**Securities      and Exchange Commission**

**Washington,      D.C. 20549**

**FORM      10-QSB**

| x | Quarterly                Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange                Act Of                1934 |
|---|--------------------------------------------------------------------------------------------------------------------------------------|

| o | Transition                Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of                1934 |
|---|------------------------------------------------------------------------------------------------------------------|

----

| DELAWARE(State                or Other Jurisdiction ofIncorporation                or Organization) | 13-2614435(I.R.S.                EmployerIdentification                No.) |
|-----------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|

----

----

|                                                                                                                                                  |                                                               | Page   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|--------|
| **Part                I**                                                                                                                             |                                                               |   |
|                                                                                                                                                  |                                                               |   |
| Item                1.                                                                                                                                | Financial                Statements                                |   |
|                                                                                                                                                  |                                                               |   |
| Balance                Sheet as of March 31, 1997 (Unaudited)                                                                                         | 1                                                                  |
|                                                                                                                                                  |                                                               |   |
| Statements                of Operations for the three and nine Months ended March 31, 1997                and 1996                (Unaudited)         | 2                                                                  |
|                                                                                                                                                  |                                                               |   |
| Statements                of Stockholders Equity for the year ended June 30, 1996 and the nine                months ended March 31, 1997 (unaudited) | 3                                                                  |
|                                                                                                                                                  |                                                               |   |
| Statements                of Cash Flows for the nine months ended March 31, 1997 and 1996                (Unaudited)                                  | 4                                                                  |
|                                                                                                                                                  |                                                               |   |
| Notes                To Financial Statements (Unaudited)                                                                                              | 5                                                                  |
|                                                                                                                                                  |                                                               |   |
| Item                2.                                                                                                                                | Management's                Discussion and Analysis                | 6      |
|                                                                                                                                                  |                                                               |   |
| Item                3.                                                                                                                                | Controls                and Procedures                             | 7      |
|                                                                                                                                                  |                                                               |   |
|                                                                                                                                                  |                                                               |   |
| **Part                II - Other Information**                                                                                                        |
|                                                                                                                                                  |                                                               |   |
| Item                1.                                                                                                                                | Legal                Proceedings                                   | 7      |
|                                                                                                                                                  |                                                               |   |
| Item                2.                                                                                                                                | Change                in Securities                                | 7      |
|                                                                                                                                                  |                                                               |   |
| Item                3.                                                                                                                                | Defaults                Upon Senior Notes                          | 7      |
|                                                                                                                                                  |                                                               |   |
| Item                4.                                                                                                                                | Submission                of Matters to a Vote of Security Holders | 7      |
|                                                                                                                                                  |                                                               |   |
| Item                5.                                                                                                                                | Other                Information                                   | 7      |
|                                                                                                                                                  |                                                               |   |
| Item                6.                                                                                                                                | Exhibits                and Reports on Form 8-K                    | 7      |
|                                                                                                                                                  |                                                               |   |
| Signatures                                                                                                                                            | 8                                                                  |

