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


                                   FORM 10-QSB/A


(Mark One)

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

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 of               (IRS Employer Identification No.)
 incorporation or organization)


                     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 April 28,  2004,  we had  24,431,288  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 MARCH 31, 2004



                                TABLE OF CONTENTS
                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements                                                  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                                            19

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                                                    35
Item 6.  Exhibits and Reports on Form 8-K                                     36

Signatures                                                                    37


                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


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

Current Assets
--------------
<S>                                                     <C>              <C>
Cash and cash equivalents                               $   152,339      $    34,795
Accounts receivable                                          34,620           20,810
Inventories                                                 236,007          243,020
Other current assets                                        588,439          957,571
                                                        -----------      -----------
Total current assets                                    $ 1,011,405      $ 1,256,196

Deferred professional fees                                  335,833          303,335
Plant and equipment, net                                    198,245          203,270
Intangible assets, net of amortization                    2,079,716        2,353,408
                                                        -----------      -----------
                                                        $ 3,625,199      $ 4,116,209
                                                        ===========      ===========
LIABILITIES AND  STOCKHOLDERS' EQUITY/(DEFICIT)

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

Short term borrowings                                   $   582,786      $   599,110
Advances from factor                                          1,437            1,476
Accounts payable                                          1,209,339        1,696,164
Stockholders' advances account                              916,634          924,857
License fees payable                                        457,715          445,505
Other accrued liabilities                                 1,325,524          909,176
                                                        -----------      -----------
Total current liabilities                               $ 4,493,435      $ 4,576,288

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

License fees payable                                      1,078,009        1,050,577
Convertible debenture                                       754,774          120,424
                                                        -----------      -----------
Total long term liabilities                             $ 1,832,783      $ 1,171,001

Stockholders' Equity (deficit)
------------------------------


Common stock, par value $0.001 - 900,000,000 shares
 authorized, 23,931,288 and 21,774,212 issued and
 outstanding                                            $    21,777      $    23,933
Additional paid in capital                                1,650,841        2,786,129
Retained earnings (deficit)                              (3,933,998)      (3,959,714)
Other comprehensive income                                 (439,639)        (481,428)
                                                        -----------      -----------
Total stockholders' equity (deficit)                     (2,701,019)      (1,631,080)
                                                        -----------      -----------
                                                        $ 3,625,199      $ 4,116,209
                                                        ===========      ===========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                        Quarter ended March 31,
                                                                    2003                      2004
                                                               ----------------     ----------------
                                                                  Unaudited            Unaudited
<S>                                                                 <C>                 <C>
Revenue
  Character related consumer products                                 229,255               35,633
   Licensing arrangements                                              28,067               37,544
                                                                   ----------           ----------
Net revenue                                                           257,322               73,177

Cost of Revenue
   Cost of goods sold                                                 150,434               64,700
                                                                   ----------           ----------
Total cost of revenue                                                 150,434               64,700

Gross profit                                                          106,888                8,477

Operating expenses
   Selling, general and administrative                                398,501              755,127
   Depreciation and amortisation                                       38,229               42,132
                                                                   ----------           ----------
Total operating expenses                                              436,730              797,259
                                                                   ----------           ----------

Loss from operations                                                 (329,842)            (788,782)

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

Foreign exchange gain (loss)                                          (33,207)              44,277

Interest expense                                                      (16,375)            (164,243)
                                                                   ----------           ----------
Net loss                                                           $ (379,424)          $  (25,715)
                                                                   ==========           ==========


Basic and diluted net loss per share                               $     0.02           $     0.01

Weighted average common shares
 outstanding                                                        19,071,684          23,033,988
                                                                   ===========          ==========
</Table>


See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                  (UNAUDITED)

                                                 Quarter ended March 31,
                                             2003                  2004
                                        ----------------      ----------------
                                           Unaudited             Unaudited

Net loss                                    $ (379,424)            $ (25,715)

Cumulative translation adjustment               29,434               (41,789)
                                            ----------             ---------
Comprehensive loss                          $ (349,990)            $ (67,504)
                                            ==========             =========


          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                  Quarter ended March 31,
                                                                                   2003             2004
                                                                                -----------      -----------
<S>                                                                             <C>              <C>
Cash flows from operating activities:

