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

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 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
incorporation or organization)                               Identification No.)

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

      Issuer's telephone number: 44-1629-814555

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

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


Check whether the issuer (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 is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

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 March 31, 2005, we had 29,220,955 shares of common stock issued and
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

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


<PAGE>

                                EXPLANATORY NOTE

This annual report on Form 10-KSB includes unaudited financial statements for
the year ended December 31, 2004. The audit of our financial statements is not
complete. Therefore, the audit report on the financial statements is not
included in this annual report on Form 10-KSB. Upon the receipt of the audit
report, we will file an amended annual report on Form 10-KSB/A to include such
report and audited financial statements for the year ended December 31, 2004 as
soon as practicable.

Management believes that the financial statements included in this report fairly
present in all material respects our financial condition, results of operations
and cash flows for the periods presented. However, because no independent
registered public accounting firm has opined that the unaudited financial
statements included in this annual report present fairly, in all material
respects, the financial position, the results of operations, cash flows and the
changes in shareholders' equity for the year ended December 31, 2004 reported in
accordance with generally accepted accounting principles in the United States of
America, or "GAAP," such statements could be subject to change or the financial
information included therein may be materially different from audited financial
information. There can be no assurance that such changes or differences would
not be significant. Our discussion and analysis of our financial condition and
results of operations are based upon these unaudited financial statements.


                                       2
<PAGE>

                        PEAK ENTERTAINMENT HOLDINGS, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                             Page
                                                                                             ----

PART I
<S>            <C>                                                                             <C>
Item 1.      Description of Business                                                           4
Item 2.      Description of Property                                                           15
Item 3.      Legal Proceedings                                                                 15
Item 4.      Submission of Matters to a Vote of Security Holders                               16

PART II

Item 5.      Market for Common Equity and Related Stockholder Matters                          17
Item 6.      Management's Discussion and Analysis                                              19
Item 7.      Financial Statements (Unaudited)                                                  33
Item 8.      Changes In and Disagreements With Accountants on Accounting
               and Financial Disclosure                                                        52
Item 8A.     Controls and Procedures.                                                          54
Item 8B.     Other Information                                                                 54

PART III

Item 9.      Directors, Executive Officers, Promoters and Control Persons; Compliance
             With Section 16(a) of the Exchange Act                                            56
Item 10.     Executive Compensation                                                            59
Item 11.     Security Ownership of Certain Beneficial Owners and Management                    60
Item 12.     Certain Relationships and Related Transactions                                    62
Item 13.     Exhibits                                                                          63
Item 14.     Principal Accountant Fees and Services                                            67

Signatures                                                                                     68
</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 working 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.

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.


                                       4
<PAGE>

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

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

On March 31, 2003, 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.


                                       5
<PAGE>

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

Strategy

Our business plan is to develop, market and sell 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 primary strength is in the conception and development of a character and
entertainment concept that we believe children will find appealing. Our business
objective is to develop a character or entertainment concept into a media
product, such as into a television show, a movie, or a book, and to build the
media product into a 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 with three lines of business: entertainment, licensing, and consumer
products.

      Entertainment Division

Our entertainment division is currently working 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 this division will
generate revenues from the distribution of television shows to broadcasting
companies and other media outlets. The key costs for this division are
substantial animation and production costs in getting television episodes
produced. 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 is 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 story boards 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 2005 through March 2006.

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 preschool
aged children.

We entered into an entertainment production agreement, dated as of December 16,
2003, with The Silly Goose Company, LLC for the production of animated
television episodes for a certain intellectual property entitled "The Wumblers".
Pursuant to an agreement dated April 28, 2003, we are entitled to all
exploitation rights in The Wumblers including merchandise and distribution
rights. We are to finance or obtain financing for the episodes. Funding sources
will share copyright interests in the television episodes according to the
allocation of net proceeds. We will have the right to produce other episodes
based on the licensed intellectual property. We have the right to exploit the
licensed property worldwide in perpetuity.

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 is
projected to be approximately $3,000,000.

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 who 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.

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 the new show follows a classic
story-telling format incorporating all of Muffin's friends from the original
1940's series.

            Tatoo - The Marked Man

This is a proposed project in the very early stages of development. Tatoo is an
action-adventure concept character involving a hero character and tatoos 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 Division

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

We 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, and 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.

Our licensing division has not generated significant revenues to date. We
anticipate that this licensing division 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 this division 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. The division earns revenue from selling
licenses for our non-entertainment driven properties. The key costs for this
division are staff, travel, toy and good production costs, and costs for
attendance in annual toy and licensing trade shows internationally.

We intend to expand the licensing of our products through:

      o     A consumer public relations campaign; and

      o     Related marketing programs.


                                       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

Our consumer products division has historically been our primary source of
revenues. This division presently operates primarily through two wholly-owned
subsidiaries:

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

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

Currently, our consumer products division manufactures and sells the following
products:

      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 agent 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 division is not currently active, and we have no definitively plans for
this division in fiscal year 2004 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 for our Entertainment Division.
The team is also involved in preparing marketing literature for our Licensing
Division, and toy design, packaging and display solutions for our Consumer
Products Division.


