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

                                   FORM 10-QSB

(Mark One)

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

                  For the quarterly period ended June 30, 2004

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

             For the transition period from ________ to ___________.

                       Commission file number: 33-18143-D

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

                        PEAK ENTERTAINMENT HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

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


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

                                 44 1629 814555
                           (Issuer's telephone number)

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

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 past 90
days. Yes [X] No [ ]

As of June 30, 2004, we had 24,706,288 shares of common stock issued and
outstanding.

Transitional Small Business Disclosure Format (check one): Yes [  ]  No [X]


<PAGE>


                        PEAK ENTERTAINMENT HOLDINGS, INC.
                                AND SUBSIDIARIES

                                  FORM 10-QSB/A
                       FOR THE QUARTER ENDED JUNE 30, 2004


                                TABLE OF CONTENTS

                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements for the Quarters Ended June 30, 2003 and 2004    3
         Consolidated Balance Sheets                                           3
         Consolidated Statements of Operations                                 4
         Consolidated Statements of Comprehensive Loss                         5
         Consolidated Statements of Cash Flows                                 6
         Notes to Consolidated Financial Statements                            7
Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations                                              20
Item 3.  Controls and Procedures                                              32

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings                                                    33
Item 2.  Changes in Securities and Use of Proceeds                            33
Item 5.  Other Information                                                    34
Item 6.  Exhibits and Reports on Form 8-K                                     35

Signatures                                                                    36

                                        2


<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            December 31, 2003    June 30, 2004
                                                                                  unaudited
                                                            -----------------    -----------
<S>                                                               <C>            <C>
ASSETS

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

Cash and cash equivalents                                         $   152,339    $    15,079
Accounts receivable                                                    34,620         13,664
Inventories of finished goods                                         236,007        240,299
Other current assets                                                  588,439        788,171
                                                                  -----------    -----------
Total current assets                                              $ 1,011,405    $ 1,057,213

Deferred professional fees                                            335,833        270,834
Plant and equipment, net                                              198,245        193,486
Intangible assets, net of amortization                              2,079,716      2,590,277
                                                                  -----------    -----------
                                                                  $ 3,625,199    $ 4,111,810
                                                                  ===========    ===========

LIABILITIES AND  STOCKHOLDERS' DEFICIT

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

Short term borrowings                                             $   582,786    $   379,576
Advances from factor                                                    1,437           --
Accounts payable                                                    1,209,339      2,379,582
Stockholders' advances account                                        916,634        936,521
License fees payable                                                  457,715        439,783
Other accrued liabilities                                           1,325,524      1,110,685
                                                                  -----------    -----------
Total current liabilities                                         $ 4,493,435    $ 5,246,147

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

License fees payable                                                1,078,009      1,009,634
Convertible debentures                                                754,774        249,010
                                                                  -----------    -----------
Total long term liabilities                                       $ 1,832,783    $ 1,258,644

Stockholders' Deficit
---------------------

Common stock, par value $0.001 - 900,000,000 shares authorized,
  24,706,288 and 21,774,212 issued and outstanding                $    21,777    $    24,707
Additional paid in capital                                          1,650,841      3,226,114
Retained deficit                                                   (3,933,998)    (5,192,792)
Other comprehensive income                                           (439,639)      (451,010)
                                                                  -----------    -----------
Total stockholders' deficit                                        (2,701,019)    (2,392,981)
                                                                  -----------    -----------
                                                                  $ 3,625,199    $ 4,111,810
                                                                  ===========    ===========
</TABLE>

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

See accompanying notes to consolidated financial statements.

                                        3

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                       3 months ended  3 months ended  6 months ended  6 months ended
                                       June 30, 2003   June 30, 2004   June 30, 2003   June 30, 2004
                                       --------------  --------------  --------------  --------------
<S>                                      <C>             <C>             <C>             <C>
Revenue
   Character related consumer products         99,738             574         328,114          36,207
   Licensing arrangements                      19,734          35,789          47,627          73,333
                                         ------------    ------------    ------------    ------------
Net revenue                                   119,472          36,363         375,741         109,540

Cost of Revenue
   Cost of goods sold                          97,656          20,214         247,229          84,914
                                         ------------    ------------    ------------    ------------
Total cost of revenue                          97,656          20,214         247,229          84,914

Gross profit                                   21,816          16,149         128,512          24,626

Operating expenses
   Selling, general and administrative        730,964         820,997       1,122,848       1,576,124
   Depreciation and amortization               41,951         237,986          80,180         280,118
                                         ------------    ------------    ------------    ------------
Total operating expenses                      772,915       1,058,983       1,203,028       1,856,242
                                         ------------    ------------    ------------    ------------

Loss from operations                         (751,099)     (1,042,834)     (1,074,516)     (1,831,616)

Gain on settlement of convertible
   debentures and accrued interest               --              --              --           883,033

Foreign exchange gain/(loss)                   65,619          (8,465)         31,834          35,812

Interest expense                             (212,224)       (181,780)       (226,539)       (346,023)
                                         ------------    ------------    ------------    ------------
Net loss                                 $   (897,704)   $ (1,233,079)   $ (1,269,221)   $ (1,258,794)
                                         ============    ============    ============    ============


Basic and diluted net loss per share     $      0.043    $      0.050    $      0.061    $      0.052

Weighted average common shares
 outstanding                               20,701,742      24,292,002      20,678,456      23,931,288
                                         ============    ============    ============    ============
</TABLE>

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

See accompanying notes to consolidated financial statements.

