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 SEPTEMBER 30, 2004

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

             For the transition period from ________ to ___________.

                        Commission file number: 33-18143

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

                        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.
                                AND SUBSIDIARIES

                                   FORM 10-QSB
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2004


                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements for the Quarters Ended September 30, 2003
            and 2004                                                          3
         Consolidated Balance Sheets                                          3
         Consolidated Statements of Operations                                4
         Consolidated Statements of Comprehensive Loss                        5
         Consolidated Statements of Cash Flows                                6
         Notes to Consolidated Financial Statements                           7
Item 2.  Management's Discussion and Analysis                                20
Item 3.  Controls and Procedures                                             34

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings                                                   35
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds         35
Item 5.  Other Information                                                   36
Item 6.  Exhibits                                                            37

Signatures                                                                   38



                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                        December 31,  September 30, 2004
                                                            2003          unaudited
                                                        -----------      -----------
<S>                                                     <C>              <C>
ASSETS
Current Assets
--------------
Cash and cash equivalents                               $   152,339      $    16,133
Accounts receivable                                          34,620           51,453
Inventories of finished goods                               236,007          184,442
Other current assets                                        588,439        1,233,051
                                                        -----------      -----------
Total current assets                                    $ 1,011,405      $ 1,485,079

Deferred professional fees                                  335,833          238,335
Plant and equipment, net                                    198,245          188,570
Intangible assets, net of amortization                    2,079,716        4,898,282
                                                        -----------      -----------
                                                        $ 3,625,199      $ 6,810,266
                                                        ===========      ===========
LIABILITIES AND  STOCKHOLDERS' DEFICIT

Current Liabilities
-------------------
Short term borrowings                                   $   582,786      $   308,174
Advances from factor                                          1,437               --
Accounts payable                                          1,209,339        2,104,447
Stockholders' advances account                              916,634          781,107
License fees payable                                        457,715          898,530
Other accrued liabilities                                 1,325,524          741,361
                                                        -----------      -----------
Total current liabilities                               $ 4,493,435      $ 4,833,619

Long Term Liabilities
---------------------
License fees payable                                      1,078,009        3,119,593
Convertible debentures                                      754,774          245,941
Deferred income                                                  --          754,416
                                                        -----------      -----------
Total long term liabilities                             $ 1,832,783      $ 4,119,950

Stockholders' Deficit
---------------------
Common stock, par value $0.001 - 900,000,000 shares
  authorized,  29,040,955 and 21,774,212 issued and
  outstanding                                           $    21,777      $    29,040
Additional paid in capital                                1,650,841        4,576,739
Retained deficit                                         (3,933,998)      (6,336,922)
Other comprehensive income                                 (439,639)        (412,160)
                                                        -----------      -----------
Total stockholders' deficit                              (2,701,019)      (2,143,303)
                                                        -----------      -----------
                                                        $ 3,625,199      $ 6,810,266
                                                        ===========      ===========
</TABLE>

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

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                             3 months ended   3 months ended    9 months ended    9 months ended
                                              September 30,    September 30,     September 30,     September 30,
                                                  2003             2004              2003              2004
                                             ------------      ------------      ------------      ------------
<S>                                          <C>               <C>               <C>               <C>
Revenue
  Character related consumer products              95,115           103,118           425,307           138,867
   Licensing arrangements                          42,508            35,356            89,953           109,147
                                             ------------      ------------      ------------      ------------
Net revenue                                       137,623           138,474           515,260           248,014

Cost of Revenue
   Cost of goods sold                              34,056           101,418           228,011           186,332
                                             ------------      ------------      ------------      ------------
Total cost of revenue                              34,056           101,418           228,011           186,332

Gross profit                                      103,567            37,056           287,249            61,682

Operating expenses
   Selling, general and administrative            520,630           505,452         1,701,408         2,104,581
   Depreciation and amortization                   44,257            87,136           127,098           339,392
                                             ------------      ------------      ------------      ------------
Total operating expenses                          564,887           592,588         1,828,506         2,443,973
                                             ------------      ------------      ------------      ------------

Loss from operations                             (461,320)         (555,532)       (1,541,257)       (2,382,291)

Gain/(loss) on settlement of convertible
   debentures and accrued interest                     --          (434,800)               --           443,376

Foreign exchange gain/(loss)                       38,605           (26,720)           70,600             9,092

Interest expense                                 (233,192)         (127,077)         (460,874)         (473,101)
                                             ------------      ------------      ------------      ------------
Net loss                                     $   (655,907)     $ (1,144,129)     $ (1,931,531)     $ (2,402,924)
                                             ============      ============      ============      ============

Basic and diluted net loss per share         $      0.031      $      0.042      $      0.095      $      0.097

Weighted average common shares
 outstanding                                   21,190,879        26,928,879        20,321,395        24,898,303
                                             ============      ============      ============      ============
</TABLE>

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

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

<TABLE>
<CAPTION>
                                             3 months ended   3 months ended    9 months ended    9 months ended
                                              September 30,    September 30,     September 30,     September 30,
                                                  2003             2004              2003              2004
                                             ------------      ------------      ------------      ------------
<S>                                          <C>               <C>               <C>               <C>
Net loss                                     $   (655,907)     $ (1,144,129)     $ (1,931,531)     $ (2,402,924)

Cumulative translation adjustment                 (40,193)           38,850          (103,048)           27,479
                                             ------------      ------------      ------------      ------------
Comprehensive loss                               (696,100)       (1,105,279)       (2,034,579)       (2,375,445)
                                             ============      ============      ============      ============
</TABLE>



See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                             Nine months
                                                         ended September 30
                                                    ---------------------------
                                                        2003            2004
Cash flows from operating activities:

Net loss                                            $(1,931,531)    $(2,402,924)
Adjustments to reconcile net loss to net cash
 used in operating activities:

Depreciation                                              9,941          13,985
Amortization of intangible assets                       117,157         106,360
Foreign exchange gain                                   (70,600)         (9,092)
Amortization of discount on debentures                  348,411         245,941
Gain on settlement of debentures                             --        (443,376)
Non-cash common stock expenses                           65,664              --
Non-cash professional and consulting fees                    --         713,695
Loss on sale of intangibles                                  --          65,222

Changes in working capital:

Accounts receivable                                     (87,295)        (16,270)
Inventories                                             (17,556)         55,400
Other current assets                                    (89,133)        (83,009)
Accounts payable and other accrued liabilities        1,039,877       2,134,102
                                                    -----------     -----------
Net cash used in operating activities                  (615,065)        380,034
                                                    ===========     ===========
Cash flows from investing activities:

Purchase of plant and equipment                         (76,552)         (4,456)
Purchase of intangibles                                 (43,021)     (2,060,244)
Disposal of intangibles                                      --         145,635
Issue of debentures                                          --       2,024,000
Settlement of debentures                                             (1,000,000)
                                                    -----------     -----------
Net cash used in investing activities                  (119,573)       (895,065)
                                                    ===========     ===========
Cash flows from financing activities:

Short term borrowings, net                                 (418)       (218,460)
Stockholders' advances account                          (77,872)         44,420
Advances from factor, net                                 2,239              --
Convertible debenture                                   785,000              --
Issue of common stock shares                                 --         350,000
Issue of common stock purchase warrants                      --         150,000
                                                    -----------     -----------
Net cash provided from financing activities             708,949         262,960
                                                    ===========     ===========
Cumulative translation adjustment                        27,412         115,865
                                                    ===========     ===========
Increase in cash and cash equivalents                     1,723        (136,206)
Cash and cash equivalents, beginning of period            9,870         152,339
                                                    -----------     -----------
Cash and cash equivalents, end of period            $    11,593     $    16,133
                                                    ===========     ===========
Supplemental disclosure of cash flow information
Interest paid                                               666           1,300
                                                    ===========     ===========
Purchase of licenses through issuance of long
term liabilities                                          8,336       1,733,685
                                                    ===========     ===========
Accounting for reverse acquisition                      208,500              --
                                                    ===========     ===========
Issuance of shares in settlement of liability                --         443,500
                                                    ===========     ===========

See accompanying notes to consolidated financial statements


                                       6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

1        DESCRIPTION OF BUSINESS AND FUTURE PROSPECTS

         Peak Entertainment  Holdings, Inc, formerly Peak Entertainment Ltd, was
         formed on November  20, 2001 as an  integrated  media group  focused on
         children.   Its   activities   include  the  production  of  television
         entertainment,  character licensing and consumer products  development,
         including  toy and gift  manufacturing  and  distribution.  Integration
         enables Peak Entertainment  Holdings, Inc to take property from concept
         to  consumer,   in-house,   controlling  and  coordinating   broadcast,
         promotions and product launches (toys,  apparel,  video games, etc.) to
         build market momentum and worldwide brand quality.

         The accompanying  consolidated  financial statements have been prepared
         in conformity  with  accounting  principles  generally  accepted in the
         United States of America, which contemplate continuation of the Company
         as a going concern. As shown in the financial statements,  at September
         30, 2004 and for the nine months then ended,  the Company has  suffered
         recurring losses, negative cash flows from operations, negative working
         capital,  an  accumulated  deficit of  $6,336,922  and a  stockholders'
         deficiency of $2,143,303.  These factors raise  substantial doubt about
         the Company's ability to continue as a going concern.

         The  Company  has  developed  a business  plan to  increase  revenue by
         capitalizing  on its integrated  media products.  However,  the Company
         must  obtain  funds from  outside  sources  in fiscal  2004 and 2005 to
         provide needed liquidity and successfully  implement its business plan.
         During the quarter ended  September 30, 2004,  $500,000 was raised from
         the sale of common stock and common stock purchase warrants. Presently,
         the Company has no firm  commitments  from  outside  sources to provide
         further  funds.   These  factors  raise  substantial  doubt  about  the
         Company's ability to continue in existence. The financial statements do
         not contain any adjustments  that might result from the outcome of this
         uncertainty.  While the Company is  optimistic  that it can execute its
         revised business plan, there can be no assurance that:

         A        Increased  sales  necessary  to  obtain   profitability   will
                  materialize, and

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

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (A)      Principals of Consolidation and Combination

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

                  Cameo  Collectables  Ltd was formed on August 20, 2002 and was
                  owned by Wilfred and Paula  Shorrocks  until  February 7, 2003
                  when Peak Entertainment Holdings Inc acquired the whole of the
                  share capital of Cameo Collectables Ltd.

                  Prior to February 7, 2003 the  financial  statements  of Cameo
                  Collectables   Ltd  were  combined  with  Peak   Entertainment
                  Holdings, Inc as both entities were under common control.


                                       7
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         (B)      Interim Financial Information

                  In  the  opinion  of   management,   the   interim   financial
                  information  as of September  30, 2004 and for the nine months
                  ended  September 30, 2003 and 2004  contains all  adjustments,
                  consisting only of normal recurring adjustments, necessary for
                  a fair  presentation of the results for such periods.  Results
                  for interim periods are not necessarily  indicative of results
                  to be expected for an entire year.

                  The accompanying  consolidated  financial statements have been
                  prepared in  accordance  with  generally  accepted  accounting
                  principles  for  interim  financial  information  and with the
                  instructions  to Form 10-QSB and Article 10 of Regulation S-X.
                  Certain information and footnote disclosures normally included
                  in  the   consolidated   financial   statements   prepared  in
                  accordance with generally accepted accounting  principles have
                  been   condensed  or  omitted   pursuant  to  such  rules  and
                  regulations. These consolidated financial statements should be
                  read  in   conjunction   with   the   consolidated   financial
                  statements,  and the notes thereto,  included in the Company's
                  Annual  Report on Form 10-KSB for the year ended  December 31,
                  2003.