                                       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 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 Peak and
            other financing parties are entitled to 44% of the net proceeds.

      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 In My Pocket 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 2005, 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 2005. 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 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. We received an advance royalty of
            $4,025 in 2002, additional royalties of $17,159 in 2003 for the
            license period ended February 29, 2004, and an additional advance
            royalty of $2,500 in 2004 under the renewed license. There is no
            minimum guaranteed royalty under the renewed license. The license
            expires on February 28, 2005.

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 expires 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 products, 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.

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

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

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

Principal Suppliers

In 2004, we were not dependent on any particular supplier.


                                       13
<PAGE>

Dependence on Major Customers

In our fiscal year ended December 31, 2004, Silly Goose Company represented
approximately 49% of our revenues.

Government Regulation

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

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

Compliance with Environmental Laws

Not applicable.

Employees

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


                                       14
<PAGE>

ITEM 2.    DESCRIPTION OF PROPERTY

We lease approximately 3,000 square feet of space for our Bakewell, England
headquarters pursuant to a month-to-month lease at approximately $5,760 per
month. We believe that our 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 September 30, 2004, the balance was $257,751 plus
interest. 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 we
have previously targeted the assets of Jusco UK Ltd. for use in repaying the
lender, we believe that a proceeding against our subsidiary, Jusco UK Ltd. would
not have a material effect on our operations.

On 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. To our
knowledge, the matter has not been confirmed as a judgment. We are informed that
the matter was confirmed as a judgment on or about October 15, 2004 by the
Superior Court of the State of California.

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


                                       15
<PAGE>

On January 5, 2004, we completed a transaction, pursuant to a Settlement
Agreement and Release dated as of December 22, 2003, with former debenture
holders: AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW
Offshore, Ltd, and AJW Qualified Partners, LLC. Pursuant to the terms of the
settlement agreement, the former debenture holders had the right, thirteen
months after the closing of the transaction, to provide notice to the Company of
an exercise of a "put" right pursuant to which we would buy from the former
debenture holders all of the 1,000,000 shares of common stock issued to them
pursuant to the settlement agreement, at the price of $0.75 per share. Pursuant
to the terms of the settlement agreement, the former debenture holders were to
provide us with written notice if they wished to exercise the put right after
thirteen months and prior to one year and two months after the closing of the
transaction, at the expiration of which, the put right 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 other 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. As of March 29, 2005, we have not been served with a lawsuit regarding
the threatened litigation. 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.


                                       16
<PAGE>

                                     PART II

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

Market Information

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

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

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

March 31, 2003                           0.003              0.001
June 30, 2003                            1.75               0.03
September 30, 2003                       1.15               0.55
December 31, 2003                        0.80               0.40
March 31, 2004                           0.90               0.40
June 30, 2004                            0.56               0.13
September 30, 2004                       0.48               0.09
December 31, 2004                        0.40               0.12

Holders

As of February 28, 2005, we had approximately 573 record holders of our common
stock. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies.

Dividends

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

Transfer Agent

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

Recent Sales of Unregistered Securities

On November 2, 2004, 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.


                                       17
<PAGE>

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 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 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. We used
the funds to fund a $500,000 letter of credit.

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.


                                       18
<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.

Use of Unaudited Financial Statements

This annual report on Form 10-KSB includes unaudited financial statements for
the year ended December 31, 2004. The audit of our financial statements is not
complete. Therefore, the audit report on the financial statements is not
included in this annual report on Form 10-KSB. Upon the receipt of the audit
report, we will file an amended annual report on Form 10-KSB/A to include such
report and audited financial statements for the year ended December 31, 2004 as
soon as practicable.

Management believes that the financial statements included in this report fairly
present in all material respects our financial condition, results of operations
and cash flows for the periods presented. However, because no independent
registered public accounting firm has opined that the unaudited financial
statements included in this annual report present fairly, in all material
respects, the financial position, the results of operations, cash flows and the
changes in shareholders' equity for the year ended December 31, 2004 reported in
accordance with generally accepted accounting principles in the United States of
America, or "GAAP," such statements could be subject to change or the financial
information included therein may be materially different from audited financial
information. There can be no assurance that such changes or differences would
not be significant. Our discussion and analysis of our financial condition and
results of operations are based upon these unaudited financial statements.

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 intends 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
the year ended December 31, 2004 because we have not yet funded the television
shows upon which we plan our exploitation of the related intellectual rights
portfolio.

The year ended December 31, 2004 continued to be 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
from potential capital sources..

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.


                                       19
<PAGE>

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 it seeks to finance some of its
televisions show production budgets, and during this year has 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
has 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 budge ($1,900,000)
with the support of Silly Goose Company and third parties.