                                        4

<PAGE>


CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

<TABLE>
<CAPTION>
                                       3 months ended  3 months ended  6 months ended  6 months ended
                                       June 30, 2003   June 30, 2004   June 30, 2003   June 30, 2004
                                       --------------  --------------  --------------  --------------

<S>                                       <C>             <C>             <C>             <C>
Net loss                                  $  (897,704)    $(1,233,079)    $(1,269,221)    $(1,258,794)

Cumulative translation adjustment             (84,384)         30,418        (126,480)        (11,371)
                                         ------------    ------------    ------------    ------------
Comprehensive loss                           (982,088)     (1,202,661)     (1,395,701)     (1,270,165)
                                         ============    ============    ============    ============
</TABLE>



See accompanying notes to consolidated financial statements.

                                        5


<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                      Six months ended June 30
                                                      ------------------------
                                                         2003           2004

Cash flows from operating activities:

Net loss                                             $(1,269,221)   $(1,258,794)
Adjustments to reconcile net loss to net cash used
 in operating activities:

Depreciation                                               2,796          9,069
Amortization of intangible assets                         77,384         78,707
Foreign exchange gain                                    (31,834)       (35,812)
Amortization of discount on debentures                   150,548        249,010
Gain on settlement of debentures                            --         (883,033)
Non-cash professional and consulting fees                   --          618,871
Loss on sale of intangibles                                 --           65,222

Changes in working capital:

Accounts receivable                                     (112,135)        21,519
Inventories                                                 (738)          (457)
Other current assets                                     (44,322)       (67,400)
Accounts payable and other accrued liabilities           857,278        904,277
                                                     -----------    -----------
Net cash used in operating activities                   (370,244)      (298,821)
                                                     ===========    ===========

Cash flows from investing activities:

Purchase of plant and equipment                          (19,840)        (4,456)
Purchase of intangibles                                  (54,958)      (615,318)
Issue of debentures                                         --        2,024,000
Settlement of debentures                                    --       (1,000,000)
                                                     -----------    -----------
Net cash used in investing activities                    (74,798)       404,226
                                                     ===========    ===========

Cash flows from financing activities:

Short term borrowings, net                                51,976       (318,663)
Stockholders' advances account                           (97,396)         4,992
Advances from factor, net                                  7,126           --
Convertible debenture                                    550,000           --
                                                     -----------    -----------
Net cash provided from financing activities              511,706       (313,671)
                                                     ===========    ===========

Cumulative translation adjustment                         14,513         71,006
                                                     ===========    ===========

Increase in cash and cash equivalents                     81,177       (137,260)
Cash and cash equivalents, beginning of period             9,870        152,339
                                                     -----------    -----------

Cash and cash equivalents, end of period             $    91,047    $    15,079
                                                     ===========    ===========

Supplemental disclosure of cash flow information

Interest paid                                                 29            993
                                                     ===========    ===========
Purchase of licenses through issuance of long
term liabilities                                           8,252           --
                                                     ===========    ===========
Accounting for reverse acquisition                       208,500           --
                                                     ===========    ===========
Issuance of shares in settlement of liability               --          249,500
                                                     ===========    ===========

See accompanying notes to consolidated financial statements

                                        6


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


1        Description of Business and Future Prospects

         Peak Entertainment Holdings, Inc, formerly Peak Entertainment Ltd, was
         formed on November 20, 2001 as an integrated media group focused on
         children. Its activities include the production of television
         entertainment, character licensing and consumer products development,
         including toy and gift manufacturing and distribution. Integration
         enables Peak Entertainment Holdings, Inc to take property from concept
         to consumer, in-house, controlling and 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 June 30,
         2004 and for the six months then ended, the Company has suffered
         recurring losses, negative cash flows from operations, negative working
         capital, an accumulated deficit of $5,192,792 and a stockholders'
         deficiency of $2,392,981. These factors raise substantial doubt about
         the Company's ability to continue as a going concern.

         The Company has developed a business plan to increase revenue by
         capitalizing on its integrated media products. However, the company
         must obtain funds from outside sources in fiscal 2004 to provide needed
         liquidity and successfully implement its business plan. Presently, the
         Company has no firm commitments from outside sources to provide these
         funds. These factors raise substantial doubt about the Company's
         ability to continue in existence. The financial statements do not
         contain any adjustments that might result from the outcome of this
         uncertainty. While the Company is optimistic that it can execute its
         revised business plan, there can be no assurance that:

         A        Increased sales necessary to obtain profitability will
                  materialize, and

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

2        Summary of Significant Accounting Policies

         (A)      Principals of Consolidation and Combination

                  The accompanying 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.

