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

                   For the fiscal year ended December 31, 2005

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

            For the transition period from __________ to __________.

                        Commission file number: 33-18143

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

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

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

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

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

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 [X] No [ ]

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

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State issuer's revenues for its most recent fiscal year:  $1,544,797.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

    Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]

<PAGE>

                        PEAK ENTERTAINMENT HOLDINGS, INC.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               Page
PART I
<S>              <C>                                                                                           <C>
Item 1.          Description of Business                                                                         3
Item 2.          Description of Property                                                                         14
Item 3.          Legal Proceedings                                                                               14
Item 4.          Submission of Matters to a Vote of Security Holders                                             16

PART II

Item 5.          Market for Common Equity and Related Stockholder Matters                                        17
Item 6.          Management's Discussion and Analysis                                                            18
Item 7.          Financial Statements                                                                            33
Item 8.          Changes In and Disagreements with Accountants on Accounting and Financial Disclosure            64
Item 8A.         Controls and Procedures.                                                                        65
Item 8B.         Other Information                                                                               65

PART III

Item 9.          Directors, Executive Officers, Promoters and Control Persons; Compliance
                 With Section 16(a) of the Exchange Act                                                          67
Item 10.         Executive Compensation                                                                          70
Item 11.         Security Ownership of Certain Beneficial Owners and Management                                  71
Item 12.         Certain Relationships and Related Transactions                                                  73
Item 13.         Exhibits                                                                                        74
Item 14.         Principal Accountant Fees and Services                                                          78

Signatures                                                                                                       79
</TABLE>

<PAGE>

                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS

General Overview

We are a Nevada corporation named Peak Entertainment Holdings, Inc.

Prior to April 2003, we were known as Palladium Communications, Inc. and we
operated a telecommunications business. In April 2003, we sold all of our former
telecommunications business and purchased our present entertainment business
pursuant to a reverse acquisition with Peak Entertainment Ltd., a United Kingdom
registered company.

We only recently began our current business operations on April 22, 2003 when we
acquired the business of Peak Entertainment, Ltd. Peak Entertainment Ltd. is a
United Kingdom registered company incorporated in November 2001 that conducted a
media and entertainment business. In 2001 and through most of 2002, Peak
Entertainment Ltd. was in its start-up stages. Peak Entertainment Ltd. began its
entertainment activities and licensing activities in about February 2002, and
its consumer product activities in about April 2002 and began generating from
consumer product sales in the last quarter of 2002.

Our current business is developing, marketing and selling television shows and
toy and gift products focused on the children's media and leisure market. We
have a limited history of revenues and significant operational losses to date,
as well as an accumulated shareholder deficit.

Our current business is to develop, market and sell television shows and toy and
gift products focused on the children's media and leisure market. Our primary
strength is in the conception and development of character concepts that we
believe children will find appealing. Our business objective is to take a
character concept and develop the concept into a television show, a movie, a
video game, a toy, apparel, or other product. We operate with three principal
divisions: entertainment, licensing, and consumer products. Our activities
include or will include development, production and distribution of television
shows for children, licensing intellectual property rights to our television
shows, and the manufacture and distribution of toy and gift products. We are
currently focusing on two television projects, Muffin the Mule and Monster Quest
which are in various stages of production, Muffin the Mule is completed and
aired in the United Kingdom in September 2005and the other two projects are not
yet ready for airing on television. In 2005, we entered into an agreement with
Maverick Entertainment Group Plc, a United Kingdom based company, to represent
Maverick Entertainment's broadcast, licensing and merchandising rights to Muffin
the Mule, that launched to air in the United Kingdom in Fall 2005, that was
commissioned by the British Broadcasting Corporation (BBC). Maverick also
granted to Peak certain broadcast, licensing and merchandising rights to
Snailsbury Tails, which is another BBC commissioned television series that is
currently airing in various international territories.

We are currently developing with an intent to sell the following toy and gift
products: Muffin the Mule toy merchandise, and Pretty Pony Club gift pony molds
and are developing toy lines for Monster Quest, Countin' Sheep, Snailsbury Tails
and The Wumblers television shows in anticipation of their anticipated
merchandise launches in 2006/7.

Our principal offices are located at Bagshaw Hall, Bagshaw Hill, Bakewell,
Derbyshire, United Kingdom, and our telephone number is 44-1629-814555. We
maintain a web site at: http://www.peakentertainment.net.

<PAGE>

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 March 31, 2003, we 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.

In April 2003, Palladium Communications sold its telecommunications business to
Palladium Consulting Group, LLC for $75,000. The assets sold to Palladium
Consulting Group consisted of substantially all of Palladium Communication's
assets, including all carrier agreements, sales agent agreements, and equipment.
The retained assets included cash and notes receivable. Palladium Consulting
Group assumed certain of our liabilities, including our payables for phone
systems and equipment and a lease for office facilities. Palladium
Communications retained liabilities in connection with outstanding convertible
debentures. As a result of the transaction, Palladium Communications had
substantially no assets and had significant liabilities, consisting of the
retained convertible debentures and accrued interest.

On April 22, 2003, Palladium Communications acquired the business of Peak
Entertainment Ltd., together with its subsidiaries. Palladium Communications
exchanged 19,071,684 shares of its common stock for all of the shares of Peak
Entertainment Ltd. in a transaction viewed as a reverse acquisition. The shares
issued to the holders of Peak Entertainment Ltd. constituted 90 percent of our
outstanding shares. At the closing of the reverse acquisition, Palladium
Communications appointed the principals of Peak Entertainment, Ltd., as officers
and directors of Palladium Communications, and the former directors and officers
of Palladium Communications resigned.

Upon consummation of the acquisition of Peak Entertainment, Ltd., the founders
of Peak Entertainment, Ltd., Wilf 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 Communications Inc. changed its corporate name to
Peak Entertainment Holdings, Inc.

As of December 31, 2005, we had 31,852,108 shares of common stock issued and
outstanding. As of we have not been subject to bankruptcy, receivership or other
similar proceeding.

Business Overview

We develop, market and sell television shows and toy and gift products focused
on the children's media and leisure market.

Strategy

Our business plan is to develop, market and sell television shows and toy and
gift 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 television shows, and the
manufacturing and sales of consumer products related to our television shows.

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 popular brand among children 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. 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.

<PAGE>

Structure and Business Initiatives

We operate within one business segment, namely childrens media, with three main
sources of income: entertainment, licensing, and consumer products.

Entertainment

Entertainment is currently focusing on three television shows, two of which we
are responsible for production. All three shows are in the pre-production or
production stages. We anticipate that we will generate revenues from the
distribution of television shows to broadcasting companies and other media
outlets. The key costs are substantial animation and production costs in getting
television episodes produced. We will initially seek to introduce the planned
television shows in the United Kingdom, United States, Canada, Europe, Australia
and New Zealand.

                                  Monster Quest

Monster Quest is an animated television series 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.

The television project is in pre-production stages with our in-house computer
graphics studio creating the models, frames, characters and environments. Our
production team, in conjunction with our co-production partners, will produce 26
thirty-minute episodes.

We are to provide via third party funding, the initial first stages of the
pre-production funding, either in cash or services, for each of the 26 episodes.
The project is currently in pre-production with storyboards and models being
prepared. We are actively seeking sources of financing to fund the project with
Persistence of Vision in conjunction with the Malaysian Government, but have no
such firm commitments to date. A delay in receipt of funding will likely delay
the timetable for production. Assuming the receipt of funding by June 2006, we
anticipate production for delivery of the first thirteen episodes by April 2007
and the next thirteen by October 2007. If sufficient funding is not available
shortly, the timetable for production of the episodes will likely be
re-scheduled for completion for Fall 2007 or Spring 2008.

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 ending August 2008 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 April 2006 through March 2007
that we anticipate extending if production is further delayed.

We will seek to distribute programs in other countries, including the United
States, although no such agreements have been reached to date.

                                  The Wumblers

The Wumblers are a sweet natured, whimsical collection of cartoon characters.
The Wumblers is an educational and entertainment show geared toward pre-school
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 were entitled to all
exploitation rights in The Wumblers including merchandise and distribution
rights. We had 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 had the right to produce other episodes based on
the licensed intellectual property. We had the right to exploit the licensed
property worldwide in perpetuity.

<PAGE>

On January 9, 2004, we entered into an Agreement for the Provision of Co
Production Services with Cosgrove Hall Films Ltd. for the co-production of 52
eleven minute episodes of an animated television program for children
provisionally entitled "The Wumblers." We were providing the intellectual
property, format and concept for the television episodes, and Cosgrove Hall
Films will supply the production services. Cosgrove Hall Films will be paid for
its production services. The costs of the production of the episodes are
projected to be approximately $3,500,000.

We have completed the production of one pilot episode to date. We anticipate
that the remaining episodes will be commenced by April 2006, subject to receipt
of financing for production costs.

On March 6, 2006 we entered into an agreement with Silly Goose to release our
rights previously granted to us pursuant to an April 28, 2003 agreement and a
December 16, 2003 entertainment production agreement between the parties to The
Wumblers allowing financing to be provided by third parties and production to be
completed. In return, we are to receive a percentage of the net profits from the
entity exploiting the Wumblers project, as set forth below, provided, however,
that payment to Peak of such net profit participation shall attend on and be
paid after the financing parties in such entity have recouped their direct
investment.

         (i)      If 4Kids, or a wholly-owned or controlled affiliate of 4Kids,
                  is the majority financier of the Wumblers project, the
                  percentage retained by Peak above shall be 15%;
         (ii)     If 4Kids is not the majority financier of the Wumblers
                  project, the percentage retained by Peak above shall be 15%,
                  and Peak shall retain the United Kingdom marketing rights on a
                  35% of gross receipts basis
         (iii)    If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 7.5%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain all
                  other worldwide rights on a 35% basis for the United Kingdom
                  and 40% for the rest of the world.
         (iv)     If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 8%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain other
                  rights on a 35% basis for the United Kingdom and 40% for
                  Europe, Australia, South America and South Africa.
         (v)      If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 9%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain other
                  rights on a 35% basis for the United Kingdom and 40% for
                  France, Spain, Italy, Australia and Mexico.
         (vi)     If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 10%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain other
                  rights on a 35% basis for the United Kingdom and 40% for
                  Australia.

                                 Muffin the Mule

Muffin the Mule began life in 1933 as an un-named character in the `Hogarth's
Puppet's' puppet circus and 13 years later he was privileged to be chosen by
Annette Mills (sister of Sir John Mills) to appear in a BBC programme called
Children's Hour. He made his TV debut on October 20, 1946 and became an instant
favourite, with the claiming him as `the first ever star to be made by British
Television"

Such was his popularity, Muffin was credited for beginning the post-war industry
in character merchandise with toys, games, books and gifts all produced in
recognition of his immense appeal. Loved equally by adults and children alike in
the 1950's, it is that heritage that has been captured to appeal to nostalgic
parents and new audiences alike.

To celebrate the 60th anniversary of Muffin's first appearance on British
television, the BBC has commissioned 40 brand new animated episodes to be
broadcast in 2006. Maverick Entertainment has invested $4 million to produce 26
ten minute episodes, with a further 14 episodes expected in 2006. Subsequent to
the yearend 2005, Peak Entertainment became the licensing agent for certain of
Maverick Entertainment's intellectual property, including Muffin the Mule. 2006
is the 60th anniversary of `Muffin the Mule' and to commemorate his `iconic
brand status' the BBC commissioned 40 new animated episodes that they intend to
launch on CBBC from September 2005.

<PAGE>

Aimed at pre-schoolers, the new Muffin television series is true to the original
concept with classic storytelling that will retain his lovable charm and
characteristics whilst appealing to the more sophisticated requirements of
today's children by giving Muffin a fresh lease of life. Joining him in his
adventures will be nine friends, including Peregrine the Penguin, Louise the
Lamb and Oswald the Ostrich who were all original puppet characters in the
1940's TV show.

Initial viewing figures on BBC where very strong and this resulted in the
episodes being rescheduled to air in March 2006 and further broadcasts during
the anniversary year of 2006. Peak have signed merchandising deals with Maverick
Entertainment for UK publishing and DVD rights, Character Options Ltd, for a
range of associated toys, Martin Yaffe Ltd, for associated toys and childrens
products, Zoo Digital Ltd, for associated interactive PC games, Future
Publishing Ltd, for associated Comics and Newsstand Specials and are currently
negotiating various broadcast, merchandise and licensing agreements both in the
United Kingdom and internationally.

                             Tattoo - The Marked Man

This is a proposed project in the very early stages of development. Tattoo is an
action-adventure concept character involving a hero character and tattoos which
can become three-dimensional. We made some previous efforts and agreements to
move this project forward with Stan Lee and POW! Entertainment, but the parties
have disagreed on how to proceed and we did not make a $250,000 payment in
furtherance of the project. Accordingly, and because other more developed
projects have moved forward, this project remains in the early stages of
development.

Licensing

This comprises 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 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.

We entered into license agreements with Character Option Ltd, Video Collection
International Ltd, Radica Ltd, Zoo Digital Publishing Limited and Impact
International Ltd 2004 for Monster Quest products, with Toontastic Publishing
for magazine use of our Pretty Pony Club concepts, and with CCA Group for our
Countin' Sheep products for use in greeting cards and via our licensing agent
The Sharpe Company with Cadaco in the United States and Canada for our Countin'
Sheep collectable plush toy products.

Licensing has not generated significant revenues to date. We anticipate that it
will become much more active once we have produced sufficient episodes of our
television shows so that broadcasting of the shows can commence. After
broadcasting, and subject to a receptive audience, we believe that licensing may
become our principal source of revenues.

The principal revenues for this division are 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. Revenue is earned from selling licenses
for our non-entertainment driven properties. The key costs for are staff,
travel, toy and good production costs, and costs for attendance at 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 also attend the New York
Licensing Show in June 2004 and will build on that platform with our partners
4Kids Entertainment at the New York Licensing Show in June 2005 and the European
Licensing Show in October 2005.

<PAGE>

Consumer Products

Consumer products have historically been our primary source of revenues operated
primarily through three wholly-owned subsidiaries:

                  o     Cameo Collectables - for the sale of gift and
                        collectibles items;
                  o     Jusco Toys - for the manufacture and production of toys
                        and other consumer products; and
                  o     Wembley Sportsmaster - for a range of leisure toys (not
                        yet launched).

Currently and historically we manufacture and sell the following products:

                               Cameo Collectables

                  o     Countin' Sheep toy products in the United Kingdom and
                        United States markets since January 2003;
                  o     Mini Flora toy products in the United Kingdom market
                        since January 2003; and
                  o     Pretty Pony Club products (mold ponies) in the United
                        Kingdom market since December 2002.

Our consumer products are sold primarily with the assistance of various
independent sales agents to toy stores and gift stores.

                                   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.

We are currently developing toy lines and pre-production samples for our new
television shows, Monster Quest, The Wumblers and Muffin the Mule. We expect to
sell these lines either directly to retailers/distributors or under license with
master toy licensees on a worldwide or territory basis and have started to make
formal representations now that we have specific broadcast deals in place.

                              Wembley Sportsmaster

This subsidiary is not currently active, and we have no definitive plans for
this subsidiary in fiscal year 2005 or at any time in the near future. We
acquired the assets of Wembley Sportmaster primarily for its trademarks. Our
future intent is to eventually launch a range of balls, leisure toys, inflatable
pools and play products under the Wembley Sportsmaster banner. We have no
current plans or timetable for utilizing this division or the trademarks, and it
could be many years before we do so.

Design Studio Team

We have set up an in-house design studio team, with designers and artists,
equipped with an animation studio. The team is involved in character creation,
storyboard development, and animation production. The team is also involved in
preparing marketing literature to support our licensing activities, and in toy
design, packaging and display solutions to support our consumer products.

<PAGE>

Intellectual Property Rights

We have acquired the following rights:

      o     Shorrocks Portfolio Worldwide - from Wilf and Paula Shorrocks, in a
            license agreement dated April 30, 2002, for royalties of 10% of the
            net selling price, payable quarterly, in perpetuity. The guaranteed
            minimum royalty payable for rights to the portfolio in perpetuity is
            $1,000,000. We are to pay a minimum of $12,500 per quarter beginning
            September 30, 2004, credited against the guaranteed minimum.

      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. On March 6, 2006, we entered
            into an Agreement with Silly Goose to release our rights to The
            Wumblers allowing finance to be provided by third parties and
            production to be completed. In return, we are to receive a
            percentage of the net profits from the entity exploiting the
            Wumblers project, as set forth below, provided, however, that
            payment to Peak of such net profit participation shall attend on and
            be paid after the financing parties in such entity have recouped
            their direct investment.

            (i)   If 4Kids, or a wholly-owned or controlled affiliate of 4Kids,
                  is the majority financier of the Wumblers project, the
                  percentage retained by Peak above shall be 15%;
            (ii)  If 4Kids is not the majority financier of the Wumblers
                  project, the percentage retained by Peak above shall be 15%,
                  and Peak shall retain the United Kingdom marketing rights on a
                  35% of gross receipts basis
            (iii) If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 7.5%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain all
                  other worldwide rights on a 35% basis for the United Kingdom
                  and 40% for the rest of the world.
            (iv)  If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 8%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain other
                  rights on a 35% basis for the United Kingdom and 40% for
                  Europe, Australia, South America and South Africa.
            (v)   If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 9%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain other
                  rights on a 35% basis for the United Kingdom and 40% for
                  France, Spain, Italy, Australia and Mexico.
            (vi)  If 4Kids is not the majority financier, and if the parties
                  hereto agree that Peak shall retain a percentage of 10%, then
                  Peak shall not retain representation rights for The Wumblers
                  for the United States and Canada, and Peak shall retain other
                  rights on a 35% basis for the United Kingdom and 40% for
                  Australia.

      o     Muffin the Mule - We entered into a representation agreement, dated
            March 1, 2005, with Maverick Entertainment Group Plc, pursuant to
            which we acquired, on a worldwide basis, other than for video, DVD
            and publishing rights in the United Kingdom and Ireland, the right
            to exploit television broadcasting rights for Muffin the Mule, and
            the right to negotiate with and grant manufacturers and other
            interested parties licenses in relation to the manufacture and
            distribution of merchandise. We are entitled to 35% of gross
            receipts in the UK and 40% of gross receipts in the rest of the
            world. The agreement expires on February 28, 2008, subject to
            automatic renewal if a minimum (pound)500,000 in royalties has been
            paid to Maverick.

<PAGE>

We have licensed the following rights to third parties:

      o     Monster Quest for videograms - We entered into an agreement, dated
            April 29, 2004 and as amended in June 2004, with Video Collection
            International Limited. Under the agreement, we licensed exclusive
            videogram rights to the Monsters Quest television series. For
            purposes of the agreement, the term videogram rights refer to the
            right to distribute the television shows through videocassette, DVD,
            CD-ROM, laser disk, video-on-demand, electronic and similar
            technology. The performance of the agreement by Video Collection
            International is subject to various conditions, such as that we
            obtain a commitment to broadcast episodes of the television series
            beginning in 2006, that we enter into a toy license with a third
            party, and that we arrange for the production of collectible toy
            figures. Under the agreement, we are to conduct a marketing campaign
            in connection with the television broadcast of at least UK
            (pound)500,000, and publish a comic book and a book in 2006. The
            license territory is the United Kingdom and Ireland. We are entitled
            to receive royalties of 15% of gross receipts for most products. The
            royalty rate may be 7.5% for products sold by direct mail, or 25%
            for certain premium products. The agreement provides for an advance
            royalty of UK (pound)100,000, of which we received UK (pound)20,000
            upon entering the agreement. The remainder of the advance royalty is
            receivable in installments based on future events, such as
            completion of broadcasting of episodes and launching of toy
            products. The agreement is to expire seven years from the first
            release of a videogram. No videogram has been released to date.

      o     Monster Quest for electronic games - We entered into a license
            agreement, dated December 12, 2003 and as amended in January 2004
            and June 2004, with Radica U.K. Ltd. Under the agreement, we
            licensed certain rights to Monster Quest in connection with the sale
            of certain 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
            four years from December 2003.

      o     Monster Quest for DS Game Boy - We entered into a license agreement,
            dated October 4, 2004, with Zoo Digital Publishing Limited. Under
            the agreement, we licensed certain rights to Monster Quest in
            connection with the sale of Game Boy games. The license territory is
            worldwide. We are to receive royalties of $1.50 per unit sold. The
            license term is three years from first publication of the product.

      o     Countin' Sheep for greeting cards - We entered into a license
            agreement, dated February 10, 2003, with CCA Group Ltd. Under the
            agreement, we licensed the right to intellectual property called
            Countin' Sheep in connection with the sale of greeting cards. The
            license territory is the United Kingdom, Channel Islands and
            Ireland. We are to receive royalties of 10% of the net selling
            price. We are entitled to a guaranteed minimum royalty of UK
            (pound)10,000. We received an advance royalty of UK (pound)5,000 in
            February 2003. The license expires on January 31, 2006.