The Wumblers has been licensed to 4Kids Entertainment LLC for broadcast, home
entertainment (video/DVD), licensing and merchandising rights in the United
States, and we expect to utilize 4Kids Entertainment's prominence in the
industry to market and promote The Wumblers. 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 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.


                                       20
<PAGE>

Current Business

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

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

The year ended December 31, 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 will be viewed more
favorably by potential capital sources, and that we will have better success in
2004 to raise 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 $1,166,155 for the year ended
December 31, 2004 from $1,014,996for the year ended December 31, 2003. A
breakdown of revenues by our business divisions is set forth in the table below.

<TABLE>
<CAPTION>
Division                                2003 Revenue ($)      2004 Revenue ($)     % Increase/(Decrease)
--------                                ----------------      ----------------     ---------------------
<S>                                        <C>                   <C>                       <C>
Entertainment/ Production                    500,000               818,929                   64
Licensing Arrangements                        97,081               174,747                   80
Character Related Consumer Products          417,914               172,479                  (59)

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


                                       21
<PAGE>

The increase in total revenue is mainly due to the 64% increase in revenue's for
the Production Division. This revenue is generated from pre-production work that
is then invoiced to thirty 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 80% to $174,747 in the year ended December 31,
2004 from $97,081 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.

Revenues from the sale of consumer products decreased (59)% from $417,914 in the
year ended December 31, 2003 to $172,479 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 and products launched in 2003 were short term cash generating
projects. Our intention is to begin aggressively marketing toy products
associated to 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 presentation to raise the profile of our products in order to seed the
markets in anticipation of the television show launches.

We are is still in the early production stages of two television shows, and we
expect to remain in the production stages of the shows into 2005 and 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 $343,156 as compared
to $725,006 in 2003, a decrease of 53% ] Cost of revenues as a percentage of
revenues decreased to 29%% in 2004 as compared to 71% in 2003. The only cost of
revenue that is direct to revenue for 2004 is mainly transport costs and
royalties due on any licenses.

We anticipate that our cost of revenue with respect to our entertainment
division and our consumer product division will increase significantly in 2005
as we enter into the production stages of more television show episodes and
increases 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 our entertainment division 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 $823,000, or 71%
of revenues, as compared to $289,930 or 28.6% of revenues, for the same period
in 2003.


                                       22
<PAGE>

Operating Expenses

Selling, General and Administrative Expenses. Selling, general and
administrative costs were $2,727,116 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 increased to 234% for the
year ending December 31, 2004 from 257% for the year ending December 31, 2003.
The following table summarizes the costs incurred in 2003.

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

General Cost                                  733,016              27%
Employee Compensation                         499,146              18%
Legal and Professional                      1,290,130              47%
Traveling and Entertaining                    204,824               8%

TOTAL                                       2,727,116             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
relies upon financing from third parties. We will continue to incur such
expenses in 2005 as the company is still in the final stages of financing 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 $146,237 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 $283,990 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 for the year ended December 31, 2004 was $1,879,070 as compared to
$2,966,547 for the same period in 2003.

Our net loss decreased from $2,966,547, or $0.14 loss per share, in the year
ended December 31, 2003 to $1,879,070, or $0.078 loss per share, in 2004. The
decrease in net loss is significantly attributable to a decrease in the
convertible debenture interest that was attributable in 2003 but not in 2004. We
benefited from foreign interest gains by $485,985 as a result of the strong
pound ((pound)) against the US dollar ($).

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.


                                       23
<PAGE>

We believe that we will need operating capital of approximately $2,000,000 in
the next twelve months to maintain our current operations, and operating capital
of approximately $5,500,000 in the next twelve to twenty four months to complete
our planned entertainment projects already in the pre-production and production
stages.

As of December 31, 2004, we had commitments for capital and other expenditures
aggregating $11,557,186 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               Contract Terms
Obligations                      as of 12/31/04    payable               and Notes
<S>                                <C>               <C>                 <C>
Short term loan -                  $   220,937       $   220,937         20% interest per annum,  Was secured by
CK Supermarkets                                                          inventory, part sold and monies used to
                                                                         part pay balance. The balance is being
                                                                         converted to shares in 2005.

Accounts Payable -                 $ 1,356,396       $ 1,356,396         Refers to various payables (composed
Various                                                                  significantly of various ordinary business
                                                                         expenses, as well as legal, accounting, and
                                                                         other professional fees).

                                                                         These current liabilities are within the
                                                                         contract terms and will be paid in
                                                                         accordance with the contract terms.

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                 $    67,832       $    67,832

Debentures - various               $   330,653       $         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          $ 1,844,077       $ 1,844,077
Social security and accruals

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.0.V (Malaysia)                   $ 2,339,118                           Animation costs for Monster Quest

Cosgrove Hall                      $ 3,500,000     To be determined,     Production costs for The Wumblers
                                                   based upon financing
                                                   received.

Others - Various                   $   170,652       $   170,652

TOTAL                              $11,557,187       $ 3,809,984
</TABLE>


                                       24
<PAGE>

You will note that 1,994,643 or 17% 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 7% is committed to the holders of outstanding debentures.