                                        7

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


2        Summary of Significant Accounting Policies (continued)

         (B)      Interim Financial Information

                  In the opinion of management, the interim financial
                  information as of June 30, 2004 and for the six months ended
                  June 30, 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-QSB 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. These consolidated financial statements should be
                  read in conjunction with the consolidated financial
                  statements, and the notes thereto, included in the Company's
                  Annual Report on Form 10-KSB for the year ended December 31,
                  2003.

         (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
                  quarters ended June 30, 2003 and 2004 as the impact of
                  dilutive securities is antidilutive. There are 5,300,000
                  warrants to purchase shares of the Company's common stock
                  outstanding as of June 30, 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.

                                        8

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


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.

                                        9

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


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 $377,094 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 9.

4        Significant current assets and liabilities

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

                                    December 31, 2003  June 30, 2004
                                                         unaudited
                                    -----------------  -------------
Other current assets
--------------------
Prepaid consulting                            153,990      21,999
Deferred royalty income                        88,925     234,962
Monies in Escrow                              276,379     510,000
Other current assets                           69,145      21,210
                                            =========   =========
                                              588,439     788,171
                                            =========   =========

Accounts payable
----------------
Professional fees                             182,866     329,789
Stock supplies - Countin' Sheep               164,355        --
TV animation costs - Monster in my Pocket     119,720        --
Wumblers post production costs                   --     1,047,182
Other accounts payable                        742,398   1,002,611
                                            =========   =========
                                            1,209,339   2,379,582
                                            =========   =========

Other accrued liabilities
-------------------------
Consultancy fees                              188,521     260,266
Wumblers pilot show costs                     271,954        --
Royalties payable                              68,734      92,002
Sales and payroll taxes                       193,084     199,621
Debenture interest                            120,424     249,010
Legal fees                                     97,753        --
Other accrued liabilities                     385,054     309,786
                                            =========   =========
                                            1,325,524   1,110,685
                                            =========   =========

                                       10

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


5        Convertible debentures

         Convertible debentures are comprised of the following as at June 30,
         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

         Balance at June 30, 2004                                       249,010
                                                                      =========

6        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.

                                       11

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


6        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

<TABLE>
<CAPTION>
<S>                                                                         <C>
                           Balance due by the Company December 31, 2003     $ 916,634
                           Cash advances                                        4,992
                           Foreign exchange loss                               14,895

                           Balance due by the Company at June 30, 2004      $ 936,521
                                                                            =========
</TABLE>

                           Interest amounting to $9,115 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 quarterly instalments of
                           $25,000 January 31, 2005 to September 30, 2006 and
                           half yearly instalments March 31, 2007 and September
                           30, 2007 with any balance to be repaid in full,
                           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.


                                       12

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


6        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.

         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         6 months          6 months
                                                    ended June        ended June       ended June        ended June
                                                      30, 2003          30, 2004         30, 2003          30, 2004

<S>                                                    <C>                                <C>                  <C>
                           Consulting                  $20,000              $nil          $20,000              $nil
                                                       =======            ======          =======            ======
</TABLE>

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

                                       13


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


7        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 vest on July 24, 2004 are determined at
         the end of each reporting period. The company records 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, six months to
         June 30, 2004, expense $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 were initially recorded as a current
         asset and will be amortised to earnings ratably over the one year
         service period.

         On December 17, 2003 the exercise price of the warrants held by Mr.
         Kuessous 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
         will continue to amortize the original value of $263,983 over the one
         year service period.

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

                                       14

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


7        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,
         which is included in other current assets. 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.

                                       15

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


7        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.

         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.

8        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.

                                       16

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


8        Share transactions (continued)

         In 2003, the Company entered into an agreement with William Ivers in
         connection with business consulting services, relating to the
         preparation of a written business plan rendered by Mr Ivers. In
         exchange for these services, the Company agreed to pay $19,012 in cash
         and issue 16,667 shares of common stock at a future date. On February
         12, 2004 the Company issued 16,667 shares of common stock to Mr Ivers
         at a value of $8,333 at the date of grant. Accordingly, the Company
         expensed the value of the shares at December 31, 2003 and recorded a
         corresponding liability.

         In 2003, the Company entered into an agreement with Lou Schneider in
         connection with business consulting services, related to establishing
         potential apparel-related licensing relationships with third parties,
         rendered by Mr Schneider. In exchange for these services, the company
         agreed to issue 20,000 shares of common stock at a future date. On
         February 12, 2004 the company issued 20,000 shares of common stock to
         Mr Schneider at a value of $10,000 at the date of grant. Accordingly
         the Company expensed the value of the shares at December 31, 2003 and
         recorded a corresponding liability.