         (C)      Earnings Per Share

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

                  Basic and diluted  earnings  per share are the same during the
                  quarters  ended  September  30, 2003 and 2004 as the impact of
                  dilutive  securities  is  antidilutive.  There  are  7,050,000
                  warrants  to purchase  shares of the  Company's  common  stock
                  outstanding as of September 30, 2004.

         (D)      Warrants

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

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


                                       8
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         (D)      Warrants (continued)

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

         (E)      Use of Estimates

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

         (F)      Recent Accounting Pronouncements

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

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


                                       9
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

3        SHORT TERM BORROWINGS

         On July 10, 2002,  the Company  borrowed  $240,000  from an  individual
         lender.  The debt  bears  interest  at 20% per  year.  The debt and all
         accrued  interest was  originally due on January 10, 2003. The debt has
         not been repaid and is due upon demand.  Accordingly,  the debt and all
         accrued  interest   totalling   $298,634  is  included  in  short  term
         borrowings.  The debt is  collateralized  by certain  inventory  of the
         Company's subsidiary, Jusco UK Ltd.

         In November  2003,  the Company  borrowed  $250,000  from an individual
         lender.  There were no terms for  repayment and no interest was charged
         to the  Company  during the  quarter.  On April 28,  2004,  the Company
         entered into an agreement whereby it exchanged the debt of $250,000 for
         500,000 shares of common stock. See note 9.

4        SIGNIFICANT CURRENT ASSETS AND LIABILITIES

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

                                                December 31,  September 30, 2004
                                                    2003          unaudited
                                                 ---------       ---------
         Other current assets

         Prepaid consulting                        153,990          39,668
         Accrued royalty income                     88,925         667,495
         Monies in Escrow                          276,379         400,000
         Other current assets                       69,145         125,888
                                                 =========       =========
                                                   588,439       1,233,051
                                                 =========       =========
         Accounts payable
         UK professional fees                      182,866         338,234
         US professional fees                           --         104,857
         Stock supplies - Countin' Sheep           164,355              --
         TV animation costs - Monster Quest        119,720              --
         Wumblers post production costs                 --         848,572
         Other accounts payable                    742,398         812,784
                                                 =========       =========
                                                 1,209,339       2,104,447
                                                 =========       =========
         Other accrued liabilities
         Consultancy fees                          188,521         246,518
         Wumblers pilot show costs                 271,954              --
         Deferred royalties income                  68,734          88,111
         Sales and payroll taxes                   193,084         170,425
         Debenture interest                        120,424          77,212
         Legal fees                                 97,753              --
         Other accrued liabilities                 385,054         159,095
                                                 =========       =========
                                                 1,325,524         741,361
                                                 =========       =========


                                       10
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

5        CONVERTIBLE DEBENTURES

         Convertible  debentures  are comprised of the following as at September
         30, 2004:

         Old convertible debentures                                           $
         Balance at December 31, 2003                                   754,774
         Settlement and release agreement                              (754,774)
                                                                       ========
         New convertible debentures:
         Amortized debt discount quarter ended March 31, 2004           120,424
         Amortized debt discount quarter ended June 30, 2004            128,586
         Released on conversions during quarter ended September
           30, 2004                                                     (90,104)
         Amortized debt discount quarter ended September 30, 2004        87,035
                                                                       --------
         Balance at September 30, 2004                                  245,941
                                                                       ========

6        TRANSACTIONS WITH RELATED PARTIES

         The relationship between the Company and its related parties are:

         Wilfred and Paula  Shorrocks  are deemed to be related  parties as they
         are directors of the following companies:  Peak Entertainment  Limited,
         Jusco UK Ltd,  Jusco  Toys  Ltd,  Wembley  Sportsmaster  Ltd and  Cameo
         Collectables   Ltd.  They  are  directors  and   shareholders  of  Peak
         Entertainment Holdings.

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


                                       11
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

6        TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

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

         a)       Wilfred and Paula Shorrocks

                  i)       Movements on stockholders' advances account

                           Balance due by the Company, December
                             31, 2003                                 $ 916,634
                           Cash advances                                 44,420
                           Repayments                                  (129,737)
                           Foreign exchange loss                        (50,210)
                                                                      ---------
                           Balance due by the Company at September
                             30, 2004                                 $ 781,107
                                                                      =========

                           Interest  amounting to $9,443 has been accrued during
                           the period.

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

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

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

                  ii)      License agreement

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


                                       12
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004


6        TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

                  ii)      License agreement (continued)

                           On February  25,  2002,  the Company  entered  into a
                           license agreement for rights to Monsters In My Pocket
                           from  Morrison  Entertainment  Group,  Inc., in which
                           Wilfred  and  Paula   Shorrocks  were  also  parties.
                           Pursuant   to  the   agreement,   Wilfred  and  Paula
                           Shorrocks  are  individually  entitled  to a  certain
                           percentage of the  revenues.  The Company is entitled
                           to 10% of the revenues from the United States, 35% of
                           the revenues from the United Kingdom,  and 40% of the
                           revenues    from    other    territories.    Morrison
                           Entertainment   Group  is  entitled  to  60%  of  the
                           revenues  from  the  United  States,   32.5%  of  the
                           revenues  from  the  United  Kingdom,  and 30% of the
                           revenues  from other  territories.  The Shorrocks are
                           entitled  to 30%  of the  revenues  from  the  United
                           States,   32.5%  of  the  revenues  from  the  United
                           Kingdom,   and  30%  of  the   revenues   from  other
                           territories.   The  revenue   allocation   refers  to
                           revenues from character and merchandise licensing and
                           sales  activities,   and  the  allocation  is  to  be
                           adjusted  for  entertainment   production   financing
                           terms. In October 2004, Morrison  Entertainment Group
                           sent the  Company  a notice  terminating  any and all
                           agreements with the Company.