In addition to the commitments set forth in the table above, we will need to
raise substantial capital to finance the production of our entertainment
projects:

      o     Monster Quest - Approximately $7.1 million in 2005 to produce 26
            episodes of the program.

      o     The Wumblers - Approximately $2,400,000 in 2005 to produce 52
            episodes of the program as $600,000 has already been raised.

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
_____% of our commitments 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
$2,334,343 and an overall net loss of $1,879,070. At December 31, 2004, we had
$10,235 in cash and had a working capital deficit of $245,116.

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 has been determined in July 2004 at a cost to us
of $9,235, and we now can 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 $245,116. The foreign exchange
loss of $485,985 and gain on settlement of convertible debentures of $883,033
were offset 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 a loss on sale of intangibles. Cash has benefited due
to a decrease of $459,726 in accounts receivable being offset by an increase of
$150,161 in accounts payable and other accrued liabilities. Cash used in
operations included an increase 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, the ability to resolve our obligations under
the contractual terms of our existing obligations, and the ability to obtain
additional funding for our operations. We need additional funds for development
of animation for our products, the sale of which, in turn, it is anticipated,
could produce cash inflows from licensing opportunities.


                                       25
<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 twelvemonths 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 consisted of $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 twelvemonths 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 it 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 it 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 $205,404. The
debt was originally due on January 10, 2003. At September 30, 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 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, 2004, 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.


                                       26
<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.

We repurchased formerly outstanding 12% convertible debentures in January 2004.
We had 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.

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.


                                       27
<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 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 maturity of the 8% debentures 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 2004
or 2005. The first interest payment on the 8% convertible debentures is not due
until 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.

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 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 7 of each
year, commencing with 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 for another
interest payment period, or cause us to issue common stock in exchange for
interest. The warrants are exercisable at a price of $0.50 per share. After the
tenth consecutive business day in which our common stock trades at $3.00 or
greater, the warrants become redeemable at $0.10 per warrant. We 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. In
July 2004, debentures in principal amounts totalling $541,500 were converted
into 1,805,500 shares of common stock. The remaining $958,500 convertible
debentures due January 5, 2007 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.

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 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 with January 29, 2005.
At our option, interest payments may be accrued beyond the annual interest
payment date, in which event the debenture holder shall have the option to
accrue the interest payment then due for another interest payment period, or
cause us to issue common stock in exchange for interest. We used the proceeds
for working capital purposes. On January 26, 2005, Mr. Stern converted his
$50,000 in debentures, plus $4,000 in accrued interest, into an aggregate of
180,000 shares.


                                       28
<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 the 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 occurred.
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 in 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 in 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.

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

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.


                                       29
<PAGE>
PLAN OF OPERATIONS TO ADDRESS GOING CONCERN

In their reports dated April 22, 2004, our independent auditors stated that our
financial statements for the years ended December 31, 2002 and 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     initiating negotiations to secure short term financing through
            promissory notes or other debt instruments on an as needed basis;

      o     focusing on, and continue to expand revenues, through our sales of
            consumer products, rather than on our projects in development by our
            entertainment division;

      o     renegotiate payments terms of existing contractual obligations;

      o     seeking to gain effectiveness of this registration statement; and

      o     consider third-party licensing of the products in our entertainment
            division.

To address these issues, in 2004, we entered into agreements with two investment
banking companies to assist us in raising capital. However, it appears that
potential financiers are reluctant to invest until after the registration
statement that we submitted in February 2004 is effective, and any delays in our
attaining effectiveness of the registration statement will increase our legal
and accounting professional fees and will delay receipt of potential financing
that we need to fund our entertainment projects, which, in turn, will distract
management from furthering its business projects as management will be required
to focus on seeking operating capital.

Additionally, we have discussed renegotiation of payments terms of certain
existing contractual obligations.


                                       30
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The accounting policies are
described in the notes to the consolidated financial statements included in this
document for the fiscal year ended December 31, 2003.

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

(1)   Revenue Recognition.

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

            (a)   persuasive evidence of a sale or licensing arrangement with a
                  customer exists,

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

            (c)   the license period of the arrangement has begun and the
                  customer can begin its exploitation, exhibition or sale, and

            (d)   the arrangement fee is fixed or determinable.

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.