         In 2003, the Company entered into an agreement with Rolin Inc to
         provide financial advisory services in exchange for common stock of the
         Company. On February 12, 2004, the Company issued an aggregate of
         20,409 shares of common stock to Rolin Inc. These shares had a fair
         value of $10,204 at the date of grant. The Company has recorded the
         transaction as professional fees expensed in the quarter ended March
         31, 2004.

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

         Legend Merchant Group, Inc acted as the placement agent for the above
         transaction. All of the purchasers were pre-existing customers of
         Legend Merchant Group. The Company paid Legend a fee of $25,000, and
         100,000 common stock purchase warrants exercisable for three years at
         $0.50 per share and 60,000 common stock purchase warrants exercisable
         for three years at $0.75 per share, for its services. The warrants have
         been valued using the Black-Scholes Option Pricing Model and have a
         value of $92,794 at the date of grant. The total fee of $117,744 has
         been offset against the proceeds of the offering.

                                       17

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


9        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, $208,500, at the time of
         transaction is included in stockholders' equity. The other side of this
         transaction is to add $208,500 in liabilities related to convertible
         debentures to the historical financial statements of Peak Entertainment
         Holdings Inc. The historical financial statements of the "registrant"
         become those of Peak Entertainment Holdings, Inc. Subsequent to the
         transaction, Palladium changed its name to Peak Entertainment Holdings,
         Inc.

10       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 bear interest at 12%, mature one year from the date of
         issuance and are convertible at the option of the holder at the lower
         of $1.00 or 50% 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 are
         exercisable for five years at $0.31 per share.

         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.

                                       18

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS ENDED JUNE 30, 2003 AND JUNE 30, 2004, AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2004


10       Stockholders' Equity (continued)

         On February 28, 2002, Palladium, the predecessor to Peak Entertainment
         Holdings, Inc entered into an agreement pursuant to which Palladium
         issued $215,000 in convertible debentures and issued warrants to
         purchase 645,000 shares of the Company's common stock exercisable for
         five years at $0.31 per share. These warrants are still outstanding as
         of June 30, 2004, and can be exercised to purchase shares of Peak
         Entertainment Holdings, Inc.

         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.

11       Subsequent Events

         In July 2004, 8% debentures in principal amounts totaling $541,500 were
         converted into 1,805,500 shares of common stock.

         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.

                                       19

<PAGE>


ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
information set forth in the audited financial statements for the year ended
December 31, 2003.

Unless otherwise stated, the discussion and analysis refers to the business of
Peak Entertainment Ltd, which the Company acquired on April 22, 2003, and does
not refer to the operations for the Company's former business which was sold in
April 2003.

INTRODUCTORY STATEMENT

The Company's business operations are primarily in three areas of the children's
entertainment and leisure market: production of television shows; licensing of
entertainment concepts and characters; and sale of merchandise products.

The Company's current business plan is centered on the production of television
shows geared for the children's entertainment market. Once the Company's planned
television shows are produced, the Company believes that it can generate revenue
through the sale of broadcast rights of those shows. The Company also intends to
license intellectual property rights created from the television shows and offer
for sale merchandise related to the television shows. We have not generated
significant revenues in this period because we have not yet funded the
television shows upon which we plan our exploitation of the related intellectual
rights portfolio.

The quarter ended June 30, 2004 continued to be an extremely difficult time for
the Company. The Company 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. The Company
experienced difficulty in raising capital from potential capital sources in
2003. The Company believes that this difficulty was due to the terms of 12%
convertible debentures outstanding in 2003, which contained terms very favorable
to the debenture holders, and made potential financiers reluctant to provide
capital to the Company. Accordingly, the Company entered into discussions with
the debenture holders and repurchased those debentures in January 2004.

Though the Company successfully replaced the 12% convertible debenture and has
had limited success in raising short term working capital is continues to have
difficulty in raising the Company's requirements to fund production of a
television show, in turn, this has delayed and compromised the Company's ability
to license intellectual property rights and sell toys and merchandise based on
the television shows.

With the retirement of the 12% convertible debenture, the Company believes that
it will now be viewed more favorably by potential capital sources and that it
should have better success in raising much needed capital to fund production of
the planned television shows.

Until the Company raises sufficient capital to produce its planned television
shows, the Company does not expect to generate any significant revenues from any
of its lines of business. If the Company is unable to raise capital to produce
its television shows, the Company intends to alter its business plan to focus on
licensing its intellectual property to third parties, and on the sale of toys
and consumer goods.

                                       20


<PAGE>


RESULTS OF OPERATIONS

FOR THE QUARTER ENDED JUNE 30, 2004 COMPARED WITH JUNE 30, 2003

REVENUES
--------

Consolidated net revenues decreased to $36,363 or 70% for the three months ended
June 30, 2004 from $119,472 for the same period in 2003. Consolidated net
revenues decreased to $109,540 or 71% for the six months ended June 30, 2004
from $375,741 for the same period in 2003. A breakdown of revenues by our
business divisions is set forth in the tables below.