----

**ITEM      1. FINANCIAL STATEMENTS**

| **CST                ENTERTAINMENT, INC.**                                                       |   |   |        |
|--------------------------------------------------------------------------------------------------|--------|--------|-------------|
| BALANCE                SHEETS (Unaudited)                                                        |   |   |        |
| As                of March 31, 1997                                                              |
|                                                                                             |   |   |        |
| ASSETS                                                                                           |   |   |        |
| Current                assets:                                                                   |   |   |        |   |
| Cash                                                                                        |   | $      | -           |   |
| Accounts                receivable, net                                                     |   |   | -           |   |
| Work-in-process                                                                             |   |   | -           |   |
| Prepaid                expense                                                              |   |   | -           |   |
| Receivable                from related parties                                              |   |   | -           |   |
| Total                current assets                                                              |   |   | -           |   |
|                                                                                             |   |   |        |   |
| Property                and equipment:                                                           |   |   |        |   |
| Color                conversion equipment                                                   |   |   | -           |   |
| Leasehold                improvements and other equipment                                   |   |   | -           |   |
| Capitalized                software                                                         |   |   | -           |   |
|                                                                                             |   |   | -           |   |
| Less                accumulated depreciation                                                |   |   | -           |   |
|                                                                                             |   |   |        |   |
| Other                assets:                                                                     |   |   | -           |   |
| Film                library, net of amortization of $5,180,900                              |   |   | -           |   |
| Other                assets                                                                 |   |   | -           |   |
| Notes                receivable from directors and officers                                 |   |   | -           |   |
|                                                                                                  |   |   | -           |   |
|                                                                                             |   | $      | -           |   |
|                                                                                             |   |   |        |   |
| LIABILITIES                AND STOCKHOLDERS' DEFICIT                                             |   |   |        |   |
|                                                                                             |   |   |        |   |
| Current                liabilities:                                                              |   |   |        |   |
| Related                party loan                                                           |   | $      | -           |   |
| Current                portion of long term debt                                            |   |   | -           |   |
| Notes                payable                                                                |   |   | -           |   |
| Accounts                payable                                                             |   |   | -           |   |
| Accrued                expenses                                                             |   |   | -           |   |
| Total                current liabilities                                                         |   |   | -           |   |
|                                                                                             |   |   |        |   |
| Non                current portion of long term debt                                             |   |   | -           |   |
|                                                                                             |   |   |        |   |
| Stockholders'                Deficit:                                                            |   |   |        |   |
| Common                stock, par value $0.15; 40,000,000 authorized;                issued  |   |   |        |   |
| and                outstanding 27,278,340 at March 31, 1997                                 |   |   | 4,091,752   |   |
| Additional                paid in capital                                                   |   |   | 56,115,740  |   |
| Accumulated                deficit                                                          |   |   | (60,207,492 | ) |
| Total                stockholders' deficit                                                       |   |   | -           |   |
| Total                liabilities and stockholders' deficit                                       |   | $      | -           |   |