                                       31
<PAGE>

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

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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


                                       32
<PAGE>

ITEM 7.    FINANCIAL STATEMENTS (Unaudited)

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES

Consolidated financial statements for the years ended December 31, 2003 and
December 31, 2004


                                       33
<PAGE>

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(the 2004 financial statements are unaudited)

<TABLE>
<CAPTION>
                                                    December 31, 2003  December 31, 2004
                                                    -----------------  -----------------
ASSETS

CURRENT ASSETS
<S>                                                    <C>              <C>
Cash and cash equivalents                              $    152,339           10,235
Accounts receivable                                          34,620          498,187
Investors                                                   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        7,699,715
                                                       ------------     ------------
                                                       $  3,625,199        9,627,091
                                                       ============     ============

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        2,290,629
                                                       ------------     ------------
Total current liabilities                              $  4,493,435        4,412,421

LONG TERM LIABILITIES

License fees payable                                      1,078,009        6,814,116
Convertible debentures                                      754,774          330,652
                                                       ------------     ------------
Total long term liabilities                            $  1,832,783        7,144,768

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, par value $0.01 - 900,000,00
Shares authorized, 19,071,684 and 21,190,879 issued
and outstanding                                        $     21,777           29,050
Additional paid in capital                                1,650,841        4,576,739
Retained earnings (deficit)                              (3,933,998)      (4,596,127)
Other comprehensive income                                 (439,639)      (1,939,761)
                                                       ------------     ------------
Total stockholders' equity (deficit)                     (2,701,019)      (1,930,098)
                                                       ------------     ------------
                                                       $  3,625,199        9,627,091
                                                       ============     ============
</TABLE>


See accompanying notes to consolidated financial statements.


                                       34
<PAGE>

PEAK ENTERTAINEMNT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(the 2004 financial statements are unaudited)

                                                   Year ended       Year ended
                                                  December 31,     December 31,
                                                      2003             2004
                                                  ------------     ------------

Revenue

Character related consumer products               $    417,914          172,479
Licensing arrangements                                  97,082          174,747
Film and television licensing
arrangements                                           500,000          818,930
                                                  ------------     ------------
Net revenue                                          1,014,996        1,166,156

Cost Of revenue
Cost of Goods Sold                                     725,066          343,156
                                                  ------------     ------------
Total cost of revenue                                  725,066          343,156

Gross profit                                           289,930          823,000

Operating expenses

Selling, general and administrative                  2,614,593        2,727,116
Depreciation and amortisation                          173,830          430,227
                                                  ------------     ------------

Total operating expenses                             2,788,423        3,157,343
                                                  ------------     ------------

Loss from operations                                (2,498,493)      (2,334,343)

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

Foreign exchange gain/ (Loss)                          217,273         (485,985)

Interest expense                                      (685,327)         604,574

Amounts written off to investments                          --         (129,831)
                                                  ------------     ------------

Net loss                                            (2,966,547)      (1,879,070)
                                                  ============     ============

Basic and diluted net loss per
share                                             $       0.14            0.078

Weighted average common shares
outstanding                                         20,562,980       24,064,029
                                                  ============     ============


See accompanying notes to consolidated financial statements.


                                       35
<PAGE>

PEAK ENTERTAINEMNT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(the 2004 financial statements are unaudited)

                                                    Year ended       Year ended
                                                   December 31,     December 31,
                                                      2003             2004
                                                  -----------------------------

Net Loss                                          $ (2,966,547)      (1,879,070)

Cumulative translation adjustment                     (368,109)         (60,691)
                                                  ------------     ------------

Comprehensive loss                                $ (3,334,656)      (1,939,761)
                                                  ============     ============


See accompanying notes to consolidated financial statements.


                                       36
<PAGE>

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(the 2004 financial statements are unaudited)

                                                           December 31
                                                  -----------------------------
Cash flows from operating activities                  2003             2004
                                                  ------------     ------------

Net loss                                          $ (2,966,547)      (1,879,069)

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

Depreciation                                            14,460          430,227
Amortization of intangible assets                      159,370
Foreign exchange gain                                 (217,273)         485,985
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                             1,459,781
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)        (245,116)
                                                  ============     ============

     Cash flows from investing activities:

Purchase of plant and equipment                        (63,676)         (71,029)
Purchase of intangibles                                (47,132)

Proceeds from slae of plant and equipment                1,807            3,565
Disposal of intangibles
Issue of Debentures                                                   1,078,054
Settlement of debentures
                                                  ------------     ------------
Net cash used in investing activities                 (109,001)       1,010,590
                                                  ============     ============


See accompanying notes to consolidated financial statements.


                                       37
<PAGE>

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(the 2004 financial statements are unaudited)

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
Issue of common stock shares
Issue of common stock purchase warrents
                                                   ------------    ------------

Net cash provided from financing activities             952,351        (399,970)
                                                   ============    ============
Cumulative translation adjustment                       (40,987)       (507,608)
                                                   ============    ============

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
                                                   ============    ============
Purchases of licenses through issuance of long

term liabilities                                   $     17,785
                                                   ============    ============

Accounting for reserve acquisition                      208,500
                                                   ============    ============

Issuance of shares in settlement of liability           332,500
                                                   ============    ============

See accompanying notes to consolidated financial statements.


                                       38
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


1     Description of Business and Future Prospects

      Peak Entertainment Holdings, Inc, formerly Peak Entertainment Ltd, was
      formed on November 20, 2001 as an integrated media group focused on
      children. Its activities include the production of television
      entertainment, character licensing and consumer products development,
      including toy and gift manufacturing and distribution. Integration enables
      Peak Entertainment Holdings, Inc to take property from concept to
      consumer, in-house, controlling and coordinating 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 $4,596,127 and a stockholders' deficiency of
      $1,930,099.


