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

                                  FORM 10-KSB/A

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

                   For the fiscal year ended December 31, 2004

[ ]   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 Identification No.)
  incorporation or organization)

       Bagshaw Hall, Bagshaw Hill
    Bakewell, Derbyshire, UK DE45 1DL
 (Address of principal executive offices)               (Zip Code)

      Issuer's telephone number: 44-1629-814555

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

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

Check whether the issuer 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:  $1,166,156.

The aggregate market value of voting and non-voting stock of the issuer held by
non-affiliates on March 31, 2005 was $4,848,211.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

As of May 1, 2005, we had 31,180,530 shares of common stock issued and
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

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

<PAGE>

                             INTRODUCTORY STATEMENT

In this Amendment No. 2 to our Annual Report on Form 10-KSB/A (the "Second
Amendment") for the year ended December 31, 2004, we further amend the following
items set forth in our Amendment No. 1 to our Annual Report on Form 10-KSB/A
(the "First Amendment") filed on May 16, 2005:

         Part II - Item 6.  Management's Discussion and Analysis
         Part II - Item 7.  Financial Statements
         Part III - Item 13. Exhibits

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 First Amendment.

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.

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 (loss) 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.

Except as discussed above, we have not modified or updated disclosures presented
in the First Amendment, except as required to reflect the effects of the
restatement, in this Second Amendment. Accordingly, this Second Amendment does
not reflect events occurring after the filing of the First Amendment or modify
or update those disclosures affected by subsequent events.

Please refer to Note 2 to the accompanying consolidated financial statements for
additional information on the restatement.


                                       2
<PAGE>

                        PEAK ENTERTAINMENT HOLDINGS, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                              ----
<S>                                                                                                            <C>
  PART I

  Item 1.      Description of Business                                                                         4
  Item 2.      Description of Property                                                                         14
  Item 3.      Legal Proceedings                                                                               14
  Item 4.      Submission of Matters to a Vote of Security Holders                                             15

  PART II

  Item 5.      Market for Common Equity and Related Stockholder Matters                                        16
  Item 6.      Management's Discussion and Analysis                                                            18
  Item 7.      Financial Statements                                                                            32
  Item 8.      Changes In and Disagreements With Accountants on Accounting and Financial Disclosure            62
  Item 8A.     Controls and Procedures.                                                                        63
  Item 8B.     Other Information                                                                               63

  PART III

  Item 9.      Directors, Executive Officers, Promoters and Control Persons; Compliance
               With Section 16(a) of the Exchange Act                                                          65
  Item 10.     Executive Compensation                                                                          68
  Item 11.     Security Ownership of Certain Beneficial Owners and Management                                  69
  Item 12.     Certain Relationships and Related Transactions                                                  71
  Item 13.     Exhibits                                                                                        72
  Item 14.     Principal Accountant Fees and Services                                                          76

  Signatures                                                                                                   77
</TABLE>


                                       3
<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, Monster Quest and The Wumblers,
which are in various stages of production and 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, due to air in
the United Kingdom in Fall 2005, that has been 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 currently sell the following toy and gift products: Countin' Sheep toy
merchandise, and Pretty Pony Club gift pony molds and are developing toy lines
for Monster Quest, Muffin the Mule, Snailsbury Tails and The Wumblers television
shows in anticipation of their anticipated merchandise launches in early 2006.

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.co.uk.


                                       4
<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, 2004, we had 29,040,955 shares of common stock issued and
outstanding.

Business Overview

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

We operate primarily through our wholly-owned United Kingdom subsidiary, Peak
Entertainment Ltd., and its subsidiaries: Jusco UK Ltd, a United Kingdom
registered company; Jusco Toys Ltd, a Hong Kong registered company; Wembley
Sports Master Ltd., a United Kingdom registered company; and Cameo Collectables
Ltd, a United Kingdom registered company.

We also utilize a wholly owned United States subsidiary, Peak Entertainment
Holdings LLC, a Delaware limited liability company formed in April 2002.


                                       5
<PAGE>

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.

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.

We entered into an Agreement for the Provision of Co Production Services with
Persistence Of Vision Sdn Bhd, dated May 18, 2004, for the co-production of 26
thirty minute episodes of an animated television program for children
provisionally entitled "Monster Quest - The Quest." We are providing the
intellectual property, format and concept for the television episodes, and
Persistence Of Vision will supply the production services. Persistence Of Vision
will be paid for its production services. The costs of the production of the
episodes are projected to be approximately $273,000 per episode.

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 have a letter of intent agreement with Persistence of
Vision pursuant to which Persistence of Vision is to provide approximately
$1,200,000 of funding to the project.


                                       6
<PAGE>

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 2005, we
anticipate production for delivery of the first thirteen episodes by April 2006
and the next thirteen by October 2006. If sufficient funding is not available
shortly, the timetable for production of the episodes will likely be
re-scheduled for completion for Fall 2006 or Spring 2007.

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.

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 are entitled to all
exploitation rights in The Wumblers including merchandise and distribution
rights. We are to finance or obtain financing for the episodes. Funding sources
will share copyright interests in the television episodes according to the
allocation of net proceeds. We will have the right to produce other episodes
based on the licensed intellectual property. We have the right to exploit the
licensed property worldwide in perpetuity.

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 are 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 $3,5000,000.

We have completed the production of one pilot episode to date. We anticipate
that the remaining episodes will be completed by April 2006, subject to receipt
of financing for production costs. We are actively seeking sources of financing
to fund the completion of this project.

We exhibited the pilot episode at the MIPTV International toy fair in Cannes,
France in April 2004, and it received a very favorable acceptance from
broadcasters, including GMTV (UK), HOP! (Israel); SABC (South Africa) and Chisan
International (Korea), with all of whom we have entered initial negotiations for
broadcast terms, and are awaiting written contractual agreements once further
episodes are produced. In March 2005, we entered into an agreement with 4Kids
Entertainment granting it certain United States broadcast, licensing and
merchandising rights and we have a commitment from 4Kids Entertainment to
broadcast the 52 episodes in the United States before the end of 2006. We expect
at least 12 other countries that viewed The Wumblers pilot episode at MIPTV to
advance their interest at MIPCOM in April 2005.


                                       7
<PAGE>

      Muffin the Mule

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 year end, Peak Entertainment became the licensing agent for certain of
Maverick Entertainment's intellectual property, including Muffin the Mule.