            Pretty Pony Club - to Toontastic Publishing Ltd., pursuant to a
            license agreement dated December 5, 2002, and renewed in 2004, and
            on September 1, 2005. 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
            Ireland. We are to receive royalties of 4% of the net sales price
            and 5% of Toontastic purchase price on covermounts manufactured by a
            third party of Pretty Pony Club toys. There is no minimum guaranteed
            royalty under the renewed license. The license expires on August 31,
            2006.

      o     Pretty Pony Club - We entered into a license agreement dated
            February 1, 2005 with Color Media International. 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 Serbia and Montenegro. We are to receive
            royalties of 5% of the net sales price. The minimum guaranteed
            royalty is UK (pounds) 10,000 plus VAT, payable quarterly over the
            term of the license. The license expires on January 31, 2007.

      o     Muffin the Mule - We entered into a license agreement dated April
            20, 2005 with Character Options Ltd. Under the agreement, we
            licensed the right to Muffin The Mule intellectual property for use
            in connection with the sale of toy products, not yet specified. The
            license territory is the United Kingdom, Channel Islands, and
            Ireland. We are to receive royalties of 10% of the sales price. The
            minimum guaranteed royalty is UK (pounds) 100,000. The license
            period is for three years.

<PAGE>

      o     Muffin the Mule - We entered into a license agreement dated July
            2005 with Future Publishing Limited. Under the agreement, we
            licensed the right to Muffin The Mule intellectual property for use
            in connection with the sale of a magazine. The license territory is
            the United Kingdom, Ireland, Northern Ireland, Channel Islands, and
            the Isle of Man. We are to receive royalties of 6% of the cover
            price less VAT on sales of the magazine after the first six issues.
            The minimum guaranteed royalty is UK (pounds) 22,500 plus VAT
            payable in five installments, with the first installment payable at
            the time of the publication of the seventh issue and payable
            quarterly thereafter. The license period is for two years from the
            first publication date.

      o     Muffin the Mule - We entered into a license agreement dated August
            16, 2005 with Martin Yaffe International Ltd. Under the agreement,
            we licensed the right to Muffin The Mule intellectual property for
            use in connection with the sale of rocking horse and stick horse
            toys. The license territory is the United Kingdom and Ireland. We
            are to receive royalties of 10% of the net sales price or 12% of
            F.O.B. price. The minimum guaranteed royalty is UK (pounds) 7,500
            plus VAT payable quarterly over the term of the license. The license
            expires on December 31, 2007.

      o     Muffin the Mule - We entered into a license agreement, dated
            September 1, 2005, with Fun2Learn Ltd. Under the agreement, we
            licensed the right to Muffin The Mule intellectual property for use
            in connection with children's coin operated rides. The license
            territory is the United Kingdom. We are to receive royalties of UK
            (pounds) 100 per unit. The minimum guaranteed royalty is UK (pounds)
            2,000 plus VAT payable quarterly over the term of the license. The
            license expires on December 31, 2007.

      o     Muffin the Mule - We entered into a license agreement, dated
            September 5, 2005, with ZOO Digital Publishing Limited. Under the
            agreement, we licensed the right to Muffin The Mule intellectual
            property for use in connection with an interactive DVD game. The
            license territory is worldwide. We are to receive royalties of 10%
            of the net selling price. The license expires seven years after the
            first release of the product.

Distribution and Sales Rights

We have entered into 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 expired on
            December 31, 2004.

      o     We entered into a distribution agreement, dated January 20, 2003 and
            as amended on June 17, 2004, with Character Options Ltd., whereby it
            would serve as exclusive distributor of our `Monster Quest' 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 Quest' are broadcast on GMTV or satellite television by
            June 30, 2006. The agreement expires on June 30, 2007.

      o     We entered into a representation agreement, dated August 19, 2003,
            with Haven Licensing Pty Ltd. for the use of Monster Quest 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.We entered into a representation
            agreement, dated September 17, 2003, with Character Licensing &
            Marketing for the use of Monster Quest Brand, excluding television
            and video distribution, in South Africa. The commission rate is 30%
            of gross receipts. The agreement expires on September 16, 2005.

<PAGE>

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

      o     We entered into a distribution agreement, dated April 27, 2004, with
            Cadaco, located in Chicago, Illinois, whereby Cadaco would serve as
            exclusive distributor of our Countin' Sheep products in the United
            States. Under the agreement, Cadaco is to pay us a royalty of 10% of
            the net selling price. The agreement expires on December 31, 2006.

      o     We entered into a Merchandise License Agreement dated December 14,
            2004 further granting Cadaco the rights to manufacture `Countin
            Sheep' associated toys and games in the United Stated. The agreement
            has a $75,000 license guarentee based on 10% of net sales generated
            by Cadaco of which Peak will receive 65% net of agents commission.
            The agreement had a $50,000 advance royalty payment received on
            signature of which Peak received 65%.

      o     We entered into a representation agreement, dated August 2, 2004,
            with Blue Chip Brands Pty Ltd., located in Australia, granting Blue
            Chips, in connection with our Countin' Sheep products, the
            non-exclusive right to negotiate with manufacturers and other
            interested parties licenses for merchandising rights in Australia
            for a period ending on December 31, 2006. The commission rate is 30%
            of gross royalty on all products other than the plush toy range, for
            which the commission rate if 1.5% of gross receipts.

      o     We entered into a representation agreement, dated March 1, 2005,
            with Maverick Entertainment Group plc (UK), pursuant to which we
            acquired, on a worldwide basis, other than for video, DVD and
            publishing rights in the United Kingdom and Ireland, the right to
            exploit television broadcasting rights for Muffin the Mule and for
            Snailsbury Tails, and the right to negotiate with and grant
            manufacturers and other interested parties licenses in relation to
            the manufacture and distribution of merchandise. We are entitled to
            35% of gross receipts in the UK and 40% of gross receipts in the
            rest of the world. The agreement expires on February 28, 2008,
            subject to automatic renewal if a minimum (pound)500,000 in
            royalties has been paid to Maverick.

      o     We entered into an agreement, dated March 7, 2005, with 4Kids
            Entertainment, Inc. The territory covered by the agreement is the
            United States. The term of the agreement is March 7, 2005 through
            December 31, 2011. Pursuant to the agreement, we granted to 4Kids
            certain exclusive television broadcast and home video rights to 52
            episodes of the television series The Wumblers. 4Kids is to use
            reasonable commercial efforts to cause the series to be broadcast on
            network television in the territory for a minimum of 52 broadcasts
            commencing on or before January 1, 2007. As to broadcasts for which
            4Kids controls the programming schedule or distribution method,
            revenues derived by 4Kids shall be retained 100% by 4Kids and such
            revenues shall not be deemed net series income. Revenues derived by
            4Kids from broadcasts in the territory that 4Kids does not control
            is to be divided as follows: 35% to 4Kids and 65% to Peak. With
            respect to home video sales, we are entitled to a royalty of 15% of
            net wholesale sale price if the wholesale price is greater than $10
            per unit and 10% of the net wholesale price if the wholesale price
            is $10 or less per unit. We also appointed 4Kids as our exclusive
            agent in the territory during the term to represent all
            merchandising, publishing and promotional rights to the series and
            all characters and elements contained in the series. 4Kids is to pay
            us $125,000 as a nonrefundable license fee and $125,000 as an
            advance against royalties, payable as follows: $4,807 as license fee
            and as an advance per episode upon delivery and acceptance by 4Kids
            of each of the episodes. The $125,000 advance shall be offset
            against Peak's share of royalties.

<PAGE>

            We are entitled to 60% and 4Kids is entitled to 40% of the series
            net income from the exploitation of the home video rights and
            merchandising rights derived in the territory. Series net income is
            defined as gross receipts from the exploitation or license by 4Kids
            of the home video rights and the merchandising, less certain
            production costs, and less actual out-of-pocket expenses, excluding
            overhead expenses, incurred by 4Kids in connection with the
            exploitation of the television and merchandising rights, and less
            third party out-of-pocket syndication costs paid by 4Kids. Series
            net income does not include any advertising revenue received by
            4Kids from the sale of advertising on any 4Kids controlled
            broadcasts. 4Kids has an annual option to license television rights
            and home video rights to at least thirteen additional episodes per
            broadcast season. The term is to be extended for an additional year
            upon exercise of such option. If Peak does not produce additional
            episodes and 4Kids desires to produce such additional episodes,
            4Kids shall have the right to do so on terms and conditions to be
            negotiated in good faith by the parties. We also granted to 4Kids
            the non-exclusive right to represent and negotiate worldwide or
            multi-territory licenses, for which advances, royalties and
            guarantees from such licenses generated in the United States will be
            considered series net income, and advances, royalties and guarantees
            from such licenses generated outside the United States or are
            attributable to sales outside the United States are to be divided as
            follows: 15% to 4Kids and 85% to Peak. On March 6, 2006, we entered
            into an agreement with Silly Goose to release our rights to The
            Wumblers allowing financing to be provided by third parties and
            production to be completed. Following our agreement with Silly Goose
            dated March 6, 2006, this agreement has been assigned back to Silly
            Goose.

      o     We entered into a representation agreement with Dubreq Ltd dated
            October 5, 2005 for exclusive worldwide exploitation rights to their
            brand Stylophone. Under the terms of the agreement we the right to
            manufacture or license the Stylophone brand and have agreed to pay
            Dubreq a royalty of 10 percent of net sales generated with no
            minimum guarantee payable by Peak. The contract is due to expire on
            December 31, 2008.

Competitive Environment

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

Competitors include large companies who operate with similar business strategies
to ours, 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 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, which commissions television shows, controls
its own channel and content, and has its own licensing and consumer products
division, BBC Worldwide, which exploits the rights and places the content
internationally.

Other competitors include companies that 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, 4Kids
Entertainment, DIC Entertainment and Saban. These smaller firms have created
many of the well-known and currently popular properties, such as 4Kids
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. Nickelodeon's Rugrats and Fox Kids/Saban's Power Rangers both
launched in 1992, and remain well-known brands to this day.

<PAGE>

Most of our competitors operate in the same three primary business lines as we
do: entertainment, licensing and consumer products; and they 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, but
also on income from product licensing and merchandise sales. Successful
television shows in one territory also tend to be successful in other
territories, and the ability to license the brand and to 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 of the children's market: entertainment,
licensing and consumer products.

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.

Principal Suppliers

In 2005, we were not dependent on any particular supplier.

Dependence on Major Customers

In our fiscal year ended December 31, 2005, Muffin The Mule represented
approximately 47% of our revenues.

Government Regulation

Our toy and related products sold in the United States are subject to the
provisions of The Consumer Product Safety Act, The Federal Hazardous Substances
Act, The Flammable Fabrics Act, and the regulations promulgated thereunder. The
Consumer Product Safety Act empowers the Consumer Product Safety Commission to
take action against hazards presented by consumer products, including the
formulation and implementation of regulations and uniform safety standards. The
Consumer Product Safety Commission has the authority to seek to declare a
product "a banned hazardous substance" under the Consumer Product Safety Act and
to ban it from commerce. The Consumer Product Safety Commission can file an
action to seize and condemn an "imminently hazardous consumer product" under the
Consumer Product Safety Act and may also order equitable remedies such as
recall, replacement, repair or refund for the product. The Federal Hazardous
Substances Act 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 Consumer Product Safety Act, the Federal
Hazardous Substances Act, the Flammable Fabrics Act, 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.

Employees

As of December 31, 2005, we employed a total of 12 employees, 11 on a full-time
basis, 1 on a part-time basis. 6 are management level employees, 3 are clerical,
and 3 employed as designers.

<PAGE>

ITEM 2.    DESCRIPTION OF PROPERTY

We lease approximately 3,000 square feet of space for our Bakewell, England
headquarters pursuant to a one year lease at approximately $6,059 per month. We
believe that our facilities are adequate for our present purposes. Our offices
are adequately covered by insurance for claims arising out of such occupancies.

ITEM 3.    LEGAL PROCEEDINGS

As at December 31, 2005, we are not a party to any material pending legal
proceeding, other than ordinary routine litigation incidental to our business
and except as described below.

In 2002, we entered into an agreement with CK Supermarket to provide working
capital on a short-term basis secured against certain inventory of our
subsidiary, Jusco UK Ltd. The lender has a security interest on the assets of
our subsidiary, Jusco UK Ltd., but does not have a security interest in our
parent company or our other subsidiaries. The debt was originally due on January
10, 2003. At March 31, 2004, it was envisaged that the loan would be repaid in
2004 from revenues from the sale of inventory. In May 2004, the lender notified
us regarding immediate payment of the balance owed. As of May 2004, we were in
discussions with the lender regarding the repayment of the debt through a
combination of cash from the sale of certain inventory and the issuance of our
securities and for us to guarantee the repayment by Jusco UK Ltd. At December
31, 2004, the balance was $386,095 including interest of $115,596. On or about
May 6, 2005, CK Supermarket commenced a legal proceeding before the Supreme
Court of the State of New York, County of New York, Index No. 05-601612, seeking
payment of $376,482 plus interest. We intend to vigorously contest the pending
proceeding, which we believe has several technical defenses, particularly as to
the forum and certain allegations that are believed to be material and
erroneous. However, ultimately, we anticipate that a properly instituted lawsuit
in a proper venue is likely to result in payment obligations of the subsidiary
to CK Supermarket, and if not paid by our subsidiary, then we may be required to
pay such obligation if so determined by a proper forum.

On January 26, 2004, we entered into an agreement with POW! Entertainment LLC
for the development and exploitation of the property "Tattoo - the Marked Man".
We have the worldwide distribution and merchandising rights in perpetuity and
the agreement describes a payment of $250,000 to fund project development. The
payment was subject to certain deliverables from POW! upon which payment was
anticipated to be made on the earlier of August 31, 2004 or ten business days
after the effective date of our registration statement filed in February 2004.
Stan Lee is to develop the concept, based on characters created by the
Shorrocks. The project was geared toward creating a motion picture based on the
character. The parties were to share all profits received from the project,
after deduction of expenses, and in addition, POW would have been entitled to
any executive producer fees from theatrical and television releases. We have not
yet paid the amounts due to POW! under the agreement, and it appears that the
transaction has been abandoned. We believe that we have meritorious defenses to
any potential claims.

On August 13, 2004, in a labor action entitled Thomas Bernard Skahill v. Peak
Entertainment Holdings, Inc. before the Labor Commissioner of the State of
California, the Company was ordered to pay $24,358.27 in wages, expenses,
penalties, and interest in connection with an employment claim. We are informed
that the matter was confirmed as a judgment on or about October 15, 004 by the
Superior Court of the State of California in the amount of $24,938.57. The
financial statements include an accrual of $9,166 in relation to this claim.

We are informed that on or about April 6, 2004, James E. Skahill and Marie A.
Skahill filed a complaint for damages for breach of contract against Peak
Entertainment Ltd. before the Superior Court of the State of California for the
County of Los Angeles, Northeast District, Case No. GC033622 alleging breach of
a lease and seeking damages in an amount to be determined. We believe that the
matter was not properly commenced with proper service upon Peak Entertainment
Ltd. We have not submitted a response to the matter before the Superior Court of
the State of California. We are unaware of the present status of the matter
before the Superior Court of the State of California and we are unable to
evaluate the likelihood of an unfavorable outcome, nor provide an estimate of
the amount or range of potential loss.

<PAGE>

On January 5, 2004, we completed a transaction, pursuant to a Settlement
Agreement and Release dated as of December 22, 2003, with former debenture
holders: AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW
Offshore, Ltd, and AJW Qualified Partners, LLC. Pursuant to the terms of the
settlement agreement, the former debenture holders had the right, thirteen
months after the closing of the transaction, to provide notice to the Company of
an exercise of a "put" right pursuant to which we would buy from the former
debenture holders all of the 1,000,000 shares of common stock issued to them
pursuant to the settlement agreement, at the price of $0.75 per share. Pursuant
to the terms of the settlement agreement, the former debenture holders were to
provide us with written notice if they wished to exercise the put right after
thirteen months and prior to one year and two months after the closing of the
transaction, at the expiration of which, the put right was to terminate. Closing
on the put was to occur within ten business days from receipt of notice of the
put. On or about January 10, 2005, the former debenture holders submitted a
notice to exercise the put right. On or about January 26, 2005, the former
debenture holders resent the January 10, 2005 notice to exercise the put right.
We believe that the notice was not properly submitted in accordance with the
notice procedures provided in the settlement agreement. Accordingly, we
considered the notice ineffective and did not honor the notice. In 2005, the
former debenture holders commenced a legal proceeding before the Supreme Court
of the State of New York, County of New York, Index No. 05-600993, seeking
payment of $750,000. We intend to contest this matter vigorously as we believe
we have a meritorious defense to the claims. If we do not prevail, we may
ultimately be required to repurchase 1,000,000 shares from the debenture holders
for $750,000 plus interest and costs.

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

Not applicable.

<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
closing prices per share of common stock. 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.

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

March 31, 2004                      0.90             0.40
June 30, 2004                       0.56             0.11
September 30, 2004                  0.48             0.09
December 31, 2004                   0.41             0.12
March 31, 2005                      0.50             0.30
June 30, 2005                       0.35__           0.30__
September 30, 2005                  0.35__           0.30__
December 31, 2005                   0.40__           0.30__


Holders

As of December 31, 2005, we had approximately 573 record holders of our common
stock. The number of record holders was determined from the records of our
transfer agent and does not include 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.

Transfer Agent

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

<PAGE>

Recent Sales of Unregistered Securities

On October 1, 2005, in a transaction deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering, we entered into a
consulting agreement with CEOcast, Inc., pursuant to which we agreed to issue
200,000 shares of our common stock in connection with the agreement, and 182,000
shares of common stock in connection with balance due under a prior agreement
with CEOcast dated September 1, 2004. The agreement is for a term of six months.

In the three months ended December 31, 2005, we sold to fifteen accredited
investors 105.50 units of our securities for $1,055,000. In February 2006, we
sold to two accredited investors an additional 22.50 units of our securities for
$225,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000
convertible debenture, convertible into shares of common stock at $0.30 per
share, and (ii) warrants to purchase 25,000 shares of the Company's common
stock. Interest on the principal amount of the debenture will accrue at the
simple interest rate of 12% per year computed on the basis of a 360 day year.
Interest is payable at maturity in cash. The debenture will mature in 18 months
from issue, unless earlier due. The debentures are secured by assets of our
company, to the extent not already encumbered. We agreed not to grant any other
person, after the closing upon the private placement pursuant to which the units
were offered, a priority security interest in our company's assets for so long
as the debentures remain outstanding, except with the consent of 2/3 of the
outstanding face amount of holders of the debentures. Consent of a two-thirds
majority of the holders of our debentures will be required for (i) any sale by
the company of substantially all of our assets unless the proceeds of such sale
are used to repay the debentures, (ii) any merger of the company with another
entity, where we are not the surviving corporation, unless as part of such
transaction the debentures will be repaid, or (iii) certain other actions
materially affecting the debentures that require approval of the debenture
holders under the corporations laws of the State of Nevada. The warrants will be
exercisable for a period of five years into shares of common stock at $0.30 per
share. We granted the investors certain piggyback registration rights with
respect to the shares of common stock underlying the warrants purchased,
agreeing to seek registration of the eligible shares in a registration statement
that we file at a future date. We used the proceeds for general corporate
purposes. We are to issue approximately 853,333 warrants, exercisable for five
years from February 14, 2006 at $0.30 per share, to the placement agent as
compensation. 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 January 2006, the Company issued to Lou Schneider in connection with business
consulting services warrants to purchase 200,000 shares of common stock,
exercisable for three years at $0.50 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.

