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

                                   FORM 10-QSB

(Mark One)

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

                  For the quarterly period ended March 31, 2005

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

             For the transition period from ________ to ___________.

                        Commission file number: 33-18143

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

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

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

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

                                 44 1629 814555
                           (Issuer's telephone number)

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

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|

As of December 13, 2004, we had 29,040,955 shares of common stock issued and
outstanding.

    Transitional Small Business Disclosure Format (check one): Yes |_| No |X|

<PAGE>

                        PEAK ENTERTAINMENT HOLDINGS, INC.

                                TABLE OF CONTENTS

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements for the Quarter Ended March 31, 2005          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                         8

Item 2.  Management's Discussion and Analysis                               25

Item 3.  Controls and Procedures                                            37

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                  38
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds        39
Item 5.  Other Information                                                  39
Item 6.  Exhibits                                                           40

Signatures                                                                  41


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
                                                       December 31, 2004      March 31, 2005
                                                       -----------------      --------------
<S>                                                        <C>                       <C>
ASSETS

CURRENT ASSETS

Cash and cash equivalents                                  $      10,235             500,499
Accounts receivable                                              498,187              43,703
Inventory                                                         91,743
Other current assets                                             861,728           1,193,579
                                                           -------------       -------------
Total current assets                                       $   1,461,893           1,737,781

Deferred professional fees                                       205,834             433,440
Plant and equipment, net                                         259,649             233,009
Intangible assets, net of amortization                         1,972,683           1,905,169
                                                           -------------       -------------

                                                           $   3,900,059       $   4,309,399
                                                           =============       =============

LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)

CURRENT LIABILITIES

Short term borrowing                                       $          --             500,000
Advances from factor                                                  --                  --
Account payable                                                1,301,439           1,438,197
Stockholders' advance account                                    752,522             721,357
Licenses fees payable                                             67,831              66,155
Other accrued liabilities                                      2,290,629           2,213,850

Total current liabilities                                  $   4,412,421       $   4,939,559

LONG TERM LIABILITIES

License fees payable                                           1,234,119           1,222,258
Convertible debentures                                           330,652             392,116
                                                           -------------       -------------
Total long term liabilities                                $   1,564,771       $   1,614,374

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, par value $0.001 - 900,000,000
Shares authorized, 21,774,212 and 29,420,955 issued
and outstanding                                            $      29,050              29,429
Additional paid in capital                                     4,576,739           5,291,714
Retained earnings (deficit)                                   (5,960,203)         (6,502,612)
Other comprehensive income                                      (722,819)         (1,063,065)

Total stockholders' equity (deficit)                          (2,077,133)         (2,244,534)

                                                           $   3,900,059       $   4,309,399
                                                           =============       =============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

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

                                                Quarter ended     Quarter ended
                                               March 31, 2004    March 31, 2005
                                               --------------------------------

Revenue                                                73,177           303,408

Cost of revenue
Cost of Goods Sold                                     64,700            92,471

Total cost of revenue                                  64,700            92,471

Gross profit                                            8,477           210,937

Operating expenses
Selling, general and administrative                   755,127           429,971
Depreciation and amortization                          42,132            39,139

Non cash charges                                                        433,752
Total operating expenses                              797,259           902,862

Loss from operations                                 (788,782)         (691,925)

Gain/ (loss) on settlement of convertible
debentures and accrued interest                       883,033            37,559

Foreign exchange gain                                  44,277           238,430

Interest expense                                     (164,243)          102,485

Net loss                                         $    (25,715)       (1,070,399)

Basic and diluted net loss per share             $       0.01             0.037

Weighted average common shares
outstanding                                        23,033,988        29,173,177
                                                 ==============================

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

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

                                                Quarter ended      Quarter ended
                                               March 31, 2004     March 31, 2005
                                               ---------------------------------

Net loss                                          $   (25,715)       (1,070,399)

Cumulative translation adjustment                     (41,789)       (1,063,065)

Comprehensive loss                                $   (67,504)      $(2,133,464)
                                                  ===========       ===========

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       Quarter ended
                                                   March 31, 2004      March 31, 2005
                                                   ----------------------------------
<S>                                                   <C>                  <C>
Cash flows from operating activities

Net loss                                              $   (25,715)         (1,070,398)

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

Depreciation                                                4,748              39,139
Amortization of intangible assets                          37,384                  --
Foreign exchange gain/(loss)                              (44,277)           (238,430)
Amortization of discount on debentures                    120,424              77,906
Gain on settlement of debentures                         (883,033)             37,558
Non-cash common stock expenses                                                287,816
Non-cash professional and consulting fees                 145,946             178,816
Loss on sale of intangibles                                65,222                  --

Changes in working capital:

Accounts receivable                                        14,739             442,173
Inventories                                                33,980              89,476
Other current assets                                     (376,314)           (353,143)
Accounts payable and other accrued liabilities             63,893             310,758
                                                      -----------         -----------
Net cash used in operating activities                    (843,003)           (198,329)
                                                      ===========         ===========

      Cash flows from investing activities:

Purchase of plant and equipment                            (4,456)                 --
Purchase of intangibles                                  (320,520)                 --
Proceeds from sale of plant and equipment               2,024,000                 128
Disposal of intangibles                                                            --
Issue of debentures                                    (1,000,000)                 --
Settlement of debentures                                                       53,820
                                                      -----------         -----------
Net cash (used in)/ provided by investing
activities                                                699,024              53,948
                                                      ===========         ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                    Quarter ended    Quarter ended
                                                   March 31, 2004    March 31,2005
                                                   -------------------------------
<S>                                                      <C>             <C>
Cash flows from financing activities:                    $               $

Short term borrowing, net                                     694          500,000
Stockholders' advances account                            (16,361)         (12,572)
Advances from factor, net                                                       --
Convertible debentures                                                          --
Issue of common stock shares                                                    --
Issue of common stock purchase warrants                                         --

                                                         --------        ---------
Net cash provided by/(used in) financing
activities                                                (15,667)         487,428
                                                         ========        =========
Cumulative translation adjustment                        $ 42,102          147,217
                                                         ========        =========

(Decrease) in cash and cash equivalents                  (117,544)         490,264
Cash and cash equivalents, beginning of period            152,339           10,235
                                                         --------        ---------
Cash and cash equivalents, end of period                 $ 34,795          500,499
                                                         ========        =========

Supplemental disclosures of cash flow information

Interest Paid                                            $    340                8
                                                         ========        =========
Purchases of licenses through issuance of long
term liabilities                                                                --
                                                         ========        =========
Accounting for reserve acquisition                                              --
                                                         ========        =========

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

See accompanying notes to consolidated financial statements.


                                       7
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2005

1     Description of Business and Future Prospects

      Peak Entertainment Holdings, Inc, formerly Peak Entertainment Ltd, was
      formed on November 20, 2001 as an integrated media group focused on
      children. Its activities include the production of television
      entertainment, character licensing and consumer products development,
      including toy and gift manufacturing and distribution. Integration enables
      Peak Entertainment Holdings, Inc to take property from concept to consumer
      in-house, controlling and co-ordinating broadcast, promotions and product
      launches (toys, apparel, video games, etc.) to build market momentum and
      worldwide brand quality. The accompanying consolidated financial
      statements have been prepared in conformity with accounting principles
      generally accepted in the United States of America, which contemplate
      continuation of the Company as a going concern. As shown in the financial
      statements, at March 31, 2005 and for the three months then ended, the
      Company has suffered recurring losses, negative cash flows from
      operations, negative working capital, an accumulated deficit of $6,502,612
      and a stockholders' deficiency of $2,244,534.

      As shown in the accompanying financial statements, the Company incurred a
      net loss of $1,070,399 during the current period. Current economic
      conditions have limited the ability of the Company in acquiring additional
      equity capital.

      In response to economic conditions, management has implemented expense
      reduction and revenue enhancements as well as initiated additional
      investor financing. Specifically, management has implemented reductions on
      the salaries of senior management. Also, nonessential capital
      expenditures, travel and other expenses have either been eliminated or
      postponed. Management has shifted its corporate and business development
      activities to focus strategic resources. To that end, the Company
      continues to pursue a three million dollar bridge financing round directed
      toward existing and strategic investors. Management believes the
      combination of these actions maximizes the probability of the Company's
      ability to remain in business.

      A portion of that capital has been secured recently but it is still
      uncertain at this stage whether the Company will be totally successful in
      accomplishing these objectives. Without this capital there is some
      uncertainty about the Company's ability to continue as a going concern
      though management are close to completing this transaction following the
      appointment of credible merchant bankers and management consultants. The
      financial statements do not include any adjustments that might be
      necessary should the Company be unable to continue as a going concern.

      The Company has developed a business plan to increase revenue by
      capitalizing on its integrated media products. The Company is in constant
      discussions with outside sources to provide the required funds to cover
      operational costs. This continuous need raises substantial doubt about the
      Company's ability to continue in existence. The financial statements do
      not contain any adjustments that might result from the outcome of this
      uncertainty. While the Company is optimistic that it can execute its
      business plan, there can be no assurance that;

      a)    increased sales necessary to obtain profitability will materialize,
            and

      b)    the Company will be able to raise sufficient cash to fund the
            additional working capital requirements.

2     Summary of Significant Accounting Policies

      (A)   Principals of Consolidation and Combination

            The accompanying consolidated financial statements include the
            accounts of Peak Entertainment Limited, Jusco Toys Ltd, Jusco UK
            Ltd, Wembley Sportsmaster Ltd and Cameo Collectables Ltd after
            elimination of inter-company transactions and balances. Peak
            Entertainment Limited, Jusco Toys Ltd, Jusco UK Ltd,


                                       8
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2005

2     Summary of Significant Accounting Policies

      (A)   Principals of Consolidation and Combination (continued)

            Cameo Collectables Ltd and Wembley Sportsmaster Ltd are wholly-owned
            subsidiaries of Peak Entertainment Holdings, Inc.

            Cameo Collectables Ltd was formed on August 20, 2002 and was owned
            by Wilfred and Paula Shorrocks until February 7, 2003 when Peak
            Entertainment Holdings, Inc acquired the whole of the share capital
            of Cameo Collectables Ltd. Prior to February 7, 2003 the financial
            statements of Cameo Collectables Ltd were combined with Peak
            Entertainment Holdings, Inc as both entities were under common
            control.

      (B)   Basis of Preparation

            The financial statements have been prepared on a going concern
            basis, the validity of which depends upon future funding being
            available. The validity of the going concern concept is also
            dependent upon the continued support of the directors.

            Should such support be withdrawn and funding not made available, the
            company may be unable to continue as a going concern. Adjustments
            would have to be made to reduce the value of assets to their
            recoverable amount to provide for any further liabilities which
            might arise and to reclassify fixed assets as current assets.

      (C)   Interim Financial Information

            In the opinion of management, the interim financial information as
            of March 31, 2005 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, 2004.