Net loss                                                                        $  (379,424)     $   (25,715)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation                                                                          2,400            4,748
Amortization of intangible assets                                                    35,829           37,384
Foreign exchange gain                                                                33,207          (44,277)
Amortization of discount on debentures                                                   --          120,424
Gain on settlement of debentures                                                         --         (883,033)
Non-cash professional and consulting fees                                                --          145,946
Loss on sale of intangibles                                                              --           65,222

Changes in working capital:
Accounts receivable                                                                (121,338)          14,739
Inventories                                                                         (54,414)          33,980
Other current assets                                                                (78,758)        (376,314)
Accounts payable and other accrued liabilities                                      497,574           63,893
                                                                                -----------      -----------
Net cash used in operating activities                                               (64,924)        (843,003)
                                                                                ===========      ===========
Cash flows from investing activities:
Purchase of plant and equipment                                                      (9,909)          (4,456)
Purchase of intangibles                                                             (32,443)        (320,520)
Issue of debentures                                                                      --        2,024,000
Settlement of debentures                                                                 --       (1,000,000)
                                                                                -----------      -----------
Net cash used in investing activities                                               (42,352)         699,024
                                                                                ===========      ===========
Cash flows from financing activities:
Short term borrowings, net                                                           21,721              694
Stockholders' advances account                                                      (11,665)         (16,361)
Advances from factor                                                                 93,227               --
                                                                                -----------      -----------
Net cash provided from financing activities                                         103,283          (15,667)
                                                                                ===========      ===========
Cumulative translation adjustment                                                     6,036           42,102
                                                                                ===========      ===========
(Decrease) in cash and cash equivalents                                               2,043         (117,544)
Cash and cash equivalents, beginning of period                                        9,870          152,339
                                                                                -----------      -----------
Cash and cash equivalents, end of period                                        $    11,913      $    34,795
                                                                                ===========      ===========
Supplemental disclosure of cash flow information

Interest paid                                                                   $        77      $       340
                                                                                ===========      ===========
Purchase of licenses through issuance of long
term liabilities                                                                $    15,749               --
                                                                                ===========      ===========

Issuance of share in settlement of liability                                    $        --      $    18,333
                                                                                ===========      ===========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 a 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  financial statements have been prepared assuming
              that the company will  continue as a going  concern.  As explained
              below the Company has sustained recurring operating losses and has
              a net capital deficiency as of March 31, 2004.

              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, Peak
                       Entertainment Holdings LLC, Jusco Toys Ltd, Jusco UK Ltd,
                       Wembley Sportsmaster Ltd and Cameo Collectables Ltd after
                       elimination of  inter-company  transactions and balances.
                       Peak Entertainment  Limited, Peak Entertainment  Holdings
                       LLC, 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   Collectable   Ltd   were   combined   with   Peak
                       Entertainments  Holdings, Inc as both entities were under
                       common control.

                                       7
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (B)      Interim Financial Information

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

                       The accompanying  consolidated  financial statements have
                       been  prepared  in  accordance  with  generally  accepted
                       accounting  principles for interim financial  information
                       and with the  instructions  to Form 10-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)      Cash Equivalents

                       For  purposes  of  the  statements  of  cash  flows,  all
                       temporary  investments purchased with a maturity of three
                       months or less are considered to be cash equivalents. The
                       company  maintains  bank accounts in the United States of
                       America,  United Kingdom and Hong Kong. The balances held
                       in these  accounts are  (pound)825,  $30,409 and HK$1,998
                       respectively.

              (D)      Advertising costs

                       Advertising  costs,  included  in  selling,  general  and
                       administrative  expenses,  are  expensed as incurred  and
                       were $313 and  $42,496 for the  quarters  ended March 31,
                       2003 and 2004, respectively.

              (E)      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.

                       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.

                       Basic and diluted  earnings per share are the same during
                       the quarters  ended March 31, 2003 and 2004 as the impact
                       of  dilutive   securities  is  antidilutive.   There  are
                       3,355,000  warrants to purchase  shares of the  Company's
                       common stock outstanding as of March 31, 2004.

                                       8
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (F)      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.

                       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.

              (G)      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.

              (H)      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.

                                       9
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              (H)      Recent Accounting Pronouncements (continued)

                       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.

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  $342,412 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 are no terms for repayment and no interest has been
              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 11.

                                       10
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4             CONVERTIBLE DEBENTURES


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

                                                                  $

              Balance at December 31, 2003                          754,774
              Settlement and release agreement                     (754,774)
              Amortized debt discount                               120,424
                                                                  ---------
              Balance at March 31, 2004                             120,424
                                                                  =========


5             COMMITMENTS

              The  Company  leases  buildings  under  non-cancellable  operating
              leases.  Future  minimum lease  payments under those leases are as
              follows at March 31, 2003.