<PAGE>

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

                          "FORWARD-LOOKING" INFORMATION

This 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

Unless otherwise stated, the discussion and analysis refers to the business of
Peak Entertainment Ltd., which we acquired on April 22, 2003 in a transaction
viewed as a reverse acquisition, and does not refer to the operations for our
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.

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

We have not generated significant revenues in this period because we had not yet
funded the television shows upon which we plan our exploitation of the related
intellectual rights portfolio. Our ability to convert current negotiations to
executed contracts is dependent upon such progress with the television shows. We
have delayed the production of the associated toys and merchandise for the
television shows, and this has compromised our ability to generate sales in
these areas.

The following discussion and analysis should be read in conjunction with the
information set forth in the audited financial statements for the year ended
December 31, 2005.

With limited available capital, we have produced initial episodes of our planned
television shows and we believe that we will now be viewed more favorably by
potential capital sources and believe that we should have better success in
raising much needed capital to fund full production of the planned television
shows.

Further, we have diversified the way in which we seek to finance some of our
television show production budgets, and during this year we have focused on
third party co-production financing. The delay in obtaining from, and limited
capital provided by, third party co-production financiers has delayed our
planned production timetable, but has been successful in significantly reducing
the internal cash expenditure of Peak.

We have entered into an agreement with Maverick Entertainment Group Plc., and
have certain exploitation rights to certain of its intellectual property: Muffin
the Mule and Snailsbury Tails, both of which the British Broadcasting
Corporation commissioned television episodes. Peak expects to exploit these
television shows aggressively in 2006 and anticipate increased revenues via
their licensing and manufacturing divisions as a result.

We, and third party financiers, have financed over $1,600,000 for the production
of The Wumblers, and we were expecting to finance the balance of the production
budget ($1,900,000) with the support of Silly Goose Company and third parties.
The Wumblers has been licensed to 4Kids Entertainment LLC for broadcast, home
entertainment (video/DVD), licensing and merchandising rights in the United
States, and we expect to utilize 4Kids Entertainment's prominence in the
industry to market and promote The Wumblers. Pursuant to our restructuring of
our agreement with Silly Goose on March 6, 2006, the Company was no longer to
provide the additional financing required to complete the Wumblers production
and this responsibility along with certain exploitation rights were returned to
Silly Goose in return for the percentage of the net profits from the new entity
exploiting the Wumblers.

<PAGE>

We have still yet to raise the requisite capital for the television shows in
order to complete production in earnest and it is still a factor that until we
raise sufficient capital to produce the planned television shows, we do not
expect to generate any significant revenues from any of our lines of business.
If we are is unable to raise capital to produce its television shows, we intend
to alter our business plan to focus on licensing our intellectual property to
third parties, and on the sale of toys and consumer goods.

SALE OF FORMER BUSINESS

Prior to April 2003, we were known as Palladium Communications Inc. and
conducted a telecommunications business.

In April 2003, we sold off substantially all of our assets and certain of our
liabilities to Palladium Consulting Group, LLC, in exchange for $75,000. The
assets sold consisted of substantially all of our assets used in our
telecommunications business, including all of our carrier agreements, sales
agent agreements, and equipment, which business we discontinued on April 22,
2003. The assets that we retained included 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. We retained substantially all of the liabilities,
consisting primarily of outstanding debentures and accrued interest. As a result
of the transaction, we were essentially a shell company with no assets and with
substantial liabilities related to outstanding debentures.

On April 22, 2003, we acquired the business of Peak Entertainment Ltd., a United
Kingdom company, by acquiring all of the outstanding shares of Peak
Entertainment Ltd. in a transaction viewed as a reverse acquisition.

The purpose of these corporate transactions was to try to create some value for
our shareholders. It is the understanding of our current management that the
former principals of Peak Entertainment Holdings, Inc. 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 obtaining
as a privately-held company.

CURRENT BUSINESS

Our 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, we have not generated significant revenues and we will require
substantial working capital to execute our business plan.

Our current business plan is centered on the production of television shows
geared for the children's entertainment market. Once our planned television
shows are produced, we believe that we will be able to generate revenue through
the sale of broadcast rights of those shows. We also intend 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, 2005 was an extremely difficult time for us. We had
very little operating capital to fund the production of planned television
shows, and focused on raising capital from third parties to fund the production
of the television shows. We experienced difficulty in raising capital in 2003,
2004 and 2005 from potential capital sources. We believe that this difficulty
was due to the terms of convertible debentures outstanding in 2003, which
contained terms very favorable to the debenture holders, and made potential
financiers reluctant to provide capital to us. Accordingly, we entered into
discussions with the debenture holders and repurchased those debentures in
January 2004.

We believed that with the repurchase in January 2004 of debentures that were
outstanding at December 31, 2003, our capital structure would be viewed more
favorably by potential capital sources, and that we would have better success in
2004 in raising much needed capital to fund production of the planned television
shows. However, in 2004, we continued to experience difficulty in raising
capital on terms acceptable to us, as many potential financiers sought further
development of our business prior to committing capital.

<PAGE>

The difficulty in raising capital in 2003 and 2004 has delayed our projected
timetable for the distribution of our planned television series. Due to lack of
capital, we were unable to fund production of a single television episode show
in 2003 and produced only one episode in 2004. The delay in producing television
shows, in turn, has delayed and compromised our ability to license intellectual
property rights and sell toys and merchandise based on the television shows.

Until we raise sufficient capital to produce our planned television shows, we do
not expect to generate any significant revenues from any of our lines of
business. If we are unable to raise capital to produce our planned television
shows, we intend to alter our business plan to focus on licensing intellectual
property to third parties, and on the sale of toys and other consumer goods.

RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2004

REVENUES

Consolidated net revenues increased 32% to $1,544,797 for the year ended
December 31, 2005 from $1,166,156 for the year ended December 31, 2004.

In 2005, we were primarily focused on the raising of capital, .Our intention is
to begin aggressively marketing toy products associated with Muffin the Mule and
our other television projects once adequate financing has been obtained for the
production of the television shows. We have negotiated various representation
agreements with licensees, and attended worldwide trade shows and retail
presentations to raise the profile of our products in order to seed the markets
in anticipation of the television show launches.

We are still in the early exploitation stages of licensing Muffin the Mule in
the United Kingdom and although contracts have been signed we do not anticipate
significant revenues until the later part of 2006 and into 2007. The early
production stages of our other two television shows, have delayed revenues
expected and until we have completed production of the shows and are in a
position to generate revenues from the sales of broadcast rights for the shows,
we do not have an adequate basis for projecting revenues, nor identifying trends
or demands. This applies for all main lines of our business, as our business
plan is centered around the television shows.

COST OF REVENUE

For the year ended December 31, 2005, cost of revenues was $461,934 as compared
to $596,651 in 2004, a decrease of 23%. Cost of revenues as a percentage of
revenues decreased to 30% in 2005 as compared to 51% in 2004. Cost of revenue is
primarily made up of labor costs, inventory, transport and royalties due on
licenses.

We anticipate that our cost of revenue with respect to income from entertainment
and consumer products will increase significantly in 2005 as we enter into the
production stages of more television show episodes and increased marketing
efforts for the sale of consumer goods. It is anticipated that the cost of
revenue for our television shows will initially increase in relation to our
entertainment revenues, until such time that the television episodes are
completed, at which time the significant costs will have been incurred. Since
costs for entertainment comprise mostly of non-recurring episode production
costs, we expect such costs to decrease as a percentage of revenues as we
distribute the shows and generate revenues from more and more markets. It is
anticipated that the cost of revenue for our consumer products will increase in
direct relation to an increase in revenues.

GROSS PROFIT

Gross profit for the twelve months ended December 31, 2005 was $1,082,863, or
70% of revenues, as compared to $569,505 or 49% of revenues, for the same period
in 2004.

<PAGE>

OPERATING EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative costs were $2,733,864 for the year ended December 31, 2005
compared to $2,343,790 for the year ended December 31, 2004. As a percentage of
revenues, selling, general and administrative costs decreased to 177% for the
year ending December 31, 2005 from 201% for the year ending December 31, 2004.
The following table summarizes the costs incurred in 2005.

Operation                             Expense ($)     % of Total Cost
---------                             -----------     ---------------

General Costs                         1,289,687              47%
Employee Compensation                   670,802              25%
Legal and Professional                  587,073              21%
Travel and Entertainment                186,301               7%

TOTAL                                 2,733,864             100%

The significant and noteworthy expenses were principally costs incurred from
legal, accounting and other professional services related to the ongoing SEC
filings and investment within the company. Such costs have been a significant
factor affecting the business operations at a time when we lack sufficient
revenues from operations to finance the production of our television shows and
rely upon financing from third parties. We will continue to incur such expenses
in 2006 as the company is in the financing stages of its animation projects and
general investment into the company. We anticipate that expenses for legal,
accounting and other professional services will continue to be a significant
factor in 2006, due to our continuing need to raise capital and our securities
law reporting obligations as a publicly-held company.

DEPRECIATION AND AMORTIZATION. Depreciation for the year ended December 31, 2005
was $120,129 as compared to $22,580 for the same period in 2004. The increase is
in direct relationship with the expansion of our capital spending on equipment.

Amortization for the year ended December 31, 2005 was $950,039 as compared to
$407,647 for the same period in 2004. The increase is in direct relationship
with amortization of licensing rights, debentures and warrants.

NET LOSS

Our net loss increased from $1,993,942, or $1.077 loss per share, in the year
ended December 31, 2004 to $5,059,948, or $0.15 loss per share, in 2005.The
increase in net loss is significantly attributable to penalty shares issued,
amortization of warrants and conversion of debentures.

LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements

Our revenues have been insufficient to cover our operating expenses. Since
inception, we have been dependent on loans from the Company's officers and on
private placements of the Company's securities in order to sustain operations.

Management expects to satisfy our liquidity needs on a short-term basis through
private placements of the Company's securities, including the issuance of debt.
There can be no assurances that the proceeds from private placements or other
capital transactions will continue to be available, that revenues will increase
to meet our cash needs, that a sufficient amount of our securities can or will
be sold, or that any common stock purchase options/warrants will be exercised to
fund our operating needs.

<PAGE>

As of December 31, 2005, we had commitments for capital and other expenditures
aggregating $8,176,489 included in current and long term liabilities, payable
over a maximum 20 year period. Those commitments and the amounts payable in
2005, giving effect to terms amended in 2005, are summarized in the following
table.

<TABLE>
<CAPTION>
Contractual                     Liability         Amounts payable        Contract Terms
Obligations                     as of 12/31/05    within 12 months       and Notes
<S>                             <C>               <C>                   <C>
Short term loan -                 $   377,016       $   377,016          20% interest per annum.  Was secured by
CK Supermarkets                                                          inventory, part sold and monies used to
                                                                         part pay balance.

Accounts Payable -                 $1,373,377        $1,373,377          Refers to various payables (composed
Various                                                                  significantly of various ordinary business
                                                                         expenses, as well as legal, accounting, and
                                                                         other professional fees).


Stock holders' advances           $   480,948       $   100,000          No pre-set repayment terms through 3/2004.
account - Shorrocks
                                                                         In 2004, we entered into a promissory note,
                                                                         payable in installments. First payment due
                                                                         on 1/2005 and to be repaid in full not later
                                                                         than 2008.

Short Term License               $     68,961      $     68,961

Debentures - including          $   2,441,885     $              0       Discount and interest on the debentures.
interest and discount                                                    includes the principal amount of the
                                                                         debentures

Other - including Tax and          $2,245,487        $1,904,534          Various costs payable within 2005
Social security and accruals                                             including   UK employment taxes and UK
                                                                         value added tax.
Long Term License - Shorrocks         928,815      $     50,000          10% royalty payable quarterly in
                                                                         perpetuity.  Guarantee of $1,000,000, with
                                                                         no established payment term.

                                                                         Pay from royalties from licenses to third
                                                                         parties over the term of the contract.

                                                                         In 2004, the Company amended the license
                                                                         agreement to establish a minimum quarterly
                                                                         royalty payment of $12,500 due beginning
                                                                         September 30, 2004.

P.O.V (Malaysia)                     $260,000     To be determined       Animation costs for Monster Quest.
                                                  based upon the level
                                                  of financing
                                                  received within 2006.
-------
TOTAL                              $8,176,489        $3,717,010
</TABLE>

<PAGE>

You will note that $1,409,763 or 17% of the total commitments as of December 31
2005, is committed to the principals of Peak in promissory notes or long-term
licenses and a further 30% is committed to the holders of outstanding
debentures.

We rely on short-term outside funding to meet our short-term liquidity needs, as
the internal cash flows generated by licensing alone has been insufficient to
fully meet our short-term liquidity needs. We anticipate that in fiscal year
2006, we will be in position to meet our short-term and long-term liquidity
needs through the internal cash flows generated from broadcast sales from our
current entertainment projects, Monster Quest and Muffin The Mule, which are
scheduled for production in summer 2006. However, our gross profit for the year
ended December 31, 2005 represented only 29 % of our commitments payable within
twelve months. Our current operations did not generate any significant revenues
and our principal planned products are still in production stages, we are in
constant need of cash to pay for our ordinary operating expenses, and more
significantly, to pay for the production costs of three projects currently in
various stages of production. Accordingly, until our entertainment projects can
be funded and full television production activities commenced, we will continue
to rely on short-term outside funding. If we are unable to obtain funding for
the projects, we may be forced to curtail or terminate operations.

Sources and Uses of Cash

For the twelve months ended December 31, 2005, we had a net operating loss of
$4,219,753 and an overall net loss of $3,935,500. At December 31, 2005, we had
$315,010 in cash and had a working capital outflow of $1,616,950.

               Sources and Uses of Cash from Operating Activities

For the twelve months ended December 31, 2005, cash flows from operating
activities resulted in negative cash flows of $1,616,950. The cash outflow from
losses was increased due to the effects of the amortization of discount on
debentures of 2,448,623 along with an increase in accounts receivable of
2,516,358 and offset by an increase in accounts payable and other accrued
liabilities of 1,638,840. Cash used in operations also arises from an increase
of $2,516,358 in accounts receivable a decrease of $1,638,840 in accounts
payable and other accrued liabilities and a decrease of $345,906 in other
current assets.

It is necessary for us to obtain additional capital from outside sources to
allow us to move forward with our operations and proposed new products. We
believe that our future growth is dependent on the degree of success of current
operations in generating revenues. Our ability to meet the obligations under the
contractual terms of our existing agreements, and the ability to obtain
additional funding for our operations, the sale of which, in turn, it is
anticipated, should produce cash inflows in line with our expectations from our
broadcast, licensing and merchandising activities.

Management expects to satisfy our liquidity needs on a short-term basis through
the continuing support of the directors, outside financings, and the subsequent
expected sales growth from our various company activities. We anticipate meeting
our long-term liquidity needs through the internal cash flows generated by
ongoing sales growth from projects such as our current entertainment project
Monster Quest. Furthermore, we will attempt to limit our long-term liquidity
needs through the continuance of cost control measures applied to our
operations.

<PAGE>

               Sources and Uses of Cash from Investing Activities

Cash flows from investing activities resulted in negative cash flows of $164,130
in the twelve months ended December 31, 2005, a decrease from cash flows of
($1,010,590) in fiscal 2004. In the twelve months ending December 31, 2005, cash
applied to investing activities included $35,714 toward plant and equipment.

In 2006, our focus will be on production and investment in new product licenses
from third parties. We may expend significant resources in investing activities
in 2006.

Cash for our initial start-up expenses was obtained primarily from 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
$1,543,426 in the twelve months ended December 31, 2005, compared to same period
in 2004 of negative $399,970. In 2006, we intend to continue to rely upon
capital raised from third party investors in private placements to fund our
operations, as well as any entertainment production financing partners we can
obtain. Entertainment production financing partners will share in the proceeds
of the sale of the produced product.

Whereas, in 2003, the primary source of funds were loans from our officers, in
2005, we relied upon capital raised from the sale of securities, including
convertible debentures and common stock, to fund our operations. In 2006, we
intend 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 we can obtain. Entertainment
production financing partners will share in the proceeds of the sale of the
produced product.

SHORT TERM BORROWINGS. In 2002, we had net cash provided from short term
financing agreements 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 Ltd. At December 31, 2005, the balance was $377,016, which
includes interest and storage charges. The debt was originally due on January
10, 2003. In May 2004, the lender notified us regarding immediate payment of the
balance owed. We are in discussion with the lender regarding the repayment of
the debt through a combination of cash from the sale of certain inventory and
the issuance of our securities. In the event the repayment issue is not
resolved, the lender could institute a legal proceeding against our subsidiary,
Jusco UK Ltd, seeking repayment. The lender has a security interest on the
assets of our subsidiary, Jusco UK Ltd., but does not have a security interest
in our parent company or our other subsidiaries. As we have previously targeted
the assets of Jusco UK Ltd. for use in repaying the lender, we believe that a
proceeding against our subsidiary, Jusco UK Ltd. would not have a material
effect on our operations.

On August 10 and August 22, 2005, we had a bridge loan from Harry Edelson and
Crown Northern Way, both of the loans bared interest at 10%. The principal
amount and accrued interest was paid on January 4, 2006.

On May 6, 2005, we entered into Securities Purchase Agreements with four
accredited investors. Pursuant to the agreements, we sold a principal amount of
$360,000 in 12% convertible debentures and 432,000 common stock purchase
warrants, exercisable for five years at $0.50 per share, for gross proceeds of
$360,000. The debentures mature in 270 days from May 6, 2005. The debentures
were to mature earlier upon future different funding by us of any dollar amount
equaling 15% more than amounts closed pursuant to the private placement. The
debentures accrue interest at the rate of 12% per year, compounded annually, and
was payable at maturity. The principal amount of the debentures may be converted
into shares of common stock at the conversion price of $0.30 per share. The
conversion price for the debentures may be adjusted downward for issuances of
securities by us at prices below the lower of $.30 per common share, or fair
market value for such securities as determined at the time of issuance. For late
payment, there will be a cash penalty equal to 1.5% of the outstanding principal
amount of the debentures, compounded monthly for each month that payment in full
is not effected, up to a maximum cash penalty equal to 9% of the outstanding
principal amount of the debentures, and, in addition, there will be monthly
reduction in warrant exercise price of the warrants at the rate of 2.5% and up
to a maximum of 20% reduction in the exercise price. The obligations of the
Company under the debentures are secured by security interest rights in
substantially all of the Company's assets, to the extent not already encumbered.
The debentures matured in our fourth quarter 2005, and remains unpaid.

<PAGE>

In the three months ended December 31, 2005, we sold to fifteen accredited
investors 105.50 units of our securities for $1,055,000. In February 2006, we
sold to two accredited investors an additional 22.50 units of our securities for
$225,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000
convertible debenture, convertible into shares of common stock at $0.30 per
share, and (ii) warrants to purchase 25,000 shares of the Company's common
stock. Interest on the principal amount of the debenture will accrue at the
simple interest rate of 12% per year computed on the basis of a 360 day year.
Interest is payable at maturity in cash. The debenture will mature in 18 months
from issue, unless earlier due. The debentures are secured by assets of our
company, to the extent not already encumbered. We agreed not to grant any other
person, after the closing upon the private placement pursuant to which the units
were offered, a priority security interest in our company's assets for so long
as the debentures remain outstanding, except with the consent of 2/3 of the
outstanding face amount of holders of the debentures. Consent of a two-thirds
majority of the holders of our debentures will be required for (i) any sale by
the company of substantially all of our assets unless the proceeds of such sale
are used to repay the debentures, (ii) any merger of the company with another
entity, where we are not the surviving corporation, unless as part of such
transaction the debentures will be repaid, or (iii) certain other actions
materially affecting the debentures that require approval of the debenture
holders under the corporations laws of the State of Nevada. The warrants will be
exercisable for a period of five years into shares of common stock at $0.30 per
share. We used the proceeds for general corporate purposes. We are to issue
approximately 853,333 warrants, exercisable for five years from February 14,
2006 at $0.30 per share, to the placement agent as compensation.