This broadcasting icon has been credited with kick-starting the post-war
children's licensing industry with a host of toys, books, games, gifts
collectables and more. The new show takes from the original and combines it with
the more sophisticated visuals that modern children have come to know and
expect. It still retains the charm and simple story telling that made it a
nation's favourite and gives Muffin and his friends a whole new lease on life.
The series is aimed at pre-schoolers and the new show follows a classic
story-telling format incorporating all of Muffin's friends from the original
1940's series.

      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.


                                       8
<PAGE>

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.

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, we manufactures 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.


                                       9
<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. We are to finance or obtain
            financing for the episodes. Funding sources will share copyright
            interests in the television episodes according to the allocation of
            net proceeds. We will have the right to produce other episodes based
            on the licensed intellectual property. We have the right to exploit
            the licensed property worldwide in perpetuity. We are entitled to
            35% to 40% of the gross revenues, depending on the location from
            which revenues are generated and the form of the source of revenues,
            whether television, music, or merchandise. We and any financing
            partners are entitled to recoup all production and marketing costs
            from gross revenues. Silly Goose is entitled to 31% of the net
            proceeds, Peak is entitled to 25% of the net proceeds, and the other
            44% of the net proceeds is allocated among the financing parties,
            which may include Silly Goose and Peak.

      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.

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.


                                       10
<PAGE>


      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.

      o     Pretty Pony Club - to Toontastic Publishing Ltd., pursuant to a
            license agreement dated December 5, 2002, and renewed in 2004. Under
            the agreement, we licensed the right to intellectual property called
            Pretty Pony Club in connection with the sale of comic books. The
            license territory is the United Kingdom and Eire. We are to receive
            royalties of 4% of the net sales price or 5% of the purchase price,
            depending on the manufacturer. There is no minimum guaranteed
            royalty under the renewed license. The license expired on February
            28, 2005.

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.


                                       11
<PAGE>

      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.

      o     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.

      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 representation agreement, dated April 22, 2004,
            with The Sharpe Company, Inc., located in Manhattan Beach,
            California, granting The Sharpe Company, in connection with our
            Countin' Sheep product 6 12 ts, the exclusive right to negotiate
            with manufacturers and other interested parties licenses for
            merchandising rights in the United States and Canada for a period
            ending on September 30, 2005. The commission rate is 30% of gross
            receipts. The Sharpe Company also had the right to find a
            distributor for the sale and distribution the sale of the products
            in the United States through June 2004.

      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 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 distribution agreement, dated November 1, 2004,
            with Impact International Ltd 2004, whereby Impact International
            would serve as exclusive distributor of our Countin' Sheep Plush
            products in the United Kingdom, Channel Islands and Ireland. Under
            the agreement, Impact International is to pay us a royalty of 10% of
            the net selling price. The agreement expires on February 28, 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.


                                       12
<PAGE>

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.

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 2004, we were not dependent on any particular supplier.

Dependence on Major Customers

In our fiscal year ended December 31, 2004, Silly Goose Company represented
approximately 34% 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.


                                       13
<PAGE>

Compliance with Environmental Laws

Not applicable.

Employees

As of December 31, 2004, we employed a total of 15 employees on a full-time
basis, 9 of which are management level employees, two of which are clerical, and
four employed as designers.

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 March 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 $386,095
including interest of $115,596. 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. 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. The
financial statements include an accrual of $9,166 in relation to this claim.


                                       14
<PAGE>

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. To the best of our knowledge,
and after inquiry to the counsel for the former debenture holders of the "put",
no notice of exercise of the "put" was sent to us. Accordingly, we considered
the notice ineffective and did not honor the notice. In or about March 2005, an
agent for the former debenture holders informed us that the former debenture
holders may institute a legal proceeding to enforce their put rights. We
understand that the former debenture holders filed a lawsuit in this regard in
or about March 21, 2005. As of May 6, 2005, we have not been served with the
lawsuit. In the event that we are served with a lawsuit, 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.

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

Not applicable.


                                       15
<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
--------------------                          ----               ---

June 30, 2003                                 1.65               0.03
September 30, 2003                            1.15               0.65
December 31, 2003                             0.80               0.40
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

Holders

As of April 1, 2005, we had approximately 582 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.


                                       16
<PAGE>

Recent Sales of Unregistered Securities

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 business consulting and investor
relations services. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) under
the Securities Act.

On January 5, 2005, we sold to Dan Brecher 250,000 warrants, exercisable for
three years at $0.50 per share, for $2,500. 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. We applied the proceeds to
working capital.

On March 1, 2005, we entered into a loan agreement for $500,000 with Tayside
Trading Ltd. Pursuant to the loan agreement, we issued 500,000 warrants,
exercisable for five years at $0.50 per share, to the lender. We 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. We used the funds to fund a
$500,000 letter of credit. We agreed to grant the lender, as collateral, rights
to our intellectual property, to the extent not already encumbered. In
consideration for the loan, we issued to the lender 500,000 warrants,
exercisable for five years at $0.50 per share. We 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, we issued 1,800,000 shares as a late payment penalty. We relied on
an exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.

On March 2, 2005, we issued 50,000 warrants, exercisable for five years at $0.50
per share, to Aaron M. Lasry in return for business consulting services. We
relied on an exemption from registration for a private transaction not involving
a public distribution provided by Section 4(2) under the Securities Act.

On April 10, 2005, we issued 159,575 shares of restricted common stock to
Crescent Fund, LLC in return for financial consulting services. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.


                                       17
<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, 2004.

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 2005 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 are expecting to finance the balance of the production budget
($1,900,000) with the support of Silly Goose Company and third parties.


                                       18
<PAGE>

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.

We are also negotiating a potential debt financing deal with Persistence of
Vision Sdn Bhd (POV) and the Malaysian Government to fund our $7.1m production
budget for Monster Quest.

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.


                                       19
<PAGE>

The year ended December 31, 2004 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
and 2004 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.

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, 2004 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 2003

Revenues

Consolidated net revenues increased 15% to $1,166,156 for the year ended
December 31, 2004 from $1,014,996 for the year ended December 31, 2003. A
breakdown of revenues from our media income is set forth in the table below.

<TABLE>
<CAPTION>
                                                   2003 Revenue ($)      2004 Revenue ($)     % Increase/(Decrease)
                                                   ----------------      ----------------     ---------------------
<S>                                                   <C>                   <C>                        <C>
Entertainment/ Production                               500,000               713,876                   43%
Licensing Arrangements                                   97,082               214,357                  121%
Character Related Consumer Products                     417,914               237,923                  -43%

Total Revenues                                        1,014,996             1,166,156                   15
</TABLE>

The increase in total revenue is partly due to the 43% increase in revenue from
production activities. This revenue is generated from pre-production work that
is then invoiced to third party or co-production partners. This increase is in
line with the early stages of the completed work on the shows that we are
working on.