<TABLE>
<CAPTION>
----------------------------------- -------------------- -------------------- ---------------------
Division                            2003 2nd Qtr Revenue 2004 2nd Qtr Revenue % Increase/(Decrease)
                                             ($)                 ($)
----------------------------------- -------------------- -------------------- ---------------------
<S>                                        <C>                  <C>                   <C>
Entertainment/ Production                    Nil                 Nil                   n/a
Licensing Arrangements                     19,734               35,789                 81%
Character Related Consumer Products        99,738                574                  (99%)
----------------------------------- -------------------- -------------------- ---------------------
         Total Revenues                    119,472              36,363                (70%)
----------------------------------- -------------------- -------------------- ---------------------

<CAPTION>
----------------------------------- -------------------- -------------------- ---------------------
Division                             2003 Six Months to   2004 Six Months to  % Increase/(Decrease)
                                        June 30 2003        June 2004 ($)
                                             ($)
----------------------------------- -------------------- -------------------- ---------------------
<S>                                        <C>                  <C>                   <C>
Entertainment/ Production                    Nil                 Nil                   n/a
Licensing Arrangements                     47,627               73,333                 54%
Character Related Consumer Products        328,114              36,207                (89%)
----------------------------------- -------------------- -------------------- ---------------------
Total Revenues                             375,741             109,540                (71%)
----------------------------------- -------------------- -------------------- ---------------------
</TABLE>

The decrease in total revenue is primarily attributable to the inability of the
company to generate expected revenues from licensing the rights to its
television shows that have been delayed in production until sufficient funding
has been secured. The Company has been in negotiations to secure funding for
it's animation projects through various sources, none of which have yet been
finalized.

Revenues from licensing increased 81% to $35,789 in the three months ended June
30, 2004 from $19,734 in the three months ended June 30, 2003. Revenues from
licensing increased to $73,333 or 54% for the six months to June 30, 2004, from
$47,627 for the same period in 2003. Licensing revenues in 2004 related to the
recognized guaranteed royalties for Character Options Ltd, Radica UK Ltd and
Toontastic Ltd, along with royalties received over and above the guaranteed
royalty for the Toontastic contract that commenced in March 2004.

In 2004, the revenues for our consumer products division decreased 99% for the
three months ended June 30, 2004 and 89% for the six months ended June 30, 2004,
primarily due to the main focus for this period being on the raising of capital.
It is the Company's intention to begin a marketing campaign once adequate
financing has been obtained, to raise the profile of the division and to market
the products forward.

Sales in 2003 were generated from sales of toy related inventory acquired as
part of our acquisition of Jusco Toys Ltd along with its principal consumer
products activities, focused primarily on our collector `gift' concept, Countin'
Sheep. This product was sold primarily in the United Kingdom. We expect to build
on this initial base by appointing distributors domestically and internationally
again upon funding being in place.

In 2003, the Company was in the early production stages of three television
shows, and the Company expects to remain in the production stages of the shows
in 2004. Until the Company has completed production of the shows and is in
position to generate revenues from the sales of broadcast rights for the shows,
the Company does not have an adequate basis for projecting revenues, nor
identifying trends or demands. This applies for all main lines of the Company's
business, as the Company's business is expected to be centered around its
television shows.

                                       21

<PAGE>


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

For the three months ended June 30, 2004, cost of revenues was $20,214 as
compared to $97,656 for the same period in 2003, a decrease of 79%. For the six
months ended June 30, 2004, cost of revenues was $84,914 as compared to $247,229
for the same period in 2003, a decrease of 66%. The decrease in cost of revenues
is attributable to a decrease in costs associated with the production consumer
goods. Cost of revenues as a percentage of revenues decreased to 56% in the
three months ended June 30, 2004 as compared to 82% in the same period in 2003.
Cost of revenues as a percentage of revenues increased to 78% in the six months
ended June 30, 2004 as compared to 66% for the same period in 2003. This was
attributable to the decrease in revenues for the three and six months ended June
30, 2004, and therefore lower costs being attributable as a result. The
significant revenues and costs have been related to consumer products. We do not
envisage that this is a steady decline in the sale of consumer products, but the
lack of marketing and personnel to drive this division forward.

The Company anticipates that its cost of revenue with respect to its
entertainment division and its consumer product division will increase
significantly in 2004, as the Company enters 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 three months ended June 30, 2004 was $16,149, or 44% of
revenues, as compared to $21,816 or 18% of revenues, for the same period in
2003. Gross profit for the six months ended June 30, 2004 was $24,626, or 22% of
revenues, as compared to $128,512 or 34% of revenues, for the same six month
period in 2003.

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative costs were $820,997 for the quarter ended June 30, 2004 compared
to $730,964 for the same period in 2003. Selling, general and administrative
costs were $1,576,124 for the six months ended June 30, 2004 compared to
$1,122,848 for the same six month period in 2003. The following table summarizes
the costs incurred for the three and six months ended June 30, 2004.