      The Company has developed a business plan to increase revenue by
      capitalizing on its integrated media products. The Company is obtaining
      funds from outside sources in fiscal 2005 and 2006 to provide needed
      liquidity and successfully implement its business plan.

2     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.


                                       39
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


2     Summary of Significant Accounting Policies (continued)

      (B)   Interim Financial Information

            In the opinion of management, the interim financial information as
            of December 31, 2004 and for the twelve months ended December 31,
            2003 and 2004 contains all adjustments, consisting only of normal
            recurring adjustments, necessary for a fair presentation of the
            results for such periods. Results for interim periods are not
            necessarily indicative of results to be expected for an entire year.

            The accompanying consolidated financial statements have been
            prepared in accordance with generally accepted accounting principles
            for interim financial information and with the instructions to Form
            10-KSB and Article 10 of Regulation S-X. Certain information and
            footnote disclosures normally included in the consolidated financial
            statements prepared in accordance with generally accepted accounting
            principles have been condensed or omitted pursuant to such rules and
            regulations.

      (C)   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 are 7,050,000 warrants to purchase
            shares of the Company's common stock outstanding as of December 31,
            2004.

      (D)   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 expense 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.


                                       40
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


2     Summary of Significant Accounting Policies (continued)

      (D)   Warrants (continued)

            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.

      (E)   Use of Estimates

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

      (F)   Recent Accounting Pronouncements

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

            In 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.


                                       41
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


3     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 repaid and
      is due upon demand. Accordingly, the debt and all accrued interest
      totalling $205,404 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.

4     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            84,732
                                                                     ----------
      Balance at December 31, 2004                                      330,637
                                                                     ==========

5     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 of the following companies: Peak Entertainment Limited, Jusco UK
      Ltd, Jusco Toys Ltd, Wembley Sportsmaster Ltd and Cameo Collectables Ltd.
      They are directors and shareholders of Peak Entertainment Holdings.

      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 are 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.


                                       42
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)

5     Transactions with related parties (continued)

      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 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 has been accrued during the
                  period.

                  On March 24, 2004, the Company signed a promissory note which
                  established a repayment schedule for the amounts advanced by
                  the stockholders. The amount advanced is to be repaid in
                  instalments of $25,000 on January 31, 2005, May 31, 2005,
                  September 30, 2005, December 31, 2005, March 31, 2006 and
                  September 30, 2006 and instalments 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.

            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 licence fees payable and the related asset is
                  included in intangible assets.


                                       43
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


5     Transactions with related parties (continued)

            ii)   License agreement (continued)

                  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 are individually entitled to a
                  certain percentage of the revenues. The Company is entitled to
                  10% of the revenues from the United States, 35% of the
                  revenues from the United Kingdom, and 40% of the revenues from
                  other territories. Morrison Entertainment Group is entitled to
                  60% of the revenues from the United States, 32.5% of the
                  revenues from the United Kingdom, and 30% of the revenues from
                  other territories. The Shorrocks are entitled to 30% of the
                  revenues from the United States, 32.5% of the revenues from
                  the United Kingdom, and 30% of the revenues from other
                  territories. The revenue allocation refers to revenues from
                  character and merchandise licensing and sales activities, and
                  the allocation is to be adjusted for entertainment production
                  financing terms. In October 2004, Morrison Entertainment Group
                  sent the Company a notice terminating any and all agreements
                  with the Company.

      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 for such consulting services as follows:

<TABLE>
<CAPTION>
                                             3 months          3 months         9 months          9 months
                                      ended September   ended September  ended September   ended September
                                             30, 2003          30, 2004         30, 2003          30, 2004
<S>                                           <C>                  <C>           <C>                  <C>
                  Consulting                  $20,000              $nil          $46,000              $nil
                                              =======            ======           ======            ======
</TABLE>

6     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 which are
      exercisable for five years at $0.35 per share in exchange for consulting
      services to be provided over a three year term. Warrants to purchase
      375,000 shares of common stock vested upon execution of the consulting
      agreement, and the remaining warrants to purchase 375,000 shares of common
      stock 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.


                                       44
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


6     Warrants (continued)

      The warrants have been valued using the Black-Scholes Option Model. The
      value of the warrants that vest immediately was $390,000 on the date of
      grant. The value of these warrants 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 has 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 have
      been recorded as a current asset and have been fully amortised 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 will be the remaining unamortized fair value of the $0.50
      warrants as of December 17, 2003, plus the amount by which the fair value
      of the $1.20 warrants valued as of December 17, 2003 is greater than the
      fair value of the $0.50 warrants immediately before the terms were
      modified. The Company used the Black-Scholes Option Model and determined
      that the value of the $0.50 warrants immediately prior to the conversion
      of the terms was essentially the same as the $1.20 warrants granted on
      December 17, 2003. Accordingly, the Company 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, and resulted in an
      additional expense of $311,995, which was included in selling, general and
      administrative expenses in 2003.


