognizes revenue from the sale of television
                     entertainment when all of the following conditions are met:

                     A      Persuasive evidence of a sale or licensing
                            arrangement with a customer exists,

                     B      The television episode is complete and in accordance
                            with the terms of the arrangement, has been
                            delivered or is available for immediate and
                            unconditional delivery,

                     C      The license period of the arrangement has begun and
                            the customer can begin its exploitation, exhibition
                            or sale, and

                     D      The arrangement fee is fixed or determinable.


                                       F-8
                                       40

<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                     Revenue from character licensing arrangements is recognized
                     over the life of the agreement. Revenue from the sale of
                     character related consumer products is recognized at the
                     time of shipment when title of the products passes to the
                     customer. Amounts received in advance are recorded as
                     unearned revenue until the earnings process is complete.

              (E)    Intangible assets and amortization

                     Intangible assets are stated at cost less accumulated
                     amortization and any provision for impairment. Amortization
                     is provided on intangible fixed assets over their expected
                     useful lives as follows:

                     Trade marks                         -        10 years
                     Website development costs           -         3 years

                     Licensing rights are amortised on a straight line basis
                     over the term of the agreement, which range from 3 years -
                     20 years.

                     WEB SITE DEVELOPMENT COSTS

                     In March 2000, EITF No. 00-02, Accounting for Website
                     Development Costs, was issued which addresses how an entity
                     should account for costs incurred in website development.
                     EITF 00-02 distinguishes between those costs incurred
                     during the development, application and infrastructure
                     development stage and those costs incurred during the
                     operating stage. The Company expenses all costs incurred
                     during the development and operating stages. The Company
                     evaluates costs incurred during the applications and
                     infrastructure development stage using the guidance in
                     Statement of Position (SOP) 98-1, "Accounting for the Costs
                     of Computer Software Developed or Obtained for Internal
                     Use".

              (F)    Plant and equipment

                     Plant and equipment are stated at cost, net of accumulated
                     depreciation. Depreciation is provided on plant and
                     equipment over their expected useful lives as follows:

                     Fixtures & fittings                     -         10 years
                     Moulds and Tooling                      -          5 years
                     Computer equipment                      -          4 years

                     Costs associated with the repair and maintenance of plant
                     and equipment are expensed as incurred.

                                       F-9
                                       41

<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (G)    Film and television costs

                     The Company capitalizes the costs of developing film and
                     television projects in accordance with Statement of
                     Position 00-2 "Accounting by Producers or Distributors of
                     Film". These costs will be amortized using the
                     individual-film-forecast-computation method, which
                     amortizes costs in the same ratio that current period
                     actual revenue bears to estimated remaining unrecognized
                     ultimate revenue at the beginning of the current fiscal
                     year. The Company has recorded no amortization to date as
                     revenue has yet to be recognized.

              (H)    Asset Impairment

                     The Company periodically evaluates the carrying value of
                     long-lived assets when events and circumstances warrant
                     such a review. The carrying value of a long-lived asset is
                     considered impaired when the anticipated undiscounted cash
                     flow from such asset is separately identifiable and is less
                     than the carrying value. In that event, a loss is
                     recognized based on the amount by which the carrying value
                     exceeds the fair market value of the long-lived asset. Fair
                     market value is determined primarily using the anticipated
                     cash flows discounted at a rate commensurate with the risk
                     involved.

              (I)    Cash Equivalents

                     For purposes of the statements of cash flows, all temporary
                     investments purchased with a maturity of three months or
                     less are considered to be cash equivalents. The Company
                     maintains bank accounts in the United States of America,
                     United Kingdom and Hong Kong. The balances held in these
                     accounts are $8,823, (pound)(14,354) and HK$1998
                     respectively.

              (J)    Inventories

                     Inventory is valued at the lower of cost or market, with
                     cost being determined on the first-in, first-out basis. The
                     Company reviews the book value of slow-moving items,
                     discounted product lines and individual products to
                     determine if these items are properly valued. The Company
                     identifies these items and assesses the ability to dispose
                     of them at a price greater than cost. If it is determined
                     that cost is less than market value, then cost is used for
                     inventory valuation. If market value is less than cost,
                     then the Company establishes a reserve for the amount
                     required to value the inventory at market. It the Company
                     is not able to achieve its expectations of the net
                     realizable value of the inventory at its current value, the
                     Company adjusts its reserve accordingly. Inventory is
                     comprised entirely of finished goods.

                                      F-10
                                       42

<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (K)    Advertising costs

                     Advertising costs, included in selling, general and
                     administrative expenses, are expensed as incurred and were
                     $0 for the period ended December 31, 2002.

              (L)    Foreign currencies

                     The Company uses the British Pound as its functional
                     currency. Transactions denominated in foreign currencies
                     are translated at the year-end rate with any differences
                     recorded as foreign currency transaction gains and losses
                     and are included in the determination of net income or
                     loss. The Company has translated the financial statements
                     into US Dollars. Accordingly, assets and liabilities are
                     translated using the exchange rate in effect at the balance
                     sheet date, while income and expenses are translated using
                     average rates. Translation adjustments are reported as a
                     separate component of stockholders' equity/(deficit).

              (M)    Income taxes

                     Income taxes are provided based on the liability method of
                     accounting pursuant to Statement of Financial Accounting
                     Standards No 109 "Accounting for Income Taxes" ("SFAS
                     109"). In accordance with SFAS No 109, deferred tax assets
                     are recognised for deductible temporary differences and
                     operating loss carry forwards, and deferred tax liabilities
                     are recognised for taxable temporary differences. Temporary
                     differences are the differences between the reported
                     amounts of assets and liabilities and their tax basis.
                     Deferred tax assets are reduced by a valuation allowance
                     when, in the opinion of management, it is more likely than
                     not that some portion or all of the deferred tax assets
                     will not be realized.

              (N)    Use of Estimates

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


                                      F-11
                                       43

<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (O)    Earnings Per Share

                     Earnings per share is based on the weighted average number
                     of shares of common stock and dilutive common stock
                     equivalents outstanding. Basic earnings per share includes
                     no dilution and is computed by dividing income available to
                     common shareholders by the weighted average number of
                     common shares outstanding for the period. Diluted earnings
                     per share reflects the potential dilution of securities
                     that could share in the earnings of an entity.

                     For the purposes of calculating earnings per share, the
                     Company has retroactively restated its outstanding common
                     stock based upon the stock split declared on April 22, 2003
                     (See Note 10).

                     Basic and diluted earnings per share are the same during
                     2002 as the impact of dilutive securities is antidilutive.
                     There are warrants to purchase 600,000 shares of the
                     Company's common stock currently outstanding.

              (P)    Recent Accounting Pronouncements

                     In April 2002, the Financial Accounting Standards Board
                     (the "FASB") issued Statement of Financial Accounting
                     Standard ("SFAS") No. 145, Rescission of SFAS Nos. 4, 44
                     and 64, Amendment of SFAS No. 13 and Technical Corrections.
                     SFAS No. 4 required all gains and losses from the
                     extinguishment of debt to be reported as extraordinary
                     items and SFAS No. 64 related to the same matter. SFAS No.
                     145 requires gains and losses from certain debt
                     extinguishment not to be reported as extraordinary items
                     when the use of debt extinguishment is part of a risk
                     management strategy. SFAS No. 44 was issued to establish
                     transitional requirement for motor carriers. Those
                     transitions are completed; therefore SFAS No. 145 rescinds
                     SFAS No. 44. SFAS No. 145 also amends SFAS No. 13 requiring
                     sale-leaseback accounting for certain lease modifications.
                     SFAS No.145 is effective for fiscal years beginning after
                     May 15, 2002. The provisions relating to sale-leaseback
                     accounting are effective for transactions after May 15,
                     2002. The adoption of SFAS No. 145 is not expected to have
                     a material impact on the Company's financial position or
                     results of operations.


                                      F-12
                                       44

<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (P)    Recent Accounting Pronouncements (continued)

                     In June 2002, the FASB issued Statement No. 146,
                     "Accounting for Costs Associated with Exit or Disposal
                     Activities". The standard requires companies to recognize
                     costs associated with exit or disposal activities when they
                     are incurred rather than at the date of commitment to an
                     exit or disposal plan. Examples of costs covered by the
                     standard include lease termination cost and certain
                     employee severance costs that are associated with a
                     restructuring, discontinued operation, plant closing, or
                     other exit or disposal activity. Previous accounting
                     guidance provided by EITF Issue No. 94-3, "Liability
                     Recognition for Certain Employee Termination Benefits and
                     Other Costs to Exit an Activity (including Certain Costs
                     Incurred in a Restructuring)" is replaced by this
                     Statement. Statement 146 is to be applied prospectively to
                     exit or disposal activities initiated after December 31,
                     2002. Management does not anticipate that the adoption of
                     this Statement will have a significant effect on the
                     Company's financial statements.

                     In November 2002, the FASB issued Interpretation No. 45,
                     "Guarantor's Accounting and Disclosure Requirements for
                     Guarantees, Including Indirect Guarantees of Indebtedness
                     of Others" ("FIN 45"). FIN 45 addresses the disclosures to
                     be made by a guarantor in its interim and annual financial
                     statements about its obligations under guarantees. The
                     disclosure requirements in this interpretation are
                     effective for financial statements of interim or annual
                     periods ending after December 15, 2002. The adoption of FIN
                     45 did not have a material effect on the Company's
                     financial position or results of operations.