Revenues from licensing increased 121% to $214,357 in the year ended December
31, 2004 from $97,082 in the year ended December 31, 2003. In 2004, we generated
licensing revenue from Toontastic, pursuant to a licensing agreement for Pretty
Pony Club, and licensing revenues pursuant to licensing agreements for Monster
Quest with Radica UK Ltd, Character Options Ltd and Impact International.


                                       20
<PAGE>

Revenues from the sale of consumer products decreased (43)% from $417,914 in the
year ended December 31, 2003 to $237,923 in the year ended December 31, 2004.
Sales in 2004 were generated from the sales of the remaining toy related
inventory that we acquired in 2002 as part of our acquisition of Jusco Toys Ltd,
along with its principal consumer products activities, which was focused
primarily on our `gift' concept Countin' Sheep. This product was sold primarily
in the United Kingdom. We have started to build on this initial base by
appointing Cadaco (USA) internationally to build on this concept. These sales
accounted for 14% of our total revenues sales for the year ended December 31,
2004.

In 2004, we were primarily focused on the raising of capital, and the sales of
inventory along with products launched in 2003 that were short-term cash
generating projects. Our intention is to begin aggressively marketing toy
products associated with 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 production stages of two television shows, and we
expect to remain in the production stages of the shows through 2005 and into
2006. 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, 2004, cost of revenues was $596,651 as compared
to $725,066 in 2003, a decrease of 18%. Cost of revenues as a percentage of
revenues decreased to 51% in 2004 as compared to 71% in 2003. 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, 2004 was $569,505, or 49%
of revenues, as compared to $289,930 or 28.6% of revenues, for the same period
in 2003.


                                       21
<PAGE>

Operating Expenses

Selling, General and Administrative Expenses. Selling, general and
administrative costs were $2,343,790 for the year ended December 31, 2004
compared to $2,614,593 for the year ended December 31, 2003. As a percentage of
revenues, selling, general and administrative costs decreased to 201% for the
year ending December 31, 2004 from 257% for the year ending December 31, 2003.
The following table summarizes the costs incurred in 2004.

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

General Costs                             567,579              24%
Employee Compensation                     281,257              12%
Legal and Professional                  1,290,130              55%
Travel and Entertainment                  204,824               9%

TOTAL                                   2,343,790             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 2005 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 2005, 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, 2004
was $22,580 as compared to $14,460 for the same period in 2003. The increase is
in direct relationship with the expansion of our capital spending on equipment.

Amortization for the year ended December 31, 2004 was $407,647 as compared to
$159,370 for the same period in 2003. The increase is in direct relationship
with amortization of licensing rights, debentures and warrants.

Net Loss

Our net loss decreased from $2,966,547, or $0.14 loss per share, in the year
ended December 31, 2003 to $1,993,942, or $0.077 loss per share, in 2004. The
decrease in net loss is significantly attributable to a gain on settlement of
convertible debentures and accrued interest.

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.


                                       22
<PAGE>

As of December 31, 2004, we had commitments for capital and other expenditures
aggregating $5,977,192 included in current and long term liabilities, payable
over a maximum 20 year period. Those commitments and the amounts payable in
2004, giving effect to terms amended in 2004, are summarized in the following
table.

<TABLE>
<CAPTION>
Contractual                     Liability         Amounts payable        Contract Terms
Obligations                     as of 12/31/04    within 12 months       and Notes
<S>                               <C>               <C>                  <C>
Short term loan -                 $   386,095       $   386,095          20% interest per annum.  Was secured by
CK Supermarkets                                                          inventory, part sold and monies used to
                                                                         part pay balance.  We are negotiating to
                                                                         convert the balance to common stock in
                                                                         2005.

Accounts Payable -                $ 1,301,439       $ 1,301,439          Refers to various payables (composed
Various                                                                  significantly of various ordinary business
                                                                         expenses, as well as legal, accounting, and
                                                                         other professional fees).

Stock holders' advances           $   752,522       $   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                $    67,831       $    67,831

Debentures - various              $   330,652       $         0          Discount and interest on the debentures.
debenture holders                                                        Does not include the principal amount of
                                                                         the debentures in the amount of $958,000.

Other - including Tax and         $ 1,904,534       $ 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     $   975,000       $    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)                  $   259,119     To be determined       Animation costs for Monster Quest.
                                                  based upon the level
                                                  of financing
                                                  received within 2005.
-------
TOTAL                             $ 5,977,192       $ 3,809,899
</TABLE>


                                       23
<PAGE>

You will note that $1,994,643 or 33% of the total commitments as of December 31
2004, is committed to the principals of Peak in promissory notes or long-term
licenses and a further 5% 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 sales of our toys and gift products have
been insufficient to fully meet our short-term liquidity needs. We anticipate
that in fiscal year 2005, 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 The
Wumblers, which are scheduled for production in late 2005 to early 2006.
However, our gross profit for the year ended December 31, 2004 represented only
15 % of our commitments payable within twelve months. As of December 31, 2004.
Because 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, 2004, we had a net operating loss of
$2,204,512 and an overall net loss of $1,993,942. At December 31, 2004, we had
$10,235 in cash and had a working capital outflow of $437,281.

In 2003, we did not use or depreciate the moulds and tooling acquired from the
acquisition of Jusco Toys Ltd, due to an enquiry from the Hong Kong Inland
Revenue Department. The enquiry concerned the non-submission of certain tax
computations to ascertain taxes payable by the prior owners of Jusco Toys. This
was unknown to Peak until after we acquired Jusco Toys from the administrators
of Just Group Plc. This enquiry was determined in July 2004 at a cost to us of
$9,235, and we can now utilize the moulds and tooling and depreciate the
equipment. The amount was paid in July 2004.

      Sources and Uses of Cash from Operating Activities

For the twelve months ended December 31, 2004, cash flows from operating
activities resulted in negative cash flows of $437,281. The cash outflow from
losses was increased due to the effects of the foreign exchange loss of $371,113
but reduced by the gain on settlement of convertible debentures of $883,033 and
by non-cash charges of $2,701,135 for depreciation, amortization of intangible
assets, amortization of discount on debentures, non-cash professional and
consulting fees and loss on sale of intangibles. Cash used in operations also
arises from an increase of $459,726 in accounts receivable a decrease of
$150,161 in accounts payable and other accrued liabilities and a decrease of
$223,823 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.


                                       24
<PAGE>

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.