      (D)   Risks and Uncertainties

            The entertainment/media industry is highly competitive. The Company
            competes with many companies, including larger, well capitalized
            companies that have significantly greater financial and other
            resources. The Company's success is dependent upon the appeal of its
            entertainment products. Consumer preferences with respect to
            entertainment products are continuously changing and are difficult
            to predict. Therefore, the Company's success will depend on its
            ability to redesign, restyle and extend the useful life of products
            and to develop, introduce and gain customer acceptance of new
            entertainment products. The Company's ability, or inability, to
            manage these risk factors could influence future financial and
            operating results.


                                       9
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENED MARCH 31, 2005

2     Summary of Significant Accounting Policies (continued)

      (E)   Revenue Recognition

            The Company generates revenues from three distinct sources; the
            license fees generated from the production of television
            entertainment, character licensing and sales of character related
            consumer products. Revenue from the production of television
            entertainment is recognized in accordance with Statement of Position
            00-2 "Accounting by Producers or Distributors of Film". Under this
            guidance, the Company recognizes revenue from the sale of television
            entertainment when all of the following conditions are met:

            1.    Persuasive evidence of a sale or licensing arrangement with a
                  customer exists,

            2.    The television episode is complete and, in accordance with the
                  terms of the arrangement, has been delivered or is available
                  for immediate and unconditional delivery,

            3.    The license period of the arrangement has begun and the
                  customer can begin its exploitation, exhibition or sale, and

            4.    The arrangement fee is fixed or determinable.

            Revenue from character licensing arrangements is recognized over the
            life of the agreement. Revenue from the sale of character related
            consumer products is recognized at the time of shipment when title
            of the products passes to the customer. Amounts received in advance
            are recorded as unearned revenue until the earnings process is
            complete.

      (F)   Intangible assets and amortization

            Intangible assets are stated at cost less accumulated amortization
            and any provision for impairment. Amortization is provided on
            intangible fixed assets over their expected useful lives as follows:

            Trade marks                        -        10 years
            Website development costs          -         3 years

            Licensing rights are amortised on a straight line basis over the
            term of the agreement, which range from 3 years - 20 years.

            Web Site Development Costs

            In March 2000, EITF No. 00-02, Accounting for Website Development
            Costs, was issued which addresses how an entity should account for
            costs incurred related to website development. EITF 00-02
            distinguishes between those costs incurred during the development,
            application and infrastructure development stage and those costs
            incurred during the operating stage. The Company expenses all costs
            incurred during the development and operating stages. The Company
            evaluates costs incurred during the applications and infrastructure
            development stage using the guidance in Statement of Position (SOP)
            98-1, "Accounting for the Costs of Computer Software Developed or
            Obtained for Internal Use".


                                       10
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

2     Summary of Significant Accounting Policies (continued)

      (G)   Plant and equipment

            Plant and equipment are stated at cost, net of accumulated
            depreciation. Depreciation is provided on plant and equipment over
            their expected useful lives as follows:

            Fixtures & fittings                -        10 years
            Moulds and tooling                 -         5 years
            Computer equipment & software      -         4 years

            Costs associated with the repair and maintenance of plant and
            equipment are expensed as incurred.

      (H)   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.

      (I)   Asset Impairment

            The Company periodically evaluates the carrying value of long-lived
            assets when events and circumstances warrant such a review. The
            carrying value of a long-lived asset is considered impaired when the
            anticipated undiscounted cash flow from such an asset is separately
            identifiable and is less than the carrying value. In that event, a
            loss is recognized based on the amount by which the carrying value
            exceeds the fair market value of the long-lived asset. Fair market
            value is determined primarily using the anticipated cash flows
            discounted at a rate commensurate with the risk involved.

      (J)   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 $150,
            UK(pound)(5,839), and HK $1,998 respectively.

      (K)   Inventories

            Inventory is valued at the lower of cost or market, with cost being
            determined on the first-in, first-out basis. The Company reviews the
            book value of slow-moving items, discounted product lines and
            individual products to determine if these items are properly valued.
            The Company identifies these items and assesses the ability to
            dispose of them at a price greater than cost. If it is determined
            that cost is less than market value, then cost is used for inventory
            valuation. If market value is less than cost, then the Company
            establishes a reserve for the amount required to value the inventory
            at the market value. It the Company is not able to achieve its
            expectations of the net realizable value of the inventory at its
            current value, the Company adjusts its reserve accordingly.
            Inventory is comprised entirely of finished goods.


                                       11
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

2     Summary of Significant Accounting Policies (continued)

      (L)   Advertising costs

            Advertising costs, included in selling, general and administrative
            expenses, are expensed as incurred and were nil and $42,496 for the
            quarter ended March 31, 2004 and March 31, 2005, respectively.

      (M)   Foreign currencies

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

      (N)   Income taxes

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

      (O)   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.

      (P)   Earnings Per Share

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

            Basic and diluted earnings per share are the same during the quarter
            ended March 31, 2004 and 2005 as the impact of dilutive securities
            is antidilutive. There were 8,850,000 warrants to purchase shares of
            the Company's common stock outstanding as of March 31, 2005.


                                       12
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

2     Summary of Significant Accounting Policies (continued)

      (Q)   Warrants

            The Company issues warrants to purchase shares of its common stock
            in exchange for services and in combination with the sale of
            convertible debentures. The Company accounts for warrants issued in
            exchange for services in accordance with EITF 96-18 "Accounting for
            Equity Instruments that are Issued to other Than Employees for
            Acquiring, or in Conjunction with Selling, Goods or Services". The
            Company records expenses based on the fair value of the equity
            instruments. The Company measures the fair value of the equity
            instruments using the stock price and other measurement assumptions
            as of the earlier of (1) the date at which a commitment for
            performance by the counterparty to earn the equity instruments is
            reached, or (2) the date at which the counterparty's performance is
            complete.

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

            The Company accounts for warrants issued in combination with
            convertible debentures in accordance with the provisions of EITF
            00-27 "Application of EITF 98-5 to Certain Convertible Instruments".
            Under the provisions of EITF 00-27, the Company allocates the total
            proceeds received between the convertible debentures and the
            warrants based on their relative fair value at the date of issuance.

      (R)   Recent Accounting Pronouncements

            In January 2003, the FASB issued Interpretation ("FIN") No. 46,
            "Consolidation of Variable Interest Entities" and in December 2003,
            a revised interpretation was issued (FIN No. 46, as revised). In
            general, a variable interest entity ("VIE") is a corporation,
            partnership, trust, or any other legal structure used for business
            purposes that either does not have equity investors with voting
            rights or has equity investors that do not provide sufficient
            financial resources for the entity to support its activities. FIN
            46, as revised requires a VIE to be consolidated by a company if
            that company is designated as the primary beneficiary. The
            interpretation applies to VIEs created after January 31, 2003, and
            for all financial statements issued after December 15, 2003 for VIEs
            in which an enterprise held a variable interest that it acquired
            before February 1, 2003. The adoption of FIN 46, as revised, did not
            have a material effect on the Company's financial position or
            results of operations.

            In December 2004, the Financial Accounting Standards Board ("FASB")
            issued Statement of Financial Accounting Standards No 123,
            "Share-Based Payment" ("SFAS Statement 123R") which replaces SFAS No
            123, "Accounting for Stock-Based Compensation," and supercedes APB
            Opinion No 25, "Accounting for Stock Issued to Employees." This
            statement requires that all share-based payments to employees be
            recognized in the financial statements based on their fair values on
            the date of grant. SFAS No 123R is effective as of the beginning of
            the first interim or annual reporting period that begins after
            December 31, 2005 and applies to all awards granted, modified,
            repurchased or cancelled after the effective date. The Company is
            evaluating the requirements of SFAS 123R and expects that its
            adoption will not have a material impact on the Company's
            consolidated results of operations and earnings per share.


                                       13
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

2     Summary of Significant Accounting Policies (continued)

      (R)   Recent Accounting Pronouncements(continued)

            In December of 2004, the FASB issued SFAS No 153, "Exchanges of
            Nonmonetary Assets - an Amendment of APB Opinion No 29" (SFAS 153).
            SFAS 153 eliminates the exception for nonmonetary exchanges of
            similar productive assets and replaces it with a general exception
            for exchanges of nonmonetary assets that do not have commercial
            substance. SFAS 153 is effective for fiscal years beginning after
            June 15, 2005 and is required to be adopted by the Company in the
            first quarter of 2006. The Company does not believe that the
            adoption of SFAS 153 will have a material impact on the Company's
            consolidated results of operations or financial condition.

3     Significant current assets and liabilities

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

                                                      December 31,     March 31,
                                                          2004           2005
        Other current assets

      Prepaid consulting                                     --
      Accrued royalty income                            826,242          773,081
      W.I.P Recharged                                        --          412,579
      Other current assets                               35,486            7,919
                                                      =========        =========
                                                        861,728        1,193,579
                                                      =========        =========
      Accounts payable
      UK professional fees                              373,613          370,209
      US professional fees                              222,160          282,064
      Stock supplies - Countin' Sheep                        --          247,237
      TV animation costs - Monster Quest                129,689               --
      Other accounts payable                            575,977          538,688
                                                      =========        =========
                                                      1,301,439        1,438,197
                                                      =========        =========
      Other accrued liabilities
      Consultancy fees                                  196,513          191,658
      Wumblers pilot show costs                         111,448
      Deferred royalties income                         957,060          949,316
      Sales and payroll taxes                           409,195          476,102
      Debenture interest                                100,802          119,500
      Legal fees                                             --               --
      Other accrued liabilities                         515,611          477,274
                                                      =========        =========
                                                      2,290,629        2,213,850
                                                      =========        =========


                                       14
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

4     Short Term Borrowings

      On July 10, 2002, the Company borrowed $240,000 from an individual lender.
      The debt bears interest at 20% per year. The debt and all accrued interest
      was originally due on January 10, 2003. The debt has not been fully repaid
      and is due upon demand. Accordingly, the outstanding debt of $193,401 and
      all accrued interest totaling $131,530is included in short term
      borrowings. The debt is collateralized by certain inventory of the
      Company's subsidiary, Jusco UK Ltd.

      In November 2003, the Company borrowed $250,000 from an individual lender.
      There were no terms for repayment and no interest was charged to the
      Company during the quarter. On April 28, 2004, the Company entered into an
      agreement whereby it exchanged the debt of $250,000 for 500,000 shares of
      common stock. See note 10.

5     Advances from Factor

      On January 13, 2003 the Company entered into an invoice factoring
      agreement with IFT London Ltd ("IFT"). Under the agreement, the Company
      specifically identified receivables that it wanted to receive advances on
      and submitted them to IFT. Once IFT approved the receivables that were
      submitted, the Company received 70% of the invoice amount. Customers were
      then instructed to pay IFT directly. When the customer paid the entire
      outstanding balance to IFT, the Company received the remaining 30% of the
      invoice amount, less a financing charge equal to 8% of the total invoice
      amount. The Company no longer factors receivables through this agreement.

      On October 2, 2003 Cameo Collectables Limited entered into an invoice
      factoring agreement with Arbuthnot Commercial Finance Ltd ("ACF"). Under
      the agreement, the Company identified receivables that it wanted to factor
      and submitted them to ACF. Once ACF approved the receivables that were
      submitted it purchased the receivables with recourse and invoiced the
      customers direct. ACF paid 100% of the invoice amount to a current account
      on the collection date. Customers paid ACF directly.