STOCKHOLDER ADVANCES. From time to time, Mr. and Mrs. Shorrocks loaned money to
Peak to fund day-to-day operations, as well as for the acquisition of certain
properties. Since inception through December 31, 2003, the Shorrocks loaned to
Peak an aggregate of $916,634. The debt has incurred a foreign exchange loss of
$75,597. As of December 31, 2005, the Shorrocks are now owed $480,948. 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 shareholders'
equity in excess of 150% of the amount due, or positive net income from
operations in excess of 150% of the amount due.

<PAGE>

ISSUANCE OF CONVERTIBLE DEBENTURES AND REPURCHASE OF 2002 AND 2003 CONVERTIBLE
DEBENTURES. In April 2003, immediately following the sale of the Company's
predecessor telecommunications business to Palladium Consulting Group, we had
outstanding convertible debentures in the principal amount of $215,000 and
warrants to buy 645,000 shares of common stock. These securities had been sold
by the Company's predecessor business in February 2002 and we retained these
liabilities following the sale of the Company's former telecommunications
business.

On April 22, 2003, following the acquisition of Peak Entertainment Ltd., we sold
to the same investors of the outstanding convertible debentures additional
convertible debentures in the principal amount of $785,000 and warrants to buy
1,570,000 shares of our common stock.

We sold the debentures in April 2003 to raise operating capital and used the
proceeds for the payment of licensing commitments and general working capital.

The conversion terms of the debentures provided that the debentures could be
converted into shares of our common stock at the lower of $1.00 or a 50%
discount to the trading price of the common stock. Accordingly, the conversion
price was continuously adjustable, with no minimum or floor conversion price
set. Therefore, our obligation to issue shares upon conversion of debentures was
essentially limitless.

These debentures represented a large amount of debt relative to our identifiable
liquid assets. As of January 1, 2004, we had an aggregate of approximately
$1,000,000 in 12% convertible debentures outstanding, with outstanding interest
payable of approximately $249,010. We determined that it would be preferable to
repurchase these debentures; and, we did so, as described below, so these
debentures are no longer outstanding.

In the months after April 2003 through December 2003, we had very little success
in raising capital from third parties to fund our operations. This inability was
due, in part, to the conversion terms of the outstanding debentures. Potential
financiers were unwilling to commit capital to us because of the conversion
terms of the outstanding debentures, since the debenture holders could convert
their debentures into a significant and potentially limitless number of our
shares at a significant discount to the market price of our common stock. In
order to raise capital, we needed to seek an amendment of the conversion terms
of the debentures or repurchase the debentures.

On January 5, 2004, we completed a transaction with former debenture holders in
which we repurchased from the former debenture holders an aggregate of
$1,000,000 principal amount of 12% convertible debentures and 2,215,000 common
stock purchase warrants, which represented all of the securities that they
purchased pursuant to Securities Purchase Agreements dated as of February 28,
2002 and April 22, 2003. We paid the former debenture holders $1,000,000 in cash
and 1,000,000 shares of our unregistered common stock for the repurchase of the
securities. 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. In order to make such payment, we used $250,000 that we had in
operating capital, and $750,000 that we raised through the sale of securities.
The former debenture holders had the right to make us buy from them all of the
1,000,000 shares of common stock issued to them, at the price of $0.75 per
share. The right expired in March 2005. We also paid $10,000 of the former
debenture holders' fees and expenses in connection with the transaction. As more
fully discussed at Item 3 Legal Proceedings, we are currently in dispute with
the former debenture holders.

The 8% convertible debentures issued in January 2004 are substantially different
from the repurchased debentures. The most material difference in the debentures
is that the repurchased debentures could be converted at a fluctuating rate at a
substantial discount to the market price of our common stock into an
undeterminable amount of shares of common stock whereas the new debentures are
convertible at a fixed rate into a fixed number of shares of common stock. Other
differences are that the repurchased debentures accrued interest at 12% whereas
the new debentures accrue interest at 8%, the repurchased debentures were due in
2004 whereas the new debentures mature in 2007.

<PAGE>

In July 2004, debentures in principal amounts totaling $541,500 were converted
into 1,805,500 shares of common stock. We may need approximately $1,008,500,
plus accrued interest, to pay off the remaining debentures and accrued interest
in January 2007. We do not presently have the cash to pay that amount and our
present revenues and gross profit levels make it unreasonable to think that our
present operations are capable of producing cash streams to pay the debt in
2007. We do not have any specific plan to pay the debentures or the accrued
interest. We believe that the holders of the debentures are likely to convert
the debentures into shares of common stock prior to their maturity in 2007. If
the debentures are not converted prior to 2007, we anticipate that by January
2007 our operations will be producing sufficient revenues and cash flow to pay
off the debt, because it is highly unlikely that we will continue to be in
operation in 2007 if we are unable to resolve our going concern issues in 2005
or 2006. The first interest payment on the 8% convertible debentures was due in
January 2005, and if our operating revenues are insufficient to pay the
interest, or if the interest amount is not converted into common stock, we will
seek to resolve payment of interest through a promissory note, issuance of other
securities, or some other similar arrangement. We elected to accrue the interest
payment due January 2005 until another interest payment period.

Although we repurchased the 12% debentures in January 2004, we have current
liabilities related to the repurchased debentures reported on our December 31,
2003 balance sheet of $838,279. Because we financed the repurchase primarily
through the sale of new 8% convertible debentures due January 2007, we may need
approximately $1,860,000 to pay off the debentures and accrued interest in
January 2007 if none of the debentures are converted into the Company's common
stock, however, we believe that the holders of the debentures are likely to
convert the debentures, including accrued interest, into shares of common stock
prior to maturity of the 8% debentures in 2007. The first interest payment on
the 8% convertible debentures was due until January 2005. We elected to accrue
the interest payment for another interest payment period.

SALES OF SECURITIES IN 2004

On January 5, 2004, we sold $1,500,000 in 8% convertible debentures due January
5, 2007 and 3,000,000 common stock purchases warrants. The purchase price
totaled $1,500,000, of which $750,000 was paid in cash, and $750,000 by
promissory notes, which were paid in July 2004. The principal amount of the
debentures, plus any accrued and unpaid interest on them, 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 7 of each year,
commencing January 7, 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 to 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 agreed to file
such a registration statement for the resale of the underlying shares and, in
the event that the registration statement was not declared effective within 120
days, to issue, as a penalty, approximately 100,000 shares of common stock for
each $500,000 investment for each subsequent month period in which the
registration statement had not been declared effective. In September 2004, we
issued a total of 275,000 shares to investors as a result of this agreement. As
reported above, in July 2004, debentures in principal amounts totaling $541,500
were converted into 1,805,500 shares of common stock. The remaining debentures
are protected by security interests in substantially all of our collateral. We
will need the approval of the debenture holders in order to grant security
interest rights to third parties that are senior to or on par with these
debentures. We used $750,000 of the proceeds for the retirement of previously
issued 12% debentures discussed above. We did not pay the interest due January
7, 2005 in cash in 2005. Certain debenture holders elected to convert their
accrued interest into shares of common stock and other debentures holders did
not make an election and their interest is to be accrued until the next payment
period or converted to common stock at a later date.

On January 29, 2004, we entered into a Securities Purchase Agreement with an
individual investor. Pursuant to the agreement, we sold $50,000 in 8%
convertible debentures due January 29, 2007 and 100,000 common stock purchase
warrants. The purchase price was $50,000. 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 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 to another
interest payment period, or cause us to issue common stock in exchange for
interest. We used the proceeds for working capital purposes. On January 26,
2005, the investor converted these $50,000 in debentures, plus $4,000 in accrued
interest, into an aggregate of 180,000 shares.

<PAGE>

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
these transactions. All of the purchasers were pre-existing 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 $0.50 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, or in a separate
registration statement, and to incur cash and other penalties for late
effectiveness of such a registration statement. No such penalties were incurred.
We used the proceeds from the sale of securities for working capital purposes.

On April 28, 2004, we entered into an agreement with Laura Wellington, whereby
we exchanged a debt of $250,000 owed to Ms. Wellington in exchange for 500,000
shares of common stock. Ms. Wellington had loaned $250,000 to us on or about
October 2003, which we used for working capital purposes.

On July 23, 2004, we entered into an agreement with Laura Wellington, whereby we
exchanged a debt of $194,000 owed to Ms. Wellington in exchange for 388,000
shares of common stock. Ms. Wellington had loaned $194,000 to us on or about
April 25, 2004, which we used for working capital purposes.

On September 28, 2004, we entered into Securities Purchase Agreements with three
accredited persons for the sale of 1,666,666 shares of common stock and
1,750,000 common stock purchase warrants, exercisable for three years at $0.50
per share, for the aggregate purchase price of $500,000.

SALES OF SECURITIES IN 2005

On May 6, 2005, we entered into Securities Purchase Agreements with four
accredited investors. Pursuant to the agreements, we sold a principal amount of
$360,000 in 12% convertible debentures and 432,000 common stock purchase
warrants, exercisable for five years at $0.50 per share, for gross proceeds of
$360,000. The debentures mature in 270 days from May 6, 2005. The debentures
were to mature earlier upon future different funding by us of any dollar amount
equaling 15% more than amounts closed pursuant to the private placement. The
debentures accrue interest at the rate of 12% per year, compounded annually, and
was payable at maturity. The principal amount of the debentures may be converted
into shares of common stock at the conversion price of $0.30 per share. The
conversion price for the debentures may be adjusted downward for issuances of
securities by us at prices below the lower of $.30 per common share, or fair
market value for such securities as determined at the time of issuance. For late
payment, there will be a cash penalty equal to 1.5% of the outstanding principal
amount of the debentures, compounded monthly for each month that payment in full
is not effected, up to a maximum cash penalty equal to 9% of the outstanding
principal amount of the debentures, and, in addition, there will be monthly
reduction in warrant exercise price of the warrants at the rate of 2.5% and up
to a maximum of 20% reduction in the exercise price. The obligations of the
Company under the debentures are secured by security interest rights in
substantially all of the Company's assets, to the extent not already encumbered.
The debentures matured in our fourth quarter 2005, and remains unpaid.

On August 10, 2005, we sold to one accredited investor a 10% convertible
promissory note in the principal amount of $100,000 due November 8, 2005, and
warrants to purchase 333,333 shares of common stock. The principal amount and
accrued interest on the note were convertible into shares of common stock at the
conversion price of $0.30 per share. The warrants are exercisable at a price of
$0.30 per share until August 10, 2008. Our obligations under the note were
protected by a subordinated lien on our intellectual property, that is
subordinate to the liens of prior lenders. We used the proceeds for general
corporate purposes. The note was repaid on January 4, 2006.

On August 22, 2005, we sold to one accredited investor a 10% convertible
promissory note in the principal amount of $100,000 due November 21, 2005, and
warrants to purchase 333,333 shares of common stock. The principal amount and
accrued interest on the note were convertible into shares of common stock at the
conversion price of $0.30 per share. The warrants are exercisable at a price of
$0.30 per share until August 22, 2008. Our obligations under the note are
protected by a subordinated lien on our intellectual property, that is
subordinate to the liens of prior lenders. We used the proceeds for general
corporate purposes. The note was repaid on January 4, 2006.

<PAGE>

In the three months ended December 31, 2005, we sold to fifteen accredited
investors 105.50 units of our securities for $1,055,000. In February 2006, we
sold to two accredited investors an additional 22.50 units of our securities for
$225,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000
convertible debenture, convertible into shares of common stock at $0.30 per
share, and (ii) warrants to purchase 25,000 shares of the Company's common
stock. Interest on the principal amount of the debenture will accrue at the
simple interest rate of 12% per year computed on the basis of a 360 day year.
Interest is payable at maturity in cash. The debenture will mature in 18 months
from issue, unless earlier due. The debentures are secured by assets of our
company, to the extent not already encumbered. We agreed not to grant any other
person, after the closing upon the private placement pursuant to which the units
were offered, a priority security interest in our company's assets for so long
as the debentures remain outstanding, except with the consent of 2/3 of the
outstanding face amount of holders of the debentures. Consent of a two-thirds
majority of the holders of our debentures will be required for (i) any sale by
the company of substantially all of our assets unless the proceeds of such sale
are used to repay the debentures, (ii) any merger of the company with another
entity, where we are not the surviving corporation, unless as part of such
transaction the debentures will be repaid, or (iii) certain other actions
materially affecting the debentures that require approval of the debenture
holders under the corporations laws of the State of Nevada. The warrants will be
exercisable for a period of five years into shares of common stock at $0.30 per
share. We used the proceeds for general corporate purposes. We are to issue
approximately 853,333 warrants, exercisable for five years from February 14,
2006 at $0.30 per share, to the placement agent as compensation.

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.

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 cashflow
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 ADDRESS GOING CONCERN

Our ability to continue as a going concern is an issue raised as a result of
historical losses from operations, cash flow deficits and a net capital
deficiency. As a result of the foregoing, the auditors have expressed
substantial doubt about our ability to continue as a going concern.

We continue to experience net operating losses. Our ability to continue as a
going concern is subject to our ability to generate a profit or obtain necessary
funding from outside sources, including obtaining additional funding from the
sale of our securities, increasing sales or obtaining loans from various
financial institutions where possible. Our 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. The primary issues
management will focus on in the immediate future to address this matter include:

      o     seeking institutional investors for equity investments;
      o     complete 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 sales of
            consumer products and pre-sales on our projects in development;
      o     renegotiate payments terms of existing contractual obligations;
      o     develop co-production financing opportunities for our entertainment
            projects;
      o     consider third-party licensing alliances for the products in our
            entertainment division; and

<PAGE>

      o     seek acquisition and partnership opportunities with third party
            companies to expand our fully integrated media business
      o     restructuring of the operations of the company including the primary
            currency from sterling to dollars to significantly reduce the
            current auditing and administration costs.

  To address these issues, in 2006, we have entered into agreements with various
investment banking companies to assist us in raising capital. We believe we are
close to securing $1,000,000 in short term funding to meet the operational needs
of the business. We have entered into a preliminary agreement with Maverick
Entertainment Plc, and expect to enter into more formal discussions about
potentially combining our businesses during 2006. We anticipate increased
revenues from having our first completed TV series to exploit later in 2006 with
Muffin the Mule. We have made arrangements to restructure our UK operations and
reduce the costs and associated debts and are changing are functional currency
from sterling to dollars and intend to appoint US based auditors and advisors to
streamline our operations and reduce costs.

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 fiscal year ended December 31, 2005.

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.

Revenue 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.

<PAGE>

While this accounting treatment has not been material in our past operations,
from time to time, we expect 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.

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.

(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.

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

Due to the majority of our operations being based in the United Kingdom, the
British Pound has been selected as our 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 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 December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No 123, "Share-Based Payment" ("SFAS
Statement 123R") which replaces SFAS No 123, "Accounting for Stock-Based
Compensation," and supercedes APB Opinion No 25, "Accounting for Stock Issued to
Employees." This statement requires that all share-based payments to employees
be recognized in the financial statements based on their fair values on the date
of grant. SFAS No 123R is effective as of the beginning of the first interim or
annual reporting period that begins after December 31, 2005 and applies to all
awards granted, modified, repurchased or cancelled after the effective date. The
Company is evaluating the requirements of SFAS 123R and expects that its
adoption will not have a material impact on the Company's consolidated results
of operations and earnings per share.

In December of 2004, the FASB issued SFAS No 153, "Exchanges of Nonmonetary
Assets - an Amendment of APB Opinion No 29" (SFAS 153). SFAS 153 eliminates the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS 153 is effective for fiscal years beginning after
June 15, 2005 and is required to be adopted by the Company in the first quarter
of 2006. The Company does not believe that the adoption of SFAS 153 will have a
material impact on the Company's consolidated results of operations or financial
condition.

<PAGE>

ITEM 7 - FINANCIAL STATEMENTS
Unaudited

TABLE OF CONTENTS

                                                                          Page
                                                                          ----
Report of independent registered public accounting firm                    33
Consolidated balance sheets                                                34
Consolidated statements of operations                                      35
Consolidated statements of changes in stockholders' equity (deficit)       36
Consolidated statements of comprehensive loss                              37
Consolidated statements of cash flows                                      38
Notes to the consolidated financial statements                             40






<PAGE>

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited

<TABLE>
<CAPTION>
                                                       Year Ended    Year Ended
                                                       December 31,  December 31,
                                                     2004 (Restated)     2005
                                                      -----------    -----------
ASSETS

CURRENT ASSETS
<S>                                                   <C>                <C>
Cash and cash equivalents                             $    10,235        315,010

Accounts receivable                                       498,187        891,953

Inventory                                                  91,743           --

Other current assets                                      861,728      3,330,226
                                                      -----------    -----------

Total current assets                                  $ 1,461,893      4,537,189


Deferred professional fees                                205,834        190,434

Plant and equipment, net                                  259,649        201,637

Intangible assets, net of amortization                  1,972,683      1,777,683
                                                      -----------    -----------

                                                      $ 3,900,059      6,706,943
                                                      ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY/ (DEFICIT)

CURRENT LIABILITIES

Short term borrowing                                  $      --         200,000-

Advances from factor                                         --             --

Account payable                                         1,301,439      1,373,377

Stockholders' advance account                             752,522        480,948

Licenses fees payable                                      67,831         68,961

Other accrued liabilities                               2,290,729      2,651,764
                                                      -----------    -----------

Total current liabilities                             $ 4,412,521      4,775,050

LONG TERM LIABILITIES


License fees payable                                    1,234,119      1,188,815

Convertible debentures                                    330,652      2,212,624
                                                      -----------    -----------

Total long term liabilities                           $ 1,564,771      3,401,439

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, par value $0.001 - 900,000,000
Shares authorized, 21,774,212 and 29,040,955 issued
and outstanding                                       $    29,050         31,860

Additional paid in capital                              4,576,739      8,857,059
Retained earnings (deficit)                            (5,927,940)   (10,987,889)
Other comprehensive income                               (755,082)       629,424
                                                      -----------    -----------
Total stockholders' equity (deficit)                   (2,077,233)    (1,469,546)
                                                      -----------    -----------

                                                      $ 3,900,059      6,706,943
                                                      ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

PEAK ENTERTAINEMNT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited


                                       Year ended     Year ended
                                       December 31,   December 31,
                                     2004 (Restated)     2005
                                      -----------    -----------

Revenue                                 1,166,156      1,544,797

Cost of revenue
Cost of Goods Sold                        596,651        461,934
                                      -----------    -----------
Total cost of revenue                     596,651        461,934


Gross profit                              569,505      1,082,863

Operating expenses
Selling, general and administrative     2,343,790      2,733,864
Depreciation and amortization             430,227      1,070,168
Non Cash Charges                                       1,498,584

Total operating expenses                2,774,017      5,302,616

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

Loss from operations                   (2,204,512)    (4,219,753)

Gain/ (loss) on settlement of
convertible
debentures and accrued interest            37,559
                                                         444,031

Foreign exchange gain                     371,113           0.00

Interest expense                         (604,574)       240,412

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

Net loss                               (1,993,942)    (4,497,724)
                                      ===========    ===========

Basic and diluted net loss per
share                                 $    (0.077)         (0.14)

Weighted average common shares
outstanding                            25,942,440     31,852,108
                                      ===========    ===========

See accompanying notes to consolidated financial statements.