      Sources and Uses of Cash from Investing Activities

Cash flows from investing activities resulted in positive cash flows of
$1,010,590 in the twelve months ended December 31, 2004, a significant increase
from cash flows of ($109,001) in fiscal 2003. In the twelve months ending
December 31, 2004, cash applied to investing activities included $71,029 toward
plant and equipment. In 2005, our focus will be on production and investment in
new product licenses from third parties. We may expend significant resources in
investing activities in 2005.

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 negative cash flows of $399,970
in the twelve months ended December 31, 2004, compared to same period in 2003 of
positive $952,351. In 2005, 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
2004, we relied upon capital raised from the sale of securities, including
convertible debentures and common stock, to fund our operations. In 2005, 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, 2004, the balance was $386,093, 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.

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
$5,320. As of December 31, 2004, the Shorrocks are now owed $752,522. 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.


                                       25
<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.


                                       26
<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 and we are awaiting the option holders decision as to whether the
interest is to be accrued until the next payment period or converted to common
stock.

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.


                                       27
<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 August 17, 2004, we issued 75,001 shares of common stock to PR Portfolio, our
former public relations firm, for services rendered.

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.

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.


                                       28
<PAGE>

PLAN OF OPERATIONS TO ADDRESS GOING CONCERN

In its report dated May 16, 2005, the independent registered public accounting
firm stated that our financial statements for the years ended December 31, 2004
and December 31, 2003 were prepared assuming that we would continue as a 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

      o     seek acquisition and partnership opportunities with third party
            companies to expand our fully integrated media business.

To address these issues, in 2005, we have entered into agreements with various
investment banking companies to assist us in raising capital. We believe we are
close to securing $2,000,000 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 2005. We anticipate increased
revenues from having our first completed TV series to exploit later in 2005 with
Muffin the Mule. Further, we expect to generate pre-sales from the Wumblers in
the second half of 2005 as the show is slated to launch in the US and other
international territories in early 2006.

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, 2004.


                                       29
<PAGE>

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.

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).


                                       30
<PAGE>

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.


                                       31
<PAGE>

ITEM 7 - FINANCIAL STATEMENTS

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


                                       32
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Peak Entertainment Holdings, Inc

We have audited the accompanying combined balance sheets of Peak Entertainment
Holdings, Inc (the Company) as of December 31, 2004 and December 31, 2003 and
the related consolidated statements of operations, stockholders' equity
(deficit), comprehensive loss, and cash flows for each of the two years ending
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Peak
Entertainment Holdings, Inc as of December 31, 2004 and December 31, 2003, and
the consolidated results of its operations and its cash flows for each of the
two years ending December 31, 2004, in conformity with U.S. generally accepted
accounting principles in the United States of America.

As discussed in Note 2 to the accompanying consolidated financial statements,
the Company has restated its consolidated balance sheets as of December 31,
2004, and the related consolidated statements of operations, changes in
shareholders' equity, comprehensive loss and cash flows for the year ended
December 31, 2004.

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 a reclassification of an increase in cost of revenues of $253,495
and a reduction in selling, general and administrative costs of the same value.
In addition, 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 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 total at December 31, 2004
remain unchanged.

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

Garbutt & Elliott Limited
York, England
May 16, 2005, except for
the effects of the matter discussed in Note 2,
which are as of January 19, 2006.


                                       33
<PAGE>

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         Year Ended           Year Ended
                                                        December 31,         December 31,
                                                            2003           2004 (Restated)
                                                       ---------------     ---------------
<S>                                                    <C>                      <C>
ASSETS

CURRENT ASSETS

Cash and cash equivalents                              $       152,339              10,235
Accounts receivable                                             34,620             498,187
Inventory                                                      236,007              91,743
Other current assets                                           588,439             861,728
                                                       ---------------     ---------------
Total current assets                                   $     1,011,405           1,461,893

Deferred professional fees                                     335,833             205,834
Plant and equipment, net                                       198,245             259,649
Intangible assets, net of amortization                       2,079,716           1,972,683
                                                       ---------------     ---------------
                                                       $     3,625,199           3,900,059
                                                       ===============     ===============

LIABILITIES AND STOCKHOLDERS' EQUITY/ (DEFICIT)

CURRENT LIABILITIES

Short term borrowing                                   $       582,786                  --
Advances from factor                                             1,437                  --
Account payable                                              1,209,339           1,301,439
Stockholders' advance account                                  916,634             752,522
Licenses fees payable                                          457,715              67,831
Other accrued liabilities                                    1,325,524           2,290,729
                                                       ---------------     ---------------
Total current liabilities                              $     4,493,435           4,412,521

LONG TERM LIABILITIES

License fees payable                                         1,078,009           1,234,119
Convertible debentures                                         754,774             330,652
                                                       ---------------     ---------------
Total long term liabilities                            $     1,832,783           1,564,771

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, par value $0.001 - 900,000,000
Shares authorized, 21,774,212 and 29,040,955 issued
and outstanding                                        $        21,777              29,050
Additional paid in capital                                   1,650,841           4,576,739
Retained earnings (deficit)                                 (3,933,998)         (5,927,940)
Other comprehensive income                                    (439,639)           (755,082)
                                                       ---------------     ---------------
Total stockholders' equity (deficit)                        (2,701,019)         (2,077,233)
                                                       ---------------     ---------------
                                                       $     3,625,199           3,900,059
                                                       ===============     ===============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       34
<PAGE>

PEAK ENTERTAINEMNT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

                                               Year ended          Year ended
                                              December 31,        December 31,
                                                  2003          2004 (Restated)
                                            -----------------------------------

Revenue                                           1,014,996           1,166,156

Cost of revenue
Cost of Goods Sold                                  725,066             596,651
                                            -----------------------------------
Total cost of revenue                               725,066             596,651

Gross profit                                        289,930             569,505

Operating expenses
Selling, general and administrative               2,614,593           2,343,790
Depreciation and amortization                       173,830             430,227
                                            -----------------------------------

Total operating expenses                          2,788,423           2,774,017
                                            -----------------------------------

Loss from operations                             (2,498,493)         (2,204,512)

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

Foreign exchange gain                               217,273             371,113

Interest expense                                   (685,327)           (604,574)

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

Net loss                                         (2,966,547)         (1,993,942)
                                            ===================================

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

Weighted average common shares                   20,562,980          25,942,440
outstanding
                                            ===================================

See accompanying notes to consolidated financial statements.