                                       45
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


6     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 provides that, after a period of thirteen
      months from January 2004, all of the 1,000,000 shares of common stock
      still owned at that time by the former debenture holders may be put to the
      Company at a price $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 has accounted for this transaction in accordance with EITF
      00-27 "Application of Issue 98-5 to Certain Convertible Instruments".
      Accordingly, the Company has 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 has
      been used to offset the carrying value of the convertible debentures and
      accrued interest and has resulted in a gain on the extinguishment of the
      debt. The Company has determined that the fair value of the warrants to be
      repurchased and the beneficial conversion features at January 5, 2004
      exceeded the total consideration to be paid of $1,580,000. Accordingly,
      the Company has 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 totalled $1,500,000, of which
      $750,000 was paid in cash, and $750,000 by promissory notes. The principal
      amount of the debentures, plus any accrued and unpaid interest on the
      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 with January 7,
      2005. At the option of the Company, interest payments may be accrued
      beyond the annual interest payment date, in which event the debenture
      holder shall have the option to accrue the interest payment then due for
      another interest payment period, or cause the Company to issue common
      stock in exchange for interest. Unless upon 75 days prior written notice,
      the debenture and warrant holder may not convert the debentures or
      warrants for shares of common stock to the extent that such conversion
      would cause it to beneficially own 4.9% or more of our then issued and
      outstanding common stock. After the tenth consecutive business day in
      which the common stock trades at $3.00 or greater, the warrants become
      redeemable at $0.10 per warrant.


                                       46
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)

6     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. The $750,000 received on January 5, 2004 has been
      recognized at that date; the remaining $750,000 will be recognized when it
      is received, on registration of the underlying shares.

      During the quarter to September 30, 2004, $541,000 of the 8% convertible
      debentures were converted at $0.30 per share into 1,805,000 shares of
      common stock. A loss on conversion of $481,395 has been recognized during
      the 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 the
      aggregate purchase price of $500,000.


                                       47
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)


6     Warrants (continued)

      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.

      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.

7     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.


                                       48
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)

7     Share transactions (continued)

      In 2003, the Company entered into an agreement with Rolin Inc to provide
      financial advisory services in exchange for common stock of the Company.
      On February 12, 2004, the Company issued an aggregate of 20,409 shares of
      common stock to Rolin Inc. These shares had a fair value of $10,204 at the
      date of grant. The Company 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. The total fee of $117,744 has been offset against
      the proceeds of the offering.

      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. The Company has expensed $7,333 as consultancy fees during the
      quarter ended September 30, 2004.

      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 has expensed $33,000 as
      professional fees during the quarter, and recognized a profit of $17,250
      on issue of the shares.


                                       49
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)

8     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.

9     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 bore interest at 12%, mature 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.


                                       50
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004
(the 2004 financial statements are unaudited)

9     Stockholders' Equity (continued)

      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 provision 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 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 has
      recorded a debt discount of $785,000. The debt discount will be amortized
      as interest expense over the life of the debentures, which is one year.

      On February 28, 2002, Palladium, the predecessor to Peak Entertainment
      Holdings, Inc entered into an agreement pursuant to which Palladium issued
      $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
      in exchange 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
      in exchange 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.

10    Subsequent Events

      On January 4, 2005, the Company 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.

      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.


                                       51
<PAGE>

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

(a) Former Business - Palladium Communications, Inc.

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

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

(b) Current Business - Peak Entertainment Holdings, Inc.

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 merger with Peak Entertainment Holdings
Ltd.), expressed substantial doubt with respect to our 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 services, effective as of that date.
The Company's Board of Directors approved such decision.


                                       52
<PAGE>

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 and Elliot Ltd., York, United
Kingdom, as its independent public accountants. The Company did not previously
consult with Garbutt and Elliot Ltd., York, United Kingdom, 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).


                                       53
<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 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 have been addressed.

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 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.


                                       54
<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: $4,807.00 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.


                                       55
<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.

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

MANAGEMENT PROFILE

Wilfred Shorrocks, Chairman and Chief Executive Officer

Mr. Shorrocks, founded Peak Entertainment Ltd. in November 2001 and he became
Chairman, Chief Executive Officer and a director of Peak Entertainment Holdings,
Inc. in April 2003. Prior to that, Mr. Shorrocks was co-founder of Just Group,
Plc., where he acted as its Chief Executive Officer from 1987 to 2001. At Just
Group, Mr. Shorrocks was responsible for all areas of activity relating to
development and creation of concepts through to intellectual property
acquisition, corporate acquisition, and financing activities. In January 2002,
about five months subsequent to his 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.


                                       56
<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 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.