                     In December 2002, the FASB issued SFAS No. 148, "Accounting
                     for Stock-Based Compensation-Transaction and Disclosure".
                     This statements amends SFAS No 123, "Accounting for
                     Stock-Based Compensation," to provide alternative methods
                     of transition for a voluntary change to the fair value
                     based method of accounting for stock-based employee
                     compensations. In addition, SFAS 148 amends the disclosure
                     requirements of SFAS 123 to require prominent disclosure
                     requirements in both annual and interim financial
                     statements about the method of accounting for stock-based
                     employee compensation and the effect of the method used on
                     reported results. The Company adopted the disclosure
                     provisions of this standard.

                     In January 2003, the FASB issued Interpretation ("FIN") No.
                     46, "Consolidation of Variable Interest Entities" and in
                     December 2003, a revised interpretation was issued (FIN No.
                     46, as revised). In general, a variable interest entity
                     ("VIE") is a corporation, partnership, trust, or any other
                     legal structure used for business purposes that either does
                     not have equity investors with voting rights or has equity
                     investors that do not provide sufficient financial
                     resources for the entity to support its activities FIN 46,
                     As revised, requires a VIE to be consolidated by a company
                     if that company is designated as the primary beneficiary.
                     The interpretation applies to VIEs created after January
                     31, 2003, and for all financial statements issued after
                     December 15, 2003 for VIEs in which an enterprise held a
                     variable interest that it acquired before February 1, 2003.
                     The adoption of FIN 46, as revised, did not have a material
                     effect on the Company's financial position or results of
                     operations.


                                      F-13
                                       45

<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (P)    Recent Accounting Pronouncements (continued)

                     In April 2003, the FASB issued SFAS No. 149, "Amendment of
                     Statement 133 on Derivative Instruments and Hedging
                     Activities", SFAS No 149 amends SFAS No. 133 for decisions
                     made by the FASB's Derivatives Implementation Group other
                     FASB projects dealing with financial instruments, and in
                     response to implementation issues raised in relation to the
                     application of the definition of a derivative. This
                     statement is generally effective for contracts entered into
                     or modified after June 30, 2003 and for hedging
                     relationships designed after June 30, 2003. The adoption of
                     SFAS 149 did not have material effect on the Company's
                     financial position or results of operations.

                     In May 2003, the FASB issued SFAS No. 150, "Accounting for
                     Certain Financial Instruments with Characteristics of both
                     Liabilities and Equity," SFAS No 150 clarifies the
                     definition of a liability as currently defined in FASB
                     Concepts Statement No. 6, "Elements of Financial
                     Statements," as well as other planned revisions. This
                     statement requires a financial instrument that embodies an
                     obligation of an issuer to be classified as a liability. In
                     addition, the statement establishes standards for the
                     initial and subsequent measurement of these financial
                     instruments and disclosure requirements. SFAS 150 is
                     effective for financial instruments entered into or
                     modified after May 31, 2003 and for all other matters, is
                     effective at the first interim period beginning after June
                     15, 2003. The adoption of SFAS 150 did not have a material
                     effect on the Company's financial position or results of
                     operations.

3             ACQUISITION

              On April 19, 2002, the Company acquired the assets of Jusco Toys
              Ltd for $111,993 from the administrators of Just Group plc, in
              order to obtain the tooling and moulds owned by Jusco Toys Ltd.
              Jusco Toys Ltd is registered in Hong Kong.

              The acquisition of Jusco Toys Ltd has been accounted for in
              accordance with SFAS 141. The cost of the acquisition was
              allocated to the assets acquired based on estimates of their
              respective fair values at the date of acquisition.

              The following summarises the final purchase price allocation of
              the assets acquired at the date of acquisition.

              Cash                               $  17,811
              Moulds and toolings                   91,980
              Fixtures and fittings                  2,202
                                                   -------
              Cash purchase price                $ 111,993
                                                   =======

              The Company's combined results of operations have incorporated
              Jusco Toys Ltd's activity on a combined basis from April 19, 2002,
              the date of acquisition.


                                      F-14
                                       46

<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


3             ACQUISITION (CONTINUED)

              On April 19, 2002 the Company acquired the assets of Wembley
              Sportsmaster Ltd for $107,209 from the administrators of Just
              Group plc in order to obtain the trademarks owned by Wembley
              Sportsmaster Ltd.

              The acquisition of Wembley Sportsmaster Ltd has been accounted for
              in accordance with SFAS 141. The cost of the acquisition was
              allocated to the assets acquired based on estimates of their
              respective fair values at the date of acquisition.

              The following summarises the final purchase price allocation of
              the assets acquired at the date of acquisition.

              Trademarks                                          $107,209
                                                                  --------
              Cash purchase price                                 $107,209
                                                                  ========

              The Company's combined results of operations have incorporated
              Wembley Sportsmaster Ltd activity on a combined basis form April
              19, 2002, the date of acquisition.

4             PLANT AND EQUIPMENT

              Plant and equipment comprise the following at December 31, 2002.

              Fixtures and fittings                        $ 25,380
              Moulds and tooling                             95,654
              Computer equipment                             18,949
                                                           --------
                                                            139,983
              Accumulated depreciation                        3,445
                                                           --------
                                                           $136,538
                                                           ========

              The company is not currently using or depreciating the moulds and
              tooling acquired from the acquisition of Jusco Toys Ltd, due to
              the enquiry from the Hong Kong Inland Revenue Department. These
              moulds and tooling will be utilized once the enquiry has been
              settled and management believes that no impairment has occurred.
              This enquiry has been determined in March 2004 at a cost to the
              Company of $9,235. The Company can now utilize the moulds and
              tooling. The Company owns other moulds and tooling included above
              that has a cost of $12,374, which it is currently using and hence
              depreciating.


                                      F-15
                                       47
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


5             INTANGIBLE ASSETS

                                                      Accumulated
                                            Cost      amortization     Total
                                          ----------- ------------  ---------
              Licences                    $1,780,607      $69,511   $1,711,096
              Trademarks                     114,182        2,946      111,236
              Film and television costs      111,316           --      111,316
              Website costs                   53,483        2,972       50,511
                                          ----------      -------   ----------
                                          $2,059,588      $75,429   $1,984,159
                                          ==========      =======   ==========

              As of December 31, 2002, the estimated aggregate amortization
              expense, based on current levels of intangible assets for the
              succeeding five years is as follows:

                                              $
              December 31, 2003               155,893
              December 31, 2004               156,366
              December 31, 2005               145,809
              December 31, 2006                91,943
              December 31, 2007                91,943

6             INCOME TAXES

              The components of the deferred tax balances at December 31, 2002
              are as follows.

                                                                    2002
              Deferred tax assets - non - current
              Loss carry forwards                                $ 263,208
                                                                 ---------
              Total deferred tax assets                            263,208
                                                                 ---------
              Deferred tax liabilities - current
              Depreciation and amortization not
              currently deductible for tax purposes                 23,014
                                                                 ---------
              Total deferred tax liabilities                        23,014
                                                                 ---------
              Net deferred tax asset before                        240,194
              valuation allowance
              Valuation allowance                                 (240,194)
                                                                 ---------
              Net deferred tax asset                             $      --
                                                                 =========

              The Company's effective tax rate of 0% defers from the statutory
              rate of 30% due to the fact that the Company, at this point in
              time, considers it more likely than not that the deferred tax
              asset related to net operating loss carryforwards will not be
              recognized. Accordingly, deferred tax assets at December 31, 2001
              and 2002 have been reduced by a valuation allowance relating to
              the tax benefits attributable to net operating losses. Operating
              losses can be carried forward indefinitely in the United Kingdom.
              At December 31, 2002 the net operating losses total $877,359.

              It has been assumed that any losses will be utilised against the
              first available profits at a tax rate of 30% but a tax rate of 19%
              may be used, if the small Company rate of tax is utilised.


                                      F-16
                                       48
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


7             SHORT TERM BORROWINGS

              On July 10, 2002, the Company borrowed $240,000 from an individual
              lender. The debt bears interest at 20% per year. The debt and all
              accrued interest is due on January 10, 2003. The debt has not been
              repaid and is due upon demand. The debt is collateralized by
              certain inventory of the Company's subsidiary, Jusco UK Limited.

8             COMMITMENTS

              The Company leases buildings under non-cancellable operating
              leases. Future minimum lease payments under those leases are as
              follows at December 31, 2002.

              Year ending December 31, 2003                  $56,124
                                                             =======

              Rent expense for all operating leases charged against earnings
              amounted to $37,423 in the period.

7             SHORT TERM BORROWINGS

              On July 10, 2002, the Company borrowed $240,000 from an individual
              lender. The debt bears interest at 20% per year. The debt and all
              accrued interest is due on January 10, 2003. The debt has not been
              repaid and is due upon demand. The debt is collateralized by
              certain inventory of the Company's subsidiary, Jusco UK Limited.

8             COMMITMENTS

              The Company leases buildings under non-cancellable operating
              leases. Future minimum lease payments under those leases are as
              follows at December 31, 2002.