                                       35
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                        Additional       Retained          Other
                                                                          paid in        Earnings      comprehensive
                                             Shares      Common stock     capital         deficit      income/ (loss)      Total
                                          -----------    ------------   -----------     -----------    --------------   -----------
<S>                                        <C>           <C>            <C>             <C>             <C>             <C>
Balance, December 31, 2002                 19,071,684         19,075        (19,072)       (967,451)        (71,530)     (1,038,978)

Issuance of stock, warrants,
debentures                                  2,702,528          2,702      1,669,913              --              --       1,672,615

Net loss                                           --             --             --      (2,966,547)             --      (2,966,547)

Cumulative translation adjustment                  --             --             --              --        (368,109)       (368,109)
                                          -----------    -----------    -----------     -----------     -----------     -----------

Balance, December 31,2003                  21,774,212    $    21,777    $ 1,650,841     ($3,933,998)    ($  439,639)    ($2,701,019)
                                          ===========    ===========    ===========     ===========     ===========     ===========

Buy-back of debentures                      1,000,000          1,000     (1,001,000)             --              --      (1,000,000)

Issuance of convertible debentures          2,666,666          2,667      2,522,334              --              --       2,525,001

Conversion of debentures                    1,805,000          1,805        539,695              --              --         541,500

Issuance of warrants in exchange
for future consulting service                 632,077            638        133,655              --              --         134,293

Issuance of common stock and
warrants in exchange for
cancellation of short-term debt               888,000            888        443,112              --              --         444,000

Issuance of penalty shares                    275,000            275        123,475              --              --         123,750

Stan Lee (Unvested)                                --             --          9,295              --              --           9,295

Vintage Filings                                    --             --        155,332              --              --         155,332

Net loss                                           --             --             --      (1,993,942)             --      (1,993,942)

Cumulative translation adjustment                  --             --             --              --        (315,443)       (315,443)
                                          -----------    -----------    -----------     -----------     -----------     -----------

Balance, December 31, 2004
(Restated)                                 29,040,955    $    29,050    $ 4,576,739     ($5,927,940)    ($  755,082)    ($2,077,233)
                                          ===========    ===========    ===========     ===========     ===========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       36
<PAGE>

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

                                              Year ended          Year ended
                                             December 31,        December 31,
                                                 2003           2004 (Restated)
                                            ---------------     ---------------

Net loss                                    $    (2,966,547)         (1,993,942)

Cumulative translation adjustment                  (368,109)           (755,082)
                                            ---------------     ---------------

Comprehensive loss                          $    (3,334,656)         (2,749,024)
                                            ===============     ===============

See accompanying notes to consolidated financial statements.


                                       37
<PAGE>

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

<TABLE>
<CAPTION>
                                                          Year ended          Year ended
                                                         December 31,        December 31,
                                                             2003           2004 (Restated)
                                                        ---------------     ---------------
<S>                                                     <C>                      <C>
Cash flows from operating activities

Net loss                                                $    (2,966,547)         (1,993,942)

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

Depreciation                                                     14,460              22,580
Amortization of intangible assets                               159,370             407,647
Foreign exchange gain/(loss)                                   (217,273)            371,113
Amortization of discount on debentures                          546,274             232,790
Gain on settlement of debentures                                     --            (883,033)
Non-cash common stock expenses                                  506,287                  --
Non-cash professional and consulting fees                            --           1,497,360
Loss on sale of intangibles                                          --             578,337

Changes in working capital:

Accounts receivable                                              35,351            (459,726)
Inventories                                                      26,982             163,577
Other current assets                                           (434,445)           (223,823)
Accounts payable and other accrued liabilities                1,669,647            (150,161)
                                                        ---------------     ---------------
Net cash used in operating activities                          (659,894)           (437,281)
                                                        ===============     ===============

      Cash flows from investing activities:

Purchase of plant and equipment                                 (63,676)            (71,029)
Purchase of intangibles                                         (47,132)                 --
Proceeds from sale of plant and equipment                         1,807               3,565

Issue of debentures                                                  --           1,078,054
                                                        ---------------     ---------------
Net cash (used in)/ provided by investing activities           (109,001)          1,010,590
                                                        ===============     ===============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       38
<PAGE>

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

<TABLE>
<CAPTION>
                                                         Year ended          Year ended
                                                        December 31,        December 31,
                                                            2003           2004 (Restated)
                                                       ---------------     ---------------
<S>                                                    <C>                        <C>
Cash flows from financing activities:

Short term borrowing, net                                      237,120            (160,028)
Stockholders' advances account                                 (71,206)           (239,942)
Advances from factor, net                                        1,437                  --
Convertible debentures                                         785,000                  --
                                                       ---------------     ---------------
Net cash provided by/(used in) financing activities            952,351            (399,970)
                                                       ===============     ===============
Cumulative translation adjustment                              (40,987)           (315,443)
                                                       ===============     ===============
Increase in cash and cash equivalents                          142,469            (142,104)
Cash and cash equivalents, beginning of period                   9,870             152,339
                                                       ---------------     ---------------
Cash and cash equivalents, end of period               $       152,339              10,235
                                                       ===============     ===============

Supplemental disclosures of cash flow information

Interest Paid                                          $        24,533               1,182
                                                       ===============     ===============
Purchases of licenses through issuance of long
term liabilities                                       $        17,785            (407,036)
                                                       ===============     ===============
Accounting for reserve acquisition                             208,500                  --
                                                       ===============     ===============

Issuance of shares in settlement of liability                  332,500             444,000
                                                       ===============     ===============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       39
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

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, 2004 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 $5,927,940
      and a stockholders' deficiency of $2,077,233.

      As shown in the accompanying financial statements, the Company incurred a
      net loss of $1,993,942 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.


                                       40
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

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.


                                       41
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

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 herein are restated.

            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.


                                       42
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

2     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".


                                       43
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

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, United Kingdom and Hong
            Kong. The balances held in these accounts are $11,161,
            UK(pound)(1,123), and HK $1,998 respectively.


                                       44
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

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)   Advertising costs

            Advertising costs, included in selling, general and administrative
            expenses, are expensed as incurred and were $46,286 and $7,233 for
            the years ended December 31, 2003 and December 31, 2004,
            respectively.

      (L)   Foreign currencies

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

      (M)   Income taxes

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

      (N)   Use of Estimates

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


                                       45
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

3     Summary of Significant Accounting Policies (continued)

      (O)   Earnings Per Share

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

            Basic and diluted earnings per share are the same during the year
            ended December 31, 2003 and 2004 as the impact of dilutive
            securities is antidilutive. There were 7,050,000 warrants to
            purchase shares of the Company's common stock outstanding as of
            December 31, 2004.

      (P)   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.

      (Q)   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.


                                       46
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

3     Summary of Significant Accounting Policies (continued)

      (Q)   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.