                                       57
<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 is responsible for matters typically performed by an
audit committee. We do not have a separate audit committee, nor any other
committee, of the Board of Directors. No person serving on our Board of
Directors qualifies as a financial expert. We seek to attract persons with
financial experience to serve on our Board of Directors and we intend to form an
audit committee of the Board of Directors during our fiscal year 2004.

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

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.


                                       58
<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
shareholder approval, an employee stock incentive plan, whereby we may issue
shares of common stock and stock options to our employees and consultants. We
intend for the plan to cover the issuance of an amount equal to up to 10% of our
outstanding shares of common stock.

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.


                                       59
<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth, as of March 31, 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 March 31, 2005, we had 29,220,955 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          28.6%
Paula Shorrocks  (1)(2)(3)                                8,361,899                  0          28.6%
Phil Ogden   (1)                                            476,792                  0           1.6%
Alan Shorrocks  (1)(3)                                      476,792                  0           1.6%
Nicola Yeomans  (1)                                               0                  0             0%
Platinum Partners Global Macro Fund LP (4)(5)               650,000          3,500,000          12.7%
   152 West 57th Street
   New York, NY 10019
Dan Brecher  (5)(6)                                       1,196,667          1,570,000           9.0%
   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          60.5%
---------------------------------------------------------------------------------------------------------
</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.


                                       60
<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 to       Weighted average
                                        be issued upon exercise       exercise price of        Number of securities
                                        of outstanding options,     outstanding options,     remaining available for
            Plan category                 warrants and rights        warrants and rights         future issuance
            -------------                 -------------------        -------------------         ---------------

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

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

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.


                                       61
<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. Pursuant to the terms
of the license agreement, as amended, the Shorrocks elected to defer receipt of
the quarterly payment due September 30, 2004.


                                       62
<PAGE>

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

      o     Wilfred Shorrocks, 8,486,899 shares;

      o     Paula Shorrocks, 8,486,899 shares;

      o     Phil Ogden, 476,792 shares;

      o     Alan Shorrocks, 476,792 shares; and

      o     Terence Herzog, 743,585 shares.

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

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

Two former outside directors of the Company, Terence Herzog and Michael
Schenkein, are principals of Agora Capital Partners, Inc., a management
consulting company. From March 2003 through March 2004, Agora Capital Partners,
through Terence Herzog and Michael Schenkein, has 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.

3(i)(3)*       Certificate of Amendment to Articles of Incorporation of
               Corvallis, Inc.

3(i)(4)*       Certificate of Amendment to Articles of Incorporation of
               USAOneStar.Net, Inc.

3(i)(5)*       Articles of Share Exchange

3(i)(6)*       Certificate of Amendment to Articles of Incorporation of
               Palladium Communications, Inc.

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)


                                       63
<PAGE>

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)

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

4.12*          Loan Agreement, dated March 1, 2005

4.13*          Form of Warrant issued March 2, 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

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)


                                       64
<PAGE>

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)

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

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 4, 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

10.37*         Amendment, dated June 2004, to Distribution Agreement with
               Character Options Ltd., dated January 20, 2003

10.38*         Amendment, dated June 2004, to Distribution Agreement with GMTV,
               dated February 17, 2003

10.39*         Amendment, dated June 2004, to Distribution Agreement with Video
               Collection International Ltd., dated April 29, 2004 -


                                       65
<PAGE>

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

10.43*         License Agreement with Zoo Digital Publishing Limited, dated
               October 4, 2004

10.44*         Agreement made as of December 22, 2004 with Morrison
               Entertainment Group, Inc.

10.45*         Consulting Agreement with Salvani Investments, dated as of
               January 4, 2005

10.46*         Form of International Representation Agreement, dated August 2,
               2004, with Blue Chip Brands Pty Ltd.

10.47*         Letter of Intent with Maverick Entertainment Group plc, dated
               March 1, 2005, and Representation Agreement, dated March 1, 2005

10.48*         The Wumblers Deal Memo with 4Kids Entertainment, Inc. dated March
               7, 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.


                                       66
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

Fees for audit services provided by Garbutt and Elliot Ltd., our current
principal independent registered public accounting firm, during the year ended
December 31, 2004 was $29,429. 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 and Elliot 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 years 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 and Elliot 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.


                                       67
<PAGE>

                                   SIGNATURES

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

                                          PEAK ENTERTAINMENT HOLDINGS, INC.

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

                                          Dated:  April 15, 2005

         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    April 15, 2005
------------------------      Officer (Principal Executive Officer)
Wilfred Shorrocks


/s/ PAULA SHORROCKS           Vice President and Director                 April 15, 2005
------------------------
Paula Shorrocks


/s/ PHIL OGDEN                Vice President and Director                 April 15, 2005
------------------------
Phil Ogden


/s/ ALAN SHORROCKS            Vice President                              April 15, 2005
------------------------
Alan Shorrocks


/s/ NICOLA YEOMANS            Vice President                              April 15, 2005
------------------------      (Principal Accounting Officer)
Nicola Yeomans
</TABLE>


                                       68