              Year ending December 31, 2003                $56,124
                                                           =======

              Rent expense for all operating leases charged against earnings
              amounted to $37,423 in the period.

9             TRANSACTIONS WITH RELATED PARTIES

              The relationship between the Company and its related parties are:

              |X|    Wilfred and Paula Shorrocks are deemed to be related
                     parties as they are directors of the following companies:
                     Peak Entertainment Ltd, Jusco UK Ltd, Jusco Toys Ltd,
                     Wembley Sportsmaster Ltd, Cameo Collectables Ltd and Peak
                     Entertainment Holdings, Inc.

              During the year the Company had the following transactions with
              its related parties:

              a) Wilfred and Paula Shorrocks

                 i)  Movements on stockholders' advances account

                     Balance due by the Company at June 30, 2002       $671,357
                     Advances received                                  189,067
                     Foreign exchange loss                               33,769
                                                                       --------
                     Balance due by the Company at December 31, 2002   $894,193
                                                                       ========

                     No interest has been charged to the Company during the
                     period.

                     On March 24, 2004 the company signed a promissory note
                     which established a repayment schedule for the amounts
                     advanced by the stockholders. The amount advanced is to be
                     repaid in instalments of $25,000 and $100,000 until January
                     31, 2008 when any balance is to be repaid in full.

                     Interest will accrue commencing July 1, 2005 on any unpaid
                     balance, at 8% per annum.

                     The promissory note provides for earlier repayment of any
                     unpaid balance subject to various future financial results
                     of the Company.

                                      F-17
                                       49
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


9             TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

                 ii) License agreements

                     On April 30, 2002 the Company entered into a license
                     agreement with Wilfred and Paula Shorrocks whereby the
                     Company acquired the exclusive rights to apply various
                     intellectual properties to the manufacture, distribution
                     and sale of products on a worldwide basis. Under the terms
                     of the agreement the company has undertaken to pay to
                     Wilfred and Paula Shorrocks a guaranteed minimum royalties
                     amount of US $1,000,000, with the agreement due to expire
                     on December 31, 2023. On April 14, 2004, the company
                     entered into an amendment of the license agreement which
                     established a minimum quarterly royalty payment of $12,500
                     beginning September 30, 2004. This liability is included in
                     unearned royalties and other advances.

                     On February 25, 2002 the Company entered into a license
                     agreement for rights to In My Pocket from Morrison
                     Entertainment Group, Inc., in which Wilfred and Paula
                     Shorrocks, were also parties. Pursuant to the agreement,
                     Wilfred and Paula Shorrocks are individually entitled to a
                     certain percentage of the revenues. The Company is entitled
                     to 10% of the revenues from the United States, 35% of the
                     revenues from the United Kingdom, and 40% of the revenues
                     from other territories. Morrison Entertainment Group is
                     entitled to 60% of the revenues from the United States,
                     32.5% of the revenues from the United Kingdom, and 30% of
                     the revenues from other territories. The Shorrocks are
                     entitled to 30% of the revenues from the United States,
                     32.5% of the revenues from the United Kingdom, and 32.5% of
                     the revenues from other territories. The revenue allocation
                     refers to revenues from character and merchandise licensing
                     and sales activities, and the allocation is to be adjusted
                     for entertainment production financing terms.

10            SUBSEQUENT EVENTS

              On January 20, 2003 the company entered into a distribution
              agreement with Character Options Ltd relating to the `In My
              Pocket' intellectual properties. The Company received an advance
              royalty payment of $160,990 and the agreement stipulates minimum
              royalties payable of $241,485 in total over the period of the
              contract.

              On February 17, 2003 an agreement with GMTV was signed,
              contracting the Company to provide 26 episodes of a `Monster in my
              Pocket' television program. The license period will commence on
              September 1, 2003 and the total license fee receivable by the
              Company will be US $393,000. An advance fee of US $98,250 was
              received upon execution of the agreement.

              On February 7, 2003 the Company acquired the shares of Cameo
              Collectables Limited from Wilfred and Paula Shorrocks by means of
              an exchange of 2 shares of common stock of Peak Entertainment
              Holdings, Inc.

                                      F-18
                                       50
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


10            SUBSEQUENT EVENTS (CONTINUED)

              On April 22, 2003, Palladium Communications, Inc. ("Palladium") (a
              US public company) issued 19,071,684 shares of its common stock
              for all of the outstanding common stock of Peak Entertainment
              Holdings, Inc. Immediately prior to the transaction, Peak
              Entertainment Holdings, Inc authorized a stock split so that the
              outstanding shares of common stock were increased from 2 to
              19,071,684. Immediately after the transaction, the shareholders of
              Peak Entertainment Holdings, Inc (Wilf and Paula Shorrocks) owned
              approximately 90% of the outstanding common stock of Palladium.
              This transaction will be accounted for as a reverse acquisition of
              a public shell. The accounting for a reverse acquisition with a
              public shell is considered to be a capital transaction rather than
              a business combination. That is, the transaction is equivalent to
              the issuance of common stock by Peak for the net monetary assets
              of Palladium, accompanied by a recapitalization. Palladium's net
              deficit will be recorded at carryover basis and no goodwill will
              be generated in the transaction. The net deficit of Palladium,
              $208,500, at the time of transaction is included in stockholders'
              equity. The other side of this transaction is to add 208,500 in
              liabilities related to convertible debentures to the historical
              financial statements of Peak Entertainment Holdings Inc. The
              historical financial statements of the "registrant" become those
              of Peak Entertainment Holdings, Inc. Subsequent to the
              transaction, Palladium changed its name to Peak Entertainment
              Holdings, Inc.

              Immediately following the reverse acquisition, the Company entered
              into an agreement for the issuance of up to $785,000 in
              convertible debentures and warrants to purchase 1,570,000 shares
              of the Company's common stock. The Company received $300,000 at
              the time of execution off the agreement for the issuance of the
              debentures and warrants and received the remainder of $250,000 on
              June 26, 2003 and $235,000 on July 11, 2003.

              The debentures bear interest at 12%, mature one year from the date
              of issuance and are convertible at the option of the holder at the
              lower of $1.00 or 50% off the average of the three lowest
              intra-day trading prices for the common stock on a principal
              market for the 20 trading days before but not including the
              conversion date. The warrants are exercisable for five years at
              $0.31 per share.

              The Company will record these debentures and warrants in
              accordance with the provisions of EITF 00-27 "Application of Issue
              98-5 to Certain Convertible Instruments". Under the provision of
              EITF 00-27, the Company will allocate the total proceeds received
              between the convertible debentures and the warrants based on their
              relative fair value at the date of issuance. The Company then
              estimated the intrinsic value of the beneficial conversion feature
              resulting from the ability of the debenture holders to convert at
              a 50% discount. As a result, the Company will record a debt
              discount of $785,000. The debt discount will be amortized as
              interest expense over the life of the debentures, which is one
              year.

              On February 28, 2002, Palladium, the predecessor to Peak
              Entertainment Holdings, Inc entered into an agreement pursuant to
              which Palladium issued $208,500 in convertible debentures and
              issued warrants to purchase 645,000 shares of the Company's common
              stock exercisable for five years at $0.31 per share. These
              warrants are still outstanding as of December 31, 2002, and can be
              exercised to purchase shares of Peak Entertainment Holdings, Inc.

                                      F-19
                                       51
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


10            SUBSEQUENT EVENTS (CONTINUED)

              On July 24, 2003, pursuant to a consulting agreement with POW!
              Entertainment LLC and Stan Lee, the Company issued to POW
              warrants, to purchase 750,000 shares of the Company's common stock
              which are exercisable for five years at $0.35 per share in
              exchange for consulting services to be provided over a three year
              term. Warrants to purchase 375,000 shares of common stock vested
              upon execution of the consulting agreement, and the remaining
              warrants to purchase 375,000 shares of common stock vest on July
              24, 2004. After one year from issuance, POW has the right to
              demand registration of the shares of common stock underlying the
              warrant at the Company's expense.

              The warrants have been valued using the Black-Scholes Option
              Model. The value of the warrants that vest immediately was
              $390,000 on the date of grant. The value of these warrants will be
              recorded as deferred professional fees and will be amortized to
              earnings ratably over the three year service period.

              The value of the warrants that vest on July 24, 2004 are
              determined at the end of each reporting period. The company will
              record the expense for each quarter based on the value of the
              warrants at the end of each reporting period.

              On July 15, 2003 pursuant to a consulting agreement with Mr Jack
              Kuessous, the Company issued to Mr Kuessous warrants to purchase
              240,000 shares of the Company's common stock with an exercise
              price of $1.20 per share in exchange for consulting services over
              a one year period. The warrants vested immediately upon execution
              of the consulting agreement. The warrants have been valued using
              the Black-Scholes Option Model and had a value of $263,983 on the
              date of grant. The value of these options will be recorded as a
              current asset and will be amortised to earnings ratably over the
              one year service period.

              On December 17, 2003 the exercise price of the warrants held by
              Mr. Kuessous were changed from $1.20 per share to $0.50 per share.
              The amount to be expensed over the remaining service period
              related to the $1.20 warrants will be the remaining unamortized
              fair value of the $0.50 warrants as of December 17, 2003, plus the
              amount by which the fair value of the $1.20 warrants valued as of
              December 17, 2003 is greater than the fair value of the $0.50
              warrants immediately before the terms were modified. The Company
              used the Black-Scholes Option Model and determined that the value
              of the $0.50 warrants immediately prior to the conversion of the
              terms was essentially the same as the $1.20 warrants granted on
              December 17, 2003. Accordingly, the Company will amortize the
              original value of $263,983 over the one year service period.