**SEE        ACCOMPANYING NOTES TO FINANCIAL STATEMENTS**

----

| **CST                  ENTERTAINMENT, INC.**                                 |   |                                        |       |                                       |   |       |   |   |       |
|------------------------------------------------------------------------------|--------|---------------------------------------------|------------|--------------------------------------------|--------|------------|--------|--------|------------|
| STATEMENTS                  OF OPERATIONS (Unaudited)                        |   |                                        |       |                                       |   |       |   |   |       |
| For                  the Three and Nine Months Ended March 31, 1997 and 1996 |
|                                                                         |   |                                        |       |                                       |   |
|                                                                         |   | For                  the Three Months Ended |       | For                  the Nine Months Ended |   |
|                                                                         |   | March                  31,                  |       | March                  31,                 |   |
|                                                                         |   | 1997                                        |       | 1996                                       |   | 1997       |   | 1996   |       |
| Revenue:                                                                     |   |                                        |       |                                       |   |       |   |   |       |
| Coloring                  income                                             |   |                                        |       |                                       | $      | 312,285    |   | $      | 1,293,050  |   | $ | 1,604,385 |   |
| License                  royalty income                                 |   |                                        | -          |                                       |   | 105,709    |   |   | 175,000    |   |   | 1,990,775 |   |
| Library                  sales income                                   |   |                                        | -          |                                       |   | -          |   |   | 500,000    |   |   | - |   |
|                                                                         |   |                                        | -          |                                       |   | 417,994    |   |   | 1,968,050  |   |   | 3,595,160 |   |
|                                                                         |   |                                        |       |                                       |   |       |   |   |       |   |   |   |   |
| Operating                  expenses:                                         |   |                                        |       |                                       |   |       |   |   |       |   |   |   |   |
| Production                                                              |   |                                        | -          |                                       |   | 181,929    |   |   | 996,437    |   |   | 935,585 |   |
| Cost                  of library rights sold                            |   |                                        | -          |                                       |   | -          |   |   | 500,000    |   |   | - |   |
| Research                  and development                               |   |                                        | -          |                                       |   | 22,593     |   |   | 5,694      |   |   | 85,406 |   |
| Depreciation                  and amortization                          |   |                                        | -          |                                       |   | 150,340    |   |   | 302,523    |   |   | 413,093 |   |
| Film                  library amortization                              |   |                                        | -          |                                       |   | 147,500    |   |   | 398,125    |   |   | 1,356,000 |   |
| Film                  library write-down                                |   |                                        | -          |                                       |   | 649,740    |   |   | -          |   |   | 649,740 |   |
| Participation                  and licensing                            |   |                                        | -          |                                       |   | -          |   |   | -          |   |   | 440,000 |   |
| General                  and administrative                             |   |                                        | -          |                                       |   | 511,294    |   |   | 510,657    |   |   | 1,381,709 |   |
| Lawsuits                  and litigation                                |   |                                        | -          |                                       |   | 737,000    |   |   | -          |   |   | 737,000 |   |
| Interest                  expense                                       |   |                                        | -          |                                       |   | 39,080     |   |   | 45,401     |   |   | 87,239 |   |
| Total                  operating expenses                                    |   |                                        | -          |                                       |   | 2,439,476  |   |   | 2,758,836  |   |   | 6,085,772 |   |
|                                                                         |   |                                        |       |                                       |   |       |   |   |       |   |   |   |   |
| Discharge                  of debt in bankruptcy                        |   |                                        | 3,216,724  |                                       |   | -          |   |   | 2,768,800  |   |   | - |   |
| Loss                  at termination of bankruptcy                      |   |                                        | (2,953,233 | )                                          |   | -          |   |   | (2,953,233 | ) |   | - |   |
| Total                  bankruptcy                                            |   |                                        | 263,491    |                                       |   |       |   |   | (184,433   | ) |   |   |   |
|                                                                         |   |                                        |       |                                       |   |       |   |   |       |   |   |   |   |
| Net                  loss                                                    |   | $                                           | 263,491    |                                       | $      | (2,021,482 | )      | $      | (975,219   | ) | $ | (2,490,612 | ) |
|                                                                         |   |                                        |       |                                       |   |       |   |   |       |   |   |   |   |
| Weighted                  average common shares outstanding                  |   |                                        |       |                                       |   |       |   |   |       |   |   |   |   |
| Basic                  and fully diluted                                |   |                                        | 27,278,340 |                                       |   | 27,225,007 |   |   | 27,278,340 |   |   | 26,745,723 |   |
|                                                                         |   |                                        |       |                                       |   |       |   |   |       |   |   |   |   |
| Net                  income (loss) per share common                          |   | $                                           | (0.01      | )                                          | $      | (0.07      | )      | $      | (0.04      | ) | $ | (0.09 | ) |

**SEE      ACCOMPANYING NOTES TO FINANCIAL      STATEMENTS**

----

| **CST                ENTERTAINMENT, INC.**                                 |   |                        |       |    |   |       |   |          |       |   |   |
|----------------------------------------------------------------------------|--------|-----------------------------|------------|---------|--------|------------|--------|---------------|------------|--------|--------|
| CONSOLIDATED                STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)  |
| For                the Three and Nine Months Ended March 31, 1997 and 1996 |
|                                                                       |   |                        |       |    |   |       |   |          |       |   |   |
|                                                                       |   |                        |       |    |   | Additional |   |          |       | Total  |   |
|                                                                       |   | Common                Stock |       | Paid-In |   | Deficit    |   | Stockholders' |       |
|                                                                       |   | Shares                      |       | Amount  |   | Capital    |   | Accumulated   |       | Equity |   |
| Balances,                June 30, 1995                                     |   |                        | 26,199,624 |    | $      | 3,929,944  |   | $             | 55,667,022 |   | $      | (56,210,711 | ) | $ | 3,386,255 |   |
|                                                                       |   |                        |       |    |   |       |   |          |       |   |   |   |   |   |   |   |
| Common                stock, restricted, issued as payment                 |   |                        |       |    |   |       |   |          |       |   |   |   |   |   |   |   |
| for                services rendered                                       |   |                        | 274,450    |    |   | 41,168     |   |          | 123,558    |   |   |   |   |   | 164,726 |   |
| Common                stock issued in connection with                      |   |                        |       |    |   |       |   |          |       |   |   |   |   |   |   |   |
| exercise                of stock options                                   |   |                        | 4,266      |    |   | 640        |   |          | 3,160      |   |   |   |   |   | 3,800 |   |
| Common                stock, restricted, issued in connection              |   |                        |       |    |   |       |   |          |       |   |   |   |   |   |   |   |
| with                debt restructuring                                     |   |                        | 500,000    |    |   | 75,000     |   |          | 175,000    |   |   |   |   |   | 250,000 |   |
| Common                stock, restricted, issued in connection              |   |                        |       |    |   |       |   |          |       |   |   |   |   |   |   |   |
| with                animation rights repurchase                            |   |                        | 300,000    |    |   | 45,000     |   |          | 105,000    |   |   |   |   |   | 150,000 |   |
| Warrants                issued as payment for services rendered            |   |                        |       |    |   |       |   |          | 24,000     |   |   |   |   |   | 24,000 |   |
| Net                loss                                                    |   |                        |       |    |   |       |   |          |       |   |   | (3,469,486 | ) |   | (3,469,486 | ) |
| Balances,                June 30, 1996                                     |   |                        | 27,278,340 |    | $      | 4,091,752  |   | $             | 56,097,740 |   | $      | (59,680,197 | ) | $ | 509,295 |   |
|                                                                       |   |                        |       |    |   |       |   |          |       |   |   |   |   |   |   |   |
| Warrants                issued                                             |   |                        |       |    |   |       |   |          | 18,000     |   |   |   |   |   | 18,000 |   |
| Net                loss                                                    |   |                        |       |    |   |       |   |          |       |   |   | (527,295 | ) |   | (527,295 | ) |
| Balances,                March 31, 1997                                    |   |                        | 27,278,340 |    | $      | 4,091,752  |   | $             | 56,115,740 |   | $      | (60,207,492 | ) | $ | - |   |