              Year ending March 31, 2004                            $    --
                                                                    =======

              Rent expense for all operating  leases  charged  against  earnings
              amounted to $12,029 in the quarter to March 31, 2003 and $14,  681
              in the quarter to March 31, 2004.

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, Inc.

              Terence  Herzog  and  Michael  Schenkein  are deemed to be related
              parties as they are  principals of Agora  Capital  Partners Inc, a
              management   consulting  company.   They  are  directors  of  Peak
              Entertainment  Holdings Inc.  Terence  Herzog is a shareholder  of
              Peak Entertainment Holding Inc.

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

              a)       Wilfred and Paula Shorrocks

<TABLE>
<CAPTION>
<S>                                                                                                         <C>
                       i)       Movements on stockholders' advances account
                                Balance due by the Company December 31, 2003                                $916,634
                                Cash repayments                                                              (16,361)
                                Foreign exchange loss                                                         24,584

                                                                                                           ---------
                                Balance due by the Company at March 31, 2004                                $924,857
                                                                                                           =========
</TABLE>

                                       11
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6             TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

                       i)       Movements on  stockholders' advances  account
                                (continued)

                                No  interest  has been  charged  to the  Company
                                during the period.

                                On  March  24,   2004  the   company   signed  a
                                promissory  note which  established  a repayment
                                schedule   for  the  amounts   advanced  by  the
                                stockholders.  The  amount  advanced  is  to  be
                                repaid in  instalments  of $25,000 and  $100,000
                                until January 31, 2008 when any balance is to be
                                repaid in full.

                                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.

                                On February 25, 2002 the Company  entered into a
                                license  agreement  for  rights  to 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   32.5%   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  March  2004,   Agora
                                Capital Partners Inc, through Terence Herzog and
                                Michael  Schenkein,   has  provided   management
                                consulting services to the Company.  The Company
                                paid aggregate fees of $Nil for such  consulting
                                services in the quarter ended March 31, 2004.

                                       12
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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.

              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 March 31, 2004,  the Company has  recorded  income of $1,623
              related to these warrants.

              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 were 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.

                                       13
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 $208,500  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 $.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  which  is
              limited to their carrying value, which is $883,033.

              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.

                                       14
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 Limited  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.

                                       15
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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.

              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 $.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 off the offering.

                                       16
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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  warrants  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%  off  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.

              On  February  28,  2002,   Palladium,   the  predecessor  to  Peak
              Entertainment  Holdings, Inc entered into an agreement pursuant to
              which  Palladium  issued  $208,500 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 December 31, 2003, and can be
              exercised to purchase shares of Peak Entertainment Holdings, Inc.

                                       17
<PAGE>

               PEAK ENTERTAINMENT HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11            SUBSEQUENT EVENTS

              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.  Mrs
              Wellington  had loaned  $250,000 to the company in November  2003.
              The  total  value  of the  common  stock  at the  date of grant is
              $250,000 compared with the $250,000 carrying value of the advance,
              so there will be no additional expense.

              On April 29, 2004,  the company  entered  into an  agreement  with
              Video  Collection   International   Limited,   granting  exclusive
              videogram  rights  to the  Monsters  In My  Pocket TV Series to be
              broadcast by GMTV.  The territory  covered by the agreement is the
              United Kingdom and Eire. The agreement  covers a period of 7 years
              from first  release of a  videogram  with an  additional  sell-off
              period of 6 months to exploit videograms manufactured prior to the
              end of the term.  An  advance  royalty  of  (pound)100,000,  fully
              recoupable  from royalties due on receipts on the  exploitation of
              the rights,  is receivable in instalments  based on future events.
              The normal  royalty rate under the terms of the  agreement is 15%,
              subject to variations as prescribed in the agreement.

                                       18
<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 had not yet funded the television
shows upon which we plan our  exploitation  of the related  intellectual  rights
portfolio.

The quarter ended March 31, 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
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  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.

The Company  believes  that,  upon  effectiveness  of a  registration  statement
submitted  to the  Securities  and Exchange  Commission  in February  2004,  the
Company  will be viewed more  favorably by potential  capital  sources,  and the
Company  will have better  success in 2004 to raise 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.