              In July 2003, Mr Kuessous advanced the Company $100,000. On
              December 17, 2003, the company entered into a "Cancellation of
              Debt in Exchange for Securities Agreement", whereby Mr Kuessous
              cancelled the $100,000 owed to him by the Company in exchange for
              583,333 shares of common stock of the company and 150,000 common
              stock purchase warrants with an exercise price of $0.50 per share.
              The warrants vested immediately and are exercisable over a three
              year period. The warrants have been valued using the Black-Scholes
              Option Model and had a value of $79,449 at the date of grant and
              the common stock had a value of $332,500 on the date of issuance.
              The total value of the common stock and warrants is $411,995 and
              was compared with the $100,000 carrying value of the advances, and
              results in an additional expense of $311,995, which will be
              included in selling, general and administrative expenses.

                                      F-20
                                       52
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


10            SUBSEQUENT EVENTS (CONTINUED)

              On January 9, 2004, Peak Entertainment Limited entered into an
              "Agreement for the Provision of Co Production Services" with
              Cosgrove Hall Films Ltd. for the co-production of 52 episodes of
              an animated television program for children provisionally entitled
              "The Wumblers." The Company is providing the intellectual
              property, format and concept for the television episodes, and
              Cosgrove Hall Films will supply the production services. The costs
              of the production of the episodes to be incurred by the Company is
              projected to be approximately $3,000,000.

              On January 26, 2004 Peak Entertainment Holdings Inc entered into
              an agreement with POW! Entertainment LLC for the development and
              exploitation of the property "Tattoo - the Marked Man". The
              Company has the worldwide distribution and merchandising rights in
              perpetuity and is to fund the project development in the amount of
              $250,000. The parties are to share all profits received from the
              project, after deduction of expenses, and in addition, POW will be
              entitled any executive producer fees from theatrical and
              television releases.

              On January 5, 2004 the Company completed a "Settlement Agreement
              and Release" with former holders of 12% convertible debentures.
              Under the agreement, the Company exchanged $1,000,000 and
              1,000,000 shares of unregistered common stock in return for the
              surrender of an aggregate of $208,500 principal amount of 12%
              convertible debentures and warrants to purchase 645,000 shares of
              common stock, issued pursuant to a "Securities Purchase Agreement"
              dated as of February 28, 2002, and an aggregate of $785,000
              principal amount of 12% convertible debenture and warrants to
              purchase 1,570,000 shares of common stock, issued pursuant to a
              "Securities Purchase Agreement" dated as of April 22, 2003. The
              $1,000,000 consisted of $500,000 paid on January 5, 2004 and
              $500,000 in promissory notes, which was subsequently paid on March
              22, 2004. The agreement provides that, after a period of thirteen
              months from January 2004, all of the 1,000,000 shares of common
              stock still owned at that time by the former debenture holders may
              be put to the Company at a price $.75 per share, on an all-or-none
              basis, for a one month period. The Company also paid for $10,000
              of the former debenture holders' legal fees and expenses in
              connection with the transaction.

              The Company will account for this transaction in accordance with
              EITF 00-27 "Application of Issue 98-5 to Certain Convertible
              Instruments". Accordingly, the Company will first allocate the
              consideration paid based on the fair value of the warrants to be
              repurchased and the beneficial conversion features as of January
              5, 2004. Any remaining consideration will be used to offset the
              carrying value of the convertible debentures and will result in a
              gain or loss on the extinguishment of the debt. The Company has
              determined that the fair value of the warrants to be repurchased
              and the beneficial conversion features at January 5, 2004 exceed
              the total consideration to be paid of $1,580,000. Accordingly, the
              Company will be recording a gain on the extinguishment of the
              convertible debentures which is limited to their carrying value,
              which is $754,774.


                                      F-21
                                       53
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


10            SUBSEQUENT EVENTS (CONTINUED)

              On January 5, 2004 the Company entered into "Securities Purchase
              Agreements" with four accredited investors. Pursuant to the
              agreements, the Company sold $1,500,000 in 8% convertible
              debentures due January 5, 2007 and 3,000,000 common stock purchase
              warrants, exercisable for five years at $0.50 per share. The
              purchase price totalled $1,500,000, of which $750,000 was paid in
              cash, and $750,000 by promissory notes. The principal amount of
              the debentures, plus any accrued and unpaid interest on the
              debenture, may be converted into shares of common stock at the
              conversion price of $0.30 per share. The conversion price may be
              adjusted downward for issuances of securities by the Company at
              prices below the lower of $0.50 per common share, or fair market
              value for such securities as determined at the time of issuance.
              Annual interest payments on the debentures are due on January 7 of
              each year, commencing with January 7, 2005. At the option of the
              Company, interest payments may be accrued beyond the annual
              interest payment date, in which event the debenture holder shall
              have the option to accrue the interest payment then due for
              another interest payment period, or cause the Company to issue
              common stock in exchange for interest. Unless upon 75 days prior
              written notice, the debenture and warrant holder may not convert
              the debentures or warrants for shares of common stock to the
              extent that such conversion would cause it to beneficially own
              4.9% or more of our then issued and outstanding common stock.
              After the tenth consecutive business day in which the common stock
              trades at $3.00 or greater, the warrants become redeemable at
              $0.10 per warrant.

              The warrants have been valued using the Black-Scholes Option Model
              at a value of $1,649,901 at the date of grant. A discount of the
              full amount of the debt will be recorded and amortized over the
              life of the debt of approximately 3 years. The $750,000 received
              on January 5, 2004 has been recognized at that date; the remaining
              $750,000 will be recognized when it is received, on registration
              of the underlying shares.

              On January 23, 2004, the Company entered into an agreement for
              services to be provided over twelve months with Vintage Filings,
              LLC. It issued 300,000 common stock purchase warrants, which
              vested immediately and are exercisable for three years at $0.50
              per share pursuant to the agreement. The warrants have been valued
              using the Black-Scholes Option Limited Pricing Model and have a
              value of $224,988 at the date of grant. The value of the warrants
              will be recorded as additional selling, general and administrative
              expenses ratably over the twelve month service period.


                                      F-22
                                       54
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


10            SUBSEQUENT EVENTS (CONTINUED)

              On January 29, 2004, the Company entered into a "Securities
              Purchase Agreement" with Shai Stern. Pursuant to the agreement, it
              issued $50,000 in 8% convertible debentures due January 29, 2007
              and 100,000 common stock purchase warrants. The principal amount
              of the debentures, plus any accrued and unpaid interest on the
              debentures, may be converted into shares of common stock at the
              conversion price of $0.30 per share. Annual interest payments on
              the debenture are due on January 29 of each year, commencing with
              January 29, 2005. At the option of the Company interest payments
              may be accrued beyond the annual interest payment date, in which
              event the debenture holder shall have the option to accrue the
              interest payment then due for another interest payment period, or
              cause the Company to issue common stock in exchange for interest.
              The warrants are exercisable for three years at a price of $0.50
              per share. After the tenth consecutive business day in which the
              common stock trades at $3.00 or greater, the warrants become
              redeemable at $0.10 per warrant. The warrants have been valued
              using the Black-Scholes Option Pricing Model and have a value of
              $51,997 at the date of grant. The Company will record these
              debentures and warrants in accordance with the provisions of EITF
              00-27 "Application of Issue 98-5 to Certain Convertible
              Instrument". Under the provisions of EITF 00-27, the Company will
              allocate the total proceeds received between the convertible
              debentures and the warrants based on their relative fair value at
              the date of issuance. The Company will then estimate the intrinsic
              value of the beneficial conversion feature. The Company has
              determined that intrinsic value of the beneficial conversion
              feature exceeds the face value of the debt and accordingly, the
              Company will record a debt discount of $50,000. The debt discount
              will be amortized as interest expense over the life of the
              debentures, which is three years.

              On February 11, 2004 the Company entered into a financial advisor
              agreement with Ameristar International Capital, Inc. It issued
              100,000 shares of common stock as an initial equity fee pursuant
              to the agreement. These shares had a fair value of $43,000 at the
              date of grant. The Company will record the value of the common
              stock as an expense, as there is no continuing benefit.

              In 2003, the Company entered into an agreement with William Ivers
              in connection with business consulting services, relating to the
              preparation of a written business plan rendered by Mr Ivers. In
              exchange for these services, the Company agreed to pay $19,012 in
              cash and issue 16,667 shares of common stock at a future date. On
              February 12, 2004 the Companies issued 16,667 shares of common
              stock to Mr Ivers at a value of $8,333 at the date of grant. The
              Company will record the transaction as professional fees to be
              expensed.

              In 2003, the Company entered into an agreement with Lou Schneider
              in connection with business consulting services, related to
              establishing potential apparel-related licensing relationships
              with third parties, rendered by Mr Schneider. In exchange for
              these services, the company agreed to issue 20,000 shares of
              common stock at a future date. On February 12, 2004 the company
              issued 20,000 shares of common stock to Mr Schneider at a value of
              $10,000 at the date of grant. The Company will record the
              transaction as professional fees to be expensed.