<PAGE>

PEAK ENTERTAINMENT HOLDINGS INC,
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Unaudited


<TABLE>
<CAPTION>
                                      Shares     Common stock   Additional     Retained    Accumulated      Total
                                                                 paid in       Earnings       Other
                                                                 capital       deficit     comprehensive
                                                                                             income /
                                                                                              (loss)
                                   ----------    ------------  -----------   -----------   -------------  -----------
<S>                                <C>              <C>           <C>           <C>          <C>          <C>
                                   19,071,684       19,075        (19,072)      (967,451)    (71,530)     (1,038,978)
Balance, December 31, 2002
                                    2,702,528        2,702      1,669,913             --          --       1,672,615
Issuance of stock, warrants,
debentures
                                           --           --             --     (2,966,547)         --      (2,966,547)
Net loss
                                                                                            (368,109)       (368,109)
Cumulative translation adjustment          --           --             --            --
                                           --           --             --            --
                                   21,774,212      $21,777     $1,650,841    ($3,933,998)  ($439,639)    ($2,701,019)
                                   ==========      =======     ==========    ============  ==========    ============
Balance, December 31,2003

Buy-back of debentures              1,000,000        1,000     (1,001,000)            --          --      (1,000,000)
                                    2,666,666        2,667      2,522,334             --          --       2,525,001
Issuance of convertible
debentures
                                    1,805,000        1,805        539,695             --          --         541,500
Conversion of debentures
                                      632,077          638        133,655             --          --         134,293
Issuance of warrants in exchange
for future consulting service
                                      888,000          888        443,112             --          --         444,000
Issuance of common stock and
warrants in exchange for
cancellation of short-term debt
                                      275,000          275        123,475             --          --         123,750
Issuance of penalty shares
                                           --           --          9,295             --          --           9,295
Stan Lee (Unvested)
                                           --           --        155,332             --          --         155,332
Vintage Filings
                                           --           --             --     (1,993,942)         --      (1,993,942)
Net loss
                                           --           --             --             --    (315,443)       (315,443)
                                   ----------      -------     ----------    ------------  ----------    -----------
Cumulative translation adjustment          --                          --            --
                                           --                          --            --
                                   29,040,955      $29,050     $4,576,739    ($5,927,940)  ($755,082)    ($2,077,233)
                                   ==========      =======     ==========    ============  ==========    ===========
Balance, December 31, 2004
(Restated)

Conversion of debentures              416,388          416        120,529             --          --         120,945
Issuance of warrants in exchange      594,765          595        546,313                         --         546,907
for future consulting services
Issuance of common stock and                0            0              0             --          --               0
warrants in exchange for
cancellation of short term debt
Issuance of penalty shares          1,800,000        1,800        798,200             --          --         800,000
Issuance of warrants                        0            0      2,815,278             --          --       2,815,278
Net loss                                                                      (4,497,724)                 (4,497,724)
Cumlative translation adjustment                                                             822,280         822,280
Balance, December 31, 2005         31,852,108       31,861      8,857,059    (10,425,664)     67,198      (1,469,546)
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

PEAK ENTERTAINEMNT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Unaudited

                                         Year ended        Year ended
                                        December 31,      December 31,
                                       2004 (Restated)        2005
                                       --------------    --------------

Net loss                                $ (1,993,942)     (4,497,724/(4

Cumulative translation adjustment           (755,082)         (822,280)
                                        ------------     --------------

Comprehensive loss                      $ (2,749,024)       (5,320,004)
                                        ============     ==============



See accompanying notes to consolidated financial statements.

<PAGE>

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited

                                                  Year ended     Year ended
                                                  December 31,   December 31,
                                                2004 (Restated)    2005
                                                 -----------    -----------
Cash flows from operating activities

Net loss                                         $(1,993,942)    (3,935,500)

Adjustment to reconcile net loss to net
cash used in operating activities:

Depreciation                                          22,580         93,726

Amortization of intangible assets                    407,647        323,416
Foreign exchange gain/(loss)                         371,113           --

Amortization of discount on debentures               232,790      2,448,623
Gain on settlement of debentures                    (883,033)        37,559
Non-cash common stock expenses                          --             --
Non-cash professional and consulting fees          1,497,360        546,907
Loss on sale of intangibles                          578,337           --

Changes in working capital:


Accounts receivable                                 (459,726)    (2,516,358)

Inventories                                          163,577         91,743
Other current assets                                (223,823)      (345,906)

Accounts payable and other accrued liabilities      (150,161)     1,638,840
                                                 -----------    -----------
Net cash used in operating activities               (437,281)    (1,616,950)
                                                 ===========    ===========

     Cash flows from investing activities:

Purchase of plant and equipment                      (71,029)       (35,714)
Purchase of intangibles                                 --         (128,416)

Proceeds from sale of plant and equipment              3,565           --

Issue of debentures                                1,078,054
                                                 -----------    -----------
Net cash (used in)/ provided by investing
activities                                         1,010,590       (164,130)
                                                 ===========    ===========


See accompanying notes to consolidated financial statements.

<PAGE>

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(CONTINUED)

                                                    Year ended    Year ended
                                                    December 31,  December 31,
                                                  2004 (Restated)    2005
                                                    ----------    ----------
Cash flows from financing activities:

Short term borrowing, net                             (160,028)      200,000
Stockholders' advances account                        (239,942)     (271,574)
Advances from factor, net                                 --            --
Convertible debentures                                    --            --
Issue of debentures                                          *     1,615,000
                                                    ----------    ----------
Net cash provided by/(used in) financing
activities                                            (399,970)    1,543,426
                                                    ==========    ==========
Cumulative translation adjustment                     (315,443)      542,429
                                                    ==========    ==========

Increase in cash and cash equivalents                 (142,104)      304,775

Cash and cash equivalents, beginning of period         152,339        10,235
                                                    ----------    ----------

Cash and cash equivalents, end of period            $   10,235       315,010
                                                    ==========    ==========

Supplemental disclosures of cash flow information

Interest Paid                                       $    1,182          --
                                                    ==========    ==========
Purchases of licenses through issuance of long

term liabilities                                    $ (407,036)         --
                                                    ==========    ==========
Accounting for reserve acquisition                        --            --
                                                    ==========    ==========

Issuance of shares in settlement of liability          444,000          --
                                                    ==========    ==========

See accompanying notes to consolidated financial statements.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

1        Description of Business and Future Prospects

         Peak Entertainment Holdings, Inc, formerly Peak Entertainment Ltd, was
         formed on November 20, 2001 as 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 property from concept
         to consumer in-house, controlling and co-ordinating broadcast,
         promotions and product launches (toys, apparel, video games, etc.) to
         build market momentum and worldwide brand quality. The accompanying
         consolidated financial statements have been prepared in conformity with
         accounting principles generally accepted in the United States of
         America, which contemplate continuation of the Company as a going
         concern. As shown in the financial statements, at December 31, 2005 and
         for the twelve months then ended, the Company has suffered recurring
         losses, negative cash flows from operations, negative working capital,
         an accumulated deficit of $10,987,888 and a stockholders' deficiency of
         $1,469,546.

         As shown in the accompanying financial statements, the Company incurred
         a net loss of $5,059,948 during the current period. Current economic
         conditions have limited the ability of the Company in acquiring
         additional equity capital.

         In response to economic conditions, management has implemented expense
         reduction and revenue enhancements as well as initiated additional
         investor financing. Specifically, management has implemented reductions
         on the salaries of senior management. Also, nonessential capital
         expenditures, travel and other expenses have either been eliminated or
         postponed. Management has shifted its corporate and business
         development activities to focus strategic resources. To that end, the
         Company continues to pursue a three million dollar bridge financing
         round directed toward existing and strategic investors. Management
         believes the combination of these actions maximizes the probability of
         the Company's ability to remain in business. A portion of that capital
         has been secured recently but it is still uncertain at this stage
         whether the Company will be totally successful in accomplishing these
         objectives. Without this capital there is some uncertainty about the
         Company's ability to continue as a going concern though management are
         close to completing this transaction following the appointment of
         credible merchant bankers and management consultants. The financial
         statements do not include any adjustments that might be necessary
         should the Company be unable to continue as a going concern.

         The Company has developed a business plan to increase revenue by
         capitalizing on its integrated media products. The Company is in
         constant discussions with outside sources to provide the required funds
         to cover operational costs. This continuous need raises 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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

2        Restatement of Financial Statements:

         The staff of the Division of Corporation Finance of the Securities and
         Exchange Commission (the "Commission") issued comments on June 9, 2005
         to the Company in connection with its review of the Company's Annual
         Report on Form 10-KSB/A for the year ended December 31, 2004 filed on
         May 16, 2005.

         Based on these comments and discussions with the Commission, and after
         consultation with the Company's independent registered public
         accounting firm, Garbutt & Elliott Limited, the Company's management
         recommended, and its Board of Directors determined on June 24, 2005,
         that it restate its financial statements for the year ended December
         31, 2004. As a result, the financial statements issued by the Company
         for the year ended December 31, 2004 should no longer be relied upon.

         The Company's determination to restate these previously issued
         financial statements stems from comments from the Commission requesting
         information related to (i) the accounting of pre-production labor
         costs, and (ii) the nature, source, and basis for measurement of
         foreign exchange gain (loss).

         Certain errors were made in the recording of pre-production expenses in
         connection with pre-production revenue in the year ended December 31,
         2004, resulting in an increase in cost of revenues of $253,495 and a
         reduction in selling, general and administrative costs of the same
         value. The restatement adjustments record pre-production labor and
         associated costs connected to pre-production revenue, which were
         previously included within selling, general and administrative costs,
         as direct costs of revenues. This adjustment reduces selling, general
         and administration costs by $253,495 and increases costs of revenues by
         $253,495.

         The foreign exchange gain arose from two sources: (i) translation
         adjustments, and (ii) adjustments arising from the Company's functional
         currency being UK pounds, which is the principal source of the foreign
         exchange gain (loss). A foreign exchange loss of $32,263 arising from
         the Company's functional currency being UK Pounds had been incorrectly
         included within foreign exchange gain within the consolidated
         statements of operations rather than the cumulative translation
         adjustment within the consolidated statements of comprehensive loss.
         The restatement adjustment reflects an additional element of the
         foreign exchange gain within the Statements of Comprehensive Loss
         rather than in the Statements of Operations. This had the effect of
         increasing the foreign exchange gain within the consolidated statements
         of operations by $32,263 and increasing the cumulative translation loss
         within the consolidated statements of comprehensive loss by $32,263.

         The above items resulted in a reduction in net loss for the year ended
         December 31, 2004 of $32,263 offset by a similar increase in loss from
         cumulative translation adjustment such that the comprehensive loss for
         the year ended December 31, 2004 and the consolidated balance sheet
         totals at December 31, 2004 remain unchanged.

         On January 19, 2005, the Company filed its restated financial
         statements for the year ended December 31, 2004. The Commission issued
         further comments on January 25, 2006 in connection with the review of
         the Company's restatement of its 2004 financial statements. The
         Commission has asked further questions and requires the Company to
         provide computational basis for the calculations of the exchange gain
         including the consolidated statement of operations. The Company is
         currently reviewing the matters raised by the Commission.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

3        Summary of Significant Accounting Policies

         (A)      Principals of Consolidation and Combination

                  The accompanying consolidated financial statements include the
                  accounts of Peak Entertainment Limited, Jusco Toys Ltd, Jusco
                  UK Ltd, Wembley Sportsmaster Ltd and Cameo Collectables Ltd
                  after elimination of inter-company transactions and balances.
                  Peak Entertainment Limited, Jusco Toys Ltd, Jusco UK Ltd,
                  Cameo Collectables Ltd and Wembley Sportsmaster Ltd are
                  wholly-owned subsidiaries of Peak Entertainment Holdings, Inc.

                  Cameo Collectables Ltd was formed on August 20, 2002 and was
                  owned by Wilfred and Paula Shorrocks until February 7, 2003
                  when Peak Entertainment Holdings, Inc acquired the whole of
                  the share capital of Cameo Collectables Ltd. Prior to February
                  7, 2003 the financial statements of Cameo Collectables Ltd
                  were combined with Peak Entertainment Holdings, Inc as both
                  entities were under common control.

         (B)      Basis of Preparation

                  The consolidated financial statements presented for 2004
                  herein are restated, but not the 2005 consolidated financial
                  statements.

                  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 as a going
                  concern. 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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

3        Summary of Significant Accounting Policies (continued)

         (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. Revenue 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:

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

                  2.      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,

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

                  4.      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.

         (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 related to 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".

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

3        Summary of Significant Accounting Policies (continued)

         (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 & software    -      4 years

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

         (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
                  an 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 and United
                  Kingdom. The balances held in these accounts are $312,320, and
                  UK(pound)1,493.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

3        Summary of Significant Accounting Policies (continued)

         (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 the
                  market value. 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.

         (K)      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).

         (L)      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.

         (M)      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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

3        Summary of Significant Accounting Policies (continued)

         (N)      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.

                  Basic and diluted earnings per share are the same during the
                  year ended December 31, 2004 and 2005 as the impact of
                  dilutive securities is antidilutive. There were 12,586,166
                  warrants to purchase shares of the Company's common stock
                  outstanding as of December 31, 2005.

         (O)      Warrants

                  The Company issues warrants to purchase shares of its common
                  stock in exchange for services and in combination with the
                  sale of convertible debentures. The Company accounts for
                  warrants issued in exchange for services in accordance with
                  EITF 96-18 "Accounting for Equity Instruments that are Issued
                  to other Than Employees for Acquiring, or in Conjunction with
                  Selling, Goods or Services". The Company records expenses
                  based on the fair value of the equity instruments. The Company
                  measures the fair value of the equity instruments using the
                  stock price and other measurement assumptions as of the
                  earlier of (1) the date at which a commitment for performance
                  by the counterparty to earn the equity instruments is reached,
                  or (2) the date at which the counterparty's performance is
                  complete.

                  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.

                  The Company accounts for warrants issued in combination with
                  convertible debentures in accordance with the provisions of
                  EITF 00-27 "Application of EITF 98-5 to Certain Convertible
                  Instruments". Under the provisions of EITF 00-27, the Company
                  allocates the total proceeds received between the convertible
                  debentures and the warrants based on their relative fair value
                  at the date of issuance.

         (P)      Recent Accounting Pronouncements

                  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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

3        Summary of Significant Accounting Policies (continued)

         (P)      Recent Accounting Pronouncements (continued)

                  In December 2004, the Financial Accounting Standards Board
                  ("FASB") issued Statement of Financial Accounting Standards No
                  123, "Share-Based Payment" ("SFAS Statement 123R") which
                  replaces SFAS No 123, "Accounting for Stock-Based
                  Compensation," and supercedes APB Opinion No 25, "Accounting
                  for Stock Issued to Employees." This statement requires that
                  all share-based payments to employees be recognized in the
                  financial statements based on their fair values on the date of
                  grant. SFAS No 123R is effective as of the beginning of the
                  first interim or annual reporting period that begins after
                  December 31, 2005 and applies to all awards granted, modified,
                  repurchased or cancelled after the effective date. The Company
                  is evaluating the requirements of SFAS 123R and expects that
                  its adoption will not have a material impact on the Company's
                  consolidated results of operations and earnings per share.

                  In December of 2004, the FASB issued SFAS No 153, "Exchanges
                  of Nonmonetary Assets - an Amendment of APB Opinion No 29"
                  (SFAS 153). SFAS 153 eliminates the exception for nonmonetary
                  exchanges of similar productive assets and replaces it with a
                  general exception for exchanges of nonmonetary assets that do
                  not have commercial substance. SFAS 153 is effective for
                  fiscal years beginning after June 15, 2005 and is required to
                  be adopted by the Company in the first quarter of 2006. The
                  Company does not believe that the adoption of SFAS 153 will
                  have a material impact on the Company's consolidated results
                  of operations or financial condition.


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

4        Significant current assets and liabilities

         Included within current assets and current liabilities are the
         following significant balances:

                                    December 31,        December 31,
                                       2004                2005
                                     =========          =========
Other current assets

Prepaid consulting                        --                 --
Accrued royalty income                 826,242          1,236,795
Monies in Escrow                          --                 --
Other current assets                    35,486          2,093,431
                                     =========          =========
                                       861,728          3,330,226
                                     =========          =========
Accounts payable
UK professional fees                   373,613            357,303
US professional fees                   222,160            351,644
Stock supplies - Countin' Sheep           --              226,422
TV animation costs - Monster Quest     129,689               --
Other accounts payable                 575,977            438,008
                                     =========          =========
                                     1,301,439          1,373,377
                                     =========          =========
Other accrued liabilities
Consultancy fees                       196,513            175,522
Wumblers pilot show costs              111,448               --
Deferred royalties income              957,060          1,132,099
Sales and payroll taxes                409,195            395,560
Debenture interest                     100,802            229,261
Legal fees                                --
Other accrued liabilities              515,611            719,322
                                     =========          =========
                                     2,290,629          2,651,764
                                     =========          =========


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

5        Plant and Equipment

         Plant and equipment comprise the following:

                                           2003       2004        2005

         Fixtures and fittings           $135,966   $ 74,051     66,141
         Moulds and tooling               105,674    123,124    109,969
         Computer equipment & software     41,405    103,699    106,492
                                         --------   --------   --------

                                          283,045    300,874    282,602
         Accumulated depreciation          84,800     41,225     80,965
                                         --------   --------   --------

                                          198,245    259,649    201,637
                                         ========   ========   ========

         The Company can now utilize the moulds and tooling acquired from the
         acquisition of Jusco Toys Ltd (Hong Kong). The Company owns other
         moulds and tooling included above that has a cost of $9,299, which it
         is currently using and hence depreciating.

6        Intangible Assets

         Intangible assets comprise the following at December 31, 2005.


                                       Cost     Accumulated     Total
                                                Amortization

         Licenses                    1,220,047     232,717     987,330
         Trademarks                    114,595       7,191     107,404
         Film and television costs     682,949        --       682,949
                                     ---------   ---------   ---------

                                     2,017,591     239,908   1,777,683
                                     =========   =========   =========

         Intangible assets comprise the following at December 31, 2004.

                                      Cost       Accumulated     Total
                                                 amortization

         Licences                    $1,365,959  $ 193,214    $1,172,745
         Trademarks                     136,642      9,947       126,695
         Film and television costs      663,814          -       663,814
         Website costs                   24,930     15,501         9,429
                                     ----------  ---------    ----------

                                     $2,191,345  $ 218,662    $1,972,683
                                     ==========  =========    ==========

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

6        Intangible Assets (continued)

         As of December 31, 2005, the estimated aggregate amortization expense,
         based on current levels of intangible assets for the succeeding five
         years is as follows:

                                                    $

         December 31, 2005                           80,606
         December 31, 2006                          391,838
         December 31, 2007                          391,838
         December 31, 2008                          391,838
         December 31, 2009                          386,877
         December 31 ,2010                         $346,877

     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 was originally due on January 10, 2003. The debt has
         not been fully repaid and is due upon demand. Accordingly, the
         outstanding debt of $177,117 and all accrued interest totaling $199,901
         is included in short term borrowings. The debt is collateralized by
         certain inventory of the Company's subsidiary, Jusco UK Ltd.

         In November 2003, the Company borrowed $250,000 from an individual
         lender. There were no terms for repayment and no interest was charged
         to the Company during the quarter. On April 28, 2004, the Company
         entered into an agreement whereby it exchanged the debt of $250,000 for
         500,000 shares of common stock. See note 10.

8        Advances from Factor

         On January 13, 2003 the Company entered into an invoice factoring
         agreement with IFT London Ltd ("IFT"). Under the agreement, the Company
         specifically identified receivables that it wanted to receive advances
         on and submitted them to IFT. Once IFT approved the receivables that
         were submitted, the Company received 70% of the invoice amount.
         Customers were then instructed to pay IFT directly. When the customer
         paid the entire outstanding balance to IFT, the Company received the
         remaining 30% of the invoice amount, less a financing charge equal to
         8% of the total invoice amount. The Company no longer factors
         receivables through this agreement.