                                       19
<PAGE>

RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2004 COMPARED WITH MARCH 31, 2003

REVENUES
--------


Consolidated  net revenues  decreased to $73,177 or 71% for the year ended March
31, 2004 from  $257,322  for the same period in 2003. A breakdown of revenues by
our business divisions is set forth in the table below.



<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Division                                         2003 Revenue         2004 1st Qtr Revenue    % Increase/(Decrease)
                                                      ($)                     ($)
----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                      <C>                       <C>
Entertainment/ Production                             Nil                     Nil                      n/a
------------------------------------------- ------------------------ ----------------------- -------------------------
Licensing Arrangements                              28,067                   37,544                    34%
------------------------------------------- ------------------------ ----------------------- -------------------------
Character Related Consumer Products                 229,255                  35,633                   (84%)
------------------------------------------- ------------------------ ----------------------- -------------------------
         Total Revenues                             257,322                  73,177                   (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.


Revenues from  licensing  increased 34% to $37,544 in 2004 from $28,067 in 2003.
Licensing  revenues in 2004 related to the recognized  guaranteed  royalties for
Character  Options Ltd,  Radica UK Ltd,  Toontastic  Ltd,  along with  royalties
received over and above the guaranteed royalty for the Toontastic  contract that
ended in February 2004. In 2004 the revenues for our consumer  products division
decreased  84%,  this was 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 raised.


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
in the second quarter of 2004.


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.


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


For the quarter ended March 31, 2004 cost of revenues was $64,700 as compared to
$150,434,  a decrease of 57% The decrease in cost of revenues is attributable to
an decrease in costs  associated  with the production  consumer  goods.  Cost of
revenues as a percentage of revenues increased to 88% in 2004 as compared to 58%
in 2003. This was attributable to the decrease in revenues for the quarter ended
March 31, 2004, and therefore lower costs being matched as a result.

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.


                                       20
<PAGE>

GROSS PROFIT
------------

Gross  profit for the three  months  ended March 31, 2004 was $8,477,  or 12% of
revenues,  as compared to $106,888,  or 41% of revenues,  for the same period in
2003.

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


SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative costs were $755,127 for the quarter ended March 31, 2004 compared
to $398,501 for the quarter ended March 31, 2003. The following table summarizes
the costs incurred in 2004



<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Operation                                                Expense ($)                        % of Total Cost
----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                                    <C>
Travelling and Entertaining                                 73,292                                10%
----------------------------------------------------------------------------------------------------------------------
Employee Compensation                                      124,587                                17%
----------------------------------------------------------------------------------------------------------------------
Occupancy Costs                                             15,140                                 2%
----------------------------------------------------------------------------------------------------------------------
Legal and Professional                                     349,648                                46%
----------------------------------------------------------------------------------------------------------------------
General Cost                                               192,460                                25%
----------------------------------------------------------------------------------------------------------------------

TOTAL                                                      755,127                                100%
----------------------------------------------------------------------------------------------------------------------
</TABLE>



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  travelling  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.


DEPRECIATION AND AMORTIZATION. Depreciation for the quarter ended March 31, 2004
was $42,132 as compared to $38,299 for the same period in 2003.  The increase is
in direct  relationship  with the expansion of the Company's capital spending on
equipment.

NET LOSS
--------


Net operating loss for the quarter ended March 31, 2004 was $788,782 as compared
to $329,842 for the same period in 2003.

Net loss decreased from $379,424,  or $0.02 loss per share,  in 2003 to $25,715,
or $0.01 loss per share,  in 2004.  The  decrease  in net loss is  significantly
attributable to a gain on the retirement of the  convertible  debentures and the
write-off of the interest  incurred.  Legal,  accounting and other  professional
costs of $157,656 in the quarter  ended March 31, 2004  accounted for 20% of the
operating  expenses.  Also included within operating expenses were fees relating
to various  warrants for the period in question of $191,992 or 25%. We benefited
from foreign interest gains by $44,277 as a result of the strong pound ((pound))
against the US dollar ($), along with a gain on the settlement of the debentures
of $883,033.


                                       21
<PAGE>

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  $3,000,000 in
the next twelve months to maintain our current operations, and operating capital
of approximately $7,500,000 in the next twelve to twenty four months to complete
our planned entertainment  projects already in the pre-production and production
stages.