                                      F-23
                                       55
<PAGE>


PEAK ENTERTAINMENT HOLDINGS, INC

NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE PERIOD JULY 1, 2002 TO DECEMBER 31, 2002


10            SUBSEQUENT EVENTS (CONTINUED)

              In 2003 the Company entered into an agreement with Rolin Inc to
              provide financial advisory services in exchange for common stock
              of the Company. On February 12, 2004, the Company issued an
              aggregate of 20,409 shares of common stock to Rolin Inc. These
              shares had a fair value of $10,204 at the date of grant. The
              Company will record the transaction as professional fees to be
              expensed.

              On March 10, 2004, the Company entered into "Securities Purchase
              Agreements" with eleven accredited investors. Pursuant to the
              agreements, the Company sold an aggregate of 1,000,000 shares of
              common stock and 600,000 common stock purchase warrants,
              exercisable for three years at $0.75 per share, for a total
              purchase price of $500,000.

              Legend Merchant Group, Inc acted as the placement agent for the
              above transaction. All of the purchasers were pre-existing
              customers of Legend Merchant Group. The Company paid Legend a fee
              of $25,000, and 100,000 common stock purchase warrants exercisable
              for three years at $.50 per share and 60,000 common stock purchase
              warrants exercisable for three years at $0.75 per share, for its
              services. The warrants have been valued using the Black-Scholes
              Option Pricing Model and have a value of $92,794 at the date of
              grant. The total fee of $117,744 will be offset against the
              proceeds off the offering.


                                      F-24
                                       56
<PAGE>


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

Palladium Communications (former business)
------------------------------------------

In  January  2002,  our board of  directors  determined  it would be in our best
interest to change auditors and the board  recommended and approved such action.
On  January  31,  2002  we  engaged  Chisholm  &  Associates,  Certified  Public
Accountants,  as our new  independent  auditors.  On February 4, 2002,  McCauley
Nicolas  &  Company,   LLC,  Certified  Public  Accountants,   resigned  as  our
independent  auditors. We engaged McCauley Nicolas & Company, LLC on November 1,
2001 and it reviewed our unaudited  financials  statements for the quarter ended
September  30, 2001.  McCauley  Nicolas & Company,  LLC did not provide a report
related to our audited  financials.  From  November 1, 2001 through  February 4,
2002, there were no  disagreements or reportable  events with McCauley Nicolas &
Company,  LLC  on any  matter  regarding  accounting  principles  or  practices,
financial statement disclosure, or auditing scope or procedure.

Chisholm & Associates had served as our independent auditors from August of 2000
through  November 1, 2001 and it had audited our  financials  statements for the
fiscal years ended June 30, 2001, 2000, and 1999. During the interim period from
November 1, 2001 through  January 31, 2002,  we did not consult with  Chisholm &
Associates  regarding the  application  of accounting  principles to a specified
transaction,  either  completed or proposed,  or the type of audit  opinion that
might be rendered on our financial statements,  and neither a written report was
provided to us nor oral advice was provided that Chisholm & Associates concluded
was an  important  factor  considered  by us in  reaching  a  decision  as to an
accounting,  auditing or  financial  reporting  issue.  Nor did we consult  with
Chisholm  &  Associates  as to any  matter  that was  either  the  subject  of a
disagreement or a reportable event with McCauley  Nicolas & Company,  LLC during
the interim period from November 1, 2001 through January 31, 2002.

Peak Entertainment Holdings, Inc. (current business)
----------------------------------------------------

On June 5, 2003, Peak  Entertainment  Holdings,  Inc., a Nevada corporation (the
"Company"),  notified Chisholm & Associates ("Chisholm"), its independent public
accountants, that the Company was terminating its services, effective as of that
date. The Company's Board of Directors approved such decision.

Chisholm's opinion in its report on the Company's  financial  statements for the
year ended June 30, 2002 (prior to the Company's merger with Peak  Entertainment
Holdings  Ltd.),  expressed  substantial  doubt with  respect  to the  Company's
ability,  at that time,  to continue as a going  concern.  During the year ended
June 30, 2002 and for the six months ended June 30, 2001 and 2000, and the years
ended December 31, 2000 and 1999, Chisholm did not issue any other report on the
financial  statements  of the Company  which  contained  any adverse  opinion or
disclaimer  of opinion,  or was qualified or modified as to  uncertainty,  audit
scope or accounting principles,  except as to going concern issues. Furthermore,
during such period there were no disagreements  with Chisholm within the meaning
of Instruction 4 to Item 304 of Regulation S-B under the Securities Exchange Act
of 1934 on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the  satisfaction  of Chisholm,  would have caused them to make  reference in
connection  with their  opinion to the  subject  matter of the  disagreement  in
connection with any report they might have issued.

On June 5, 2003, the Company engaged  Goodband Viner Taylor,  as its independent
public  accountants.  The Company did not previously consult with Goodband Viner
Taylor regarding any matter, including but not limited to:

      o     the application of accounting principles to a specified transaction,
            either  completed  or  proposed;  or the type of audit  opinion that
            might be rendered on the Company's financial statements; or

      o     any matter that was either the subject matter of a disagreement  (as
            defined in Item  304(a)(1)(iv)  of  Regulation  S-B and the  related
            instructions) or a reportable event (as defined in Item 304(a)(1)(v)
            of Regulation S-B).


                                       57

<PAGE>


ITEM 8A. CONTROLS AND PROCEDURES

Based on a recent evaluation, as of the end of the period covered by this Annual
Report on Form  10-KSB,  our Chief  Executive  Officer and  Principal  Financial
Officer have concluded  that our disclosure  controls and procedures (as defined
in the Exchange  Act Rules  13a-15(e)  and  15d-15(e))  are  effective in timely
alerting them to material  information  relating to the Company  (including  its
consolidated  subsidiaries) required to be included in periodic reports filed or
submitted under the Securities Exchange Act of 1934.

There were no changes in our internal  control  over  financial  reporting  that
occurred  during our last fiscal quarter that have materially  affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                       58
<PAGE>


                                    PART III

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

OUR MANAGEMENT

The persons  listed in the table below are our present  directors  and executive
officers as of March 31, 2004.

Name                        Age      Position

Wilfred Shorrocks           54       Chairman, Chief Executive Officer
                                     and Director
Paula Shorrocks             51       Vice President - Design and Development,
                                     and Director
Phil Ogden                  36       Vice President - Sales and Marketing, and
                                     Director
Alan Shorrocks              43       Vice President - Licensing Division
Nicola Yeomans              33       Vice President - Finance
Terence Herzog              60       Director
Michael Schenkein           52       Director

Directors are elected to serve until the next annual meeting of stockholders and
until their successors are elected and qualified. Currently there are five seats
on our board of directors.

Directors serve without cash compensation and without other fixed  remuneration.
Officers are elected by the Board of Directors and serve until their  successors
are  appointed by the Board of Directors.  Biographical  resumes of each officer
and director are set forth below.

MANAGEMENT PROFILE

WILFRED SHORROCKS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Mr. Shorrocks,  founded Peak  Entertainment  Ltd. in November 2001 and he became
Chairman, Chief Executive Officer and a director of Peak Entertainment Holdings,
Inc. in April 2003.  Prior to that, Mr.  Shorrocks was co-founder of Just Group,
Plc.,  where he acted as its Chief Executive  Officer from 1987 to 2001. At Just
Group,  Mr.  Shorrocks  was  responsible  for all areas of activity  relating to
development  and  creation  of  concepts   through  to   intellectual   property
acquisition,  corporate acquisition,  and financing activities. In January 2002,
about five  months  subsequent  to his  departure  from Just  Group,  Just Group
entered  into  administration,  a process  similar to the Chapter 11  bankruptcy
process.  In 1980, he founded  Acamas Toys, a developer of toys, and he sold his
ownership of Acamas Toys in 1987.  From 1973 to 1980,  Mr.  Shorrocks  worked in
sales at, what was at that time,  the world's  largest toy maker,  Dunbee Combex
Marx, makers of Sindy dolls and Hornby railways, and he became Sales & Marketing
Director for the Burbank sales  division of Dunbee Combex Marx. He is the spouse
of Paula Shorrocks, and the brother of Alan Shorrocks.

PAULA SHORROCKS, VICE PRESIDENT - DESIGN AND DEVELOPMENT, AND DIRECTOR

Ms.  Shorrocks,  co-founded  Peak  Entertainment  Ltd. in November  2001 and she
became Vice  President and a director of Peak  Entertainment  Holdings,  Inc. in
April 2003.  Prior to that, Ms.  Shorrocks was  co-founder of Just Group,  Plc.,
where she acted as its Commercial Director from 1987 to 2001. At Just Group, Ms.
Shorrocks  identified  opportunities  and then secured  rights to represent blue
chip companies as licensing agent for their brands.  In January 2002, about five
months  subsequent  to her  departure  from Just Group,  Just Group entered into
administration,  a process similar to the Chapter 11 bankruptcy process.  Before
co-founding  Just Group,  Ms.  Shorrocks  taught Business Studies at The Harwich
School, Essex and West Gloucester College of Further Education (1978-1987).  She
also was the  Marketing  Manager for Acamas  Toys.  She is the spouse of Wilfred
Shorrocks.