         b)       Terence Herzog and Michael Schenkein

                  i)       Consulting services

                           From March 2003  through  June  2004,  Agora  Capital
                           Partners  Inc,  through  Terence  Herzog and  Michael
                           Schenkein,   has   provided   management   consulting
                           services to the Company.  The Company paid  aggregate
                           fees for such consulting services as follows:

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

7        WARRANTS

         On  July  24,  2003,  pursuant  to a  consulting  agreement  with  POW!
         Entertainment  LLC and Stan Lee, the Company  issued to POW warrants to
         purchase  750,000  shares  of the  Company's  common  stock  which  are
         exercisable  for  five  years  at  $0.35  per  share  in  exchange  for
         consulting  services to be provided over a three year term. Warrants to
         purchase  375,000  shares of common stock vested upon  execution of the
         consulting  agreement,  and the remaining  warrants to purchase 375,000
         shares of common stock  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.


                                       13
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

7        WARRANTS (CONTINUED)

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

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

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

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

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


                                       14
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

7        WARRANTS (CONTINUED)

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

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

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


                                       15
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

7        WARRANTS (CONTINUED)

         The warrants have been valued using the Black-Scholes Option Model at a
         value of $1,649,901 at the date of grant. A discount of the full amount
         of the debt was  recorded  and will be  amortized  over the life of the
         debt of approximately 3 years. The $750,000 received on January 5, 2004
         has been  recognized  at that  date;  the  remaining  $750,000  will be
         recognized  when it is  received,  on  registration  of the  underlying
         shares.

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

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

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

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

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


                                       16
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

7        WARRANTS (CONTINUED)

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

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

8        SHARE TRANSACTIONS

         On February 11,  2004,  the Company  entered  into a financial  advisor
         agreement with Ameristar  International Capital, Inc. It issued 100,000
         shares  of  common  stock as an  initial  equity  fee  pursuant  to the
         agreement.  These  shares  had a fair  value of  $43,000 at the date of
         grant.  The Company has  recorded  the value of the common  stock as an
         expense, as there is no continuing benefit.

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

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

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

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


                                       17
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

8        SHARE TRANSACTIONS (CONTINUED)

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

         On September 1, 2004, the Company entered into a consultancy  agreement
         with  CEOcast,  Inc. to provide  consultancy  services  for a six month
         period commencing  September 1, 2004, in exchange for 400,000 shares of
         common stock of the Company. These shares had a value of $44,000 at the
         date of grant.  The Company has  expensed  $7,333 as  consultancy  fees
         during the quarter ended September 30, 2004.

         On August 17, 2004, the Company issued 75,001 shares to Portfolio PR in
         connection with professional services provided.  The shares had a value
         of $18,750 at the date of the grant.  The Company has expensed  $33,000
         as  professional  fees during the quarter,  and  recognized a profit of
         $17,250 on issue of the shares.

9        REVERSE ACQUISITION

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

10       STOCKHOLDERS' EQUITY

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

         The debentures  bore interest at 12%,  mature one year from the date of
         issuance and were  convertible at the option of the holder at the lower
         of $1.00 or 50% of the average of the three  lowest  intra-day  trading
         prices for the common  stock on a  principal  market for the 20 trading
         days before but not including the  conversion  date.  The warrants were
         exercisable for five years at $0.31 per share.


                                       18
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERS  ENDED  SEPTEMBER  30, 2003 AND  SEPTEMBER  30, 2004,  AND NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004

10       STOCKHOLDERS' EQUITY (CONTINUED)

         The Company has recorded  these  debentures  and warrants in accordance
         with the provisions of EITF 00-27 "Application of Issue 98-5 to Certain
         Convertible  Instruments".  Under  the  provision  of EITF  00-27,  the
         Company  has  allocated  the  total  proceeds   received   between  the
         convertible  debentures  and the warrants  based on their relative fair
         value at the date of issuance. The Company then estimated the intrinsic
         value of the beneficial  conversion  feature resulting from the ability
         of the debenture holders to convert at a 50% discount. As a result, the
         Company has  recorded a debt  discount of $785,000.  The debt  discount
         will be amortized as interest  expense over the life of the debentures,
         which is one year.

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

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

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


                                       19
<PAGE>

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

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

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

INTRODUCTORY STATEMENT

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

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

The quarter ended September 30, 2004 continued to be an extremely difficult time
for the  Company.  The  Company had very  little  operating  capital to fund the
production  of planned  television  shows,  and focused on raising  capital from
third  parties to fund the  production  of the  television  shows.  The  Company
experienced  difficulty in raising capital from potential capital sources..  The
Company  believes  that this  difficulty  was  initially due to the terms of 12%
convertible debentures outstanding in 2003, which contained terms very favorable
to the debenture  holders,  and made potential  financiers  reluctant to provide
capital to the Company.  Accordingly,  the Company entered into discussions with
the debenture holders and repurchased those debentures in January 2004.

Though the Company successfully  replaced the 12% convertible  debenture and has
had limited success in raising short term working capital.  In 2004, the Company
raised an aggregate of  $2,500,000  which it applied to working  capital and the
payment of certain  creditors.  However,  the Company  continues  to  experience
difficulty in raising the Company's requirements to fully fund production of its
planned  television  shows,  which in turn,  has  delayed  and  compromised  the
Company's  ability to  license  intellectual  property  rights and sell toys and
merchandise based on the television shows.