<TABLE>
<CAPTION>
--------------------------  ------------  ---------------  -----------  ---------------
Operation                   Three Months   Three Months    Six Months      Six Months
                             Expense ($)  % of Total Cost  Expense ($)  % of Total Cost
--------------------------  ------------  ---------------  -----------  ---------------
<S>                            <C>              <C>          <C>               <C>
Traveling and Entertaining     33,161           4%           106,454           7%
Employee Compensation          118,924          14%          243,511          15%
Legal and Professional         457,126          56%          806,774          51%
General Cost                   211,786          26%          419,385          27%
--------------------------  ------------  ---------------  -----------  ---------------
TOTAL                          820,997         100%         1,576,124         100%
--------------------------  ------------  ---------------  -----------  ---------------
</TABLE>

                                       22

<PAGE>


Ordinary business expenses, such as traveling and entertaining expenses,
employee compensation, and other miscellaneous business expenses, with respect
to each category will level out in 2004. Legal costs and traveling costs
incurred with the work involved with raising finances and negotiating deals. We
believe that such increases were typical and to be expected as we conducted no
substantial operations through much of early 2004. If we are able to complete
the bulk of our entertainment production projects in 2004, rather than in 2005
as presently projected, we will be in position to actively promote the
television shows in 2004, and therefore, we expect our marketing expenses to
increase substantially in 2004. These costs are included within General costs.

DEPRECIATION AND AMORTIZATION. Depreciation for the quarter ended June 30, 2004
was $237,986 as compared to $41,951 for the same period in 2003. The increase is
in direct relationship with the treatment of the amortization on warrants that
have been issued and the same for the treatment of the amortization on the
intangible fixed assets. Depreciation for the six months ended June 30, 2004 was
$280,118 as compared to $80,180 for the same six period in 2003. Also included
within these costs for the six month period ending June 30,2004 were fees
relating to various warrants that are amortized using the Black Scholes Pricing
Model.

NET LOSS
--------

Net operating loss for the quarter ended June 30, 2004 was $1,042,834 as
compared to $751,099 for the same period in 2003. Net operating loss for the six
months ended June 30, 2004 was $1,831,616 as compared to $1,074,516 for the same
six month period in 2003.

Net loss increased from $897,704, or $0.043 loss per share, in the three months
ended June 30, 2003 to $1,233,079, or $0.050 loss per share, in the three months
ended June 30, 2004. The increase in net loss is significantly attributable to
the reduction in total revenue and the amortization of the various warrants
under the Black Scholes Pricing Model and along with the interest charges that
have been accrued for the convertible debentures issued in January 2004.

Net loss decreased slightly to $1,258,794, or $0.052 loss per share, in the six
months ended June 30, 2004 from $1,269,221 or $0.061 loss per share, for the
same six month period in 2003. The net loss is largely attributable to the
reduction in total revenue and the amortization of the various warrants under
the Black Scholes Pricing Model. Included in net loss for the six month period
ended June 30, 2004 is the a gain on the settlement of the convertible
debentures and the write off of the interest incurred being $883,033. The
Company benefited from foreign exchange gains by $35,812 as a result of the
strong pound ((pound)) against the US dollar ($),


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.

We believe that we will need operating capital of approximately $5,000,000 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.

                                       23

<PAGE>


As of June 30,2004 we had commitments for capital and other expenditures
aggregating $6,504,791 included in current and long term liabilities, payable
over a maximum 20 year period, that are summarized in the following table.

<TABLE>
<CAPTION>
------------------------- ------------------ ------------------- ------------------ ----------------------------------
      Contractual             Liability       Agreement Terms     Amount payable    Notes
      Obligations          As of June 30,                             in 2004
                                2004
------------------------- ------------------ ------------------- ------------------ ----------------------------------
<S>                       <C>                <C>                 <C>                <C>
Short term loan -         $377,094           20% interest per    $377.094 plus      Seeking to negotiate a plan for
CK Supermarkets                              annum, secured by   interest           repayment, funded in part by
                                             certain inventory                      selling inventory, and in part,
                                                                                    through the issuance of
                                                                                    securities.

Other Short Term          $2,482             N/A                 $2,482
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Accounts Payable -        $2,379,582         Various (composed   $2,379,582         All current liabilities are
Various                                      significantly of                       within the contract terms as
                                             various ordinary                       renegotiated or are under
                                             business                               renegotiation.  It is the
                                             expenses, as well                      intention that payment be made
                                             as legal,                              in accordance with amended
                                             accounting, and                        contract terms.
                                             other
                                             professional
                                             fees).
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Stock holders' advances   $936,521           Subject to          $0                 In 2004, we entered into a
account - Shorrocks                          promissory note.                       promissory note, payable in
                                                                                    installments. First payment due
                                                                                    March 2005 and to be repaid in
                                                                                    full not later than 2008.