      ACF's financing charge of 1.75% of the total invoice amount was debited to
      the current account. The Company was entitled to withdraw any credit
      balance on the current account representing cleared funds.

      The Company accounted for this arrangement in accordance with Statement of
      Financial Accounting Standard No. 140 "Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities." Under
      the agreement any invoice not paid 6 months after the date on which it was
      due to be paid can be re-sold back to the Company. Accordingly, the
      Company recorded the advances received as a liability until the customer
      invoice is paid in full. In addition, the Company recognized the interest
      charge in full at the time the initial advance was received. The assets of
      Cameo Collectables Limited are pledged as security to Arbuthnot Commercial
      Finance Limited.

      The above agreements ceased on the 21 January 2005.


                                       15
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

6     Convertible debentures

      Convertible debentures are comprised of the following as at March 31,
      2005:

<TABLE>
<S>                                                                          <C>
      Old convertible debentures                                                    $
      Balance at December 31, 2003                                            754,774
      Settlement and release agreement                                       (754,774)
                                                                             ========
      New convertible debentures:
      Amortized debt discount quarter ended March 31, 2004                    120,424
      Amortized debt discount quarter ended June 30, 2004                     128,586
      Released on conversions during quarter ended September 30, 2004         (90,104)
      Amortized debt discount quarter ended September 30, 2004                 87,035
      Amortized debt discount quarter ended December 31, 2004                  84,747
      Released on conversions during quarter ended March 31, 2005             (16,441)
      Amortized debt discount quarter ended March 31, 2005                     77,905

      Balance at March 31, 2005                                               392,152
                                                                             ========
</TABLE>

7     Transactions with related parties

      The relationship between the Company and its related parties are:

      Wilfred and Paula Shorrocks are deemed to be related parties as they are
      directors and shareholders of Peak Entertainment Holdings, Inc.

      Terence Herzog and Michael Schenkein are deemed to be related parties as
      they are principals of Agora Capital Partners Inc, a management consulting
      company. They were directors of Peak Entertainment Holdings, Inc. Terence
      Herzog is a shareholder of Peak Entertainment Holdings, Inc. In December
      2004, Mr. Herzog and Mr. Schenkein resigned as directors of the Company.

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

      a)    Wilfred and Paula Shorrocks

            i)    Movements on stockholders' advances account

-------------------------------------------------------------------------------
                  Balance due by the Company, December 31, 2004       $ 752,522
                  Cash advances                                          49,261
                  Repayments                                            (55,261)
                  Foreign exchange loss                                 (25,165)
                                                                      ---------
                  Balance due by the Company at March 31, 2005        $ 721,357
-------------------------------------------------------------------------------


                                       16
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

7     Transactions with related parties (continued)

                  Interest amounting to $5,928in the quarter to March 31, 2005
                  and $24,040 in the year to December 31, 2004 has been accrued.

                  On March 24, 2004, the Company signed a promissory note which
                  established a repayment schedule for the amounts advanced by
                  the stockholders. The amount advanced is to be repaid in
                  installments of $25,000 on January 31, 2005, May 31, 2005,
                  September 30, 2005, December 31, 2005, March 31, 2006 and
                  September 30, 2006 and installments of $100,000 on March 31,
                  2007 and September 30, 2007, with any balance to be repaid in
                  full on January 31, 2008.

                  Interest will accrue commencing July 1, 2005 on any unpaid
                  balance, at 8% per annum.

                  The promissory note provides for earlier repayment of any
                  unpaid balance subject to various future financial results of
                  the Company.

            ii)   License agreement

                  On April 30, 2002, the Company entered into a license
                  agreement with Wilfred and Paula Shorrocks whereby the Company
                  acquired the exclusive rights to apply various intellectual
                  properties to the manufacture, distribution and sale of
                  products on a worldwide basis. Under the terms of the
                  agreement the Company has undertaken to pay to Wilfred and
                  Paula Shorrocks a guaranteed minimum royalties amount of US
                  $1,000,000, with the agreement treated for accounting purposes
                  as due to expire on December 31, 2023. On April 14, 2004, the
                  Company entered into an amendment of the license agreement
                  which established a minimum quarterly royalty payment of
                  $12,500 beginning September 30, 2004. This liability is
                  included in license fees payable and the related asset is
                  included in intangible assets.

                  On February 25, 2002, the Company entered into a license
                  agreement for rights to Monsters In My Pocket from Morrison
                  Entertainment Group, Inc., in which Wilfred and Paula
                  Shorrocks were also parties. Pursuant to the agreement,
                  Wilfred and Paula Shorrocks were individually entitled to a
                  certain percentage of the revenues. The Company was entitled
                  to 10% of the revenues from the United States, 35% of the
                  revenues from the United Kingdom, and 40% of the revenues from
                  other territories. Morrison Entertainment Group was entitled
                  to 60% of the revenues from the United States, 32.5% of the
                  revenues from the United Kingdom, and 30% of the revenues from
                  other territories. The Shorrocks were entitled to 30% of the
                  revenues from the United States, 32.5% of the revenues from
                  the United Kingdom, and 30% of the revenues from other
                  territories. The revenue allocation referred to revenues from
                  character and merchandise licensing and sales activities, and
                  the allocation was to be adjusted for entertainment production
                  financing terms. In October 2004, Morrison Entertainment Group
                  sent the Company a notice terminating any and all agreements
                  with the Company. On December 22, 2004, the Company entered
                  into an agreement with Morrison Entertainment Group, whereby
                  the parties dissociated the Company's Monster Quest property
                  and products from Morrison Entertainment Group's Monster In My
                  Pocket property and products. Any and all agreements between
                  the parties entered into prior to December 22, 2004, including
                  license agreements, were terminated.


                                       17
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QARTER ENDED MARCH 31, 2005

7     Transactions with related parties (continued)

      b)    Terence Herzog and Michael Schenkein

            i)    Consulting services

                  From March 2003 through June 2004, Agora Capital Partners Inc,
                  through Terence Herzog and Michael Schenkein, has provided
                  management consulting services to the Company. The Company
                  paid aggregate fees of $nil in the year to December 31, 2004
                  and $46,000 in the year to December 31, 2003.

8     Warrants

      On July 24, 2003, pursuant to a consulting agreement with POW!
      Entertainment LLC and Stan Lee, the Company issued to POW warrants to
      purchase 750,000 shares of the Company's common stock exercisable for five
      years at $0.35 per share in exchange for consulting services to be
      provided over a three year term. Warrants to purchase 375,000 shares of
      common stock vested upon execution of the consulting agreement, and the
      remaining warrants to purchase 375,000 shares of common stock vested on
      July 24, 2004. POW has the right to demand registration of the shares of
      common stock underlying the warrant at the Company's expense, although no
      demand had been received at the date of this report.

      The warrants have been valued using the Black-Scholes Option Model. The
      value of the warrants that vested immediately was $390,000 on the date of
      grant. The value of these warrants has been recorded as deferred
      professional fees and will be amortized to earnings ratably over the three
      year service period.

      The value of the warrants that were subject to future vesting, and vested
      on July 24, 2004, were determined at the end of each reporting period. The
      Company recorded the expense for each quarter based on the value of the
      warrants at the end of each reporting period. For the quarter ended June
      30, 2004, the Company recorded an expense of $10,918 related to these
      warrants, and for the six months ended June 30, 2004, the Company recorded
      an expense of $9,295.

      On July 15, 2003, pursuant to a consulting agreement with Mr Jack
      Kuessous, the Company issued to Mr Kuessous warrants to purchase 240,000
      shares of the Company's common stock with an exercise price of $1.20 per
      share in exchange for consulting services over a one year period. The
      warrants vested immediately upon execution of the consulting agreement.
      The warrants have been valued using the Black-Scholes Option Model and had
      a value of $263,983 on the date of grant. The value of these options has
      been recorded as a current asset and has been fully amortized to earnings.

      On December 17, 2003, the exercise price of the warrants held by Mr.
      Kuessous was changed from $1.20 per share to $0.50 per share. The amount
      to be expensed over the remaining service period related to the $1.20
      warrants was the remaining unamortized fair value of the $0.50 warrants as
      of December 17, 2003, plus the amount by which the fair value of the $1.20
      warrants valued as of December 17, 2003 was greater than the fair value of
      the $0.50 warrants immediately before the terms were modified. The Company
      used the Black-Scholes Option Model and determined that the value of the
      $0.50 warrants immediately prior to the conversion of the terms was
      essentially the same as the $1.20 warrants granted on December 17, 2003.
      Accordingly, the Company has now fully amortized the original value of
      $263,983.

      In July 2003, Mr Kuessous advanced the Company $100,000. On December 17,
      2003, the Company entered into a "Cancellation of Debt in Exchange for
      Securities Agreement", whereby Mr Kuessous cancelled the $100,000 owed to
      him by the Company in exchange for 583,333 shares of common stock of the
      Company and 150,000 common stock purchase


                                       18
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

8     Warrants (continued)

      warrants with an exercise price of $0.50 per share. The warrants vested
      immediately and are exercisable over a three year period. The warrants
      have been valued using the Black-Scholes Option Model and had a value of
      $79,449 at the date of grant and the common stock had a value of $332,500
      on the date of issuance. The total value of the common stock and warrants
      is $411,995 and was compared with the $100,000 carrying value of the
      advances, resulting in an additional expense of $311,995, which was
      included in selling, general and administrative expenses in 2003.

      On January 5, 2004, the Company completed a "Settlement Agreement and
      Release" with former holders of 12% convertible debentures. Under the
      agreement, the Company exchanged $1,000,000 and 1,000,000 shares of
      unregistered common stock in return for the surrender of an aggregate of
      $215,000 principal amount of 12% convertible debentures, accrued interest
      and warrants to purchase 645,000 shares of common stock, issued pursuant
      to a "Securities Purchase Agreement" dated as of February 28, 2002, and an
      aggregate of $785,000 principal amount of 12% convertible debentures,
      accrued interest and warrants to purchase 1,570,000 shares of common
      stock, issued pursuant to a "Securities Purchase Agreement" dated as of
      April 22, 2003. The $1,000,000 consisted of $500,000 paid on January 5,
      2004 and $500,000 in promissory notes, which was subsequently paid on
      March 22, 2004. The agreement provided that, after a period of thirteen
      months from January 2004, all of the 1,000,000 shares of common stock
      still owned at that time by the former debenture holders may be put to the
      Company at a price $0.75 per share, on an all-or-none basis, for a one
      month period. The Company also paid for $10,000 of the former debenture
      holders' legal fees and expenses in connection with the transaction.