With its limited available capital, the Company has produced initial episodes or
pre-production  material across several of its television  shows and the Company
believes that it will now be viewed more favorably by potential  capital sources
and believes that it should have better  success in raising much needed  capital
to fund full production of the planned television shows.

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

The Company has invested  over $600,000 via Silly Goose Company LLC from private
U.S.  investors  via third party  financing of The Wumblers and we are expecting
the balance of the  production  budge  ($2,500,000)  will be secured via further
investment from Silly Goose. 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.  Additionally,  the Faireez
consortium  lead by Moody  Streets  has raised over  $3,000,000  for the Faireez
production budget leaving Peak to only find just over $1,000,000 to complete the
anticipated funding for the Faireez project.


                                       20
<PAGE>

The Company still has to raise the balance of the capital for the shows in order
to  complete  production  in  earnest  and it is still a factor  that  until the
Company raises sufficient  capital to produce its planned  television shows, the
Company does not expect to generate  any  significant  revenues  from any of its
lines of  business.  If the  Company is unable to raise  capital to produce  its
television  shows, the Company intends to continue to alter its business plan to
focus on licensing its intellectual  property to third parties,  and on the sale
of toys and consumer goods.


RESULTS OF OPERATIONS

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

REVENUES

Consolidated net revenues increased to $138,474,  or 0.62%, for the three months
ended September 30, 2004 from $137,623 for the same period in 2003. Consolidated
net revenues decreased to $248,014,  or 52%, for the nine months ended September
30, 2004 from  $515,260  for the same period in 2003. A breakdown of revenues by
our business divisions is set forth in the tables below.

<TABLE>
<CAPTION>
------------------------------------------- ------------------------ ----------------------- -------------------------
Division                                       2003 3rd Quarter         2004 3rd Quarter      % Increase/(Decrease)
                                                    Revenue               Revenue ($)
                                                      ($)
------------------------------------------- ------------------------ ----------------------- -------------------------
<S>                                                 <C>                     <C>                       <C>
Entertainment/ Production                             Nil                     Nil                      n/a
------------------------------------------- ------------------------ ----------------------- -------------------------
Licensing Arrangements                              42,508                   35,356                   (17%)
------------------------------------------- ------------------------ ----------------------- -------------------------
Character Related Consumer Products                 95,115                  103,118                     8%
------------------------------------------- ------------------------ ----------------------- -------------------------
         Total Revenues                             137,623                 138,474                   0.61%
------------------------------------------- ------------------------ ----------------------- -------------------------

<CAPTION>
------------------------------------------- ------------------------ ----------------------- -------------------------
Division                                      2003 Nine Months to     2004 Nine Months to     % Increase/(Decrease)
                                               September 30 2003       September 2004 ($)
                                                      ($)
------------------------------------------- ------------------------ ----------------------- -------------------------
<S>                                                 <C>                     <C>                       <C>
Entertainment/ Production                             Nil                     Nil                      n/a
------------------------------------------- ------------------------ ----------------------- -------------------------
Licensing Arrangements                              89,953                  109,147                    21%
------------------------------------------- ------------------------ ----------------------- -------------------------
Character Related Consumer Products                 425,307                 138,867                   (67%)
------------------------------------------- ------------------------ ----------------------- -------------------------
Total Revenues                                      515,260                 248,014                   (51%)
------------------------------------------- ------------------------ ----------------------- -------------------------
</TABLE>

The decrease in total revenue is primarily  attributable to the inability of the
Company to generate  revenues from the sale of consumer  products  associated to
its  television  shows.  Such  activitieshave  been  limited  due to  delays  in
obtaining  requisite  financing  for the  production  of the  Company's  planned
television  shows.  While the Company has been in negotiations to secure funding
for its animation projects through various sources,  none of which have yet been
fully realized.

Revenues  from  licensing  decreased  16% to $35,356 in the three  months  ended
September  30, 2004 from $42,508 in the three months ended  September  30, 2003.
Revenues  from  licensing  increased  to  $109,147 or 21% for the nine months to
September 30, 2004, from $89,953 for the same period in 2003.


                                       21
<PAGE>

In the three months  ended  September  30,  2004,  the revenues for our consumer
products division increased 8% for the three months ended September 30, 2004 and
decreased 67% for the nine months ended September 30, 2004, primarily due to the
main focus for this period  being on the  raising of  capital,  and the sales of
inventory and products  launched in 2003 having been short term cash  generating
projects. It is the Company's intention to begin aggressively  marketing its toy
products  associated to its television projects once adequate financing has been
obtained for the production of the television  shows. The Company has negotiated
various representation  agreements with licensees,  and attended worldwide trade
shows and retail  presentation to raise the profile of the Company's products in
order to seed the markets in  anticipation  of the  televisions  show  launches.
Sales in 2003 were  generated  from sales of toy related  inventory  acquired as
part of our  acquisition  of Jusco  Toys Ltd along with its  principal  consumer
products  activities,  which  was  focused  primarily  on our  collector  `gift'
concept,  Countin' Sheep. This product was sold primarily in the United Kingdom.
We expect to build on this initial base by appointing  Impact as our distributor
domestically  and Cadaco (USA)  internationally  to build on this concept and we
are also in the process of producing a direct to  DVD/video  series to launch in
early 2005 in the UK, USA and Australia. [

In 2003,  the Company  was in the early  production  stages of three  television
shows,  and the Company expects to remain in the production  stages of the shows
in 2004 and early 2005. Until the Company has completed  production of the shows
and is in position to generate  revenues from the sales of broadcast  rights for
the shows, the Company does not have an adequate basis for projecting  revenues,
nor  identifying  trends or  demands.  This  applies  for all main  lines of the
Company's business,  as the Company's business is expected to be centered around
its television shows.