As of March 31, 2004, we had commitments for capital and other expenditures
aggregating $5,474,289 included in current and long term liabilities, payable
over a maximum 20 year period, that are summarized in the following table.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
<S>                       <C>                <C>                 <C>                <C>
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Contractual               Liability          Agreement Terms     Amount payable     Notes
Obligations               As of 03/04                            in 2004
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Short term loan -         $273,930 plus      20% interest per    $273,930 plus      Seeking to negotiate a plan for
CK Supermarkets           interest           annum, secured by   interest           repayment, funded in part by
                                             certain inventory                      selling inventory, and in part,
                                                                                    through the issuance of
                                                                                    securities.
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Accounts Payable -        $1,696,164         Various (composed   $1,696,164         All current liabilities are
Various                                      significantly of                       within the contract terms and
                                             various ordinary                       will be paid in accordance with
                                             business                               the contract terms.
                                             expenses, as well
                                             as legal,
                                             accounting, and
                                             other
                                             professional
                                             fees).
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Stock holders' advances   $924,857           No pre-set          $0                 In 2004, we entered into a
account - Shorrocks                          payment terms.                         promissory note, payable in
                                                                                    installments. First payment due
on
                                                                                    1/2005 and to be repaid in full
                                                                                    not later than 2008.
------------------------- ------------------ ------------------- ------------------ ----------------------------------
Short Term License -      $380,000           Varying royalty     $380,000           Payment terms currently being
Morrison Entertainment                       terms - 30-60%.                        renegotiated.
                                             Guarantee of
                                             500,000.
------------------------- ------------------ ------------------- ------------------ ----------------------------------
</TABLE>


                                       22
<PAGE>


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>                 <C>                 <C>                <C>
------------------------ ------------------- ------------------- ------------------ ----------------------------------
Short Term License -     $78,422             10% royalty         $78,422            Pay royalties from sales
Jesco Imports                                payable  -                             achieved.
                                             guarantee
                                             $100,000 over
                                             five years.
------------------------ ------------------- ------------------- ------------------ ----------------------------------
Debentures -             $120,424            Discount and        $0                 Matures in 2007.  First interest
various debenture                            interest on the                        payment due in 1/2005.
holders                                      debenture
------------------------ ------------------- ------------------- ------------------ ----------------------------------
Other - including Tax    $1,041,399                              $1,041,399
& Social security and
accruals
------------------------ ------------------- ------------------- ------------------ ----------------------------------
Long Term License -      $982,093            10% royalty         $25,000            Pay from royalties from licenses
Shorrocks                                    payable quarterly                      to third parties over the term
                                             in perpetuity.                         of the contract.
                                             Guarantee of
                                             $1,000,000, with                       In 2004, the Company amended the
                                             no established                         license agreement to establish a
                                             payment term.                          minimum quarterly royalty
                                                                                    payment of $12,500 due beginning
                                                                                    September 30, 2004.
------------------------ ------------------- ------------------- ------------------ ----------------------------------
Laura Wellington         $250,000            No pre-set          $0                 In 2004, negotiated terms of
Short Term Borrowings                        payment terms.                         exchange of debt for 500,000
                                                                                    shares of common stock.
------------------------ ------------------- ------------------- ------------------ ----------------------------------
TOTAL                    $5,747,289                              $3,494,915
------------------------ ------------------- ------------------- ------------------ ----------------------------------
</TABLE>



You will note that $1,906,950 or 32% of the total, is committed to the
principals of the company in promissory notes or long-term licenses and a
further 3% is committed to the debenture agreements.


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 develop this project.


                                       23


<PAGE>


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 of 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 March 31, 2004 represented only 0.2% of our
commitments as of March 31, 2004. Because our current operations did not
generate any significant revenues and our principal planned products are still
in production stages, we are in constant need of cash to pay for our ordinary
operating expenses, and more significantly, to pay for the production costs of
three projects currently in various stages of production. Accordingly, until our
entertainment projects can be funded and full television production activities
commenced, we will continue to rely on short-term outside funding. If we are
unable to obtain funding for the projects, we may be forced to curtail or
terminate operations.


SOURCES AND USES OF CASH
------------------------

For the three months ended March 31, 2004,  the Company had a net operating loss
of $788,782,  and an overall net loss of $25,715.  We experienced  positive cash
flow for the quarter  ended March 31, 2004,  primarily due to cash received from
financing activities. At March 31, 2004, the Company had $34,795 in cash and had
a working capital deficit of $843,003.

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 March 2004
at a cost to the  Company of $9,235,  and the Company now can utilize the moulds
and tooling and depreciate the equipment.