         On October 2, 2003 Cameo Collectables Limited entered into an invoice
         factoring agreement with Arbuthnot Commercial Finance Ltd ("ACF").
         Under the agreement, the Company identified receivables that it wanted
         to factor and submitted them to ACF. Once ACF approved the receivables
         that were submitted it purchased the receivables with recourse and
         invoiced the customers direct. ACF paid 100% of the invoice amount to a
         current account on the collection date. Customers paid ACF directly.

         ACF's financing charge of 1.75% of the total invoice amount was debited
         to the current account. The Company was entitled to withdraw any credit
         balance on the current account representing cleared funds.

         The Company accounted for this arrangement in accordance with Statement
         of Financial Accounting Standard No. 140 "Accounting for Transfers and
         Servicing of Financial Assets and Extinguishments of Liabilities."
         Under the agreement any invoice not paid 6 months after the date on
         which it was due to be paid can be re-sold back to the Company.
         Accordingly, the Company recorded the advances received as a liability
         until the customer invoice is paid in full. In addition, the Company
         recognized the interest charge in full at the time the initial advance
         was received. The assets of Cameo Collectables Limited are pledged as
         security to Arbuthnot Commercial Finance Limited.The above agreements
         ceased on the 21 January 2005.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

9        Amortized Debentures

         Convertible debentures are comprised of the following as at December
         31, 2004:

         Old convertible debentures                                          $
         Balance at December 31, 2003                                  754,774
         Settlement and release agreement                            (754,774)
                                                                      =======
         New convertible debentures:
         Amortized debt discount quarter ended March 31, 2004          120,424
         Amortized debt discount quarter ended June 30, 2004           128,586
         Released on conversions during quarter ended
         September 30, 2004                                            (90,104)
         Amortized debt discount quarter ended September 30, 2004       87,035
         Amortized debt discount quarter ended December 31, 2004        84,747

         Balance at December 31, 2004                                  330,652
                                                                      ========

         Amortized debt discount quarter ended March 31, 2005          79,047
         Amortized debt discount quarter ended June 30, 2005          109,574
         Amortized debt discount quarter ended September 30, 2005     110,293
         Amortized debt discount quarter ended December 31, 2005      184,499

         Balance at December 31, 2005                                 483,413

10       Commitments

         The Company leases buildings under non-cancelable operating leases.
         Future minimum lease payments under those leases are as follows at
         December 31, 2005

         Year ending December 31, 2006                                $73,532
                                                                      =======

         Rent expense for all operating leases charged against earnings amounted
         to $69,028 in 2003 and $57,109 in 2004 and $71,816 in 2005.

11       Contingent Liabilities

         As at December 31, 2005, we are not a party to any material pending
         legal proceeding, other than ordinary routine litigation incidental to
         our business and except as described below.

         In 2002, we entered into an agreement with CK Supermarket to provide
         working capital on a short-term basis secured against certain inventory
         of our subsidiary, Jusco UK Ltd. At December 31, 2004, the balance was
         $377,016 including interest of $199,901. The debt was originally due on
         January 10, 2003. At March 31, 2004, it was envisaged that the loan
         would be repaid in 2004 from revenues from the sale of inventory. In
         May 2004, the lender notified us regarding immediate payment of the
         balance owed. We have been and remain in discussion with the lender
         regarding the repayment of the debt through a combination of cash from
         the sale of certain inventory and the issuance of our securities. In
         the event the repayment issue is not resolved, the lender could
         institute a legal proceeding against our subsidiary, Jusco UK Ltd,
         seeking repayment. The lender has a security interest on the assets of
         our subsidiary, Jusco UK Ltd., but does not have a security interest in
         our parent company or our other subsidiaries.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

11       Contingent Liabilities (continued)

         As CK Supermarket has previously targeted the assets of Jusco UK Ltd.
         for use in repaying the lender, we believe that a proceeding against
         our subsidiary, Jusco UK Ltd. would not have a material effect on our
         operations.

         On January 26, 2004, we entered into an agreement with POW!
         Entertainment LLC for the development and exploitation of the property
         "Tattoo - the Marked Man". We have the worldwide distribution and
         merchandising rights in perpetuity and the agreement describes a
         payment of $250,000 to fund project development. The payment was
         subject to certain deliverables from POW! upon which payment was
         anticipated to be made on the earlier of August 31, 2004 or ten
         business days after the effective date of our registration statement
         filed in February 2004. Stan Lee is to develop the concept, based on
         characters created by the Shorrocks. The project was geared toward
         creating a motion picture based on the character. The parties were to
         share all profits received from the project, after deduction of
         expenses, and in addition, POW would have been entitled to any
         executive producer fees from theatrical and television releases. We
         have not yet paid the amounts due to POW! under the agreement, and it
         appears that the transaction has been abandoned. We believe that we
         have meritorious defenses to any potential claims.

         On August 13, 2004, in a labor action entitled Thomas Bernard Skahill
         v. Peak Entertainment Holdings, Inc. before the Labor Commissioner of
         the State of California, the Company was ordered to pay $24,358.27 in
         wages, expenses, penalties, and interest in connection with an
         employment claim. We are informed that the matter was confirmed as a
         judgment on or about October 15, 004 by the Superior Court of the State
         of California in the amount of $24,938.57.

         We are informed that on or about April 6, 2004, James E. Skahill and
         Marie A. Skahill filed a complaint for damages for breach of contract
         against Peak Entertainment Ltd. before the Superior Court of the State
         of California for the County of Los Angeles, Northeast District, Case
         No. GC033622 alleging breach of a lease and seeking damages in an
         amount to be determined. We believe that the matter was not properly
         commenced with proper service upon Peak Entertainment Ltd. We have not
         submitted a response to the matter before the Superior Court of the
         State of California. We are unaware of the present status of the matter
         before the Superior Court of the State of California and we are unable
         to evaluate the likelihood of an unfavorable outcome, nor provide an
         estimate of the amount or range of potential loss.

         On January 5, 2004, we completed a transaction, pursuant to a
         Settlement Agreement and Release dated as of December 22, 2003, with
         former debenture holders: AJW Partners, LLC, New Millennium Capital
         Partners II, LLC, AJW Offshore, Ltd, and AJW Qualified Partners, LLC.
         Pursuant to the terms of the settlement agreement, the former debenture
         holders had the right, thirteen months after the closing of the
         transaction, to provide notice to the Company of an exercise of a "put"
         right pursuant to which we would buy from the former debenture holders
         all of the 1,000,000 shares of common stock issued to them pursuant to
         the settlement agreement, at the price of $0.75 per share. Pursuant to
         the terms of the settlement agreement, the former debenture holders
         were to provide us with written notice if they wished to exercise the
         put right after thirteen months and prior to one year and two months
         after the closing of the transaction, at the expiration of which, the
         put right terminates. Closing on the put was to occur within ten
         business days from receipt of notice of the put. On or about January
         10, 2005, the former debenture holders submitted a notice to exercise
         the put right. On or about January 26, 2005, the former debenture
         holders resent the January 10, 2005 notice to exercise the put right.
         We believe that the notice was not properly submitted in accordance
         with the notice procedures provided in the settlement agreement.
         Accordingly, we considered the notice ineffective and did not honor the
         notice. In 2005, the former debenture holders instituted a legal
         proceeding to enforce their put rights. We intend to contest the matter
         vigorously. We may be required to pay $750,000 for repurchase of
         1,000,000 shares of common stock from the former debenture holders,
         plus potential interest and costs, if we lose such threatened
         litigation.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

12       Transactions with related parties

         The relationship between the Company and its related parties are:

         Wilfred and Paula Shorrocks are deemed to be related parties as they
         are directors and shareholders of Peak Entertainment Holdings, Inc.

         Terence Herzog and Michael Schenkein are deemed to be related parties
         as they are principals of Agora Capital Partners Inc, a management
         consulting company. They were directors of Peak Entertainment Holdings,
         Inc. Terence Herzog is a shareholder of Peak Entertainment Holdings,
         Inc. In December 2004, Mr. Herzog and Mr. Schenkein resigned as
         directors of the Company.

         During the period the company had the following transactions with its
         related parties:

         a)       Wilfred and Paula Shorrocks

                  i) Movements on stockholders' advances account

<TABLE>
<CAPTION>
<S>                                                                               <C>
                           Balance due by company, December 31, 2003              $916,634
                           Repayments                                             (247,390)
                           Foreign exchange loss                                    (5,320)

                           Balance due by the Company, December 31, 2004         $ 752,522
                           Cash advances                                            41,810
                           Repayments                                             (237,787)
                           Foreign exchange loss                                   (75,597)
                                                                                   -------
                           Balance due by the Company at December 31, 2005       $ 480,948
                                                                                   =======
</TABLE>

                           Interest amounting to $20,338 in the year to December
                           31, 2005 and $21,472 in the year to December 31, 2004
                           has been accrued.

                           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 installments of $25,000
                           on January 31, 2005, May 31, 2005, September 30,
                           2005, December 31, 2005, March 31, 2006 and September
                           30, 2006 and installments of $100,000 on March 31,
                           2007 and September 30, 2007, with any balance to be
                           repaid in full on January 31, 2008.

                           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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

12       Transactions with related parties (continued)

                  ii)      License agreement

                           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 treated for accounting
                           purposes as 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
                           license fees payable and the related asset is
                           included in intangible assets.

                           On February 25, 2002, the Company entered into a
                           license agreement for rights to Monsters 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 were individually entitled to a certain
                           percentage of the revenues. The Company was 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 was 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 were
                           entitled to 30% 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 revenue allocation referred to
                           revenues from character and merchandise licensing and
                           sales activities, and the allocation was to be
                           adjusted for entertainment production financing
                           terms. In October 2004, Morrison Entertainment Group
                           sent the Company a notice terminating any and all
                           agreements with the Company. On December 22, 2004,
                           the Company entered into an agreement with Morrison
                           Entertainment Group, whereby the parties dissociated
                           the Company's Monster Quest property and products
                           from Morrison Entertainment Group's Monster In My
                           Pocket property and products. Any and all agreements
                           between the parties entered into prior to December
                           22, 2004, including license agreements, were
                           terminated.

         b)       Terence Herzog and Michael Schenkein

                  i)       Consulting services

                           From March 2003 through June 2004, Agora Capital
                           Partners Inc, through Terence Herzog and Michael
                           Schenkein, has provided management consulting
                           services to the Company. The Company paid aggregate
                           fees of $nil in the year to December 31, 2004 and
                           $46,000 in the year to December 31, 2003.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

13       Convertible Debt and Warrants

         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 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 vested on
         July 24, 2004. POW has the right to demand registration of the shares
         of common stock underlying the warrant at the Company's expense,
         although no demand had been received at the date of this report.

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

         The value of the warrants that were subject to future vesting, and
         vested on July 24, 2004, were determined at the end of each reporting
         period. The Company recorded the expense for each quarter based on the
         value of the warrants at the end of each reporting period. For the
         quarter ended June 30, 2004, the Company recorded an expense of $10,918
         related to these warrants, and for the six months ended June 30, 2004,
         the Company recorded an expense of $9,295.

         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 has been recorded as a current asset
         and has been fully amortized to earnings.

         On December 17, 2003, the exercise price of the warrants held by Mr.
         Kuessous was 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 was 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 was 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 has now
         fully amortized the original value of $263,983.

         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, resulting in an additional expense of $311,995, which was
         included in selling, general and administrative expenses in 2003.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

13       Warrants (continued)

         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 $215,000 principal amount of 12% convertible debentures, accrued
         interest 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, accrued interest 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 provided 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 $0.75 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 accounted for this transaction in accordance with EITF
         00-27 "Application of Issue 98-5 to Certain Convertible Instruments".
         Accordingly, the Company first allocated 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
         was used to offset the carrying value of the convertible debentures and
         accrued interest and resulted in a gain on the extinguishment of the
         debt. The Company determined that the fair value of the warrants to be
         repurchased and the beneficial conversion features at January 5, 2004
         exceeded the total consideration to be paid of $1,580,000. Accordingly,
         the Company recorded a gain on the extinguishment of the convertible
         debentures and accrued interest. In accordance with FAS 133, the
         1,000,000 shares of common stock are considered an embedded derivative
         instrument and recorded as equity.

         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 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 $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 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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

13       Warrants (continued)

         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 was recorded and will be amortized over the life of the
         debt of approximately 3 years.

         During the quarter to September 30, 2004, $541,000 of the 8%
         convertible debentures was converted at $0.30 per share into 1,805,000
         shares of common stock. A loss on conversion of $481,395 was recognized
         during that quarter.

         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
         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.

         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. On January 26, 2005, Mr. Stern converted these
         $50,000 in debentures, plus $4,000 in accrued interest, into an
         aggregate of 180,000 shares.

         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 has
         recorded these debentures and warrants in accordance with the
         provisions of EITF 00-27 "Application of Issue 98-5 to Certain
         Convertible Instruments". Under the provisions of EITF 00-27, the
         Company has allocated the total proceeds received between the
         convertible debentures and the warrants based on their relative fair
         value at the date of issuance. The Company has then estimated the
         intrinsic value of the beneficial conversion feature. The Company has
         determined that the intrinsic value of the beneficial conversion
         feature exceeds the face value of the debt and accordingly, the Company
         has recorded 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 September 28, 2004, the Company entered into a "Securities Purchase
         Agreement" with three accredited persons. Pursuant to the agreements,
         the Company sold 1,666,666 shares of common stock and 1,750,000 common
         stock purchase warrants, exercisable for three years at $0.50 per
         share, for an aggregate purchase price of $500,000.

         Prior to the termination date, the warrant shall be callable, under the
         circumstances described below, at the discretion of the company, for
         $0.10 per warrant. The Company's right to call shall be exercisable
         commencing upon the day following the tenth consecutive business day
         during which the Company's common stock has traded at prices of, or in
         excess of, $1.75 per share, subject to adjustment for stock splits,
         dividends, subdivisions, reclassification and the like, with weekly
         volume of such trading being in excess of the total number of shares
         represented by this warrant.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

13       Warrants (continued)

         In the event the Company exercises its right to call the warrants, the
         Company shall give the Holder written notice of such decision. In the
         event that the Holder does not exercise all or any part of the warrants
         or the Company does not receive the warrant from the Holder within 30
         days from the date on the notice to the Holder of the Company's
         intension to redeem the warrant, then the warrant shall be deemed
         canceled, and the holder shall not be entitled to further exercise
         thereof or to the redemption fee.

         The value of the stock and warrants is made more difficult due to the
         call provision of the warrant, which reduces the value of the warrant.
         The Company recognizes that due to the call provision it is
         inappropriate to value the warrant using the Black-Scholes Option
         Model. The Company has calculated the fair value of the common stock at
         a price of $0.21 per share, being the trading price at September 28,
         2004. The remaining proceeds of $150,000 have been allocated as the
         value of the warrants at the date of the grant.

         On January 4, 2005, the Company entered into a consulting agreement
         with Salvani Investments, pursuant to which it issued 1,000,000
         warrants, exercisable for 5 years at $0.50 per share, in exchange for
         business consulting and investor relations services. The warrants have
         been valued using the Black-Scholes option model at a value of
         $298,831.08 at the date of grant. The value of these warrants has been
         recorded as deferred professional fees and will be amortized to
         earnings ratably over one year.

         On January 5, 2005, the Company sold to Dan Brecher 250,000 warrants,
         exercisable for three years at $0.50 per share, for $2,500. These
         warrants were valued by using the Black-Scholes option model at a value
         of $74,707.77 at the date of grant. The value of these warrants has
         been recorded as an expense to non cash legal fees.

         On March 1, 2005, the Company entered into a loan agreement for
         $500,000 with Tayside Trading Ltd. Pursuant to the loan agreement, the
         Company issued 500,000 warrants, exercisable for five years at $0.50
         per share, to the lender. The Company also granted the lender an option
         exercisable commencing with the date of return of the $500,000 and
         expiring two weeks thereafter, to acquire, at the purchase price of
         $100,000, (i) shares of the Company's common stock at $0.30 per share
         (333,333 shares) and (ii) warrants to purchase 200,000 shares of common
         stock, exercisable for five years at $0.50 per share. The Company
         agreed to grant the lender, as collateral, rights to the Company's
         intellectual property, to the extent not already encumbered. The
         Company used the funds to fund a $500,000 letter of credit, which was
         subsequently terminated in April 2005. The principal amount of the loan
         was returned in April 2005, with accrued interest still owed. As the
         principal was not paid by March 30, 2005, as penalty, in April 2005,
         the Company issued 1,800,000 shares as a late payment penalty. These
         warrants have been valued using the Black-Scholes option pricing model
         at a value of $184,377.11 at the date of grant. The value of these
         warrants has been recorded as an expense to non cash finance charges.

         On March 2, 2005, the Company issued 50,000 warrants, exercisable for
         five years at $0.50 per share, to Aaron M. Lasry in return for business
         consulting services. These warrants have been valued using the
         Black-Scholes option pricing model at a value of $17,438.74 at the date
         of Grant and has been recorded in non cash compensation.

           On May 6, 2005, we entered into Securities Purchase Agreements with
         four accredited investors. Pursuant to the agreements, we sold a
         principal amount of $360,000 in 12% convertible debentures and 432,000
         common stock purchase warrants, exercisable for five years at $0.50 per
         share, for gross proceeds of $360,000. The debentures mature in 270
         days from May 6, 2005. The debentures were to mature earlier upon
         future different funding by us of any dollar amount equaling 15% more
         than amounts closed pursuant to the private placement. The debentures
         accrue interest at the rate of 12% per year, compounded annually, and
         was payable at maturity. The principal amount of the debentures may be
         converted into shares of common stock at the conversion price of $0.30
         per share. The conversion price for the debentures may be adjusted
         downward for issuances of securities by us at prices below the lower of
         $.30 per common share, or fair market value for such securities as
         determined at the time of issuance.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

13       Warrants (continued)

         For late payment, there will be a cash penalty equal to 1.5% of the
         outstanding principal amount of the debentures, compounded monthly for
         each month that payment in full is not effected, up to a maximum cash
         penalty equal to 9% of the outstanding principal amount of the
         debentures, and, in addition, there will be monthly reduction in
         warrant exercise price of the warrants at the rate of 2.5% and up to a
         maximum of 20% reduction in the exercise price. The obligations of the
         Company under the debentures are secured by security interest rights in
         substantially all of the Company's assets, to the extent not already
         encumbered. The debentures matured in our fourth quarter 2005, and
         remains unpaid.

         The warrants have been valued using the Black-Scholes option pricing
         model at a value of $172,800 at the date of grant. The value of these
         warrants has been recorded as an expense to non-cash finance charges.
         It was amortized over the life of the debenture.

         On August 10, 2005, we sold to one accredited investor a 10%
         convertible promissory note in the principal amount of $100,000 due
         November 8, 2005, and warrants to purchase 333,333 shares of common
         stock. The principal amount and accrued interest on the note were
         convertible into shares of common stock at the conversion price of
         $0.30 per share. The warrants are exercisable at a price of $0.30 per
         share until August 10, 2008. Our obligations under the note were
         protected by a subordinated lien on our intellectual property, that is
         subordinate to the liens of prior lenders. We used the proceeds for
         general corporate purposes. The note was repaid on January 4, 2006. The
         loan was accounted for as a liability and the interest was accrued as
         an expense. The warrants were valued using the Black-Scholes option
         pricing model at a value of $100,000 at the date of grant. The value of
         these warrants has been recorded as an expense to non-cash finance
         charges and amortized over the life of the debenture.

         On August 22, 2005, we sold to one accredited investor a 10%
         convertible promissory note in the principal amount of $100,000 due
         November 21, 2005, and warrants to purchase 333,333 shares of common
         stock. The principal amount and accrued interest on the note were
         convertible into shares of common stock at the conversion price of
         $0.30 per share. The warrants are exercisable at a price of $0.30 per
         share until August 22, 2008. Our obligations under the note are
         protected by a subordinated lien on our intellectual property, that is
         subordinate to the liens of prior lenders. We used the proceeds for
         general corporate purposes. The note was repaid on January 4, 2006. The
         loan was accounted for as a liability and the interest was accrued as
         an expense. The warrants were valued using the Black-Scholes option
         pricing model at a value of $100,000 at the date of grant. The value of
         these warrants has been recorded as an expense to non-cash finance
         charges and amortized over the life of the debenture.