      The Company accounted for this transaction in accordance with EITF 00-27
      "Application of Issue 98-5 to Certain Convertible Instruments".
      Accordingly, the Company first allocated the consideration paid based on
      the fair value of the warrants to be repurchased and the beneficial
      conversion features as of January 5, 2004. Any remaining consideration was
      used to offset the carrying value of the convertible debentures and
      accrued interest and resulted in a gain on the extinguishment of the debt.
      The Company determined that the fair value of the warrants to be
      repurchased and the beneficial conversion features at January 5, 2004
      exceeded the total consideration to be paid of $1,580,000. Accordingly,
      the Company recorded a gain on the extinguishment of the convertible
      debentures and accrued interest. In accordance with FAS 133, the 1,000,000
      shares of common stock are considered an embedded derivative instrument
      and recorded as equity.

      On January 5, 2004, the Company entered into "Securities Purchase
      Agreements" with four accredited investors. Pursuant to the agreements,
      the Company sold $1,500,000 in 8% convertible debentures due January 5,
      2007 and 3,000,000 common stock purchase warrants, exercisable for five
      years at $0.50 per share. The purchase price totaled $1,500,000, of which
      $750,000 was paid in cash, and $750,000 by promissory notes. The principal
      amount of the debentures, plus any accrued and unpaid interest on the
      debentures, may be converted into shares of common stock at the conversion
      price of $0.30 per share. The conversion price may be adjusted downward
      for issuances of securities by the Company at prices below the lower of
      $0.50 per common share, or fair market value for such securities as
      determined at the time of issuance. Annual interest payments on the
      debentures are due on January 7 of each year, commencing January 7, 2005.
      At the option of the Company, interest payments may be accrued beyond the
      annual interest payment date, in which event the debenture holder shall
      have the option to accrue the interest payment then due for another
      interest payment period, or cause the Company to issue common stock in
      exchange for interest. Unless upon 75 days prior written notice, the
      debenture and warrant holder may not convert the debentures or warrants
      for shares of common stock to the extent that such conversion would cause
      it to beneficially own 4.9% or more of our then issued and outstanding
      common stock. After the tenth consecutive business day in which the common
      stock trades at $3.00 or greater, the warrants become redeemable at $0.10
      per warrant.


                                       19
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

8     Warrants (continued)

      The warrants have been valued using the Black-Scholes Option Model at a
      value of $1,649,901 at the date of grant. A discount of the full amount of
      the debt was recorded and will be amortized over the life of the debt of
      approximately 3 years.

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

      On January 23, 2004, the Company entered into an agreement for services to
      be provided over twelve months with Vintage Filings, LLC. It issued
      300,000 common stock purchase warrants, which vested immediately and are
      exercisable for three years at $0.50 per share pursuant to the agreement.
      The warrants have been valued using the Black-Scholes Option Pricing Model
      and have a value of $224,988 at the date of grant. The value of the
      warrants will be recorded as additional selling, general and
      administrative expenses ratably over the twelve month service period.

      On January 29, 2004, the Company entered into a "Securities Purchase
      Agreement" with Shai Stern. Pursuant to the agreement, it issued $50,000
      in 8% convertible debentures due January 29, 2007 and 100,000 common stock
      purchase warrants. The principal amount of the debentures, plus any
      accrued and unpaid interest on the debentures, may be converted into
      shares of common stock at the conversion price of $0.30 per share. Annual
      interest payments on the debenture are due on January 29 of each year,
      commencing with January 29, 2005. At the option of the Company interest
      payments may be accrued beyond the annual interest payment date, in which
      event the debenture holder shall have the option to accrue the interest
      payment then due for another interest payment period, or cause the Company
      to issue common stock in exchange for interest. The warrants are
      exercisable for three years at a price of $0.50 per share. After the tenth
      consecutive business day in which the common stock trades at $3.00 or
      greater, the warrants become redeemable at $0.10 per warrant.

      The warrants have been valued using the Black-Scholes Option Pricing Model
      and have a value of $51,997 at the date of grant. The Company has recorded
      these debentures and warrants in accordance with the provisions of EITF
      00-27 "Application of Issue 98-5 to Certain Convertible Instruments".
      Under the provisions of EITF 00-27, the Company has allocated the total
      proceeds received between the convertible debentures and the warrants
      based on their relative fair value at the date of issuance. The Company
      has then estimated the intrinsic value of the beneficial conversion
      feature. The Company has determined that the intrinsic value of the
      beneficial conversion feature exceeds the face value of the debt and
      accordingly, the Company has recorded a debt discount of $50,000. The debt
      discount will be amortized as interest expense over the life of the
      debentures, which is three years.

      On September 28, 2004, the Company entered into a "Securities Purchase
      Agreement" with three accredited persons. Pursuant to the agreements, the
      Company sold 1,666,666 shares of common stock and 1,750,000 common stock
      purchase warrants, exercisable for three years at $0.50 per share, for an
      aggregate purchase price of $500,000.

      Prior to the termination date, the warrant shall be callable, under the
      circumstances described below, at the discretion of the company, for $0.10
      per warrant. The Company's right to call shall be exercisable commencing
      upon the day following the tenth consecutive business day during which the
      Company's common stock has traded at prices of, or in excess of, $1.75 per
      share, subject to adjustment for stock splits, dividends, subdivisions,
      reclassification and the like, with weekly volume of such trading being in
      excess of the total number of shares represented by this warrant. In the
      event the Company exercises its right to call the warrants, the Company
      shall give the Holder written notice of such decision. In the event that
      the Holder does not exercise all or any part of the warrants or the
      Company does not receive the warrant from the Holder within 30 days from
      the date on the notice to the Holder of the


                                       20
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

8     Warrants (continued)

      Company's intension to redeem the warrant, then the warrant shall be
      deemed canceled, and the holder shall not be entitled to further exercise
      thereof or to the redemption fee.

      The value of the stock and warrants is made more difficult due to the call
      provision of the warrant, which reduces the value of the warrant. The
      Company recognizes that due to the call provision it is inappropriate to
      value the warrant using the Black-Scholes Option Model. The Company has
      calculated the fair value of the common stock at a price of $0.21 per
      share, being the trading price at September 28, 2004. The remaining
      proceeds of $150,000 have been allocated as the value of the warrants at
      the date of the grant.

      On January 4, 2005, the Company entered into a consulting agreement with
      Salvani Investments, pursuant to which it issued 1,000,000 warrants,
      exercisable for 5 years at $0.50 per share, in exchange for business
      consulting and investor relations services. The warrants have been valued
      using the Black-Scholes option model at a value of $298,831.08 at the date
      of grant. The value of these warrants has been recorded as deferred
      professional fees and will be amortised to earnings ratably over one year
      service period.

      On January 5, 2005, the Company sold to Dan Brecher 250,000 warrants,
      exercisable for three years at $0.50 per share, for $2,500. These warrants
      were valued by using the Black-Scholes option model at a value of
      $74,707.77 at the date of grant. The value of these warrants has been
      recorded as an expense to non cash legal fees.

      On March 1, 2005, the Company entered into a loan agreement for $500,000
      with Tayside Trading Ltd. Pursuant to the loan agreement, the Company
      issued 500,000 warrants, exercisable for five years at $0.50 per share, to
      the lender. The Company also granted the lender an option exercisable
      commencing with the date of return of the $500,000 and expiring two weeks
      thereafter, to acquire, at the purchase price of $100,000, (i) shares of
      the Company's common stock at $0.30 per share (333,333 shares) and (ii)
      warrants to purchase 200,000 shares of common stock, exercisable for five
      years at $0.50 per share. These warrants have been valued using the
      Black-Scholes option pricing model at a value of $184,377.11 at the date
      of grant. The value of these warrants has been recorded as an expense to
      non cash finance charges.

      On March 2, 2005, the Company issued 50,000 warrants, exercisable for five
      years at $0.50 per share, to Aaron M. Lasry in return for business
      consulting services. These warrants have been valued using the
      Black-Scholes option pricing model at a value of $17,438.74 at the date of
      grant. They have been recorded as an expense to non cash selling, general
      and admin.

9     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.


                                       21
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

9     Share Transactions (continued)

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

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

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

      Legend Merchant Group, Inc acted as the placement agent for the above
      transaction. All of the purchasers were pre-existing customers of Legend
      Merchant Group. The Company paid Legend a fee of $25,000, and 100,000
      common stock purchase warrants exercisable for three years at $0.50 per
      share and 60,000 common stock purchase warrants exercisable for three
      years at $0.75 per share, for its services. The warrants have been valued
      using the Black-Scholes Option Pricing Model and have a value of $92,794
      at the date of grant which was March 10, 2004 The total fee of $117,744
      has been offset against the proceeds of the offering.

      On September 1, 2004, the Company entered into a consultancy agreement
      with CEOcast, Inc. to provide consultancy services for a six month period
      commencing September 1, 2004, in exchange for 400,000 shares of common
      stock of the Company. These shares had a value of $44,000 at the date of
      grant.

      On August 17, 2004, the Company issued 75,001 shares to Portfolio PR in
      connection with professional services provided. The shares had a value of
      $18,750 at the date of the grant. The Company expensed $36,000 as
      professional fees during the quarter, being the value of professional
      services received, and recognized a profit of $17,250 on issue of the
      shares.

10    Reverse Acquisition

      On April 22, 2003, Palladium Communications, Inc. ("Palladium') (a US
      public company) issued 19,071,684 shares of its common stock for all of
      the outstanding common stock of Peak Entertainment Holdings, Inc.
      Immediately prior to the transaction, Peak Entertainment Holdings, Inc
      authorized a stock split so that the outstanding shares of common stock
      were increased from 2 to 19,071,684. Immediately after the transaction,
      the shareholders of Peak Entertainment Holdings, Inc (Wilf and Paula
      Shorrocks) owned approximately 90% of the outstanding common stock of
      Palladium. This transaction has been accounted for as a reverse
      acquisition of a public shell. The accounting for a reverse acquisition
      with a public shell is considered to be a capital transaction rather than
      a business combination. That is, the transaction is equivalent to the
      issuance of common stock by Peak for the net monetary assets of Palladium,
      accompanied by a recapitalization. Palladium's net deficit has been
      recorded at carryover basis and no goodwill was generated in the
      transaction. The net deficit of Palladium, $215,500, at the time of
      transaction is included in stockholders' equity. The other side of this
      transaction is to add $215,500 in liabilities related to convertible
      debentures to the historical


                                       22
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 31, 2005

10    Reverse Acquisition (continued)

      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.

11    Stockholders' Equity

      Immediately following the reverse acquisition on April 22, 2003, the
      Company entered into an agreement for the issuance of up to $785,000 in
      convertible debentures and warrants to purchase 1,570,000 shares of the
      Company's common stock. The Company received $300,000 at the time of
      execution of the agreement for the issuance of the debentures and warrant
      and received the remainder of $250,000 on June 26, 2003 and $235,000 on
      July 11, 2003. The debentures and warrants were subsequently repurchased
      in January 2004.

      The debentures carried interest at 12%, matured one year from the date of
      issuance and were convertible at the option of the holder at the lower of
      $1.00 or 50% of the average of the three lowest intra-day trading prices
      for the common stock on a principal market for the 20 trading days before
      but not including the conversion date. The warrants were exercisable for
      five years at $0.31 per share. The Company recorded these debentures and
      warrants in accordance with the provisions of EITF 00-27 "Application of
      Issue 98-5 to Certain

      Convertible Instruments". Under the provision of EITF 00-27, the Company
      allocated the total proceeds received between the convertible debentures
      and the warrants based on their relative fair values at the date of
      issuance. The Company then estimated the intrinsic value of the beneficial
      conversion feature resulting from the ability of the debenture holders to
      convert at a 50% discount. As a result, the Company recorded a debt
      discount of $785,000. The debt discount was amortized as interest expense
      over the life of the debentures of one year.