         SOURCES AND USES OF CASH FROM OPERATING ACTIVITIES
         --------------------------------------------------


For the three months ended March 31, 2004, cash flows from operating activities
resulted in negative cash flows of $843,003. The foreign exchange gain of
$44,277 and gain on settlement of convertible debentures of $885,033 were offset
by non-cash charges of $375,724 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 increased due to a
decrease of $14,739 in accounts receivable, a decrease in inventories of $33,980
and an increase of $63,893 in accounts payable and other accrued liabilities.
Cash used in operations included an increase of $376,314 in other current
assets. The increase in other current assets is due in large part due to
promissory notes of $750,000 due from the sale of 8% convertible debentures.


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.

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.


                                       24


<PAGE>

         SOURCES AND USES OF CASH FROM INVESTING ACTIVITIES
         --------------------------------------------------


Cash flows from investing activities resulted in positive cash flows of $699,024
in the quarter ended March 31, 2004, a  significant  increase from cash flows of
$42,352 in fiscal 2003. In the three months ending March 31, 2004,  cash applied
to investing  activities  consisted of $4,456  toward plant and  equipment,  and
$320,520  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 $15,667
in 2004, compared to fiscal in 2003 of positive $103,283. This was a result of a
deal we had in 2003 with a factoring  company which resulted in advances of cash
of $93,227. 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 March 31, 2004, the balance was $273,930 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 planned
that the assets of Jusco UK Ltd., including its cash and the proceeds of the
sale of its inventory, would be used to contribute towards repaying the lender,
we do not believe that a proceeding against our subsidiary, Jusco UK Ltd., would
materially alter our planned 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 March 31, 2004 the Shorrocks loaned
to Peak  Entertainment  an aggregate of $916,634,  and we repaid  $16,361 to the
Shorrocks  in 2004 and it incurred a foreign  exchange  gain of  $24,584.  As of
March 31,  2004,  the  Shorrocks  are owed  $924,857.  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.

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 $208,500  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.


                                       25


<PAGE>

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 $123,402.


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 $.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  for  $10,000  of the  former  debenture  holders'  fees  and  expenses  in
connection with the transaction.

Although we  repurchased  the 12%  debentures  in January  2004, we have current
liabilities  related to the repurchased  debentures reported on our December 31,
2003 balance  sheet of $838,279.  Because we financed the  repurchase  primarily
through the sale of new 8% convertible  debentures due January 2007, we may need
approximately  $1,860,000  to pay off the  debentures  and  accrued  interest in
January 2007 if none of the debentures  are converted into the Company's  common
stock,  however,  we believe  that the holders of the  debentures  are likely to
convert the debentures,  including accrued interest, into shares of common stock
prior to maturity of the 8% debentures in 2007.  The first  interest  payment on
the 8% convertible debentures is not due until January 2005, and if the interest
amount is not converted  into cash,  we believe that we may, at that time,  have
the cash from our operating revenues to make payment.


The  debentures  issued in January  2004 are  substantially  different  from the
repurchased  debentures.  The most material difference in the debentures is 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.  Other  differences  are 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.

                                       26


<PAGE>


We may need  approximately  $1,860,000  to pay off the  debentures  and  accrued
interest in January  2007 if none of the  debentures  and accrued  interest  are
converted into our common stock.  That amount payable in January 2007 represents
641% of our gross profit as of December 31, 2003. 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.


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. The promissory notes are due within three business days of the
effectiveness of a registration  statement  registering the resale of the shares
underlying the debentures and 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  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.  The $1,500,000
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.


                                       27


<PAGE>

On March 10, 2004, the Company entered into Securities  Purchase Agreements with
eleven  accredited  investors.  Pursuant to the agreements,  the Company sold an
aggregate of 1,000,000  shares of common stock and 600,000 common stock purchase
warrants, exercisable for three years at $0.75 per share, for the total purchase
price of $500,000.  Legend Merchant Group, Inc. acted as the placement agent for
these transactions.  All of the purchasers were preexisting  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 $.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.

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.

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

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.


                                       28


<PAGE>

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

Additionally,  the  Company has  discussed  renegotiation  of payments  terms of
certain existing contractual obligations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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


                                       29


<PAGE>

(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).

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.


                                       30


<PAGE>

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.


                                       31


<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.