------------------------- ------------------ ------------------- ------------------ ----------------------------------
Short Term Licenses       $439,783           Varying royalty     $439,783           Payment terms currently being
                                             terms                                  renegotiated.
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Debentures - various      $249,010           Discount and        $0                 Matures in 2007.  First interest
debenture holders                            interest on the                        payment due in March 2005.
                                             debenture
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Other - including Tax &   $1,110,685                             $1,101,570
Social security and
accruals
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Long Term Licenses
- Shorrocks               $982,093           10% royalty         $25,000            Pay using royalties from
                                             payable quarterly                      licenses to third parties over
                                             in perpetuity.                         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.

- Others (Various)        $27,541            Various Terms
------------------------- ------------------ ------------------- ------------------ ----------------------------------
TOTAL                     $6,504,791                             $4,350,511
------------------------- ------------------ ------------------- ------------------ ----------------------------------
</TABLE>

                                       24

<PAGE>


You will note that $1,908,504 or 29% of the total commitments as of as of June
30, 2004, is committed to the principals of the Company in promissory notes or
long-term licenses and a further 4% 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 In My Pocket. Approximately $5 million in the next twelve
          months to produce 26 episodes of the program.
     o    The Wumblers. Approximately $2,500,000 in the next twelve months to
          produce 26 episodes of the program.

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 In My Pocket
and The Wumblers, which are scheduled for production in 2004. However, our gross
profit for the quarter ended June 30, 2004 represented only 0.003 % of our
commitments as of June 30, 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 six months ended June 30, 2004, the Company had a net operating loss of
$1,831,616 and an overall net loss of $1,258,794. At June 30, 2004, the Company
had $15,079 in cash and had a working capital deficit of $298,821.

In 2003, the Company did not use or depreciate the moulds and tooling acquired
from the acquisition of Jusco Toys Ltd, due to an enquiry from the Hong Kong
Inland Revenue Department. The enquiry concerned the non-submission of certain
tax computations to ascertain taxes payable by the prior owners of Jusco Toys.
This was unknown to 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 the Company of $9,235, and the Company 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 six months ended June 30, 2004, cash flows from operating activities
resulted in negative cash flows of $298,821. The foreign exchange gain of
$35,812 and gain on settlement of convertible debentures of $883,033 were offset
by non-cash charges of $1,020,879 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 $21,519 in accounts receivable being offset by an increase of
$904,277 in accounts payable and other accrued liabilities. Cash used in
operations included an increase of $67,400 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 In My Pocket. 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 $404,226
in the six months ended June 30, 2004, a significant increase from cash flows of
($74,798) in fiscal 2003. In the six months ending June 30, 2004, cash applied
to investing activities consisted of $4,456 toward plant and equipment, and
$615,318 toward purchase of intangibles in the form of license agreements for
intellectual property rights. The acquisitions in 2003 were for minor licenses
and intellectual property rights.

In 2004, our focus will be on production and investment in new product licenses
from third parties. We do not expect to expend significant resources in
investing activities in the remainder of 2004.

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 $313,671
in 2004, compared to fiscal in 2003 of positive $511,706. In 2004, the Company
intends to continue to rely upon capital raised from third party investors in
private placements to fund the Company's operations, as well as any
entertainment production financing partners it can obtain. Entertainment
production financing partners will share in the proceeds of the sale of the
produced product.

SHORT TERM BORROWINGS. 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 June 30, 2004, the balance was $377,094. The debt
was originally due on January 10, 2003. At June 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
the Company to fund day-to-day operations, as well as for the acquisition of
certain properties. Since inception through June 30, 2004 the Shorrocks loaned
to Peak Entertainment an aggregate of $916,634, plus a further $4,992 during
2004. The debt has incurred a foreign exchange loss of $14,895. As of June 30,
2004, the Shorrocks are owed $936,521. 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.
In the period from February 5, 2005 to March 5, 2005, the former debenture
holders have the right to make us buy from them all of the 1,000,000 shares of
common stock issued to them on January 5, 2004, at the price of $0.75 per share.
The put right only applies if the former debenture holders wish to make us buy
all 1,000,000 shares that they still own at that time, less any amounts they may
have previously sold or transferred. The put right is not transferable. 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.

CERTAIN 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. 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 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. If that registration
statement becomes effective, but does not include the investors' shares, the
investors can demand that we file a separate registration statement seeking
registration of the investors' securities. We will have ten days to file such a
registration statement, and we will need to pay a $2,500 per day penalty for
late filing of such registration statement.. In the event that the registration
statement is not declared effective within the later of 120 days from March 10,
2004 or thirty days after receipt of a last comment letter from the S.E.C., we
will be required to issue, as a penalty, approximately 100,000 shares of common
stock for each subsequent month period in which the registration statement has
not been declared effective. We used the proceeds from the sale of securities
for working capital purposes.

                                       28

<PAGE>

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.