         In the three months ended December 31, 2005, we sold to fifteen
         accredited investors 105.50 units of our securities for $1,055,000.
         Each unit, at a price of $10,000, consists of: (i) a 12% $10,000
         convertible debenture, convertible into shares of common stock at $0.30
         per share, and (ii) warrants to purchase 25,000 shares of the Company's
         common stock. Interest on the principal amount of the debenture will
         accrue at the simple interest rate of 12% per year computed on the
         basis of a 360 day year. Interest is payable at maturity in cash. The
         debenture will mature in 18 months from issue, unless earlier due. The
         debentures are secured by assets of our company, to the extent not
         already encumbered. We agreed not to grant any other person, after the
         closing upon the private placement pursuant to which the units were
         offered, a priority security interest in our company's assets for so
         long as the debentures remain outstanding, except with the consent of
         2/3 of the outstanding face amount of holders of the debentures.
         Consent of a two-thirds majority of the holders of our debentures will
         be required for (i) any sale by the company of substantially all of our
         assets unless the proceeds of such sale are used to repay the
         debentures, (ii) any merger of the company with another entity, where
         we are not the surviving corporation, unless as part of such
         transaction the debentures will be repaid, or (iii) certain other
         actions materially affecting the debentures that require approval of
         the debenture holders under the corporations laws of the State of
         Nevada. The warrants will be exercisable for a period of five years
         into shares of common stock at $0.30 per share. We used the proceeds
         for general corporate purposes. The debentures have been recorded as a
         liability and the interest has been accrued as a non-cash expense in
         the profit and loss account.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

13       Warrants (continued)

         These warrants have been valued using the Black-Scholes option pricing
         model at a value of $2,164,954.80 at the date of grant. The value of
         these warrants will be amortized over their life to the profit and loss
         account.

14       Share transactions

         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 has recorded 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 Company issued 16,667 shares of common stock to Mr Ivers
         at a value of $8,333 at the date of grant. Accordingly, the Company
         expensed the value of the shares at December 31, 2003 and recorded a
         corresponding liability.

         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. Accordingly,
         the Company expensed the value of the shares at December 31, 2003 and
         recorded a corresponding liability.

         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 has recorded the
         transaction as professional fees expensed in the quarter ended March
         31, 2004.

         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
         $0.50 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 which was March 10, 2004 The
         total fee of $117,744 has been offset against the proceeds of the
         offering.

         On April 28, 2004, the Company entered into an agreement with Laura
         Wellington, whereby it exchanged a debt of $250,000 owed to Ms
         Wellington for 500,000 shares of common stock. Ms Wellington had loaned
         $250,000 to the company in November 2003. The total value of the common
         stock at the date of grant was $250,000 compared with the $250,000
         carrying value of the advance, so there was no additional expense.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

14       Share transactions

         On July 23, 2004, the Company entered into an agreement with Laura
         Wellington, whereby it exchanged a debt of $194,000 owed to Ms
         Wellington for 388,000 shares of common stock. The total value of the
         common stock at the date of the grant was $194,000 compared with the
         $194,000 carrying value of the debt, so there was no additional
         expense.

         On August 17, 2004, the Company issued 75,001 shares to Portfolio PR in
         connection with professional services provided. The shares had a value
         of $18,750 at the date of the grant. The Company expensed $36,000 as
         professional fees during the quarter, being the value of professional
         services received, and recognized a profit of $17,250 on issue of the
         shares.

         On September 1, 2004, the Company entered into a consultancy agreement
         with CEOcast, Inc. to provide consultancy services for a six month
         period commencing September 1, 2004, in exchange for 400,000 shares of
         common stock of the Company. These shares had a value of $44,000 at the
         date of grant.

         In April and June 2005, the Company issued 212,765 shares of restricted
         common stock to Crescent Fund, LLC in return for financial consulting
         services. These shares were valued at $96,276 based on the fair market
         value of the stock on the date of grant.

         In May 2005, the Company issued 78,397 shares of restricted common
         stock to Dan Brecher for the conversion of accrued interest.

         In June 2005, the Company issued 157,991 shares of restricted stock to
         Platinum Partners for the conversion of accrued interest on outstanding
         debentures.

         On October 1, 2005, the Company entered into a consulting agreement
         with CEOcast, Inc., pursuant to which the Company issued 200,000 shares
         of our common stock in connection with the agreement, and 182,000
         shares of common stock in connection with balance due under a prior
         agreement.

15       Reverse Acquisition

         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 has been 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
         has been recorded at carryover basis and no goodwill was generated in
         the transaction. The net deficit of Palladium, $215,500, at the time of
         transaction is included in stockholders' equity. The other side of this
         transaction is to add $215,500 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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

16       Stockholders' Equity

         Immediately following the reverse acquisition on April 22, 2003, 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 of the agreement for the issuance of the debentures and
         warrant and received the remainder of $250,000 on June 26, 2003 and
         $235,000 on July 11, 2003. The debentures and warrants were
         subsequently repurchased in January 2004.

         The debentures carried interest at 12%, matured one year from the date
         of issuance and were convertible at the option of the holder at the
         lower of $1.00 or 50% of 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
         were exercisable for five years at $0.31 per share.

         The Company recorded 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 allocated the total proceeds received between the convertible
         debentures and the warrants based on their relative fair values 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 recorded a debt discount of $785,000. The debt discount was
         amortized as interest expense over the life of the debentures of one
         year.

         On February 28, 2002, Palladium, the predecessor to Peak Entertainment
         Holdings, Inc entered into an agreement pursuant to which Palladium
         issued $215,000 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 debentures and warrants were
         subsequently repurchased in January 2004.

17       Subsequent Events

         In January 2006, the Company issued to Lou Schneider in connection with
         business consulting services warrants to purchase 200,000 shares of
         common stock, exercisable for three years at $0.50 per share.

         In January 2006, the Company issued an aggregate of 171,096 shares of
         restricted common stock to debenture holders for the conversion of
         accrued interest.

         In January 2006, the Company issued 666,666 shares of restricted stock
         to a debenture holder for the conversion of a principal amount of
         $200,000 of debentures.

         In February 2006, we sold to two accredited investors 22.50 units of
         our securities for $225,000. Each unit, at a price of $10,000, consists
         of: (i) a 12% $10,000 convertible debenture, convertible into shares of
         common stock at $0.30 per share, and (ii) warrants to purchase 25,000
         shares of the Company's common stock. Interest on the principal amount
         of the debenture will accrue at the simple interest rate of 12% per
         year computed on the basis of a 360 day year. Interest is payable at
         maturity in cash. The debenture will mature in 18 months from issue,
         unless earlier due. The debentures are secured by assets of our
         company, to the extent not already encumbered. We agreed not to grant
         any other person, after the closing upon the private placement pursuant
         to which the units were offered, a priority security interest in our
         company's assets for so long as the debentures remain outstanding,
         except with the consent of 2/3 of the outstanding face amount of
         holders of the debentures. Consent of a two-thirds majority of the
         holders of our debentures will be required for (i) any sale by the
         company of substantially all of our assets unless the proceeds of such
         sale are used to repay the debentures, (ii) any merger of the company
         with another entity, where we are not the surviving corporation, unless
         as part of such transaction the debentures will be repaid, or (iii)
         certain other actions materially affecting the debentures that require
         approval of the debenture holders under the corporations laws of the
         State of Nevada. The warrants will be exercisable for a period of five
         years into shares of common stock at $0.30 per share.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited

17       Subsequent events (continued)

         We used the proceeds for general corporate purposes. We are to issue
         approximately 853,333 warrants, exercisable for five years from
         February 14, 2006 at $0.30 per share, to the placement agent as
         compensation.

         On 2 March 2006 administrators where appointed by Goodband,Viner,Taylor
         (GVT) a major creditor of the United Kingdom registered company, Peak
         Entertainment Ltd. In April 2003, Peak Entertainment Holdings Inc
         acquired the assets, material contracts and intellectual property
         rights of Peak Entertainment Ltd, and since then have used the UK
         company only as an operating company for accounting, UK tax and
         employee transactions.

         As the assets, material contracts and intellectual property rights are
         held in the US Holding company management decided, after taking advise,
         to liquidate the United Kingdom company and buy back certain nominal
         assets, primarily fixtures and fittings, from the administrators.

         The transaction is still on going but it is management's intention to
         streamline the operating of the business, reducing the balance sheet
         liabilities by at least $1,200,000 and are looking at further options
         in the operating functionality of the company going forward. To date no
         material commercial contractual change has been made by the company as
         a result of this action and management believe that to be the case on
         going.

<PAGE>

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

On August 20, 2004, we notified Goodband Viner Taylor, our independent public
accountants, that we were terminating its audit services, effective as of that
date. The Company's Board of Directors approved such decision.

Goodband Viner Taylor's opinion in its report on the Company's financial
statements for the years ended December 31, 2002 and December 31, 2003 expressed
substantial doubt with respect to the Company's ability, at that time, to
continue as a going concern. During the years ended December 31, 2002 and
December 31, 2003, and the three month period ended March 31, 2004, Goodband
Viner Taylor 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 periods and through
the date of termination, August 20, 2004, there were no disagreements with
Goodband Viner Taylor 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
Goodband Viner Taylor, 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 August 20, 2004, the Company engaged Garbutt & Elliott Ltd., York, United
Kingdom, as its independent public accountants. The Company did not previously
consult with Garbutt & Elliott Ltd. 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).

<PAGE>

ITEM 8A.  CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and
Principal Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the
Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Principal Financial Officer
concluded that our disclosure controls and procedures as of the end of the
period covered by this report were effective.

There was no change in our internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) that occurred during the fourth quarter
of fiscal year 2005 ended December 31, 2005 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


ITEM 8B.  OTHER INFORMATION

On December 22, 2004, we entered into an agreement with Morrison Entertainment
Group, whereby the parties dissociated our Monster Quest property and products
from Morrison Entertainment Group's Monster In My Pocket property and products.
Any and all agreements between the parties entered into prior to December 22,
2004, including license agreements, were terminated. We have informed licensees
of the discontinuation of the use of Monster In My Pocket.

On March 1, 2005, we entered into a non-binding letter of intent with Maverick
Entertainment Group plc (UK ) concerning a possible business combination of the
parties. The proposed transaction is presently contemplated to involve an
exchange of shares of the parties and is to occur by June 30, 2005. The terms of
the transactions have not been clearly defined, and no further progress on the
terms has been addressed.

The staff of the Division of Corporation Finance of the Securities and Exchange
Commission issued comments on June 9, 2005 to the Company in connection with its
review of the Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 2004 filed on May 16, 2005. Based on these comments and discussions
with the Commission, and after consultation with the Company's independent
registered public accounting firm, the Company's management recommended, and its
Board of Directors determined on June 24, 2005, that it will restate its
financial statements for the year ended December 31, 2004. As a result, the
financial statements issued by the Company for the year ended December 31, 2004
should no longer be relied upon. The Company's determination to restate these
previously issued financial statements stems from comments from the Commission
requesting information related to (i) the accounting of pre-production labor
costs, and (ii) the nature, source, and basis for measurement of foreign
exchange gain (loss). The Company is working with its independent auditors to
complete the review of the accounting matters and quantify the impact on the
financial statements that were previously filed. The Company does not believe
that the changes will materially adversely affect the Company's results of
operation for the year ended December 31, 2004. Once this review is complete,
the Company will restate its 2004 year end financial statements. The Company
expects to complete its review of this matter shortly.

On January 19, 2005, the Company filed its restated financial statements for the
year ended December 31, 2004. The Commission issued further comments on January
25, 2006 in connection with the review of the Company's restatement of its 2004
financial statements. The Commission has asked further questions and requires
the Company to provide computational basis for the calculations of the exchange
gain including the consolidated statement of operations. The Company is
currently reviewing the matters raised by the Commission.

On 2 March 2006 administrators where appointed by Goodband,Viner,Taylor (GVT) a
major creditor of the United Kingdom registered company, Peak Entertainment Ltd.

In April 2003, Peak Entertainment Holdings Inc acquired the assets, material
contracts and intellectual property rights of Peak Entertainment Ltd, and since
then have used the UK company only as an operating company for accounting, UK
tax and employee transactions.

As the assets, material contracts and intellectual property rights are held in
the US Holding company management decided, after taking advise, to liquidate the
United Kingdom company and buy back certain nominal assets, primarily fixtures
and fittings, from the administrators.

<PAGE>

The transaction is still on going but it is management's intention to streamline
the operating of the business, reducing the balance sheet liabilities by at
least $1,200,000 and are looking at further options in the operating
functionality of the company going forward. To date no material commercial
contractual change has been made by the company as a result of this action and
management believe that to be the case on going.

On March 8, 2006, we entered into an agreement with The Silly Goose Company,
LLC, dated March 6, 2006, pursuant to which the parties have agreed for the
return to Silly Goose of proprietary rights to The Wumblers preschool television
series previously granted to us pursuant to an April 28, 2003 agreement and a
December 16, 2003 entertainment production agreement between the parties.

We will maintain a financial interest in The Wumblers. Assuming 4Kids is a
majority investor in the funding of The Wumblers project, Peak retains the right
to receive 15% of 100% of the proceeds in connection with the exploitation of
The Wumblers project. Payment to us of such percentage is to be paid (a) after
the investors in The Wumblers project have recouped their direct investment, (b)
after crediting prior funders in the aggregate amount of $1,170,000 for prior
development of The Wumblers project, and (c) after the distribution to Laura
Wellington of $45,000 for consulting fees. After payments from The Wumblers
project has been made of the amounts provided for in (a), (b) and (c) above,
Peak shall receive such a percentage of 100% of net profits, as set forth below,
calculated from the first dollar of net profits received by the entity
exploiting The Wumblers project:

      (i)   If 4Kids, or a wholly-owned or controlled affiliate of 4Kids, is the
            majority financier of the Wumblers project, the percentage retained
            by Peak above shall be 15%;
      (ii)  If 4Kids is not the majority financier of the Wumblers project, the
            percentage retained by Peak above shall be 15%, and Peak shall
            retain the United Kingdom marketing rights on a 35% of gross
            receipts basis
      (iii) If 4Kids is not the majority financier, and if the parties hereto
            agree that Peak shall retain a percentage of 7.5%, then Peak shall
            not retain representation rights for The Wumblers for the United
            States and Canada, and Peak shall retain all other worldwide rights
            on a 35% basis for the United Kingdom and 40% for the rest of the
            world.
      (iv)  If 4Kids is not the majority financier, and if the parties hereto
            agree that Peak shall retain a percentage of 8%, then Peak shall not
            retain representation rights for The Wumblers for the United States
            and Canada, and Peak shall retain other rights on a 35% basis for
            the United Kingdom and 40% for Europe, Australia, South America and
            South Africa.
      (v)   If 4Kids is not the majority financier, and if the parties hereto
            agree that Peak shall retain a percentage of 9%, then Peak shall not
            retain representation rights for The Wumblers for the United States
            and Canada, and Peak shall retain other rights on a 35% basis for
            the United Kingdom and 40% for France, Spain, Italy, Australia and
            Mexico.
      (vi)  If 4Kids is not the majority financier, and if the parties hereto
            agree that Peak shall retain a percentage of 10%, then Peak shall
            not retain representation rights for The Wumblers for the United
            States and Canada, and Peak shall retain other rights on a 35% basis
            for the United Kingdom and 40% for Australia.

Silly Goose has withdrawn and revoked its February 13, 2006 letter. Pursuant to
the agreement, the parties have released each other from any obligations and any
claims one party may have had against the other. The agreement is subject to
conditions before its effectiveness and Peak's right to terminate the agreement
by sending a notice by March 20, 2006.

<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.

Name                 Age     Position
----                 ---     --------

Wilfred Shorrocks    56      Chairman, Chief Executive Officer
                             and Director
Paula Shorrocks      54      Vice President - Design and Development,
                             and Director
Phil Ogden           38      Vice President - Managing Director, and Director
Alan Shorrocks       44      Vice President - Licensing Division
Nicola Yeomans       35      Vice President - Finance


Directors are elected to serve until the next annual meeting of stockholders and
until their successors are elected and qualified. Currently, there are three
persons serving on our board of directors.

Officers are elected by the Board of Directors and serve until their successors
are appointed by the Board of Directors.

MANAGEMENT PROFILE

Wilfred Shorrocks, Chairman and Chief Executive Officer

Mr. Shorrocks, co-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 August 2001 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 August 2001 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.

<PAGE>

Phil Ogden, Vice President - Managing Director, 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 of Just Group, Plc, 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.

INSOLVENCY OF JUST GROUP PLC

In January 2002, Just Group Plc, a United Kingdom company, entered into
administration, a process similar to the Chapter 11 bankruptcy process in the
United States. Wilf and Paula Shorrocks were executive officers at Just Group in
2001, and their employment at Just Group ended in August 2001. Alan Shorrocks,
Phil Ogden and Nicola Yeomans also had worked at Just Group, in non-executive
level positions, prior to joining Peak Entertainment.

TERMINATION OF EMPLOYMENT FROM JUST GROUP PLC (UK) AND LEGAL PROCEEDINGS AGAINST
JUST GROUP PLC

In August 2001, Wilf Shorrocks and Paula Shorrocks were dismissed from their
officer and director positions at Just Group Plc, purportedly on the basis of
internal disagreement on accounting policy and breaches of employment contract
and fiduciary duties, allegations which the Shorrocks deny. In November 2001,
Wilf Shorrocks and Paula Shorrocks instituted claims for breach of employment
contract, wrongful dismissal, and in the case of Paula Shorrocks, a claim of sex
discrimination against Just Group before the High Court of Justice, Queen's
Bench Division, in the United Kingdom, and claims of unfair dismissal before the
Nottingham Employment Tribunal in the United Kingdom. The proceedings against
Just Group were stayed due to Just Group Plc entering into administration in
January 2002. In 2004, Just Group Plc submitted its defense denying the claims
on the basis of breaches of employment contract and fiduciary duties and Just
Group asserted counterclaims for unjust enrichment and restitution. In May 2004,
the parties entered into a settlement of all claims, whereby the Shorrocks are
to receive payment based on an agreed total amount of UK (pound)175,000, payment
of which is subject to the terms of Just Group's arrangement with its creditors.

<PAGE>

BOARD COMMITTEES AND MEETINGS

During the fiscal year that ended on December 31, 2005, the Board of Directors
held one meeting, attended or participated in by all of the directors. Other
matters were undertaken by written consent by the Board of Directors.

The Board of Directors are 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 2006.

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 2006.

We presently do not have a separate nominating committee of the Board of
Directors for the selection of directors, and do not have a nominating committee
charter. Presently, all such actions are performed by the entire Board of
Directors.

OTHER INFORMATION ABOUT DIRECTORS

Other than as reported, none of the directors are directors of other reporting
companies, are associated by family relationships, or have been involved in
legal proceedings.

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.

<PAGE>

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:

                                                       Fiscal
Name and Principal Position     Year        Salary      Bonus     Other (1)
---------------------------     ----        ------      -----     ---------

Wilfred Shorrocks,(2)           2005       $36,000         $0           $0
  Chief Executive Officer       2004         9,074         $0            0
  Chief Executive Officer       2003         7,556          0            0

(1)   Does not include repayment of advances made by the executive to us.
(2)   We intend to enter into an employment agreement with Mr. Shorrocks and
      other executive officers during our 2006 fiscal year.

Director Compensation

We do not have a compensation plan for directors. We may adopt one during our
2006 fiscal year.

Employee Stock Option

During our fiscal year 2006, we intend to adopt and implement, subject to
stockholder 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, or up to 10% of
our outstanding shares of common stock.

Option Grants in Fiscal 2004

No options were granted to employees, including executive officers and
directors, during the year ended December 31, 2005.

Option Exercises in Fiscal 2005 and Year End Option Values

No options were held by employees, including executive officers and directors,
during the year ended December 31, 2005.

Employment Agreement with Executive Officer

We do not have a written employment agreement with any of our executive
officers.