                                       59
<PAGE>


PHIL OGDEN, VICE PRESIDENT - SALES AND MARKETING, AND DIRECTOR

Mr. Ogden,  joined Peak  Entertainment  Ltd. in November 2001 and he became Vice
President  and a director of Peak  Entertainment  Holdings,  Inc. in April 2003.
From October  1998 to October  2001,  Mr.  Ogden  served as Sales and  Marketing
Director,  in a non-executive  capacity,  at Just Group Plc. Prior to working at
Just Group, Mr. Ogden developed his sales and marketing  experience with Seymour
International, a division of UK's leading magazine distributor,  Frontline, from
1989  to  1998.  Mr.  Ogden  was  employed  as  an  Account  Director  with  the
responsibility  for the  strategic  and  commercial  success of a  portfolio  of
Seymour's  premier clients including Dennis,  Paragon,  FT Magazines  (Investors
Chronicle) and TimeWarner.

ALAN SHORROCKS, VICE PRESIDENT - LICENSING DIVISION

Mr.   Shorrocks,   has  been  Vice  President  -  Licensing   Division  of  Peak
Entertainment  Ltd.  since  November  2001 and he became Vice  President of Peak
Entertainment  Holdings,  Inc. in April 2003.  Prior to that time, Mr. Shorrocks
was Licensing  Director,  in a non-executive  capacity,  of Just Group Plc. from
1991 through October 2001.  Before joining Just Group, Mr. Shorrocks ran his own
companies  specializing  in the leisure and  surfing  markets and was  exclusive
United Kingdom importer/  distributor for various branded merchandise  including
Quicksilver  from the early 1980's.  He sold his company  Victory along with the
United  Kingdom  rights to market Victor  Wetsuits in 1991. He is the brother of
Wilf Shorrocks.

NICOLA YEOMANS, VICE PRESIDENT - FINANCE

Ms. Yeomans joined Peak  Entertainment in June 2002 as company  accountant.  She
became Vice President - Finance of Peak  Entertainment  Holdings Inc. in January
2004 and serves as the principal  person in charge of accounting and financials.
Prior to that time, she was an accountant, in a non-executive capacity, for Just
Group Plc from July 1997 to December  2001.  Before  joining Just Group Plc, Ms.
Yeomans trained as an accountant for the  entertainment  arm of the BBC (British
Broadcasting  Corporation)  at their  London  headquarters.  She  qualified as a
Certified  Chartered  Accountant  (A.C.C.A)  in October  1998.  She is currently
studying towards a Masters Degree (M.B.A) in international  business studies and
corporate finance.

TERENCE HERZOG, DIRECTOR

Mr. Herzog has been a director of Peak  Entertainment  Ltd.  since February 2003
and he became a director of Peak Entertainment  Holdings, Inc. in April 2003. In
June 2000,  Mr.  Herzog  co-founded  and is Managing  Director of Agora  Capital
Partners,  Inc. For a number of years  ending in 2000,  Mr.  Herzog  served as a
consultant  to  executive  management  for various  private and public  entities
advising on mergers and acquisitions, corporate development and financing.

MICHAEL SCHENKEIN, DIRECTOR

Mr. Schenkein has been a Director of Peak Entertainment Ltd. since February 2003
and he became a director of Peak Entertainment Holdings, Inc. in April 2003. Mr.
Schenkein  co-founded and is Managing Director of Agora Capital Partners,  Inc.,
formed  in June  2000.  Prior to that  time,  Mr.  Schenkein  had  founded  M.S.
Editorial in 1978, where he was Chief Executive  Officer of that  postproduction
film/video  company and its successor Big Picture  Editorial,  until 1995.  From
1995 to 2000,  Mr.  Schenkein was Senior  Executive  Vice  President for Cabanna
Inc.,  the  successor to Big Picture.  From 2000 on, Mr.  Schenkein  served as a
consultant  to  executive  management  for various  private and public  entities
advising on mergers and acquisitions, corporate development and financing.


                                       60
<PAGE>


BOARD COMMITTEES AND MEETINGS

During the fiscal year that ended on December 31,  2002,  the Board of Directors
undertook actions by written consent by the Board of Directors.

The Board of  Directors is  responsible  for matters  typically  performed by an
audit  committee.  We do not have a  separate  audit  committee,  nor any  other
committee,  of the  Board  of  Directors.  No  person  serving  on our  Board of
Directors  qualifies  as a financial  expert.  We seek to attract  persons  with
financial experience to serve on our Board of Directors and we intend to form an
audit committee of the Board of Directors during our fiscal year 2004.

We have not yet adopted a code of ethics  applicable to our directors,  officers
and  employees.  However,  we expect to adopt a code of ethics during our fiscal
year 2004.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities  Exchange Act of 1934 requires Peak's  directors
and  executive  officers,  and  persons  who own more than ten percent of Peak's
common stock, to file with the SEC initial  reports of beneficial  ownership and
reports of changes in beneficial  ownership of Peak's common stock. Such persons
are also  required by SEC  regulations  to furnish  Peak with copies of all such
Section  16(a) forms they file.  Based  solely on a review of the copies of such
reports  furnished to Peak, Peak is not aware of any material  delinquencies  in
the filing of such reports.


ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following tables set forth certain information regarding our Chief Executive
Officer and each of our most highly  compensated  executive officers whose total
annual salary and bonus for the past three fiscal years exceeded $100,000:

<TABLE>
<CAPTION>
                                                         Fiscal
Name and Principal Position       Year       Salary      Bonus     Other (1)
-----------------------------     -----     -------     -------     -------

Wilfred Shorrocks,(2)
<S>                               <C>       <C>         <C>         <C>
  Chief Executive Officer         $2002     $ 5,200     $     0     $     0
Raymond C. Dauenhauer, Jr          2002      58,900           0      63,937
   (former President and CEO)      2001      46,400           0      37,705
                                   2000       4,241           0      37,316

(1) Includes management fees,  commissions and directors' fees. Does not include
repayment of advances made by the executive to us.

(2) The Company intends to enter into an employment agreement with Mr. Shorrocks
and other executive officers during its 2004 fiscal year.

</TABLE>

STOCK OPTION PLAN

During  our  fiscal  year  2004,  we intend to adopt and  implement,  subject to
shareholder  approval,  an employee stock incentive  plan,  whereby we may issue
shares of common stock and stock options to our employees  and  consultants.  We
intend for the plan to cover the issuance of an amount equal to up to 10% of our
outstanding shares of common stock.


                                       61
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth,  as of April 22, 2003,  after  giving  effect to the
sale of our former  business and the reverse  acquisition of Peak  Entertainment
Ltd., the shares of our common stock beneficially owned by

      o     by each person who is known by us to  beneficially  own more than 5%
            of our common stock;

      o     by each of our officers and directors; and

      o     by all of our officers and directors as a group.

This  information  was  determined  in  accordance  with Rule 13(d)-3  under the
Securities  Exchange Act of 1934, and is based upon the information  provided by
the persons listed below.

All persons named in the table have the sole voting and  dispositive  power with
respect to common stock beneficially  owned.  Beneficial  ownership of shares of
common stock that are acquirable  within 60 days upon the exercise or conversion
of  stock  options,   warrants,  or  other  convertible  securities  are  listed
separately.  For each person named in the table,  the  calculation of percent of
class gives effect to those acquirable shares.

The address of each of the persons named in the table is c/o Peak Entertainment,
Ltd. Bagshaw; Hall, Bagshaw Hill, Bakewell, Derbyshire, UK DE45 1DL.

<TABLE>
<CAPTION>

Name and Address                        Amount and Nature          Additional Shares            Percent
of Beneficial Owner                    of Beneficial Owner     Acquirable Within 60 days       Of Class

<S>                <C>                             <C>                                 <C>          <C>
Wilfred Shorrocks  (1)(2)                          8,486,899                           0            40.0%
Paula Shorrocks  (1)(2)                            8,486,899                           0            40.0%
Phil Ogden                                           476,792                           0             2.2%
Alan Shorrocks (2)                                   476,792                           0             2.2%
Nicola Yeomans (3)                                         0                           0             0%
Terence Herzog (4)                                   743,585                           0             3.5%
Michael Schenkein                                          0                           0

All officers and directors as a group             18,670,967                           0            88.1%
(7 persons)

</TABLE>

(1)   For purposes of reporting beneficial ownership in the table, the ownership
      of shares of common  stock by  Wilfred  and  Paula  Shorrocks  are  listed
      separately.   Wilfred  and  Paula   Shorrocks  are  each  other's  spouse.
      Accordingly, each may be deemed the beneficial owner of the shares held by
      the other.

(2)   Alan  Shorrocks  is the  brother  of  Wilfred  Shorrocks.  Alan  Shorrocks
      disclaims  beneficial  ownership  of  shares  held by  Wilfred  and  Paula
      Shorrocks.  Each of  Wilfred  and  Paula  Shorrocks  disclaims  beneficial
      ownership of shares held by Alan Shorrocks.

(3)   Nicola Yeomans became an officer in January 2004.

(4)   All of Mr.  Herzog's  shares  are owned by WMB  Corporation,  of which Mr.
      Herzog is the sole owner.


CHANGES IN CONTROL

We do not have any arrangements that may result in a change in control.