                                       47
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

4     Significant current assets and liabilities

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

                                                    December 31,    December 31,
                                                        2003            2004
                                                    ------------    ------------
      Other current assets

      Prepaid consulting                                 153,990              --
      Accrued royalty income                              88,925         826,242
      Monies in Escrow                                   276,379              --
      Other current assets                                69,145          35,486
                                                    ============    ============
                                                         588,439         861,728
                                                    ============    ============
      Accounts payable
      UK professional fees                               182,866         373,613
      US professional fees                                    --         222,160
      Stock supplies - Countin' Sheep                    164,355              --
      TV animation costs - Monster Quest                 119,720         129,689
      Other accounts payable                             742,398         575,977
                                                    ============    ============
                                                       1,209,339       1,301,439
                                                    ============    ============
      Other accrued liabilities
      Consultancy fees                                   188,521         196,513
      Wumblers pilot show costs                          271,954         111,448
      Deferred royalties income                           68,734         957,060
      Sales and payroll taxes                            193,084         409,195
      Debenture interest                                 120,424         100,802
      Legal fees                                          97,753              --
      Other accrued liabilities                          385,054         515,611
                                                    ============    ============
                                                       1,325,524       2,290,629
                                                    ============    ============


                                       48
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

5     Plant and Equipment

      Plant and equipment comprise the following:
                                                      2003            2004

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

                                                       283,045         300,874
      Accumulated depreciation                          84,800          41,225
                                                  ------------    ------------

                                                       198,245         259,649
                                                  ============    ============

      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 $13,670, which it is
      currently using and hence depreciating.

6     Intangible Assets

      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
                                          ==========    ==========    ==========


                                       49
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

6     Intangible Assets (continued)

      Intangible assets comprise the following at December 31, 2003.

                                             Cost       Accumulated      Total
                                                       amortization

      Licences                            $1,984,870    $  213,982    $1,770,888
      Trademarks                             126,138         4,025       122,113
      Film and television costs              170,338            --       170,338
      Website costs                           23,014         6,637        16,377
                                          ----------    ----------    ----------
                                          $2,304,360    $  224,644    $2,079,716
                                          ==========    ==========    ==========

      As of December 31, 2004, 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

7     Income Taxes

      The components of the deferred tax balances at December 31, 2003 and 2004
      are as follows.

                                                           2003          2004

      Deferred tax assets - non - current
      Loss carry forwards                               $ 728,959     $ 919,690
                                                        ---------     ---------
      Total deferred tax assets                           728,959       919,690
                                                        ---------     ---------
      Deferred tax liabilities - current
      Depreciation and amortization not currently
      deductible for tax purposes                          19,401            --
                                                        ---------     ---------
      Total deferred tax liabilities                       19,401            --
                                                        ---------     ---------
      Net deferred tax asset  before valuation
      allowance                                           709,558       919,690
      Valuation allowance                                (709,558)     (919,690)
                                                        ---------     ---------
      Net deferred tax asset                            $      --     $      --
                                                        =========     =========


                                       50
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

7     Income Taxes (continued)

      The Company's effective tax rate of 0% differs from the statutory rate of
      30% due to the fact that the Company, at this point in time, considers it
      more likely than not that the deferred tax asset related to net operating
      loss carryforwards will not be recognized. Accordingly, deferred tax
      assets at December 31, 2003 and 2004 have been reduced by a valuation
      allowance relating to the tax benefits attributable to net operating
      losses. Operating losses can be carried forward indefinitely in the United
      Kingdom. At December 31, 2004 net operating loss carry forwards totaled
      $3,065,635.

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

8     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 $220,937 and
      all accrued interest totaling $115,596 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.

9     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.


                                       51
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

10    Convertible 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
                                                                       ========

11    Commitments

      The Company leases buildings under non-cancelable operating leases. Future
      minimum lease payments under those leases are as follows at December 31,
      2004:

      Year ending December 31, 2005                                     $40,415
                                                                        =======

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

12    Contingent Liabilities

      As at March 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
      $386,095 including interest of $115,596.. 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. 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.


                                       52
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

12    Contingent Liabilities (continued)

      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. To the best of our
      knowledge, and after inquiry to the counsel for the former debenture
      holders of the "put", no notice of exercise of the "put" was sent to us.
      Accordingly, we considered the notice ineffective and did not honor the
      notice. In or about March 2005, an agent for the former debenture holders
      informed us that the former debenture holders may institute a legal
      proceeding to enforce their put rights. We understand that the former
      debenture holders filed a lawsuit in this regard in or about March 21,
      2005. As of May 6, 2005, we have not been served with the lawsuit. In the
      event that we are served with a lawsuit, 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.


                                       53
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

13    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

                  Balance due by company, December 31,2002            $ 894,193
                  Reapayments                                           (71,206)
                  Foreign exchange loss                                  93,647

                  Balance due by the Company, December 31, 2003       $ 916,634
                  Cash advances                                          88,598
                  Repayments                                           (247,390)
                  Foreign exchange loss                                  (5,320)
                                                                      ---------
                  Balance due by the Company at December 31, 2004     $ 752,522
                                                                      =========

                  Interest amounting to $24,038 in the year to December 31, 2004
                  and $nil in the year to December 31, 2003 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.


                                       54
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

13    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.


                                       55
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

14    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.


                                       56
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

14    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.


                                       57
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

14    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.

      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. 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.


                                       58
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

14    Warrants (continued)

      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.

15    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.


                                       59
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

15    Share transactions (continued)

      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.

      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.

16    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.

17    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.


                                       60
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

17    Stockholders' Equity (continued)

      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.

      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.

      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.

18    Subsequent Events

      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.

      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.

      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.

      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.

      On April 10, 2005, we issued 159,575 shares of restricted common stock to
      Crescent Fund, LLC in return for financial consulting services.


                                       61
<PAGE>

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

On June 5, 2003, we notified Chisholm & Associates, our independent public
accountants, that the Company was terminating its services, effective as of that
date. Our Board of Directors approved such decision.

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

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

      o     the application of accounting principles to a specified transaction,
            either completed or proposed; or the type of audit opinion that
            might be rendered on our 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).

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).


                                       62
<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 2004 ended December 31, 2004 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 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.

On March 1, 2005, we entered into a loan agreement for $500,000 with Tayside
Trading Ltd. The loan was to be used to fund a $500,000 letter of credit, and
the principal amount to be returned by March 30, 2005. If the principal is not
paid by March 30, 2005, as penalty, we are to issue shares of our common stock
at the rate of 200,000 shares per day, and in the aggregate, up to 5,000,000
shares. We agreed to grant the lender, as collateral, rights to our intellectual
property, to the extent not already encumbered. In consideration for the loan,
we issued 500,000 warrants, exercisable for five years at $0.50 per share, to
the lender. We 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.