COST OF REVENUE

For the three months ended  September 30, 2004, cost of revenues was $101,418 as
compared  to $34,056 for the same  period in 2003,  a increase of 198%.  For the
nine months ended  September 30, 2004, cost of revenues was $186,332 as compared
to $228,011 for the same period in 2003, a decrease of 18%. The decrease in cost
of  revenues  is  attributable  to a  decrease  in  costs  associated  with  the
production  consumer  goods.  Cost  of  revenues  as a  percentage  of  revenues
increased to 73% in the three months ended September 30, 2004 as compared to 25%
in the same  period  in 2003.  Cost of  revenues  as a  percentage  of  revenues
increased to 75% in the nine months ended  September 30, 2004 as compared to 44%
for the same period in 2003.  This was  attributable to the decrease in revenues
for the three and nine months ended  September  30, 2004,  and  therefore  lower
costs being  attributable as a result.  The significant  revenues and costs have
been  related to consumer  products.  We do not  envisage  that this is a steady
decline in the sale of consumer products,  but the lack of associated television
show activity to drive this division  forward is a major factor  effecting  this
division.

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

GROSS PROFIT

Gross profit for the three months ended  September 30, 2004 was $37,056,  or 27%
of revenues, as compared to $103,567 or 75% of revenues,  for the same period in
2003. Gross profit for the nine months ended September 30, 2004 was $61,682,  or
25% of revenues,  as compared to $287,149 or 56% of revenues,  for the same nine
month period in 2003.


                                       22
<PAGE>

OPERATING EXPENSES

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  costs were  $505,452 for the quarter  ended  September  30, 2004
compared  to  $520,630  for the  same  period  in  2003.  Selling,  general  and
administrative  costs were  $2,104,581  for the nine months ended  September 30,
2004  compared  to  $1,701,408  for the same  nine  month  period  in 2003.  The
following  table  summarizes  the costs  incurred  for the three and nine months
ended September 30, 2004.

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

------------------------------- ------------------------ ---------------------- ------------------ -------------------
TOTAL                                   820,997                  100%               1,576,124             100%
------------------------------- ------------------------ ---------------------- ------------------ -------------------
</TABLE>

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

DEPRECIATION AND AMORTIZATION.  Depreciation for the quarter ended September 30,
2004 was  $87,136  as  compared  to  $44,257  for the same  period in 2003.  The
increase is in direct  relationship  with the treatment of the  amortization  on
warrants  that  have  been  issued  and  the  same  for  the  treatment  of  the
amortization on the intangible  fixed assets.  Depreciation  for the nine months
ended  September 30, 2004 was $339,392 as compared to $127,098 for the same nine
month period in 2003. Also included within these costs for the nine month period
ending  September  30,2004  were fees  relating  to  various  warrants  that are
amortized using the Black-Scholes Pricing Model.

NET LOSS

Net  operating  loss for the quarter  ended  September  30, 2004 was $555,532 as
compared to $461,320  for the same period in 2003.  Net  operating  loss for the
nine months ended  September  30, 2004 was  $2,382,291 as compared to $1,541,257
for the same nine month period in 2003.

Net loss increased from $655,907,  or $0.031 loss per share, in the three months
ended  September 30, 2003 to $1,144,129,  or $0.042 loss per share, in the three
months  ended  September  30, 2004.  The  increase in net loss is  significantly
attributable  to the  reduction  in total  revenue and the  amortization  of the
various  warrants  under  the Black  Scholes  Pricing  Model and along  with the
interest charges that have been accrued for the convertible debentures issued in
January 2004.

Net loss increased to $2,402,924,  or $0.092 loss per share,  in the nine months
ended September 30, 2004 from $1,931,531 or $0.095 loss per share,  for the same
nine month period in 2003. The net loss is largely attributable to the reduction
in total revenue and the  amortization  of the various  warrants under the Black
Scholes  Pricing  Model.  Included in net loss for the nine month  period  ended
September 30, 2004 is a gain on the settlement of the convertible debentures and
the write off of the interest  incurred being  $883,033.  The Company  benefited
from foreign exchange gains by $35,812 as a result of the strong pound ((pound))
against the US dollar ($),


                                       23
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

CASH REQUIREMENTS

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

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

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



                                       24
<PAGE>

As of September 30, 2004, we had commitments for capital and other  expenditures
aggregating  $8,953,569  included in current and long term liabilities,  payable
over a maximum 20 year period, that are summarized in the following table.

<TABLE>
<CAPTION>
-------------------------- --------------------- ------------------------- ------------- -----------------------------
CONTRACTUAL                LIABILITY             AGREEMENT TERMS           AMOUNT        NOTES
OBLIGATIONS                AS OF SEPTEMBER 30,                             PAYABLE
                           2004                                            IN 2004
-------------------------- --------------------- ------------------------- ------------- -----------------------------
<S>                        <C>                   <C>                       <C>           <C>
Short term loan -          $257,751              20% interest per annum,   $257,751      Seeking to negotiate a plan
CK Supermarkets                                  secured by certain        plus          for repayment, funded in
                                                 inventory                 interest      part by selling inventory,
                                                                                         and in part, through the
                                                                                         issuance of securities.