**SEE      ACCOMPANYING NOTES TO FINANCIAL      STATEMENTS**

----

| **CST                    ENTERTAINMENT, INC.**                               |   |                                         |     |   |   |
|------------------------------------------------------------------------------|--------|----------------------------------------------|----------|--------|--------|
| STATEMENTS                    OF CASH FLOWS (Unaudited)                      |   |                                         |     |   |   |
| For                    the Nine Months Ended March 31, 1996 and 1995         |
|                                                                         |   |                                         |     |
|                                                                         |   | For                    the Nine Months Ended |     |
|                                                                         |   | March                    31,                 |     |
|                                                                         |   | 1997                                         |     | 1996   |   |
| Cash                    flows from operating activities:                     |   |                                         |     |   |   |
| Net                    income (loss)                                         |   | $                                            | (527,295 | )      | $      | (2,490,612 | ) |
| Adjustments                    to reconcile increase in net assets to net    |   |                                         |     |   |   |   |   |
| cash                    provided by (used in) operating activities:          |   |                                         |     |   |   |   |   |
| Bankruptcy,                    net                                           |   |                                         | (282,197 | )      |   | - |   |
| Depreciation                    and amortization                        |   |                                         | 297,398  |   |   | 1,769,093 |   |
| Non-cash                    revenue from commitments payable            |   |                                         | -        |   |   | (174,258 | ) |
| Film                    library write-down                              |   |                                         | 898,125  |   |   | 649,740 |   |
| Non                    cash payment of expenses                         |   |                                         | -        |   |   | 183,006 |   |
| Decrease                    (increase) in:                              |   |                                         |     |   |   |   |   |
| Accounts                    receivable                                       |   |                                         | 674,619  |   |   | (243,054 | ) |
| Work                    in process                                           |   |                                         | 428,391  |   |   | 486,520 |   |
| Prepaid                    expenses                                          |   |                                         | (14,632  | )      |   | (46,766 | ) |
| Receivable                    from related party                             |   |                                         | 25,000   |   |   | 200,000 |   |
| Other                                                                        |   |                                         | 18,000   |   |   | (2,789 | ) |
| Increase                    (decrease) in:                              |   |                                         |     |   |   |   |   |
| Accounts                    payable                                          |   |                                         | (68,780  | )      |   | 260,931 |   |
| Accrued                    expense                                           |   |                                         | (50,042  | )      |   | 690,771 |   |
| Deferred                    income                                           |   |                                         | (825,300 | )      |   | 369,796 |   |
| Loan                    payable related party                                |   |                                         | (85,000  | )      |   | 50,000 |   |
| Net                    cash provided (used in) operating activities          |   |                                         | 488,287  |   |   | 1,702,378 |   |
|                                                                         |   |                                         |     |   |   |   |   |
| Cash                    flows from investing activities:                     |   |                                         |     |   |   |   |   |
| Additions                    to property and equipment                       |   |                                         | -        |   |   | (22,085 | ) |
| Additions                    of capitalized software                         |   |                                         | (28,194  | )      |   | (243,298 | ) |
| Additions                    to film library                                 |   |                                         | -        |   |   | (2,878,967 | ) |
| Net                    cash provided by (used in) investing activities  |   |                                         | (28,194  | )      |   | (3,144,350 | ) |
|                                                                         |   |                                         |     |   |   |   |   |
| Cash                    flows from financing activities:                     |   |                                         |     |   |   |   |   |
| Proceeds                    from exercise of stock options                   |   |                                         | -        |   |   | 3,800 |   |
| Proceeds                    from notes payable                               |   |                                         | -        |   |   | 1,250,000 |   |
| Payment                    on note payable                                   |   |                                         | (63,318  | )      |   | (6,398 | ) |
| Payment                    on term loan                                      |   |                                         | -        |   |   | (46,875 | ) |
| Line                    of credit                                            |   |                                         | (451,079 | )      |   | 204,914 |   |
| Net                    cash provided by (used in) financing activities  |   |                                         | (514,397 | )      |   | 1,405,441 |   |
|                                                                         |   |                                         |     |   |   |   |   |
| Net                    increase (decrease) in cash                      |   |                                         | (54,304  | )      |   | (36,531 | ) |
|                                                                         |   |                                         |     |   |   |   |   |
| Cash                    at beginning of year                                 |   |                                         | 54,304   |   |   | 24,694 |   |
|                                                                         |   |                                         |     |   |   |   |   |
| Cash                    at end of year                                       |   | $                                            | -        |   | $      | (11,837 | ) |
|                                                                         |   |                                         |     |   |   |   |   |
| Supplementary                    Information:                                |   |                                         |     |   |   |   |   |
| Cash                    paid for interest                                    |   | $                                            | -        |   | $      | 8,269 |   |
| Cash                    paid for income taxes                                |   | $                                            | -        |   | $      | - |   |