      On February 28, 2002, Palladium, the predecessor to Peak Entertainment
      Holdings, Inc entered into an agreement pursuant to which Palladium issued
      $215,000 in convertible debentures and issued warrants to purchase 645,000
      shares of the Company's common stock exercisable for five years at $0.31
      per share. These debentures and warrants were subsequently repurchased in
      January 2004.

      On April 28, 2004, the Company entered into an agreement with Laura
      Wellington, whereby it exchanged a debt of $250,000 owed to Ms Wellington
      for 500,000 shares of common stock. Ms Wellington had loaned $250,000 to
      the company in November 2003. The total value of the common stock at the
      date of grant was $250,000 compared with the $250,000 carrying value of
      the advance, so there was no additional expense.

On July 23, 2004, the Company entered into an agreement with Laura Wellington,
whereby it exchanged a debt of $194,000 owed to Ms Wellington for 388,000 shares
of common stock. The total value of the common stock at the date of the grant
was $194,000 compared with the $194,000 carrying value of the debt, so there was
no additional expense.

12    Subsequent Events

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


                                       23
<PAGE>

      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE

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

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

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

      o     the application of accounting principles to a specified transaction,
            either completed or proposed; or the type of audit opinion that
            might be rendered on our financial statements; or
      o     any matter that was either the subject matter of a disagreement (as
            defined in Item 304(a)(1)(iv) of Regulation S-B and the related
            instructions) or a reportable event (as defined in Item 304(a)(1)(v)
            of Regulation S-B).

On August 20, 2004, we notified Goodband Viner Taylor, our independent public
accountants, that we were terminating its audit services, effective as of that
date. The Company's Board of Directors approved such decision.

Goodband Viner Taylor's opinion in its report on the Company's financial
statements for the years ended December 31, 2002 and December 31, 2003 expressed
substantial doubt with respect to the Company's ability, at that time, to
continue as a going concern. During the years ended December 31, 2002 and
December 31, 2003, and the three month period ended March 31, 2004, Goodband
Viner Taylor did not issue any other report on the financial statements of the
Company which contained any adverse opinion or disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles,
except as to going concern issues. Furthermore, during such periods and through
the date of termination, August 20, 2004, there were no disagreements with
Goodband Viner Taylor within the meaning of Instruction 4 to Item 304 of
Regulation S-B under the Securities Exchange Act of 1934 on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Goodband Viner Taylor, would have caused them to make reference in connection
with their opinion to the subject matter of the disagreement in connection with
any report they might have issued.

On August 20, 2004, the Company engaged Garbutt & Elliott Ltd., York, United
Kingdom, as its independent public accountants. The Company did not previously
consult with Garbutt & Elliott Ltd. regarding any matter, including but not
limited to:

      o     the application of accounting principles to a specified transaction,
            either completed or proposed; or the type of audit opinion that
            might be rendered on the Company's financial statements; or
      o     any matter that was either the subject matter of a disagreement (as
            defined in Item 304(a)(1)(iv) of Regulation S-B and the related
            instructions) or a reportable event (as defined in Item 304(a)(1)(v)
            of Regulation S-B).


                                       24
<PAGE>

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

                          "FORWARD-LOOKING" INFORMATION

This report on Form 10-QSB contains certain "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which represent our expectations and beliefs, including, but not limited to
statements concerning the Company's expected growth. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions identify
forward-looking statements, which speak only as of the date such statement was
made. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond our control, and actual results may
differ materially depending on a variety of important factors.

Introductory Statement

Unless otherwise stated, the discussion and analysis refers to the business of
Peak Entertainment Ltd., which we acquired on April 22, 2003 in a transaction
viewed as a reverse acquisition, and does not refer to the operations for our
former business which was sold in April 2003. Under applicable accounting
principles, the historical financial statements of Peak Entertainment Ltd.
became those of the Company.

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

We have not generated significant revenues in this period because we had not yet
funded the television shows upon which we plan our exploitation of the related
intellectual rights portfolio. Our ability to convert current negotiations to
executed contracts is dependent upon such progress with the television shows. We
have delayed the production of the associated toys and merchandise for the
television shows, and this has compromised our ability to generate sales in
these areas.

The following discussion and analysis should be read in conjunction with the
information set forth in the audited financial statements for the quarter ended
March 31, 2005.

With limited available capital, we have produced initial episodes of our planned
television shows and we believe that we will now be viewed more favorably by
potential capital sources and believe that we should have better success in
raising much needed capital to fund full production of the planned television
shows.

Further, we have diversified the way in which we seek to finance some of our
television show production budgets, and during this year we have focused on
third party co-production financing. The delay in obtaining from, and limited
capital provided by, third party co-production financiers has delayed our
planned production timetable, but has been successful in significantly reducing
the internal cash expenditure of Peak.

We have entered into an agreement with Maverick Entertainment Group Plc., and
have certain exploitation rights to certain of its intellectual property: Muffin
the Mule and Snailsbury Tails, both of which the British Broadcasting
Corporation commissioned television episodes. Peak expects to exploit these
television shows aggressively in 2005 and anticipate increased revenues via
their licensing and manufacturing divisions as a result. We, and third party
financiers, have financed over $1,600,000 for the production of The Wumblers,
and we are expecting to finance the balance of the production budget
($1,900,000) with the support of Silly Goose Company and third parties.


                                       25
<PAGE>

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

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

We have still yet to raise the requisite capital for the television shows in
order to complete production in earnest and it is still a factor that until we
raise sufficient capital to produce the planned television shows, we do not
expect to generate any significant revenues from any of our lines of business.
If we are is unable to raise capital to produce its television shows, we intend
to alter our business plan to focus on licensing our intellectual property to
third parties, and on the sale of toys and consumer goods.

Sale of Former Business

Prior to April 2003, we were known as Palladium Communications Inc. and
conducted a telecommunications business.

In April 2003, we sold off substantially all of our assets and certain of our
liabilities to Palladium Consulting Group, LLC, in exchange for $75,000. The
assets sold consisted of substantially all of our assets used in our
telecommunications business, including all of our carrier agreements, sales
agent agreements, and equipment, which business we discontinued on April 22,
2003. The assets that we retained included cash and notes receivable, which were
nominal amounts. The liabilities assumed by Palladium Consulting Group, Inc.
consisted primarily of payment for phone systems and other equipment and a lease
for office facilities. We retained substantially all of the liabilities,
consisting primarily of outstanding debentures and accrued interest. As a result
of the transaction, we were essentially a shell company with no assets and with
substantial liabilities related to outstanding debentures.

On April 22, 2003, we acquired the business of Peak Entertainment Ltd., a United
Kingdom company, by acquiring all of the outstanding shares of Peak
Entertainment Ltd. in a transaction viewed as a reverse acquisition.

The purpose of these corporate transactions was to try to create some value for
our shareholders. It is the understanding of our current management that the
former principals of Peak Entertainment Holdings, Inc. sought to discontinue its
business operations as a publicly-held entity, and the principals of Peak
Entertainment Ltd. sought access to financing, which it had difficulty obtaining
as a privately-held company.

Current Business

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

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

The year ended December 31, 2004 was an extremely difficult time for us. We had
very little operating capital to fund the production of planned television
shows, and focused on raising capital from third parties to fund the production
of the television shows. We experienced difficulty in raising capital in 2003
and 2004 from potential capital sources. We believe that this difficulty was due
to the terms of convertible debentures outstanding in 2003, which contained
terms very favorable to the debenture holders, and made potential financiers
reluctant to provide capital to us. Accordingly, we entered into discussions
with the debenture holders and repurchased those debentures in January 2004.


                                       26
<PAGE>

We believed that with the repurchase in January 2004 of debentures that were
outstanding at December 31, 2003, our capital structure would be viewed more
favorably by potential capital sources, and that we would have better success in
2004 in raising much needed capital to fund production of the planned television
shows. However, in 2004, we continued to experience difficulty in raising
capital on terms acceptable to us, as many potential financiers sought further
development of our business prior to committing capital.

The difficulty in raising capital in 2003 and 2004 has delayed our projected
timetable for the distribution of our planned television series. Due to lack of
capital, we were unable to fund production of a single television episode show
in 2003 and produced only one episode in 2004. The delay in producing television
shows, in turn, has delayed and compromised our ability to license intellectual
property rights and sell toys and merchandise based on the television shows.

Until we raise sufficient capital to produce our planned television shows, we do
not expect to generate any significant revenues from any of our lines of
business. If we are unable to raise capital to produce our planned television
shows, we intend to alter our business plan to focus on licensing intellectual
property to third parties, and on the sale of toys and other consumer goods.

RESULTS OF OPERATIONS FOR QUARTER ENDED MARCH 31, 2005

Revenues

Consolidated net revenues increased 314% to $303,408for the quarter ended March
31, 2005 from $73,177 for the quarter ended March 31, 2004.

In 2004 and continued into 2005, we were primarily focused on the raising of
capital, and the sales of inventory along with products launched in 2003 that
were short-term cash generating projects. Our intention is to begin aggressively
marketing toy products associated with television projects once adequate
financing has been obtained for the production of the television shows. We have
negotiated various representation agreements with licensees, and attended
worldwide trade shows and retail presentations to raise the profile of our
products in order to seed the markets in anticipation of the television show
launches.

We are still in the early production stages of two television shows, and we
expect to remain in the production stages of the shows through 2005 and into
2006. Until we have completed production of the shows and are in a position to
generate revenues from the sales of broadcast rights for the shows, we do not
have an adequate basis for projecting revenues, nor identifying trends or
demands. This applies for all main lines of our business, as our business plan
is centered around the television shows.

Cost of Revenue

For the quarter ended March 31, 2005, cost of revenues was $92,471as compared to
$64,700 in 2004, a increase of 43%. Cost of revenues as a percentage of revenues
decreased to 30% in 2005 as compared to 88% in 2004. Cost of revenue is
primarily made up of inventory, transport and royalties due on licenses.

We anticipate that our cost of revenue with respect to income from entertainment
and consumer products will increase significantly in 2005 as we enter into the
production stages of more television show episodes and increased marketing
efforts for the sale of consumer goods. It is anticipated that the cost of
revenue for our television shows will initially increase in relation to our
entertainment revenues, until such time that the television episodes are
completed, at which time the significant costs will have been incurred. Since
costs for entertainment comprise mostly of non-recurring episode production
costs, we expect such costs to decrease as a percentage of revenues as we
distribute the shows and generate revenues from more and more markets. It is
anticipated that the cost of revenue for our consumer products will increase in
direct relation to an increase in revenues.

Gross Profit

Gross profit for the quarter ended March 31, 2005 was $210,937, or 70% of
revenues, as compared to $289,930 or 28.6% of revenues, for the same period in
2004.