                                       62
<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From time to time, Mr. and Mrs.  Shorrocks loaned money to Peak Entertainment to
fund  day-to-day  operations,   as  well  as  for  the  acquisition  of  certain
properties.  Since company  inception  through  December 31, 2002, the Shorrocks
loaned to Peak Entertainment an aggregate of $972,386,  and we repaid $78,193 to
the  Shorrocks in 2002 and $71,206 in 2003. As of December 31, 2003, we have yet
to repay  $916,634 to the Shorrocks.  These monies were loaned without  interest
and did not have a due date, and were due on demand.  In March 2004, we gave the
Shorrocks  a  promissory  note  for the  monies  due  establishing  a  repayment
schedule.  The amount  due is to be repaid in  installments,  consisting  of six
periodic  payments of $25,000 from January 31, 2005 through  September 30, 2006,
two  payments  of $100,000 on March 31, 2007 and  September  30,  2007,  and the
balance  due on January 31,  2008.  The  promissory  note  provides  for earlier
repayment of any unpaid balance subject to various future  financial  results of
the Company,  such as the Company obtaining a shareholders'  equity exceeds 150%
of the amount due, or positive net income from  operations  in excess of 150% of
the amount due.

On February 25, 2002,  we entered into a license  agreement  for rights to In My
Pocket  from  Morrison  Entertainment  Group,  Inc.,  in which  Wilf  and  Paula
Shorrocks,  were  also  parties.  Pursuant  to the  agreement,  Wilf  and  Paula
Shorrocks are individually  entitled to a certain percentage of the revenues. We
are entitled to 10% of the revenues from the United States,  35% of the revenues
from  the  United  Kingdom,  and 40% of the  revenues  from  other  territories.
Morrison  Entertainment Group is entitled to 60% of the revenues from the United
States,  32.5% of the revenues from the United Kingdom,  and 30% of the revenues
from other  territories.  The Shorrocks are entitled to 30% of the revenues from
the United States,  32.5% of the revenues from the United Kingdom,  and 32.5% of
the revenues from other  territories.  The revenue allocation refers to revenues
from  character  and  merchandise  licensing  and  sales  activities,   and  the
allocation is to be adjusted for entertainment production financing terms.

On April 30, 2002,  we entered into a license  agreement  with Wilfred and Paula
Shorrocks  whereby we acquired from the Shorrocks the exclusive  rights to apply
various  intellectual  properties to the  manufacture,  distribution and sale of
products on a worldwide basis. Under the terms of the agreement, we undertook to
pay to Wilfred and Paula  Shorrocks 10% of the royalties in  perpetuity,  with a
guaranteed  minimum  royalties  amount of $1,000,000.  There were no set payment
terms in the license  agreement.  In April 2004, the Company amended the license
agreement  to  establish  a minimum  quarterly  royalty  payment of $12,500  due
beginning September 30, 2004.

On April 22, 2003, Peak Entertainment Ltd., together with its subsidiaries,  was
acquired  by  Palladium  Communications,   Inc.,  a  Nevada  corporation,  which
subsequently  changed its name to Peak  Entertainment  Holdings,  Inc. Under the
terms of the  agreement,  we acquired 100 percent of Peak  Entertainment  Ltd.'s
stock in  exchange  for the  issuance by us of  19,071,684  shares of our common
stock to the holders of Peak  Entertainment  Ltd. The new shares  constituted 90
percent of the outstanding shares of Peak Entertainment Holdings, Inc. after the
acquisition.  Officers  and  directors  who  received  shares  pursuant  to  the
acquisition are:

      o     Wilfred Shorrocks, 8,486,899 shares;

      o     Paula Shorrocks, 8,486,899 shares;

      o     Phil Ogden, 476,792 shares;

      o     Alan Shorrocks, 476,792 shares; and

      o     Terence Herzog, 743,585 shares.

On October 3, 2003,  each of Wilf and Paula  Shorrocks  gifted 125,000 shares to
Cary Fields.

On October 6, 2003,  Terence Herzog gifted an aggregate of 178,500 shares to six
persons, none of whom are affiliates of the Company.

The outside directors of the Company,  Terence Herzog and Michael Schenkein, are
principals of Agora Capital  Partners,  Inc., a management  consulting  company.
From March 2003 through March 2004,  Agora  Capital  Partners,  through  Terence
Herzog and Michael Schenkein, has provided management consulting services to the
Company.  The Company paid aggregate fees of $46,000 in 2003 for such consulting
services.


                                       63
<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

Exhibits  required  to be filed by Item 601 of  Regulation  S-B are  included in
Exhibits to this Report as follows:

Exhibit No.   Description
-----------   -----------
2.1           Agreement  and  Plan  of  Reorganization   between  Corvallis  and
              USAOneStar,  dated October 31, 2000  (Incorporated by reference to
              exhibit 2.1 of Form 10-QSB filed on November 14, 2000)
2.2           Agreement  and  Plan  of  Reorganization  between  USAOneStar  and
              Palladium,  dated  August 31, 2001  (Incorporated  by reference to
              exhibit 2.1 of Form 8-K filed on September 14, 2001)
2.3           Agreement  and  Plan  of  Acquisition   by  and  among   Palladium
              Communications,  Inc., Peak Entertainment, Ltd., Wilfred Shorrocks
              and  Paula  Shorrocks,  made as of the  22nd  day of  April,  2003
              (Incorporated  by  reference  to exhibit 10.1 of Form 8-K filed on
              May 7, 2003)
2.4           Asset  Purchase  Agreement,  dated as of April 22,  2003,  between
              Palladium Communications,  Inc. and Palladium Consulting Group LLC
              (Incorporated  by  referenced to exhibit 2.4 of Form SB-2 filed on
              February 2, 2004)
3.1           Articles of Merger for Corvallis,  Inc. (Incorporated by reference
              to exhibit 3.1 of Form 8-K/A filed on January 12, 2001)
3.2           Articles of Incorporation,  as amended  (Incorporated by reference
              to exhibit 3.1 of Form 8-K filed on February 7, 2002)
3.3           Bylaws,  as amended and  restated  (Incorporated  by  reference to
              Exhibit 3.1 of Form 10-KSB filed on April 27, 2004)
4.1           Securities   Purchase   Agreement,   dated  as  of  February  2002
              (Incorporated  by  referenced to exhibit 4.1 of Form SB-2 filed on
              February 2, 2004)
4.2           Amendment to Securities  Purchase  Agreement,  dated June 17, 2003
              (Incorporated  by  referenced to exhibit 4.2 of Form SB-2 filed on
              February 2, 2004)
4.3           Securities  Purchase  Agreement,   dated  as  of  April  22,  2003
              (Incorporated  by  referenced to exhibit 4.3 of Form SB-2 filed on
              February 2, 2004)
4.4           Disclosure  Schedules to Securities Purchase Agreement dated April
              22, 2003 (Incorporated by reference to exhibit 10.1 of Form 10-QSB
              filed on November 26, 2003)
4.5           January  2004   Securities   Purchase   Agreement  for  $1,000,000
              (Incorporated  by  referenced to exhibit 4.5 of Form SB-2 filed on
              February 2, 2004)
4.6           January   2004   Securities   Purchase   Agreement   for  $500,000
              (Incorporated  by  referenced to exhibit 4.6 of Form SB-2 filed on
              February 2, 2004)
4.7           January   2004   Securities   Purchase   Agreement   for   $50,000
              (Incorporated  by  referenced to exhibit 4.7 of Form SB-2 filed on
              February 2, 2004)
10.1          License  Agreement with Wilf and Paula Shorrocks,  dated April 30,
              2002  (Incorporated  by  referenced  to exhibit  10.1 of Form SB-2
              filed on February 2, 2004)
10.2          Consulting   Agreement  with  POW!   Entertainment  and  Stan  Lee
              (Incorporated by reference to exhibit 10.2 of Form 10-QSB filed on
              November 26, 2003)
10.3          Consulting  Agreement  with Jack  Kuessous  with  Form of  Warrant
              (Incorporated by reference to exhibit 10.3 of Form 10-QSB filed on
              November 26, 2003)
10.4          Amended Consulting  Agreement with Jack Kuessous  (Incorporated by
              referenced to exhibit 10.4 of Form SB-2 filed on February 2, 2004)
10.5          Cancellation of Debt Agreement with Jack Kuessous (Incorporated by
              referenced to exhibit 10.5 of Form SB-2 filed on February 2, 2004)
10.6          Settlement  of  Debt  Agreement  (Incorporated  by  referenced  to
              exhibit 10.6 of Form SB-2 filed on February 2, 2004)
10.7          License Agreement with Morrison  Entertainment  Group, Inc., dated
              February 25, 2002  (Incorporated  by referenced to exhibit 10.7 of
              Form SB-2 filed on February 2, 2004)
10.8          License  Agreement  with Jesco Imports,  Inc.,  dated June 1, 2002
              (Incorporated  by referenced to exhibit 10.8 of Form SB-2 filed on
              February 2, 2004)