Other Short Term           $50,423               N/A                       $50,423
-------------------------- --------------------- ------------------------- ------------- -----------------------------
Accounts Payable -         $2,104,447            Various (composed         $2,104,447    All current liabilities are
Various                                          significantly of                        within the contract terms
                                                 various ordinary                        as renegotiated or are
                                                 business expenses, as                   under renegotiation.  It is
                                                 well as legal,                          the intention that payment
                                                 accounting, and other                   be made in accordance with
                                                 professional fees).                     amended contract terms.
-------------------------- --------------------- ------------------------- ------------- -----------------------------
Stock holders' advances    $781,107              Subject to promissory     $0            In 2004, we entered into a
account - Shorrocks                              note.                                   promissory note, payable in
                                                                                         installments. First payment
                                                                                         due March 2005 and to be
                                                                                         repaid in full not later than
                                                                                         2008.
-------------------------- --------------------- ------------------------- ------------- -----------------------------
Short Term Licenses        $898,530              Varying royalty           $898,530      Payment terms currently
                                                 terms                                   being renegotiated.
-------------------------- --------------------- ------------------------- ------------- -----------------------------
Debentures - various       $245,941              Discount and interest     $0            Matures in 2007.  First
debenture holders                                on the debenture                        interest payment due in
                                                                                         March 2005.
-------------------------- --------------------- ------------------------- ------------- -----------------------------
Other - including Tax &    $1,495,777                                      $1,495,777
Social security and
accruals
-------------------------- --------------------- ------------------------- ------------- -----------------------------
Long Term Licenses
- Shorrocks                $982,093              10% royalty payable       $25,000       Pay using royalties from
                                                 quarterly in                            licenses to third parties
                                                 perpetuity.                             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.

- Others (Various)         $2,137,500            Various Terms
-------------------------- --------------------- ------------------------- ------------- -----------------------------

TOTAL                      $8,953,569                                      $4,831,928
-------------------------- --------------------- ------------------------- ------------- -----------------------------
</TABLE>


                                       25
<PAGE>

You will  note  that  $1,908,504  or 29% of the  total  commitments  as of as of
September 30, 2004, is committed to the  principals of the Company in promissory
notes or  long-term  licenses  and a further 4% is  committed  to the holders of
outstanding debentures.

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

      o     Monster Quest -- Approximately $5 million in the next twelve months
            to produce 26 episodes of the program.

      o     The Wumblers -- Approximately $2,500,000 in the next twelve months
            to produce 52 episodes of the program.

      o     Faireez -- Approximately $1,100,000 in the next twelve months to
            produce 52 episodes of the program.

We rely on short-term outside funding to meet our short-term liquidity needs, as
the internal  cash flows  generated by sales of our toys and gift  products have
been  insufficient to fully meet our short-term  liquidity  needs. We anticipate
that in fiscal  year 2005,  we will be in position  to meet our  short-term  and
long-term  liquidity  needs  through  the  internal  cash flows  generated  from
broadcast sales from our current entertainment  projects,  Monster Quest and The
Wumblers,  which are scheduled for production in 2004. However, our gross profit
for the  quarter  ended  September  30,  2004  represented  only  0.003 % of our
commitments  as of September 30, 2004.  Because our current  operations  did not
generate any significant  revenues and our principal  planned products are still
in  production  stages,  we are in constant need of cash to pay for our ordinary
operating expenses,  and more significantly,  to pay for the production costs of
three projects currently in various stages of production. Accordingly, until our
entertainment  projects can be funded and full television  production activities
commenced,  we will continue to rely on short-term  outside  funding.  If we are
unable to obtain  funding  for the  projects,  we may be  forced to  curtail  or
terminate operations.

SOURCES AND USES OF CASH

For the nine months ended  September  30, 2004,  the Company had a net operating
loss of $2,382,291 and an overall net loss of $2,402,924. At September 30, 2004,
the Company had $16,133 in cash and had a working capital deficit of $298,821.

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

         SOURCES AND USES OF CASH FROM OPERATING ACTIVITIES

For the nine  months  ended  September  30,  2004,  cash  flows  from  operating
activities  resulted in negative  cash flows of $380,034.  The foreign  exchange
gain of $9,092 and gain on settlement of convertible debentures of $443,376 were
offset by non-cash  charges of  $1,145,203  for  depreciation,  amortization  of
intangible assets, amortization of discount on debentures, non-cash professional
and consulting  fees, and a loss on sale of intangibles.  Cash has benefited due
to a decrease of $16,270 in accounts  receivable  being offset by an increase of
$2,134,102  in accounts  payable  and other  accrued  liabilities.  Cash used in
operations included an increase of $83,009 in other current assets.


                                       26
<PAGE>

It is necessary  for us to obtain  additional  capital  from outside  sources to
allow us to move forward with our  operations  and  proposed  new  products.  We
believe that our future  growth is dependent on the degree of success of current
operations in generating revenues,  the ability to resolve our obligations under
the  contractual  terms of our existing  obligations,  and the ability to obtain
additional funding for our operations.  We need additional funds for development
of animation for our products,  the sale of which,  in turn, it is  anticipated,
could produce cash inflows from licensing opportunities.

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

         SOURCES AND USES OF CASH FROM INVESTING ACTIVITIES

Cash flows from investing activities resulted in negative cash flows of $895,065
in the nine months ended  September 30, 2004, a  significant  increase from cash
flows of  ($119,573)  in fiscal 2003.  In the nine months  ending  September 30,
2004, cash applied to investing  activities consisted of $4,456 toward plant and
equipment,  and $2,060,244 toward purchase of intangibles in the form of license
agreements for intellectual  property rights.  The acquisitions in 2003 were for
minor licenses and intellectual property rights.

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

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

         SOURCES AND USES OF CASH FROM FINANCING ACTIVITIES

Cash flows from financing activities resulted in positive cash flows of $262,960
in the nine months ended September 20, 2004,  compared to same period in 2003 of
positive $708,949. In 2004, the Company intends to continue to rely upon capital
raised from third party  investors in private  placements  to fund the Company's
operations,  as well as any entertainment  production  financing partners it can
obtain.  Entertainment  production financing partners will share in the proceeds
of the sale of the produced product.