                                       27
<PAGE>

Operating Expenses

Selling, General and Administrative Expenses. Selling, general and
administrative costs were $429,971for the quarter ended March 31, 2005 compared
to $2,614,593 for the quarter ended March 31, 2004. As a percentage of revenues,
selling, general and administrative costs decreased to 223% for the quarter
ending March 31, 2005 from 257% for the quarter ending March 31, 2004. The
following table summarizes the costs incurred in 2005.

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

General Costs                                       52,690             12
Employee Compensation                              189,826             44
Legal and Professional                             139,930             33
Travel and Entertainment                            47,524             11

TOTAL                                              429,971            100

The significant and noteworthy expenses were principally costs incurred from
legal, accounting and other professional services related to the ongoing SEC
filings and investment within the company. Such costs have been a significant
factor affecting the business operations at a time when we lack sufficient
revenues from operations to finance the production of our television shows and
rely upon financing from third parties. We will continue to incur such expenses
in 2005 as the company is in the financing stages of its animation projects and
general investment into the company. We anticipate that expenses for legal,
accounting and other professional services will continue to be a significant
factor during 2005, due to our continuing need to raise capital and our
securities law reporting obligations as a publicly-held company.

Depreciation and amortization. Depreciation for the quarter ended March 31, 2005
was $39,139 as compared to $14,460 for the same period in 2004. The increase is
in direct relationship with the expansion of our capital spending on equipment.

Net Loss

Our net loss decreased from $2,966,547, or $0.14 loss per share, in the quarter
ended March 31, 2004 to $1,070,399, or $loss per share, in 2005. The decrease in
net loss is significantly attributable to a gain on settlement of convertible
debentures and accrued interest.

LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements

Our revenues have been insufficient to cover our operating expenses. Since
inception, we have been dependent on loans from the Company's officers and on
private placements of the Company's securities in order to sustain operations.

Management expects to satisfy our liquidity needs on a short-term basis through
private placements of the Company's securities, including the issuance of debt.
There can be no assurances that the proceeds from private placements or other
capital transactions will continue to be available, that revenues will increase
to meet our cash needs, that a sufficient amount of our securities can or will
be sold, or that any common stock purchase options/warrants will be exercised to
fund our operating needs.

As of March 31, 2005, we had commitments for capital and other expenditures
aggregating $6,553,933 included in current and long term liabilities, payable
over a maximum 20 year period. Those commitments and the amounts payable in
2005, giving effect to terms amended in 2005, are summarized in the following
table.


                                       28
<PAGE>

<TABLE>
<CAPTION>
Contractual                  Liability        Amounts payable          Contract Terms
Obligations                  as of 03/31/05   within 12 months         and Notes
<S>                            <C>              <C>                    <C>
Short term loan -              $   193,401      $   193,401            20% interest per annum. Was secured
CK Supermarkets                                                        by inventory, part sold and monies
                                                                       used to part pay balance. We are
                                                                       negotiating to convert the balance to
                                                                       common stock in 2005.

Tayside Loan                       500,000          500,000

Accounts Payable -             $ 1,438,197      $ 1,438,197            Refers to various payables (composed
Various                                                                significantly of various ordinary
                                                                       business expenses, as well as legal,
                                                                       accounting, and other professional
                                                                       fees).

Stock holders' advances        $   721,357                $            No pre-set repayment terms through
account - Shorrocks                                                    3/2004.

                                                                       In 2004, we entered into a promissory
                                                                       note, payable in installments. First
                                                                       payment due on 1/2005 and to be
                                                                       repaid in full not later than 2008.

Short Term License             $    66,155      $    66,155

Debentures - various           $   392,116      $         0            Discount and interest on the
debenture holders                                                      debentures. Does not include the
                                                                       principal amount of the debentures
                                                                       in the amount of $958,000.

Other - including Tax and      $ 2,020,449      $ 2,020,449            Various costs payable within 2005
Social security and                                                    including UK employment taxes and UK
accruals                                                               value added tax.

Long Term License -            $   962,258                $            10% royalty payable quarterly in
Shorrocks                                                              perpetuity. Guarantee of $1,000,000,
                                                                       with no established payment term.

                                                                       Pay from royalties from licenses to
                                                                       third parties over the term of the
                                                                       contract.

                                                                       In 2004, the Company amended the
                                                                       license agreement to establish a
                                                                       minimum quarterly royalty payment of
                                                                       $12,500 due beginning September 30,
                                                                       2004.

P.O.V (Malaysia)                  $260,000      To be determined
                                                based upon the         Animation costs for Monster Quest.
                                                level of financing
                                                received within
                                                2005.

-------
TOTAL                          $ 6,553,933                $
</TABLE>


                                                   29
<PAGE>

You will note that $1,684,065 or 26% of the total commitments as of March 31
2005, is committed to the principals of Peak in promissory notes or long-term
licenses and a further 6% is committed to the holders of outstanding debentures.

We rely on short-term outside funding to meet our short-term liquidity needs, as
the internal cash flows generated by sales of our toys and gift products have
been insufficient to fully meet our short-term liquidity needs. We anticipate
that in fiscal year 2005, we will be in position to meet our short-term and
long-term liquidity needs through the internal cash flows generated from
broadcast sales from our current entertainment projects, Monster Quest and The
Wumblers, which are scheduled for production in late 2005 to early 2006.
However, our gross profit for the quarter ended March 31, 2005 represented only
3% of our commitments payable within twelve months. As of March 31, 2005.
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 quarter ended March 31, 2005, we had a net operating loss of $691,925and
an overall net loss of $1,070,398. At March 31, 2005, we had $500,499in cash and
had a working capital outflow of $198,329.

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

      Sources and Uses of Cash from Operating Activities

For the quarter ended March 31, 2005, cash flows from operating activities
resulted in negative cash flows of $198,329. The foreign exchange loss of
$238,430and gain on settlement of convertible debentures of $37,558 were offset
by non-cash charges of $433,752for depreciation, amortization of intangible
assets, amortization of discount on debentures, non-cash professional and
consulting fees, and a loss on sale of intangibles.

It is necessary for us to obtain additional capital from outside sources to
allow us to move forward with our operations and proposed new products. We
believe that our future growth is dependent on the degree of success of current
operations in generating revenues. Our ability to meet the obligations under the
contractual terms of our existing agreements, and the ability to obtain
additional funding for our operations, the sale of which, in turn, it is
anticipated, should produce cash inflows in line with our expectations from our
broadcast, licensing and merchandising activities.

Management expects to satisfy our liquidity needs on a short-term basis through
the continuing support of the directors, outside financings, and the subsequent
expected sales growth from our various company activities. We anticipate meeting
our long-term liquidity needs through the internal cash flows generated by
ongoing sales growth from projects such as our current entertainment project
Monster Quest. Furthermore, we will attempt to limit our long-term liquidity
needs through the continuance of cost control measures applied to our
operations.


                                       30
<PAGE>

      Sources and Uses of Cash from Investing Activities

Cash flows from investing activities resulted in positive cash flows of
$53,948in the quarter ended March 31, 2005, a significant increase from cash
flows of ($109,001) in fiscal 2004. In 2005, our focus will be on production and
investment in new product licenses from third parties. We may expend significant
resources in investing activities in 2005.

Cash for our initial start-up expenses was obtained primarily from advances from
two of our directors, Wilf and Paula Shorrocks.

      Sources and Uses of Cash from Financing Activities

Cash flows from financing activities resulted in postive cash flows of $487,428
in the quarter ended March 31, 2005, compared to same period in 2004 of positive
$952,351. In 2005, we intend to continue to rely upon capital raised from third
party investors in private placements to fund our operations, as well as any
entertainment production financing partners we can obtain. Entertainment
production financing partners will share in the proceeds of the sale of the
produced product.

Whereas, in 2003, the primary source of funds were loans from our officers, in
2004, we relied upon capital raised from the sale of securities, including
convertible debentures and common stock, to fund our operations. In 2005, we
intend to continue to rely upon capital raised from third party investors in
private placements to fund the Company's operations, as well as any
entertainment production financing partners we can obtain. Entertainment
production financing partners will share in the proceeds of the sale of the
produced product.

Short Term Borrowings. In 2002, we had net cash provided from short term
financing agreements totaling $264,600. This was an agreement to provide working
capital on a short-term basis secured against certain inventory of our
subsidiary, Jusco UK Ltd. At March 31, 2005, the balance was $374,096, which
includes interest and storage charges. The debt was originally due on January
10, 2003. In May 2004, the lender notified us regarding immediate payment of the
balance owed. We are in discussion with the lender regarding the repayment of
the debt through a combination of cash from the sale of certain inventory and
the issuance of our securities. In the event the repayment issue is not
resolved, the lender could institute a legal proceeding against our subsidiary,
Jusco UK Ltd, seeking repayment. The lender has a security interest on the
assets of our subsidiary, Jusco UK Ltd., but does not have a security interest
in our parent company or our other subsidiaries. As we have previously targeted
the assets of Jusco UK Ltd. for use in repaying the lender, we believe that a
proceeding against our subsidiary, Jusco UK Ltd. would not have a material
effect on our operations.

Stockholder Advances. From time to time, Mr. and Mrs. Shorrocks loaned money to
Peak to fund day-to-day operations, as well as for the acquisition of certain
properties. Since inception through December 31, 2004, the Shorrocks loaned to
Peak an aggregate of $752,522. The debt has incurred a foreign exchange loss of
$25,165. As of March 31, 2005, the Shorrocks are now owed $721,357. 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 $215,000 and
warrants to buy 645,000 shares of common stock. These securities had been sold
by the Company's predecessor business in February 2002 and we retained these
liabilities following the sale of the Company's former telecommunications
business.


                                       31
<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 $249,010. We determined that it would be preferable to
repurchase these debentures; and, we did so, as described below, so these
debentures are no longer outstanding.

In the months after April 2003 through December 2003, we had very little success
in raising capital from third parties to fund our operations. This inability was
due, in part, to the conversion terms of the outstanding debentures. Potential
financiers were unwilling to commit capital to us because of the conversion
terms of the outstanding debentures, since the debenture holders could convert
their debentures into a significant and potentially limitless number of our
shares at a significant discount to the market price of our common stock. In
order to raise capital, we needed to seek an amendment of the conversion terms
of the debentures or repurchase the debentures.

On January 5, 2004, we completed a transaction with former debenture holders in
which we repurchased from the former debenture holders an aggregate of
$1,000,000 principal amount of 12% convertible debentures and 2,215,000 common
stock purchase warrants, which represented all of the securities that they
purchased pursuant to Securities Purchase Agreements dated as of February 28,
2002 and April 22, 2003. We paid the former debenture holders $1,000,000 in cash
and 1,000,000 shares of our unregistered common stock for the repurchase of the
securities. The $1,000,000 payment to the former debenture holders consisted of
$500,000 in cash, and $500,000 by promissory notes, which was paid in full on
March 22, 2004. In order to make such payment, we used $250,000 that we had in
operating capital, and $750,000 that we raised through the sale of securities.
The former debenture holders had the right to make us buy from them all of the
1,000,000 shares of common stock issued to them, at the price of $0.75 per
share. The right expired in March 2005. We also paid $10,000 of the former
debenture holders' fees and expenses in connection with the transaction. As more
fully discussed at Item 3 Legal Proceedings, we are currently in dispute with
the former debenture holders.