                                       32


<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are not a party to any material pending legal proceeding, other than ordinary
routine  litigation  incidental to our business,  except that 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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

On January 5, 2004,  the Company  completed a Settlement  Agreement  and Release
dated as of December 22, 2003 with The N.I.R. Group, LLC, AJW Partners, LLC, New
Millennium  Capital  Partners II, LLC, AJW  Offshore,  Ltd.  (formerly  known as
AJW/New Millennium  Offshore,  Ltd.), and AJW Qualified Partners,  LLC (formerly
known as Pegasus Capital  Partners,  LLC).  Under the agreement,  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
represents  all of the  securities  that  were  issued  pursuant  to  Securities
Purchase  Agreements with the former debenture  holders dated as of February 28,
2002 and  dated as of 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  consisted of $500,000 in
cash and $500,000 by promissory notes due no later than March 22, 2004. On March
22, 2004,  the promissory  notes were paid.  The agreement  provides that in the
period from February 5, 2005 to March 5, 2005, the former debenture holders have
the right to make us buy all of the  1,000,000  shares of common stock issued to
them  that  they  still  own at that  time at a price of $.75 per  share,  on an
all-or-none  basis. The put right is not transferable.  We also paid for $10,000
of the former  debenture  holders'  fees and  expenses  in  connection  with the
transaction.  We  relied  on  an  exemption  from  registration  for  a  private
transaction not involving a public  distribution  provided by Section 4(2) under
the Securities Act.

On January 5, 2004, the Company entered into Securities Purchase Agreements with
four accredited investors: Platinum Partners Global Macro Fund LP, Gary Barnett,
Millstones Brands Inc. and Dan Brecher. Pursuant to the agreements,  the Company
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,  of which
$750,000  was paid in cash,  and $750,000 by  promissory  notes.  The  principal
amount  of  the  debentures,  plus  any  accrued  and  unpaid  interest  on  the
debentures, may be converted into shares of common stock at the conversion price
of $0.30 per share. The conversion price may be adjusted  downward for issuances
of securities by the Company at prices below the lower of $.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 our common  stock trades at
$3.00 or greater,  the warrants  becomes  redeemable  at $0.10 per  warrant.  We
relied on an exemption from registration for a private transaction not involving
a public distribution provided by Section 4(2) under the Securities Act.

On January 23, 2004,  the Company  entered into an agreement  for services  with
Vintage  Filings,  LLC.  We  issued  300,000  common  stock  purchase  warrants,
exercisable  for three years at $0.50 per share  pursuant to the  agreement.  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>

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 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.  The warrants are  exercisable at a price
of $0.50 per share. After the tenth consecutive business day in which our common
stock trades at $3.00 or greater,  the warrants  become  redeemable at $0.10 per
warrant.  We 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 February 11, 2004,  the Company  entered into a financial  advisor  agreement
with Ameristar  International  Capital,  Inc. We issued 100,000 shares of common
stock as an  initial  equity  fee  pursuant  to the  agreement.  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 February 12,  2004,  the Company  issued  16,667  shares to William  Ivers in
connection  with  business  consulting  services,  related to  preparation  of a
written  business  plan,  rendered by Mr. Ivers.  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 February 12,  2004,  the Company  issued  20,000  shares to Lou  Schneider in
connection with business consulting services,  related to establishing potential
apparel-related  licensing  relationships  with third  parties,  rendered by Mr.
Schneider. 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 February  12,  2004,  the Company  issued an  aggregate  of 20,409  shares in
connection with financial  consulting  services rendered by Rolin Inc. We relied
on an exemption  from  registration  for a private  transaction  not involving a
public distribution provided by Section 4(2) under the Securities Act.

On March 10, 2004, the Company entered into Securities  Purchase Agreements with
eleven  accredited  investors:  Kenneth Grief,  Wayne Saker,  Gilad  Ottensoser,
Samuel F.  Ottensoser,  Boro Durakovic,  JG Products,  INC,  Gerald Griffin,  Al
Lehmkuhl, Kevin Bostenero,  Eisenberger Investments,  and David Herzog. Pursuant
to the agreements,  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 preexisting 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 $.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 will
file a separate  registration  statement seeking  registration of the investors'
securities,  and 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 relied on an exemption from  registration for a private
transaction not involving a public  distribution  provided by Section 4(2) under
the Securities Act.

On April 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.


                                       34


<PAGE>

ITEM 5. OTHER INFORMATION.

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  dated as of 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 in promissory  notes which
were 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 $.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 for $10,000 of the former debenture holders' fees and
expenses in connection with the transaction.