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<PAGE>


10.9          License  Agreement with Toontastic  Publishing Ltd, dated December
              5, 2002  (Incorporated  by referenced to exhibit 10.9 of Form SB-2
              filed on February 2, 2004)
10.10         License  Agreement  with SAN-X Co.,  Ltd.,  dated January 14, 2003
              (Incorporated by referenced to exhibit 10.10 of Form SB-2 filed on
              February 2, 2004)
10.11         Distribution  Agreement,  dated January 20, 2003,  with  Character
              Options Ltd.  (Incorporated by referenced to exhibit 10.11 of Form
              SB-2 filed on February 2, 2004)
10.12         Agency Agreement with Colin Lisle & Associates Ltd, dated February
              4, 2003  (Incorporated by referenced to exhibit 10.12 of Form SB-2
              filed on February 2, 2004)
10.13         Agreement between Peak  Entertainment  Ltd. and GMTV of the London
              Television  Centre,  dated  February  17,  2003  (Incorporated  by
              referenced  to  exhibit  10.13 of Form SB-2 filed on  February  2,
              2004)
10.14         Agreement, dated April 28, 2003, with The Silly Goose Company, LLC
              (Incorporated by referenced to exhibit 10.14 of Form SB-2 filed on
              February 2, 2004)
10.15         Distribution  Agreement,  dated July 1, 2003 with Perfectly  Plush
              Inc.  (Incorporated  by  referenced  to exhibit 10.15 of Form SB-2
              filed on February 2, 2004)
10.16         International  Representation  Agreement with Haven  Licensing Pty
              Ltd, dated August 19, 2003,  2003  (Incorporated  by referenced to
              exhibit 10.16 of Form SB-2 filed on February 2, 2004)
10.17         International  Representation Agreement with Character Licensing &
              Marketing, dated September 17, 2003 (Incorporated by referenced to
              exhibit 10.17 of Form SB-2 filed on February 2, 2004)
10.18         International  Representation  Agreement with Kidz  Entertainment,
              dated  October 31, 2003  (Incorporated  by  referenced  to exhibit
              10.18 of Form SB-2 filed on February 2, 2004)
10.19         License  Agreement  with Radica UK Ltd.,  dated  December 12, 2003
              (Incorporated by referenced to exhibit 10.19 of Form SB-2 filed on
              February 2, 2004)
10.20         Entertainment Production Agreement, dated as of December 16, 2003,
              with The Silly Goose Company,  LLC  (Incorporated by referenced to
              exhibit 10.20 of Form SB-2 filed on February 2, 2004)
10.21         Agreement  for  the  Provision  of  Co  Production  Services  with
              Cosgrove Hall Films Ltd.,  dated January 9, 2004  (Incorporated by
              referenced  to  exhibit  10.21 of Form SB-2 filed on  February  2,
              2004)
10.22         Terms of understanding with Moody Street Kids and Funbag Animation
              Studios Inc.  (Incorporated by referenced to exhibit 10.22 of Form
              SB-2 filed on February 2, 2004)
10.23         Agreement  with  POW!   Entertainment,   dated  January  23,  2004
              (Incorporated by referenced to exhibit 10.23 of Form SB-2 filed on
              February 2, 2004)
10.24         Agreement  with Mainframe  Entertainment,  Inc. dated June 1, 2003
              (Incorporated by referenced to exhibit 10.24 of Form SB-2 filed on
              February 2, 2004)
10.25         Agreement for Services with Vintage  Filings,  LLC,  dated January
              23, 2004 (Incorporated by referenced to exhibit 10.25 of Form SB-2
              filed on February 2, 2004)
10.26         Financial Advisor Agreement with Ameristar  International Capital,
              Inc.  (Incorporated  by  reference  to Exhibit 10.1 of Form 10-KSB
              filed on April 27, 2004)
10.27         Cancellation  of Debt in Exchange for  Securities  Agreement  with
              Laura  Wellington  (Incorporated  by  reference to Exhibit 10.2 of
              Form 10-KSB filed on April 27, 2004)
10.28         Form of Securities Purchase  Agreement,  dated as of March 3, 2004
              (Incorporated by reference to Exhibit 10.3 of Form 10-KSB filed on
              April 27, 2004)
10.29         Stock Purchase  Warrant  Agreement issued to Legend Merchant Group
              in connection  with  Securities  Purchase  Agreement,  dated as of
              March 3, 2004  (Incorporated  by reference to Exhibit 10.4 of Form
              10-KSB filed on April 27, 2004)
10.30         Financial  Advisor  Agreement  with  Source  Capital  Group,  Inc.
              (Incorporated by reference to Exhibit 10.5 of Form 10-KSB filed on
              April 27, 2004)
10.31         License  Agreement  with  Toontastic   Publishing  Ltd.,   Renewal
              (Incorporated by reference to Exhibit 10.6 of Form 10-KSB filed on
              April 27, 2004)
10.32         Promissory Note to Shorrocks (Incorporated by reference to Exhibit
              10.7 of Form 10-KSB filed on April 27, 2004)
10.33         Amendment  to  Shorrocks   License   Agreement   (Incorporated  by
              reference to Exhibit 10.8 of Form 10-KSB filed on April 27, 2004)

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<PAGE>



11*           Statement  Concerning  Computation of Per Share Earnings is hereby
              incorporated  by reference to "Financial  Statements" of Part II -
              Item 7, contained in this Form 10-KSB.
21*           List of Subsidiaries
31.1*         Certification  of Chief Executive  Officer  Pursuant to Securities
              Exchange Act Rule 13a-14(a)/15d-14(a)
31.2*         Certification   of  Principal   Financial   Officer   Pursuant  to
              Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32.1*         Certification  of Chief Executive  Officer  Pursuant to Securities
              Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350
32.2*         Certification   of  Principal   Financial   Officer   Pursuant  to
              Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350

----------
* Filed herewith.


REPORT ON FORM 8-K

The Company's former  business,  Palladium  Communications,  filed the following
reports:

(a)      On February 7, 2002, the Company filed a report on Form 8-K reporting
         under Item 4 a change in certifying accountant, and under Item 5 a
         change in the Company's name from USAOneStar.Net, Inc. to Palladium
         Communications, Inc. and an increased in the Company's authorized
         shares of common stock from 200,000,000 to 900,000,000 shares.

(b)      On July 9, 2002, the Company filed a report on Form 8-K reporting under
         Item 5 the granting of acceleration of the effective date of a
         registration statement on Form SB-2, filed on June 17, 2002.


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<PAGE>


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

Fees for audit services  provided by our principal  accountant  during the years
ended  December  31,  2001 and 2002  were $0 and  $64,396,  respectively.  Audit
services  consisted  primarily  of the annual  audits,  review of our  financial
statements,  and  services  that are  normally  provided by our  accountants  in
connection with statutory and regulatory filings or engagements for those fiscal
years.

AUDIT-RELATED FEES

There were no fees billed for services  reasonably related to the performance of
the audit or review of our financial  statements outside of those fees disclosed
above under the caption Audit Fees for fiscal years 2001 and 2002.

TAX FEES

Fees for tax  services  provided by our  principal  accountant  during the years
ended  December  31, 2001 and 2002 were $0 and $0,  respectively.  Tax  services
related  primarily to the  preparation  of company tax filings  with  regulatory
agencies.

ALL OTHER FEES

There were no other fees billed for services.

AUDIT COMMITTEE PROCEDURE

The Board of  Directors is  responsible  for matters  typically  performed by an
audit  committee.  We do not have a  separate  audit  committee  of the Board of
Directors.  The Board of Directors  considered whether, and determined that, the
auditor's  provision of non-audit  services was compatible with  maintaining the
auditor's  independence.  All of the services  described  above for fiscal years
ended  2001 and 2002  were  approved  by the  Board of  Directors.  We intend to
continue using its principal accountant, goodband viner taylor, solely for audit
and audit- related services, tax consultation and tax compliance services,  and,
as needed, for due diligence in acquisitions and similar transactions.

PRE-APPROVAL POLICIES AND PROCEDURES

The Board of Directors  approved all of the services  described  above,  and all
fees  paid.  The  Board of  Directors  did not have  pre-approval  policies  and
procedures  in place during our fiscal years ended 2002 and 2003. In fiscal year
2004, we intend to implement a policy  whereby,  we will,  prior to engaging our
accountants to perform a particular service,  obtain an estimate for the service
to be performed and begin pre-approving all services.


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<PAGE>


                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                             PEAK ENTERTAINMENT HOLDINGS, INC.

                                             By: /s/ WILFRED SHORROCKS
                                                 ---------------------
                                             Wilfred  Shorrocks,
                                             Chairman   and   Chief    Executive
                                             Officer

                                             Dated: May 10, 2004


         In  accordance  with the  Exchange  Act of 1934,  this  report has been
signed below by the  following  persons on behalf of the  registrant  and in the
capacities indicated:

SIGNATURE                                   TITLE              DATE

/s/ WILFRED SHORROCKS      President, Chairman, and Chief      May 10, 2004
---------------------      Executive Officer
Wilfred Shorrocks          (Principal Executive Officer)


/s/ PAULA SHORROCKS        Vice President and Director         May 10, 2004
-------------------
Paula Shorrocks


/s/ PHIL OGDEN             Vice President and Director         May 10, 2004
--------------
Phil Ogden


/s/ ALAN SHORROCKS         Vice President                      May 10, 2004
------------------
Alan Shorrocks


/s/ Nicola Yeomans         Vice President                      May 10, 2004
------------------
Nicola Yeomans             (Principal Accounting Officer)

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