<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth, as of December 31, 2006, 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. As of March 8, 2006, we had 32,689,870 shares of
common stock issued and outstanding.

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 additional shares acquirable within 60 days.

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

<TABLE>
<CAPTION>
-------------------------------------------------- ----------------------- -------------------- -------------
                                                                            Additional Shares
Name and Address                                     Amount and Nature         Acquirable         Percent
of Beneficial Owner                                 of Beneficial Owner      Within 60 days       Of Class
-------------------------------------------------- ----------------------- -------------------- -------------
<S>                                                 <C>                      <C>                  <C>
Wilfred Shorrocks  (1)(2)(3)                                    8,361,899                    0         26.8%
Paula Shorrocks  (1)(2)(3)                                      8,361,899                    0         26.8%
Phil Ogden   (1)                                                  476,792                    0          1.5%
Alan Shorrocks  (1)(3)                                            476,792                    0          1.5%
Nicola Yeomans  (1)                                                     0                    0            0%
Platinum Partners Global Macro Fund LP (4)(5)                   1,440,116            2,833,333         12.0%
   152 West 57th Street
   New York, NY 10019
Dan Brecher  (5)(6)                                             1,213,001            1,570,000          8.1%
   c/o Law Offices of Dan Brecher
   99 Park Ave
   New York, NY 10016
-------------------------------------------------- ----------------------- -------------------- -------------
All officers and directors as a group (5 persons)              17,677,382                    0         54.1%
-------------------------------------------------- ----------------------- -------------------- -------------
</TABLE>
(1)   Officer and/or director of Peak.
(2)   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.
(3)   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.
(4)   Platinum Partners Global Macro Fund LP owns $400,000 in principal amount
      of 8% convertible debentures, which are convertible at $0.30 per share
      into 1,333,333 shares, and warrants exercisable at $0.50 per share into
      1,500,000 shares. Does not include shares potentially issuable for accrued
      interest on the debentures.
(5)   Person is subject to an agreement restricting the ability to convert
      debentures or exercise warrants so that the person would not own more than
      4.9% of our common stock at a given time.
(6)   Mr. Brecher owns $171,000 in principal amount of 8% convertible
      debentures, which are convertible at $0.30 per share, into 570,000 shares,
      and warrants exercisable at $0.50 per share into 1,000,000 shares. Does
      not include shares potentially issuable for accrued interest on the
      debentures.

<PAGE>

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

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes stock options and warrants, granted as
compensation and excluding securities issued in connection with financing
activities, outstanding as of December 31, 2005.

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

<S>                                      <C>                      <C>                         <C>
Equity compensation plans approved by                  0                      $0                         0
securities holders

Equity compensation plans not                  2,290,000                      $0.__                      0
approved by security holders

Total                                          2,290,000                      $0.__                      0
</TABLE>

Plans Not in the Shareholder Approved Category

In July 2003, pursuant to a consulting agreement with POW! Entertainment LLC and
Stan Lee, we 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 vested in July 2004.

In December 2003, we 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 we 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.

On January 23, 2004, we 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.

On January 4, 2005, we entered into a consulting agreement with Salvani
Investments, pursuant to which we issued 1,000,000 warrants, exercisable for 5
years at $0.50 per share, in exchange for services.

<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. As of December 31, 2005
we owed $480,948 to the Shorrocks. These monies are loaned without interest and
do not have a due date, and are due on demand. In March 2004, we 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
Peak Entertainment, such as Peak Entertainment 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.

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 payable quarterly in
perpetuity, with a guaranteed minimum royalties amount of $1,000,000. There were
no set payment terms in the original license agreement for payment of the
minimum royalties. In April 2004, the Company amended the license agreement to
establish a minimum quarterly royalty payment of $12,500, to be credited against
the guaranteed minimum, due beginning September 30, 2004. Through December 31,
2005 the Shorrocks elected to defer receipt of the quarterly payments.

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.

Two former 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, provided management consulting
services to the Company. The Company paid aggregate fees of $46,000 in 2003 for
such consulting services. Terence Herzog and Michael Schenkein resigned as
directors in December 2004.

<PAGE>

ITEM 13.      EXHIBITS

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

<TABLE>
<CAPTION>
Exhibit No.       Description
-----------       -----------
<S>               <C>
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 reference to Exhibit 2.4 of Form SB-2 filed on February
                  2, 2004)
3(i)(1)           Articles of Incorporation of Corvallis, Inc. (Incorporated by reference to Exhibit 4 of Form S-18 filed
                  on November 9, 1987.)
3(i)(2)           Articles of Merger for Corvallis, Inc. (Incorporated by reference to Exhibit 3(i)(2) of Form 10-KSB
                  filed on April 15, 2005)
3(i)(3)           Certificate of Amendment to Articles of Incorporation of Corvallis, Inc. (Incorporated by reference to
                  Exhibit 3(i)(3) of Form 10-KSB filed on April 15, 2005)
3(i)(4)           Certificate of Amendment to Articles of Incorporation of USAOneStar.Net, Inc. (Incorporated by reference
                  to Exhibit 3(i)(4) of Form 10-KSB filed on April 15, 2005)
3(i)(5)           Articles of Share Exchange (Incorporated by reference to Exhibit 3(i)(5) of Form 10-KSB filed on April
                  15, 2005)
3(i)(6)           Certificate of Amendment to Articles of Incorporation of Palladium Communications, Inc. (Incorporated by
                  reference to Exhibit 3(i)(6) of Form 10-KSB filed on April 15, 2005)
3(ii)(1)          Bylaws (Incorporated by reference to Exhibit 5 of Form S-18 filed on November 9, 1987)
3(ii)(2)          Resolution dated October 20, 2000 amending bylaws (Incorporated by reference to Exhibit 3.1 of Form 10-Q
                  filed on November 14, 2000)
3(ii)(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 reference 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 reference 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 reference 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 reference 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 reference 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 reference to Exhibit 4.7 of Form
                  SB-2 filed on February 2, 2004)
4.8               Form of Securities Purchase Agreement, dated as of March 3, 2004 (Incorporated by reference to Exhibit
                  10.2 of Form 10-KSB filed on April 27, 2004)
4.9               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 10.3 of Form 10-KSB filed on
                  April 27, 2004)
4.10              September 2004 Securities Purchase Agreement for $500,000 (Incorporated by reference to Exhibit 4 of
                  Form 8-K filed on October 1, 2004)
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
<S>              <C>
4.11              Form of Warrant issued January 5, 2005(Incorporated by reference to Exhibit 4.1 of Form 10-QSB/A filed
                  on June 6, 2005)
4.12              Loan Agreement, dated March 1, 2005 (Incorporated by reference to Exhibit 4.12 of Form 10-KSB filed on
                  April 15, 2005)
4.13              Form of Warrant issued March 2, 2005 (Incorporated by reference to Exhibit 4.13 of Form 10-KSB filed on
                  April 15, 2005)
4.14              Form of Securities Purchase Agreement, May 2005 (Incorporated by reference to Exhibit 4.1 of Form 8-K
                  filed on July 15, 2005)
4.15              Securities Purchase Agreement, August 10, 2005 (Incorporated by reference to Exhibit 4.2 of Form 10-QSB
                  filed on August 17, 2005)
4.16              Securities Purchase Agreement, August 22, 2005 (Incorporated by reference to Exhibit 4.3 of Form 10-QSB
                  filed on November 23, 2005)
4.17              Form of Agreements related to sale of Units of Securities, October 2005 (Incorporated by reference to
                  Exhibit 4.4 of Form 10-QSB filed on November 23, 2005)
10.1              License Agreement with Wilf and Paula Shorrocks, dated April 30, 2002 (Incorporated by reference to
                  Exhibit 10.1 of Form SB-2/A filed on May 3, 2004)
10.2              Amendment to Shorrocks License Agreement dated as of April 2004 (Incorporated by reference to Exhibit
                  10.7 of Form 10-KSB filed on April 27, 2004)
10.3              License Agreement with Jesco Imports, Inc., dated June 1, 2002 (Incorporated by reference to exhibit
                  10.8 of Form SB-2 filed on February 2, 2004)
10.4              Memorandum of an Agreement, dated July 10, 2002 with CK's Supermarket (Incorporated by reference to
                  Exhibit 10.4 of Form 10-KSB filed on April 15, 2005)
10.5              License Agreement with Toontastic Publishing Ltd, dated December 5, 2002 (Incorporated by reference to
                  Exhibit 10.9 of Form SB-2 filed on February 2, 2004)
10.6              License Agreement with Toontastic Publishing Ltd., Renewal, dated April 1, 2004 (Incorporated by
                  reference to Exhibit 10.5 of Form 10-KSB filed on April 27, 2004)
10.7              Distribution Agreement, dated January 20, 2003, with Character Options Ltd. (Incorporated by reference
                  to Exhibit 10.11 of Form SB-2 filed on February 2, 2004)
10.8              Amendment, dated June 2004, to Distribution Agreement with Character Options Ltd., dated January 20,
                  2003 (Incorporated by reference to Exhibit 10.37 of Form 10-KSB filed on April 15, 2005)
10.9              License Agreement with Character Options Ltd., dated April 20, 2005 (Incorporated by reference to
                  Exhibit 10.2 of Form 10-QSB filed on November 23, 2005)
10.10             License Agreement with CCA Group Ltd., dated February 10, 2003 (Incorporated by reference to Exhibit
                  10.34 of Form SB-2/A filed on June 7, 2004)
10.11             Agreement between Peak Entertainment Ltd. and GMTV of the London Television Centre, dated February 17,
                  2003 (Incorporated by reference to Exhibit 10.13 of Form SB-2 filed on February 2, 2004)
10.12             Amendment, dated June 2004, to Distribution Agreement with GMTV, dated February 17, 2003 (Incorporated
                  by reference to Exhibit 10.38 of Form 10-KSB filed on April 15, 2005)
10.13             Distribution Agreement, dated July 1, 2003 with Perfectly Plush Inc. (Incorporated by reference to
                  Exhibit 10.15 of Form SB-2 filed on February 2, 2004)
10.14             Consulting Agreement with POW! Entertainment and Stan Lee dated July 2003 (Incorporated by reference to
                  Exhibit 10.2 of Form 10-QSB filed on November 26, 2003)
10.15             Consulting Agreement, dated July 2003, with Jack Kuessous with Form of Warrant (Incorporated by reference
                  to Exhibit 10.3 of Form 10-QSB filed on November 26, 2003)
10.16             International Representation Agreement with Haven Licensing Pty Ltd, dated August 19, 2003 (Incorporated
                  by reference 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 reference 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
                  reference 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 reference to Exhibit
                  10.19 of Form SB-2 filed on February 2, 2004)
10.20             Amendment, dated January 2004, to License Agreement with Radica UK Ltd. dated December 12, 2003
                  (Incorporated by reference to Exhibit 10.24 of Form 10-KSB filed on April 15, 2005)
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>               <C>
10.21             Amendment, dated June 2004, to Distribution Agreement with Radica UK Ltd. dated December 12, 2003
                  (Incorporated by reference to Exhibit 10.36 of Form 10-KSB filed on April 15, 2005)
10.22             Amended Consulting Agreement, dated as of December 17, 2003, with Jack Kuessous (Incorporated by
                  reference to Exhibit 10.4 of Form SB-2 filed on February 2, 2004)
10.23             Cancellation of Debt Agreement, dated December 2003, with Jack Kuessous (Incorporated by reference to
                  Exhibit 10.5 of Form SB-2 filed on February 2, 2004)
10.24             Settlement of Debt Agreement (Incorporated by reference to Exhibit 10.6 of Form SB-2 filed on February
                  2, 2004)
10.25             Agreement for the Provision of Co Production Services with Cosgrove Hall Films Ltd., dated January 9,
                  2004 (Incorporated by reference to Exhibit 10.21 of Form SB-2 filed on February 2, 2004)
10.26             Agreement with POW! Entertainment, entered January 2004 (Incorporated by reference to Exhibit 10.23 of
                  Form SB-2 filed on February 2, 2004)
10.27             Agreement for Services with Vintage Filings, LLC, dated January 23, 2004 (Incorporated by reference to
                  Exhibit 10.25 of Form SB-2 filed on February 2, 2004)
10.28             Financial Advisor Agreement with Ameristar International Capital, Inc. dated February 11, 2004
                  (Incorporated by reference to Exhibit 10.1 of Form 10-KSB filed on April 27, 2004)
10.29             Financial Advisor Agreement with Source Capital Group, Inc. dated March 23, 2004 (Incorporated by
                  reference to Exhibit 10.4 of Form 10-KSB filed on April 27, 2004)
10.30             Promissory Note to Shorrocks dated March 2004 (Incorporated by reference to Exhibit 10.6 of Form 10-KSB
                  filed on April 27, 2004)
10.31             Cancellation of Debt in Exchange for Securities Agreement with Laura Wellington entered into April 2004
                  (Incorporated by reference to Exhibit 10.33 of Form SB-2/A filed on May 3, 2004)
10.32             International Representation Agreement with The Sharpe Company Inc., dated April 22, 2004 (Incorporated
                  by reference to Exhibit 10.6 of Form 10-QSB filed on August 26, 2004)
10.33             Distribution Agreement with Cadaco, dated April 27, 2004 (Incorporated by reference to Exhibit 10.7 of
                  Form 10-QSB filed on August 26, 2004)
10.34             Agreement with Video Collection International Limited, dated April 29, 2004 (Incorporated by reference
                  to Exhibit 10.35 of Form SB-2/A filed on June 7, 2004)
10.35             Amendment, dated June 2004, to Distribution Agreement with Video Collection International Ltd., dated
                  April 29, 2004 (Incorporated by reference to Exhibit 10.39 of Form 10-KSB filed on April 15, 2005)
10.36             Agreement for the Provision of Co Production Services Re: "Monster Quest - The Quest" with Persistence
                  Of Vision Sdn Bhd., dated May 18, 2004 (Incorporated by reference to Exhibit 10.3 of Form 10-QSB filed
                  on December 16, 2004)
10.37             Cancellation of Debt in Exchange for Securities Agreement with Laura Wellington, dated July 23, 2004
                  (Incorporated by reference to Exhibit 10.8 of Form 10-QSB filed on August 26, 2004)
10.38             Consultant Agreement with CEOcast, Inc. dated as of September 1, 2004 (Incorporated by reference to
                  Exhibit 10.4 of Form 10-QSB filed on December 16, 2004)
10.39             Distribution Agreement with Impact International Ltd 2004, dated as of November 1, 2004 (Incorporated by
                  reference to Exhibit 10.42 of Form 10-KSB filed on April 15, 2005)
10.40             License Agreement with Zoo Digital Publishing Limited, dated October 4, 2004 (Incorporated by reference
                  to Exhibit 10.43 of Form 10-KSB filed on April 15, 2005)
10.41             Consulting Agreement with Salvani Investments, dated as of January 4, 2005 (Incorporated by reference to
                  Exhibit 10.45 of Form 10-KSB filed on April 15, 2005)
10.42             Form of International Representation Agreement, dated August 2, 2004, with Blue Chip Brands Pty Ltd.
                  (Incorporated by reference to Exhibit 10.46 of Form 10-KSB filed on April 15, 2005)
10.43             Letter of Intent with Maverick Entertainment Group plc, dated March 1, 2005, and Representation
                  Agreement, dated March 1, 2005 (Incorporated by reference to Exhibit 10.47 of Form 10-KSB filed on April
                  15, 2005)
10.44             The Wumblers Deal Memo with 4Kids Entertainment, Inc. dated March 7, 2005 (Incorporated by reference to
                  Exhibit 10.48 of Form 10-KSB filed on April 15, 2005)
10.45             License Agreement with Color Media International, dated February 1, 2005 (Incorporated by reference to
                  Exhibit 10.1 of Form 10-QSB filed on November 23, 2005)
10.46             License Agreement with Future Publishing Limited, July 2005 (Incorporated by reference to Exhibit 10.3
                  of Form 10-QSB filed on November 23, 2005)
10.47             Television License Agreement with HOP! Channel Ltd., dated July 11, 2005 (Incorporated by reference to
                  Exhibit 10.4 of Form 10-QSB filed on November 23, 2005)
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>               <C>
10.48             License Agreement with Martin Yaffe International Ltd, dated August 16, 2005 (Incorporated by reference
                  to Exhibit 10.5 of Form 10-QSB filed on November 23, 2005)
10.49             License Agreement with Toontastic Publishing Ltd., Renewal, dated September 1, 2005 (Incorporated by
                  reference to Exhibit 10.6 of Form 10-QSB filed on November 23, 2005)
10.50             License Agreement with Fun2Learn Ltd., dated September 1, 2005 (Incorporated by reference to Exhibit
                  10.7 of Form 10-QSB filed on November 23, 2005)
10.51             Consultant Agreement with CEOcast, October 1, 2005 (Incorporated by reference to Exhibit 10.8 of Form
                  10-QSB filed on November 23, 2005)
10.52             License Agreement with Morrison Entertainment Group, Inc., dated February 25, 2002 (Incorporated by
                  reference to Exhibit 10.7 of Form SB-2 filed on February 2, 2004)
10.53             Agreement made as of December 22, 2004 with Morrison Entertainment Group, Inc. (Incorporated by
                  reference to Exhibit 10.44 of Form 10-KSB filed on April 15, 2005)
10.54             Agreement, dated April 28, 2003, with The Silly Goose Company, LLC (Incorporated by reference to Exhibit
                  10.14 of Form SB-2 filed on February 2, 2004)
10.55             Entertainment Production Agreement, dated as of December 16, 2003, with The Silly Goose Company, LLC
                  (Incorporated by reference to Exhibit 10.20 of Form SB-2 filed on February 2, 2004)
10.56             Agreement with Silly Goose Company, dated March 6, 2006 (Incorporated by reference to Exhibit 10 of Form
                  8-K filed on March 14, 2006)
10.57*            Representation Agreement with Dubreq Limited, dated October 5, 2005
10.58*            License Agreement with Zoo Digital Publishing Limited dated September 2005
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.
16                Letter on change in certifying accountant (Incorporated by reference to Exhibit 16 of Form 8-K/A filed
                  on September 3, 2004)
21                List of Subsidiaries (Incorporated by reference to Exhibit 21 of Form SB-2 filed on February 2, 2004)
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 18 U.S.C. Section 1350
32.2*             Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
</TABLE>
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* Filed herewith.

<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

Fees for audit services provided by Garbutt & Elliott Ltd., our current
principal independent registered public accounting firm, during the years ended
December 31, 2004 and 2005 were $92,477 and $72,790, respectively. Fees for
audit services provided by Goodband Viner Taylor, our former principal
accountant, during the year ended December 31, 2004 were $148,348.

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 ended December 31, 2004 and
2005.

Tax Fees

Fees for tax services provided by Garbutt & Elliott Ltd., our current principal
independent registered public accounting firm, during the years ended December
31, 2004 and 2005 were $0 and $0, respectively. Fees for tax services provided
by Goodband Viner Taylor, our former principal accountant, during the year ended
December 31, 2004 was $0.

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 2004 and 2005 were approved by the Board of Directors. We intend to
continue using our principal accountant, Garbutt & Elliott Ltd., 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 2004 and 2005. In fiscal year
2006, 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.

<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:  April 6, 2006

      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:


<TABLE>
<CAPTION>
SIGNATURE                           TITLE                                               DATE
---------                           -----                                               ----
<S>                                <C>                                                <C>
/s/ WILFRED SHORROCKS               President, Chairman, and Chief Executive Officer    April 6, 2006
---------------------------
Wilfred Shorrocks


/s/ PAULA SHORROCKS                 Vice President and Director                         April 6, 2006
---------------------------
Paula Shorrocks


/s/ PHIL OGDEN                      Vice President and Director                         April 6, 2006
---------------------------
Phil Ogden


/s/ ALAN SHORROCKS                  Vice President                                      April 6, 2006
---------------------------
Alan Shorrocks


/s/ NICOLA YEOMANS                  Vice President                                      April 6, 2006
---------------------------         (Principal Financial Officer)
Nicola Yeomans
</TABLE>