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.

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.


                                       63
<PAGE>

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. 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.


                                       64
<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     55       Chairman, Chief Executive Officer
                               and Director
Paula Shorrocks       52       Vice President - Design and Development,
                               and Director
Phil Ogden            37       Vice President - Managing Director, and Director
Alan Shorrocks        44       Vice President - Licensing Division
Nicola Yeomans        34       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.


                                       65
<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.


                                       66
<PAGE>

BOARD COMMITTEES AND MEETINGS

During the fiscal year that ended on December 31, 2004, 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 2005

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 2005.

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.


                                       67
<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)                 2004      $9,074         $0             $0
  Chief Executive Officer             2003       7,556          0              0
                                      2002       5,200          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 2005 fiscal year.

Director Compensation

We do not have a compensation plan for directors. We may adopt one during our
2005 fiscal year.

Employee Stock Option

During our fiscal year 2005, 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, 2004.

Option Exercises in Fiscal 2004 and Year End Option Values

No options were held by employees, including executive officers and directors,
during the year ended December 31, 2004.

Employment Agreement with Executive Officer

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


                                       68
<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth, as of May 1, 2005, 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 May 1, 2005, we had 31,180,530 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)                      650,000              3,500,000          12.0%
   152 West 57th Street
   New York, NY 10019
Dan Brecher (5)(6)                                               1,196,667              1,570,000           8.4%
   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          56.7%
----------------------------------------------------------------------------------------------------------------
</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 $600,000 in principal amount
      of 8% convertible debentures, which are convertible at $0.30 per share
      into 2,000,000 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.


                                       69
<PAGE>

Changes in Control

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 outstanding as of
December 31, 2004.

<TABLE>
<CAPTION>
                                      Number of securities         Weighted average
                                   to be issued upon exercise      exercise price of         Number of securities
                                    of outstanding options,       outstanding options,        remaining available
                                      warrants and rights         warrants and rights         for future issuance
                                      -------------------         -------------------         -------------------
        Plan category
        -------------
<S>                                        <C>                             <C>                         <C>
Equity compensation plans
approved by securities holders                     0                       $0                          0

Equity compensation plans not
approved by security holders               7,300,000                       $0.51                       0

Total                                      7,300,000                       $0.51                       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.

In December 2003, we entered into a Cancellation of Debt in Exchange for
Securities Agreement, dated as of December 17, 2003, whereby we exchanged a debt
of $100,000 owed to Jack Kuessous in exchange for 583,333 shares of common stock
and 150,000 common stock purchase warrants exercisable for three years at $0.50
per share. Kuessous had loaned $100,000 to us in or about July 2003.

On January 5, 2004, we entered into Securities Purchase Agreements with four
accredited investors: Platinum Partners Global Macro Fund LP, Gary Barnett,
Millstones Brands Inc. and Dan Brecher. Pursuant to the agreements, we sold
$1,500,000 in 8% convertible debentures due January 5, 2007 and 3,000,000 common
stock purchase warrants. The purchase price totaled $1,500,000. The warrants are
exercisable for three years at $0.50 per share.

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 29, 2004, we entered into a Securities Purchase Agreement with Shai
Stern. Pursuant to the agreement, we sold $50,000 in 8% convertible debentures
due January 29, 2007 and 100,000 common stock purchase warrants. The warrants
are exercisable for three years at $0.50 per share.


                                       70
<PAGE>

On March 10, 2004, we entered into Securities Purchase Agreements with eleven
accredited investors: Kenneth Grief, Wayne Saker, Gilad Ottensoser, Samuel F.
Ottensoser, Boro Durakovic, JG Products, Inc., Gerald Griffin, Al Lehmkuhl,
Kevin Bostenero, Eisenberger Investments, and David Herzog. Pursuant to the
agreements, we sold an aggregate of 1,000,000 shares of common stock and 600,000
common stock purchase warrants, exercisable for three years at $0.75 per share,
for the total purchase price of $500,000. Legend Merchant Group, Inc. acted as
the placement agent for these transactions. We paid Legend a fee of $25,000, and
100,000 common stock purchase warrants exercisable for three years at $.50 per
share and 60,000 common stock purchase warrants exercisable for three years at
$0.75 per share, for its services.

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.

On November 2, 2004, we sold to Dan Brecher 250,000 warrants, exercisable for
three years at $0.50 per share, for $2,500.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From time to time, Mr. and Mrs. Shorrocks loaned money to Peak Entertainment to
fund day-to-day operations, as well as for the acquisition of certain
properties. Since company inception through December 31, 2002, the Shorrocks
loaned to Peak Entertainment an aggregate of $972,386, and we repaid $78,193 to
the Shorrocks in 2002 and $71,206 in 2003. As of December 31, 2003, we owed
$916,634 to the Shorrocks. As of December 31, 2004, we owed $752,522 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 March 31,
2005, the Shorrocks elected to defer receipt of the September 30, 2004, December
31, 2004 and March 31, 2005 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.


                                       71
<PAGE>

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.

ITEM 13.   EXHIBITS

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

Exhibit No.    Description
-----------    -----------

2.1            Agreement and Plan of Reorganization between Corvallis and
               USAOneStar, dated October 31, 2000 (Incorporated by reference to
               exhibit 2.1 of Form 10-QSB filed on November 14, 2000)
2.2            Agreement and Plan of Reorganization between USAOneStar and
               Palladium, dated August 31, 2001 (Incorporated by reference to
               exhibit 2.1 of Form 8-K filed on September 14, 2001)
2.3            Agreement and Plan of Acquisition by and among Palladium
               Communications, Inc., Peak Entertainment, Ltd., Wilfred Shorrocks
               and Paula Shorrocks, made as of the 22nd day of April, 2003
               (Incorporated by reference to exhibit 10.1 of Form 8-K filed on
               May 7, 2003)
2.4            Asset Purchase Agreement, dated as of April 22, 2003, between
               Palladium Communications, Inc. and Palladium Consulting Group LLC
               (Incorporated by 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 referenced to exhibit 4.1 of Form SB-2 filed on
               February 2, 2004)
4.2            Amendment to Securities Purchase Agreement, dated June 17, 2003
               (Incorporated by referenced to exhibit 4.2 of Form SB-2 filed on
               February 2, 2004)
4.3            Securities Purchase Agreement, dated as of April 22, 2003
               (Incorporated by 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 referenced to exhibit 4.5 of Form SB-2 filed on
               February 2, 2004)