The 8% convertible debentures issued in January 2004 are substantially different
from the repurchased debentures. The most material difference in the debentures
is that the repurchased debentures could be converted at a fluctuating rate at a
substantial discount to the market price of our common stock into an
undeterminable amount of shares of common stock whereas the new debentures are
convertible at a fixed rate into a fixed number of shares of common stock. Other
differences are that the repurchased debentures accrued interest at 12% whereas
the new debentures accrue interest at 8%, the repurchased debentures were due in
2004 whereas the new debentures mature in 2007.

In July 2004, debentures in principal amounts totaling $541,500 were converted
into 1,805,500 shares of common stock. We may need approximately $1,008,500,
plus accrued interest, to pay off the remaining debentures and accrued interest
in January 2007. We do not presently have the cash to pay that amount and our
present revenues and gross profit levels make it unreasonable to think that our
present operations are capable of producing cash streams to pay the debt in
2007. We do not have any specific plan to pay the debentures or the accrued
interest. We believe that the holders of the debentures are likely to convert
the debentures into shares of common stock prior to their maturity in 2007. If
the debentures are not converted prior to 2007, we anticipate that by January
2007 our operations will be producing sufficient revenues and cash flow to pay
off the debt, because it is highly unlikely that we will continue to be in
operation in 2007 if we are unable to resolve our going concern issues in 2005
or 2006. The first interest payment on the 8% convertible debentures was due in
January 2005, and if our operating revenues are insufficient to pay the
interest, or if the interest amount is not converted into common stock, we will
seek to resolve payment of interest through a promissory note, issuance of other
securities, or some other similar arrangement. We elected to accrue the interest
payment due January 2005 until another interest payment period.


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<PAGE>

Although we repurchased the 12% debentures in January 2004, we have current
liabilities related to the repurchased debentures reported on our December 31,
2003 balance sheet of $838,279. Because we financed the repurchase primarily
through the sale of new 8% convertible debentures due January 2007, we may need
approximately $1,860,000 to pay off the debentures and accrued interest in
January 2007 if none of the debentures are converted into the Company's common
stock, however, we believe that the holders of the debentures are likely to
convert the debentures, including accrued interest, into shares of common stock
prior to maturity of the 8% debentures in 2007. The first interest payment on
the 8% convertible debentures was due until January 2005. We elected to accrue
the interest payment for another interest payment period.

Sales of Securities in 2005

On January 5, 2004, we sold $1,500,000 in 8% convertible debentures due January
5, 2007 and 3,000,000 common stock purchases warrants. The purchase price
totaled $1,500,000, of which $750,000 was paid in cash, and $750,000 by
promissory notes, which were paid in July 2004. The principal amount of the
debentures, plus any accrued and unpaid interest on them, may be converted into
shares of common stock at the conversion price of $0.30 per share. Annual
interest payments on the debentures are due on January 7 of each year,
commencing January 7, 2005. At our option, interest payments may be accrued
beyond the annual interest payment date, in which event the debenture holder
shall have the option to accrue the interest payment then due to another
interest payment period, or cause us to issue common stock in exchange for
interest. The warrants are exercisable at a price of $0.50 per share. After the
tenth consecutive business day in which our common stock trades at $3.00 or
greater, the warrants become redeemable at $0.10 per warrant. We agreed to file
such a registration statement for the resale of the underlying shares and, in
the event that the registration statement was not declared effective within 120
days, to issue, as a penalty, approximately 100,000 shares of common stock for
each $500,000 investment for each subsequent month period in which the
registration statement had not been declared effective. In September 2004, we
issued a total of 275,000 shares to investors as a result of this agreement. As
reported above, in July 2004, debentures in principal amounts totaling $541,500
were converted into 1,805,500 shares of common stock. The remaining debentures
are protected by security interests in substantially all of our collateral. We
will need the approval of the debenture holders in order to grant security
interest rights to third parties that are senior to or on par with these
debentures. We used $750,000 of the proceeds for the retirement of previously
issued 12% debentures discussed above. We did not pay the interest due January
7, 2005 and we are awaiting the option holders decision as to whether the
interest is to be accrued until the next payment period or converted to common
stock.

On January 29, 2004, we entered into a Securities Purchase Agreement with an
individual investor. Pursuant to the agreement, we sold $50,000 in 8%
convertible debentures due January 29, 2007 and 100,000 common stock purchase
warrants. The purchase price was $50,000. The principal amount of the
debentures, plus any accrued and unpaid interest on the debentures may be
converted into shares of common stock at the conversion price of $0.30 per
share. Annual interest payments on the debentures are due on January 29 of each
year, commencing January 29, 2005. At our option, interest payments may be
accrued beyond the annual interest payment date, in which event the debenture
holder shall have the option to accrue the interest payment then due to another
interest payment period, or cause us to issue common stock in exchange for
interest. We used the proceeds for working capital purposes. On January 26,
2005, the investor converted these $50,000 in debentures, plus $4,000 in accrued
interest, into an aggregate of 180,000 shares. On March 10, 2004, the Company
entered into Securities Purchase Agreements with eleven accredited investors.
Pursuant to the agreements, the Company sold an aggregate of 1,000,000 shares of
common stock and 600,000 common stock purchase warrants, exercisable for three
years at $0.75 per share, for a total purchase price of $500,000. Legend
Merchant Group, Inc. acted as the placement agent for these transactions. All of
the purchasers were pre-existing customers of Legend Merchant Group. We paid
Legend a fee of $25,000, and 100,000 common stock purchase warrants exercisable
for three years at $0.50 per share and 60,000 common stock purchase warrants
exercisable for three years at $0.75 per share, for its services. We agreed to
seek registration of the resale of the shares of common stock and the shares
underlying the warrants in the amendment to our registration statement initially
filed in February 2004, or in a separate registration statement, and to incur
cash and other penalties for late effectiveness of such a registration
statement. No such penalties were incurred. We used the proceeds from the sale
of securities for working capital purposes.


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<PAGE>

On April 28, 2004, we entered into an agreement with Laura Wellington, whereby
we exchanged a debt of $250,000 owed to Ms. Wellington in exchange for 500,000
shares of common stock. Ms. Wellington had loaned $250,000 to us on or about
October 2003, which we used for working capital purposes.

On July 23, 2004, we entered into an agreement with Laura Wellington, whereby we
exchanged a debt of $194,000 owed to Ms. Wellington in exchange for 388,000
shares of common stock. Ms. Wellington had loaned $194,000 to us on or about
April 25, 2004, which we used for working capital purposes.

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

On September 28, 2004, we entered into Securities Purchase Agreements with three
accredited persons for the sale of 1,666,666 shares of common stock and
1,750,000 common stock purchase warrants, exercisable for three years at $0.50
per share, for the aggregate purchase price of $500,000.

CASH MANAGEMENT

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

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

PLAN OF OPERATIONS TO ADDRESS GOING CONCERN

In its report dated May 27, 2005, the independent registered public accounting
firm stated that our financial statements for the quarter ended March 31, 2005
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.


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<PAGE>

The primary issues management will focus on in the immediate future to address
this matter include:

      o     seeking institutional investors for equity investments;
      o     complete negotiations to secure short term financing through
            promissory notes or other debt instruments on an as needed basis;
      o     focusing on, and continue to expand, revenues, through sales of
            consumer products and pre-sales on our projects in development;
      o     renegotiate payments terms of existing contractual obligations;
      o     develop co-production financing opportunities for our entertainment
            projects;
      o     consider third-party licensing alliances for the products in our
            entertainment division; and
      o     seek acquisition and partnership opportunities with third party
            companies to expand our fully integrated media business.

To address these issues, in 2005, we have entered into agreements with various
investment banking companies to assist us in raising capital. We believe we are
close to securing $2,000,000 in short term funding to meet the operational needs
of the business. We have entered into a preliminary agreement with Maverick
Entertainment Plc, and expect to enter into more formal discussions about
potentially combining our businesses during 2005. We anticipate increased
revenues from having our first completed TV series to exploit later in 2005 with
Muffin the Mule. Further, we expect to generate pre-sales from the Wumblers in
the second half of 2005 as the show is slated to launch in the US and other
international territories in early 2006.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The accounting policies are
described in the notes to the consolidated financial statements included in this
document for the fiscal year ended December 31, 2004.

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

(1)   Revenue Recognition.

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

            (a)   persuasive evidence of a sale or licensing arrangement with a
                  customer exists,
            (b)   the television episode is complete and, in accordance with the
                  terms of the arrangement, has been delivered or is available
                  for immediate and unconditional delivery,
            (c)   the license period of the arrangement has begun and the
                  customer can begin its exploitation, exhibition or sale, and
            (d)   the arrangement fee is fixed or determinable.


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<PAGE>

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 January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation
of Variable Interest Entities" and in December 2003, a revised interpretation
was issued (FIN No. 46, as revised). In general, a variable interest entity
("VIE") is a corporation, partnership, trust, or any other legal structure used
for business purposes that either does not have equity investors with voting
rights or has equity investors that do not provide sufficient financial
resources for the entity to support its activities FIN 46, as revised, requires
a VIE to be consolidated by a company if that company is designated as the
primary beneficiary. The interpretation applies to VIEs created after January
31, 2003, and for all financial statements issued after December 15, 2003 for
VIEs in which an enterprise held a variable interest that it acquired before
February 1, 2003. The adoption of FIN 46, as revised, did not have a material
effect on the Company's financial position or results of operations.

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No 123, "Share-Based Payment" ("SFAS
Statement 123R") which replaces SFAS No 123, "Accounting for Stock-Based
Compensation," and supercedes APB Opinion No 25, "Accounting for Stock Issued to
Employees." This statement requires that all share-based payments to employees
be recognized in the financial statements based on their fair values on the date
of grant. SFAS No 123R is effective as of the beginning of the first interim or
annual reporting period that begins after December 31, 2005 and applies to all
awards granted, modified, repurchased or cancelled after the effective date. The
Company is evaluating the requirements of SFAS 123R and expects that its
adoption will not have a material impact on the Company's consolidated results
of operations and earnings per share.

In December of 2004, the FASB issued SFAS No 153, "Exchanges of Nonmonetary
Assets - an Amendment of APB Opinion No 29" (SFAS 153). SFAS 153 eliminates the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS 153 is effective for fiscal years beginning after
June 15, 2005 and is required to be adopted by the Company in the first quarter
of 2006. The Company does not believe that the adoption of SFAS 153 will have a
material impact on the Company's consolidated results of operations or financial
condition.


                                       36
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and
Principal Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the
Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Principal Financial Officer
concluded that our disclosure controls and procedures as of the end of the
period covered by this report were effective in ensuring that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

There was no change in our internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) that occurred during the third quarter of
fiscal year 2004 ended September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


                                       37
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As at March 31, 2005, we are not a party to any material pending legal
proceeding, other than ordinary routine litigation incidental to our business
and except as described below.