Although we  repurchased  the 12%  debentures  in January  2004, we have current
liabilities  related to the repurchased  debentures reported on our December 31,
2003 balance sheet of $838,279. We financed the repurchase primarily through the
sale of new 8% convertible debentures due January 2007, accordingly, we may need
approximately  $1,860,000  to pay off the  debentures  and  accrued  interest in
January 2007 if none of the debentures  and accrued  interest are converted into
our common stock.

From time to time, Mr. and Mrs.  Shorrocks loaned money to us to fund day-to-day
operations,  as  well  as for  the  acquisition  of  certain  properties.  Since
inception through December 31, 2002, the Shorrocks loaned to us $972,386, and we
repaid  $78,193 to the Shorrocks in 2002 and $71,206 in 2003. As of December 31,
2003, we owe the Shorrocks  $916,634.  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  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 in full upon various  conditions  of our future
financial results,  such as, at a time when we achieve  shareholders'  equity in
excess of 150% of the  amount  due,  or we  achieve  positive  net  income  from
operations in excess of 150% of the amount due.

On April 30, 2002,  we entered into a license  agreement  with Wilfred and Paula
Shorrocks  whereby we acquired from the Shorrocks the exclusive  rights to apply
various  intellectual  properties to the  manufacture,  distribution and sale of
products on a worldwide basis. Under the terms of the agreement, we undertook to
pay to Wilfred and Paula  Shorrocks  10% of the royalties  payable  quarterly in
perpetuity, with a guaranteed minimum royalties amount of $1,000,000. There were
no set  payment  terms in the  original  license  agreement  for  payment of the
minimum  royalties.  In April 2004, the Company amended the license agreement to
establish a minimum quarterly royalty payment of $12,500, to be credited against
the guaranteed minimum, due beginning September 30, 2004.


                                       35


<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
--------------    ----------------------

4.1               January 2004 Securities Purchase Agreement for $1,000,000
                  (Incorporated by referenced to exhibit 4.5 of Form SB-2
                  filed on February 2, 2004)
4.2               January 2004 Securities Purchase Agreement for $500,000
                  (Incorporated by referenced to exhibit 4.6 of Form SB-2
                  filed on February 2, 2004)
4.3               January 2004 Securities Purchase Agreement for $50,000
                  (Incorporated by referenced to exhibit 4.7 of Form SB-2 filed
                  on February 2, 2004)
10.1              Settlement of Debt Agreement (Incorporated by referenced to
                  exhibit 10.6 of Form SB-2 filed on February 2, 2004)
10.2              Agreement for the Provision of Co Production Services with
                  Cosgrove Hall Films Ltd., dated January 9, 2004
                  (Incorporated by referenced to exhibit 10.21 of Form SB-2
                  filed on February 2, 2004)
10.3              Agreement with POW! Entertainment, dated January 23, 2004
                  (Incorporated by referenced to exhibit 10.23 of Form SB-2
                  filed on February 2, 2004)
10.4              Agreement for Services with Vintage Filings, LLC, dated
                  January 23, 2004  (Incorporated by referenced to exhibit
                  10.25 of Form SB-2 filed on February 2, 2004)
10.5              Financial Advisor Agreement with Ameristar International
                  Capital, Inc. (Incorporated by reference to Exhibit 10.1 of
                  Form 10-KSB filed on April 27, 2004)
10.6              Form of Securities Purchase Agreement, dated as of March 3,
                  2004 (Incorporated by reference to Exhibit 10.2 of Form
                  10-KSB filed on April 27, 2004)
10.7              Stock Purchase  Warrant  Agreement  issued to Legend  Merchant
                  Group in connection with Securities Purchase Agreement,  dated
                  as of March 3, 2004 (Incorporated by reference to Exhibit 10.3
                  of Form 10-KSB filed on April 27, 2004)
10.8              Financial Advisor Agreement with Source Capital Group, Inc.
                  (Incorporated by reference to Exhibit 10.4 of Form
                  10-KSB filed on April 27, 2004)
10.9              License Agreement with Toontastic Publishing Ltd., Renewal
                  (Incorporated by reference to Exhibit 10.5 of Form 10-KSB
                  filed on April 27, 2004)
10.10             Promissory Note to Shorrocks (Incorporated by reference to
                  Exhibit 10.6 of Form  10-KSB  filed on April 27,  2004)
10.11             Amendment  to  Shorrocks  License Agreement  (Incorporated
                  by  reference  to Exhibit 10.7 of Form 10-KSB filed on
                  April 27, 2004)
10.12             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)
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.


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<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: June 7, 2004


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

                                            Dated: June 7, 2004



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