                                       72
<PAGE>

4.6            January 2004 Securities Purchase Agreement for $500,000
               (Incorporated by referenced to exhibit 4.6 of Form SB-2 filed on
               February 2, 2004)
4.7            January 2004 Securities Purchase Agreement for $50,000
               (Incorporated by referenced to exhibit 4.7 of Form SB-2 filed on
               February 2, 2004)
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)
4.11           Form of Warrant issued November 2, 2004 (Incorporated by
               reference to Exhibit 4.11 of Form 10-KSB filed on April 15, 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)
10.1           License Agreement with Morrison Entertainment Group, Inc., dated
               February 25, 2002 (Incorporated by referenced to exhibit 10.7 of
               Form SB-2 filed on February 2, 2004)
10.2           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)
10.3           License Agreement with Jesco Imports, Inc., dated June 1, 2002
               (Incorporated by referenced to exhibit 10.8 of Form SB-2 filed on
               February 2, 2004)
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 referenced to exhibit 10.9 of Form SB-2
               filed on February 2, 2004)
10.6           Distribution Agreement, dated January 20, 2003, with Character
               Options Ltd. (Incorporated by referenced to exhibit 10.11 of Form
               SB-2 filed on February 2, 2004)
10.7           License Agreement with CCA Group Ltd., dated February 10, 2003
               (Incorporated by referenced to Exhibit 10.34 of Form SB-2/A filed
               on June 7, 2004)
10.8           Agreement between Peak Entertainment Ltd. and GMTV of the London
               Television Centre, dated February 17, 2003 (Incorporated by
               referenced to exhibit 10.13 of Form SB-2 filed on February 2,
               2004)
10.9           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)
10.10          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)
10.11          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)
10.12          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)
10.13          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)
10.14          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)
10.15          International Representation Agreement with Kidz Entertainment,
               dated October 31, 2003 (Incorporated by referenced to exhibit
               10.18 of Form SB-2 filed on February 2, 2004)
10.16          License Agreement with Radica UK Ltd., dated December 12, 2003
               (Incorporated by referenced to exhibit 10.19 of Form SB-2 filed
               on February 2, 2004)
10.17          Entertainment Production Agreement, dated as of December 16,
               2003, with The Silly Goose Company, LLC (Incorporated by
               referenced to exhibit 10.20 of Form SB-2 filed on February 2,
               2004)


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<PAGE>

10.19          Amended Consulting Agreement, dated as of December 17, 2003, with
               Jack Kuessous (Incorporated by referenced to exhibit 10.4 of Form
               SB-2 filed on February 2, 2004)
10.20          Cancellation of Debt Agreement, dated December 2003, with Jack
               Kuessous (Incorporated by referenced to exhibit 10.5 of Form SB-2
               filed on February 2, 2004)
10.21          Settlement of Debt Agreement (Incorporated by referenced to
               exhibit 10.6 of Form SB-2 filed on February 2, 2004)
10.22          Agreement for the Provision of Co Production Services with
               Cosgrove Hall Films Ltd., dated January 9, 2004 (Incorporated by
               referenced to exhibit 10.21 of Form SB-2 filed on February 2,
               2004)
10.23          Agreement with POW! Entertainment, entered January 2004
               (Incorporated by referenced to exhibit 10.23 of Form SB-2 filed
               on February 2, 2004)
10.24          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)
10.25          Agreement for Services with Vintage Filings, LLC, dated January
               23, 2004 (Incorporated by referenced to exhibit 10.25 of Form
               SB-2 filed on February 2, 2004)
10.26          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)
10.27          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)
10.28          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)
10.29          Promissory Note to Shorrocks dated March 2004 (Incorporated by
               reference to Exhibit 10.6 of Form 10-KSB filed on April 27, 2004)
10.30          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)
10.31          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 Sharp 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 referenced to Exhibit 10.35 of
               Form SB-2/A filed on June 7, 2004)
10.35          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)
10.36          Amendment, dated June 2004, to Distribution Agreement with Radica
               UK Ltd. dated 12 December 2003 (Incorporated by reference to
               Exhibit 10.36 of Form 10-KSB filed on April 15, 2005)
10.37          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)
10.38          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)
10.39          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)
10.40          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)
10.41          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)
10.42          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)


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<PAGE>

10.43          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)
10.44          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)
10.45          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)
10.46          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)
10.47          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)
10.48          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)
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.
16.1           Letter on change in certifying accountant (Incorporated by
               reference to Exhibit 16.1 of Form 8-K filed on February 7, 2002)
16.2           Letter on change in certifying accountant (Incorporated by
               reference to Exhibit 1 of Form 8-K filed on June 10, 2003)
16.3           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

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


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<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 year ended
December 31, 2004 was $92,477. Fees for audit services provided by Goodband
Viner Taylor, our former principal accountant, during the years ended December
31, 2003 and 2004 were $250,848 and $148,348, respectively.

Audit services consisted primarily of the annual audits, review of our financial
statements, and services that are normally provided by our accountants in
connection with statutory and regulatory filings or engagements for those fiscal
years.

Audit-Related Fees

There were no fees billed for services reasonably related to the performance of
the audit or review of our financial statements outside of those fees disclosed
above under the caption Audit Fees for fiscal years ended December 31, 2003 and
2004.

Tax Fees

Fees for tax services provided by Garbutt & Elliott Ltd., our current principal
independent registered public accounting firm, during the year ended December
31, 2004 was $0. Fees for tax services provided by Goodband Viner Taylor, our
former principal accountant, during the year ended December 31, 2003 was $5,397.

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 2003 and 2004 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 2003 and 2004. In fiscal year
2005, we intend to implement a policy whereby, we will, prior to engaging our
accountants to perform a particular service, obtain an estimate for the service
to be performed and begin pre-approving all services.


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<PAGE>

                                   SIGNATURES

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

                                            PEAK ENTERTAINMENT HOLDINGS, INC.


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

                                            Dated: January 19, 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   January 19, 2006
---------------------
Wilfred Shorrocks


/s/ PAULA SHORROCKS          Vice President and Director                        January 19, 2006
-------------------
Paula Shorrocks


/s/ PHIL OGDEN               Vice President and Director                        January 19, 2006
--------------
Phil Ogden


/s/ ALAN SHORROCKS           Vice President                                     January 19, 2006
------------------
Alan Shorrocks


/s/ NICOLA YEOMANS           Vice President                                     January 19, 2006
------------------           (Principal Financial Officer)
Nicola Yeomans
</TABLE>


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