**SEE      ACCOMPANYING NOTES TO FINANCIAL      STATEMENTS**

----

----

**NOTE      A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING      POLICIES**

*Net      Loss Per Share*

*Accounting      Estimates*

**NOTE      B - BANKRUPTCY**

**NOTE      C - SUBSEQUENT EVENT**

----

**ITEM      2. MANAGEMENT'S DISCUSSION AND ANALYSIS**

**Results      of Operations**

----

**Liquidity      and Capital Resources**

**ITEM      3. CONTROLS AND PROCEDURES**

**PART      II - OTHER INFORMATION**

| Item                  1. | Legal                  Proceedings. None.                                   |
|--------------------------|-----------------------------------------------------------------------------|
|                     |                                                                        |
| Item                  2. | Change                  in Securities. None.                                |
|                     |                                                                        |
| Item                  3. | Defaults                  Upon Senior Securities. None.                     |
|                     |                                                                        |
| Item                  4. | Submission                  of Matters to a Vote of Security Holders. None. |
|                     |                                                                        |
| Item                  5. | Other                  Information. None.                                   |
|                     |                                                                        |
| Item                  6. | Exhibits                                                                    |

| Exhibit                    Number |   | Title                    of Document                                                                                                                                                                                                                                              |
|-----------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                                                                                                                                                                              |
| 31.1                              |   | Certification                    of Principal Executive Officer and Principal Accounting Officer                    Pursuant                    to Rule 13a-14                                                                                                                    |
| 32.1                              |   | Certification                    of Chief Executive Officer and Principle Accounting Officer Pursuant                    to 18                    U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the                    Sarbanes-Oxley Act of                    2002 |

----

**SIGNATURES**

|   | LEGACY                HOLDINGS, INC.  /S/                Robert                Matthews   Robert                MatthewsChief                Executive Officer and Principle Accounting Officer |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----