In 2002, we entered into an agreement with CK Supermarket to provide working
capital on a short-term basis secured against certain inventory of our
subsidiary, Jusco UK Ltd. At December 31, 2004, the balance was $386,095
including interest of $115,596.. The debt was originally due on January 10,
2003. At March 31, 2004, it was envisaged that the loan would be repaid in 2004
from revenues from the sale of inventory. In May 2004, the lender notified us
regarding immediate payment of the balance owed. We have been and remain in
discussion with the lender regarding the repayment of the debt through a
combination of cash from the sale of certain inventory and the issuance of our
securities. In the event the repayment issue is not resolved, the lender could
institute a legal proceeding against our subsidiary, Jusco UK Ltd, seeking
repayment. The lender has a security interest on the assets of our subsidiary,
Jusco UK Ltd., but does not have a security interest in our parent company or
our other subsidiaries. As CK Supermarket has previously targeted the assets of
Jusco UK Ltd. for use in repaying the lender, we believe that a proceeding
against our subsidiary, Jusco UK Ltd. would not have a material effect on our
operations.

On January 26, 2004, we entered into an agreement with POW! Entertainment LLC
for the development and exploitation of the property "Tattoo - the Marked Man".
We have the worldwide distribution and merchandising rights in perpetuity and
the agreement describes a payment of $250,000 to fund project development. The
payment was subject to certain deliverables from POW! upon which payment was
anticipated to be made on the earlier of August 31, 2004 or ten business days
after the effective date of our registration statement filed in February 2004.
Stan Lee is to develop the concept, based on characters created by the
Shorrocks. The project was geared toward creating a motion picture based on the
character. The parties were to share all profits received from the project,
after deduction of expenses, and in addition, POW would have been entitled to
any executive producer fees from theatrical and television releases. We have not
yet paid the amounts due to POW! under the agreement, and it appears that the
transaction has been abandoned. We believe that we have meritorious defenses to
any potential claims.

On August 13, 2004, in a labor action entitled Thomas Bernard Skahill v. Peak
Entertainment Holdings, Inc. before the Labor Commissioner of the State of
California, the Company was ordered to pay $24,358.27 in wages, expenses,
penalties, and interest in connection with an employment claim. We are informed
that the matter was confirmed as a judgment on or about October 15, 004 by the
Superior Court of the State of California in the amount of $24,938.57. The
financial statements include an accrual of $9,166 in relation to this claim.

We are informed that on or about April 6, 2004, James E. Skahill and Marie A.
Skahill filed a complaint for damages for breach of contract against Peak
Entertainment Ltd. before the Superior Court of the State of California for the
County of Los Angeles, Northeast District, Case No. GC033622 alleging breach of
a lease and seeking damages in an amount to be determined. We believe that the
matter was not properly commenced with proper service upon Peak Entertainment
Ltd. We have not submitted a response to the matter before the Superior Court of
the State of California. We are unaware of the present status of the matter
before the Superior Court of the State of California and we are unable to
evaluate the likelihood of an unfavorable outcome, nor provide an estimate of
the amount or range of potential loss.

On January 5, 2004, we completed a transaction, pursuant to a Settlement
Agreement and Release dated as of December 22, 2003, with former debenture
holders: AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW
Offshore, Ltd, and AJW Qualified Partners, LLC. Pursuant to the terms of the
settlement agreement, the former debenture holders had the right, thirteen
months after the closing of the transaction, to provide notice to the Company of
an exercise of a "put" right pursuant to which we would buy from the former
debenture holders all of the 1,000,000 shares of common stock issued to them
pursuant to the settlement agreement, at the price of $0.75 per share. Pursuant
to the terms of the settlement agreement, the former debenture holders were to
provide us with written notice if they wished to exercise the put right after
thirteen months and prior to one year and two months after the closing of the
transaction, at the expiration of which, the put right terminates. Closing on
the put was to occur within ten business days from receipt of notice of the put.
On or about January 10, 2005, the former debenture holders submitted a notice to
exercise the put right. On or about January 26, 2005, the former debenture


                                       38
<PAGE>

holders resent the January 10, 2005 notice to exercise the put right. We believe
that the notice was not properly submitted in accordance with the notice
procedures provided in the settlement agreement. To the best of our knowledge,
and after inquiry to the counsel for the former debenture holders of the "put",
no notice of exercise of the "put" was sent to us. Accordingly, we considered
the notice ineffective and did not honor the notice. In or about March 2005, an
agent for the former debenture holders informed us that the former debenture
holders may institute a legal proceeding to enforce their put rights. We
understand that the former debenture holders filed a lawsuit in this regard in
or about March 21, 2005. As of May 6, 2005, we have not been served with the
lawsuit. In the event that we are served with a lawsuit, we intend to contest
the matter vigorously. We may be required to pay $750,000 for repurchase of
1,000,000 shares of common stock from the former debenture holders, plus
potential interest and costs, if we lose such threatened litigation.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On July 23, 2004, we entered into an agreement with Laura Wellington, whereby we
exchanged a debt of $194,000 owed to Ms. Wellington in exchange for 388,000
shares of common stock. Ms. Wellington had loaned $194,000 to us in or about
April 29, 2004, which we used for working capital purposes. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.

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

On September 28, 2004, we entered into Securities Purchase Agreements with three
accredited persons for the sale of 1,666,666 shares of common stock and
1,750,000 common stock purchase warrants, exercisable for three years at $0.50
per share, for the aggregate purchase price of $500,000. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act. We applied the
proceeds to working capital.

ITEM 3. OTHER INFORMATION.

On December 22, 2004, we entered into an agreement with Morrison Entertainment
Group, whereby the parties dissociated our Monster Quest property and products
from Morrison Entertainment Group's Monster In My Pocket property and products.
Any and all agreements between the parties entered into prior to December 22,
2004, including license agreements, were terminated. We have informed licensees
of the discontinuation of the use of Monster In My Pocket.

On January 4, 2005, we entered into a consulting agreement with Salvani
Investments, pursuant to which we issued 1,000,000 warrants, exercisable for 5
years at $0.50 per share, in exchange for services.

On March 1, 2005, we entered into a loan agreement for $500,000 with Tayside
Trading Ltd. The loan was to be used to fund a $500,000 letter of credit, and
the principal amount to be returned by March 30, 2005. If the principal is not
paid by March 30, 2005, as penalty, we are to issue shares of our common stock
at the rate of 200,000 shares per day, and in the aggregate, up to 5,000,000
shares. We agreed to grant the lender, as collateral, rights to our intellectual
property, to the extent not already encumbered. In consideration for the loan,
we issued 500,000 warrants, exercisable for five years at $0.50 per share, to
the lender. We also granted the lender an option exercisable commencing with the
date of return of the $500,000 and expiring two weeks thereafter, to acquire, at
the purchase price of $100,000, (i) shares of the Company's common stock at
$0.30 per share (333,333 shares) and (ii) warrants to purchase 200,000 shares of
common stock, exercisable for five years at $0.50 per share.

On March 1, 2005, we entered into a non-binding letter of intent with Maverick
Entertainment Group plc (UK ) concerning a possible business combination of the
parties. The proposed transaction is presently contemplated to involve an
exchange of shares of the parties and is to occur by June 30, 2005. The terms of
the transactions have not been clearly defined, and no further progress on the
terms has been addressed.


                                       39
<PAGE>

We entered into a representation agreement, dated March 1, 2005, with Maverick
Entertainment Group plc (UK), pursuant to which we acquired, on a worldwide
basis, other than for video, DVD and publishing rights in the United Kingdom and
Ireland, the right to exploit television broadcasting rights for Muffin the Mule
and for Snailsbury Tails, and the right to negotiate with and grant
manufacturers and other interested parties licenses in relation to the
manufacture and distribution of merchandise. We are entitled to 35% of gross
receipts in the UK and 40% of gross receipts in the rest of the world. The
agreement expires on February 28, 2008, subject to automatic renewal if a
minimum (pound)500,000 in royalties has been paid to Maverick.

We entered into an agreement, dated March 7, 2005, with 4Kids Entertainment,
Inc. The territory covered by the agreement is the United States. The term of
the agreement is March 7, 2005 through December 31, 2011. Pursuant to the
agreement, we granted to 4Kids certain exclusive television broadcast and home
video rights to 52 episodes of the television series The Wumblers. 4Kids is to
use reasonable commercial efforts to cause the series to be broadcast on network
television in the territory for a minimum of 52 broadcasts commencing on or
before January 1, 2007. As to broadcasts for which 4Kids controls the
programming schedule or distribution method, revenues derived by 4Kids shall be
retained 100% by 4Kids and such revenues shall not be deemed net series income.
Revenues derived by 4Kids from broadcasts in the territory that 4Kids does not
control is to be divided as follows: 35% to 4Kids and 65% to Peak. With respect
to home video sales, we are entitled to a royalty of 15% of net wholesale sale
price if the wholesale price is greater than $10 per unit and 10% of the net
wholesale price if the wholesale price is $10 or less per unit. We also
appointed 4Kids as our exclusive agent in the territory during the term to
represent all merchandising, publishing and promotional rights to the series and
all characters and elements contained in the series. 4Kids is to pay us $125,000
as a nonrefundable license fee and $125,000 as an advance against royalties,
payable as follows: $4,807 as license fee and as an advance per episode upon
delivery and acceptance by 4Kids of each of the episodes. The $125,000 advance
shall be offset against Peak's share of royalties. We are entitled to 60% and
4Kids is entitled to 40% of the series net income from the exploitation of the
home video rights and merchandising rights derived in the territory. Series net
income is defined as gross receipts from the exploitation or license by 4Kids of
the home video rights and the merchandising, less certain production costs, and
less actual out-of-pocket expenses, excluding overhead expenses, incurred by
4Kids in connection with the exploitation of the television and merchandising
rights, and less third party out-of-pocket syndication costs paid by 4Kids.
Series net income does not include any advertising revenue received by 4Kids
from the sale of advertising on any 4Kids controlled broadcasts. 4Kids has an
annual option to license television rights and home video rights to at least
thirteen additional episodes per broadcast season. The term is to be extended
for an additional year upon exercise of such option. If Peak does not produce
additional episodes and 4Kids desires to produce such additional episodes, 4Kids
shall have the right to do so on terms and conditions to be negotiated in good
faith by the parties. We also granted to 4Kids the non-exclusive right to
represent and negotiate worldwide or multi-territory licenses, for which
advances, royalties and guarantees from such licenses generated in the United
States will be considered series net income, and advances, royalties and
guarantees from such licenses generated outside the United States or are
attributable to sales outside the United States are to be divided as follows:
15% to 4Kids and 85% to Peak.


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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.


Dated: June 3, 2005                         By: /s/ WILFRED SHORROCKS
                                                ---------------------
                                            Wilfred Shorrocks,
                                            Chairman and Chief Executive Officer


Dated: June 3, 2005                         By: /s/ NICOLA YEOMANS
                                                ------------------
                                            Nicola Yeomans
                                            Principal Financial Officer


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