CASH MANAGEMENT

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

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

PLAN OF OPERATIONS TO ADDRESS GOING CONCERN ISSUE

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 in the Company; o
     initiating negotiations to secure short term financing through
          promissory notes or other debt instruments on an as needed basis; o
     focusing on, and continue to expand revenues, through 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 issue
     securities of the Company in lieu of cash for certain services
          performed for the Company; and
     o    consider third-party licensing of the products in our entertainment
          division.

To address these issues, in 2004, the Company has sought the assistance of
investment banking companies and placement agents to assist the Company in
raising capital. Additionally, the Company has discussed with certain creditors
the renegotiation of payment terms of certain existing contractual obligations.

                                       29

<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.

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.

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

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

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

                                       30

<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In 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.

FORWARD LOOKING STATEMENTS

The foregoing management discussion and analysis contains forward-looking
statements and information that are based on our management's beliefs, as well
as assumptions made by, and information currently available to, our management.
These forward-looking statements are based on many assumptions and factors, and
are subject to many conditions, including our continuing ability to obtain
additional financing, dependence on contracts with suppliers, competitive
pricing for our products, demand for our products which depends upon the
condition of the computer industry, and the effects of increased indebtedness as
a result of our business acquisitions. Except for the historical information
contained in this new release, all forward-looking information are estimates by
our management and are subject to various risks, uncertainties and other factors
that may be beyond our control and may cause results to differ from management's
current expectations, which may cause our actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.

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<PAGE>


ITEM 3. CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief
Executive Officer and Principal Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March
31, 2004. Based on such evaluation, the Company's Chief Executive Officer and
Principal Financial Officer have concluded that, as of the end of such period,
the Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.

There have not been any changes in the Company's internal control over financial
reporting during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

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<PAGE>


                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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 June 30, 2004, the balance was $377,094 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 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.

In connection with our purchase of Jusco Toys Ltd. from the administrators of
Just Group Plc in 2002, the Hong Kong Inland Revenue Department instituted a
proceeding in January 2003 due to incomplete revenue filings by Jusco Toys
occurring before our acquisition of Jusco Toys. This enquiry has been determined
in March 2004 at a cost to the Company of $9,235. The amount was paid in July,
2004.

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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

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. 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. 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.
We agreed to file a registration statement for the shares of common stock
underlying the debentures and warrants. The registration statement was declared
effective on June 24, 2004. Because the registration statement was not effective
within a specified time frame, we issued 275,000 shares of common stock as
penalty payment on June 28, 2004. In July 2004, debentures in principal amounts
totalling $541,500 were converted into 1,805,500 shares of common stock.

On April 28, 2004, the Company entered into an agreement with Laura Wellington,
whereby the Company 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 the Company used for working capital
purposes. 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 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 29, 2004, which we used for working capital purposes. 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.

                                       33

<PAGE>


ITEM 5. OTHER INFORMATION.

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. 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. As of June 30, 2004, we owed $936,521 to the
Shorrocks.

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.

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.

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.

We entered into an agreement, dated April 29, 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 26 episodes beginning in the
fourth quarter 2004 or by the latest the first quarter 2005 and through second
quarter 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.

                                       34

<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

The following exhibits are filed with this report:

Exhibit Number      Description of Exhibit
--------------      ----------------------

10.1                Promissory Note to Shorrocks (Incorporated by reference to
                    Exhibit 10.6 of Form 10-KSB filed on April 27, 2004)
10.2                Amendment to Shorrocks License Agreement (Incorporated by
                    reference to Exhibit 10.7 of Form 10-KSB filed on April 27,
                    2004)
10.3                Cancellation of Debt in Exchange for Securities Agreement
                    with Laura Wellington (Incorporated by reference to Exhibit
                    10.33 of Form SB-2/A filed on May 3, 2004)
10.4                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)
10.5                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)
10.6*               International Representation Agreement with The Sharp
                    Company Inc., dated April 22, 2004
10.7*               Distribution Agreement with Cadaco, dated April 27, 2004
10.8*               Cancellation of Debt in Exchange for Securities Agreement
                    with Laura Wellington, dated July 23, 2004
Exhibit 11*         Statement re: computation of per share earnings is hereby
                    incorporated by reference to "Financial Statements" of Part
                    I - Financial Information, Item 1 - Financial Statements,
                    contained in this Form 10-QSB.
Exhibit 31.1*       Certification of Chief Executive Officer Pursuant to
                    Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 31.2*       Certification of Principal Financial Officer Pursuant to
                    Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 32.1*       Certification of Chief Executive Officer Pursuant to
                    Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
                    1350
Exhibit 32.2*       Certification of Principal Financial Officer Pursuant to
                    Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
                    1350
---
* Filed herewith.

(b) Reports on Form 8-K.

None.

                                       35

<PAGE>


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, 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:  August 26, 2004


                                            By:  /s/ NICOLA YEOMANS
                                               ---------------------------------
                                            Nicola Yeomans
                                            Principal Financial Officer

                                            Dated:  August 26, 2004



                                       36