SHORT  TERM  BORROWINGS.  In 2002,  we had net cash  provided  from  short  term
financing agreements totaling $264,600. This was an agreement to provide working
capital  on  a  short-term  basis  secured  against  certain  inventory  of  our
subsidiary,  Jusco UK Ltd. At September 30, 2004, the balance was $257,751.  The
debt was  originally  due on January 10,  2003.  At September  30, 2004,  it was
envisaged  that the loan would be repaid in 2004 from  revenues from the sale of
inventory.  In May 2004, the lender notified us regarding  immediate  payment of
the balance owed. We are in discussion  with the lender  regarding the repayment
of the debt through a combination of cash from the sale of certain inventory and
the  issuance  of our  securities.  In the  event  the  repayment  issue  is not
resolved,  the lender could institute a legal proceeding against our subsidiary,
Jusco UK Ltd,  seeking  repayment.  The lender has a  security  interest  on the
assets of our subsidiary,  Jusco UK Ltd., but does not have a security  interest
in our parent company or our other subsidiaries.  As we have previously targeted
the assets of Jusco UK Ltd.  for use in repaying  the lender,  we believe that a
proceeding  against  our  subsidiary,  Jusco UK Ltd.  would not have a  material
effect on our operations.


                                       27
<PAGE>

STOCKHOLDER ADVANCES.  From time to time, Mr. and Mrs. Shorrocks loaned money to
the Company to fund  day-to-day  operations,  as well as for the  acquisition of
certain  properties.  Since inception  through  September 30, 2004 the Shorrocks
loaned to Peak  Entertainment  an aggregate of $916,634,  plus a further $44,420
during 2004.  The debt has incurred a foreign  exchange  loss of $50,210.  As of
September 30, 2004,  the Shorrocks are owed  $781,107.  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.

On April 22, 2003, following the acquisition of Peak Entertainment Ltd., we sold
to the same  investors  of the  outstanding  convertible  debentures  additional
convertible  debentures in the principal  amount of $785,000 and warrants to buy
1,570,000 shares of our common stock.

We sold the  debentures  in April 2003 to raise  operating  capital and used the
proceeds for the payment of licensing commitments and general working capital.

The  conversion  terms of the debentures  provided that the debentures  could be
converted  into  shares  of our  common  stock  at the  lower  of $1.00 or a 50%
discount to the trading price of the common stock.  Accordingly,  the conversion
price was  continuously  adjustable,  with no minimum or floor  conversion price
set. Therefore, our obligation to issue shares upon conversion of debentures was
essentially limitless.

These debentures represented a large amount of debt relative to our identifiable
liquid  assets.  As of January 1, 2004,  we had an  aggregate  of  approximately
$1,000,000 in 12% convertible debentures outstanding,  with outstanding interest
payable of approximately  $249,010. We determined that it would be preferable to
repurchase  these  debentures;  and,  we did so, as  described  below,  so these
debentures are no longer outstanding.

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

On January 5, 2004, we completed a transaction with former debenture  holders in
which  we  repurchased  from  the  former  debenture  holders  an  aggregate  of
$1,000,000  principal amount of 12% convertible  debentures and 2,215,000 common
stock purchase  warrants,  which  represented  all of the  securities  that they
purchased  pursuant to Securities  Purchase  Agreements dated as of February 28,
2002 and April 22, 2003. We paid the former debenture holders $1,000,000 in cash
and 1,000,000 shares of our unregistered  common stock for the repurchase of the
securities.  The $1,000,000 payment to the former debenture holders consisted of
$500,000 in cash,  and $500,000 by promissory  notes,  which was paid in full on
March 22, 2004. In order to make such  payment,  we used $250,000 that we had in
operating  capital,  and $750,000 that we raised through the sale of securities.
In the  period  from  February  5, 2005 to March 5, 2005,  the former  debenture
holders have the right to make us buy from them all of the  1,000,000  shares of
common stock issued to them on January 5, 2004, at the price of $0.75 per share.
The put right only applies if the former  debenture  holders wish to make us buy
all 1,000,000 shares that they still own at that time, less any amounts they may
have previously sold or transferred. The put right is not transferable.  We also
paid $10,000 of the former  debenture  holders'  fees and expenses in connection
with the transaction.


                                       28
<PAGE>

We repurchased formerly outstanding 12% convertible  debentures in January 2004.
We had current liabilities related to the repurchased debentures reported on our
December 31, 2003 balance sheet of $838,279.  Because we financed the repurchase
primarily through the sale of new 8% convertible debentures due January 2007.

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

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

CERTAIN SALES OF SECURITIES IN 2004

On January 5, 2004, we sold $1,500,000 in 8% convertible  debentures due January
5, 2007 and  3,000,000  common stock  purchases  warrants.  The  purchase  price
totaled  $1,500,000,  of  which  $750,000  was  paid in cash,  and  $750,000  by
promissory  notes,  which were paid in July 2004.  The  principal  amount of the
debentures,  plus any accrued  and unpaid  interest  on the  debentures,  may be
converted  into  shares of  common  stock at the  conversion  price of $0.30 per
share.  Annual interest  payments on the debentures are due on January 7 of each
year,  commencing with January 7, 2005. At our option,  interest payments may be
accrued  beyond the annual  interest  payment date, in which event the debenture
holder shall have the option to accrue the interest payment then due for another
interest  payment  period,  or cause us to issue  common  stock in exchange  for
interest.  The warrants are exercisable at a price of $0.50 per share. After the
tenth  consecutive  business  day in which our common  stock  trades at $3.00 or
greater,  the warrants become redeemable at $0.10 per warrant. We agreed to file
such a registration  statement for the resale of the  underlying  shares and, in
the event that the registration  statement was not declared effective within 120
days, to issue, as a penalty,  approximately  100,000 shares of common stock for
each  $500,000  investment  for  each  subsequent  month  period  in  which  the
registration  statement had not been declared  effective.  In September 2004, we
issued a total of 275,000 shares to investors as a result of this agreement.  In
July 2004,  debentures in principal  amounts  totalling  $541,500 were converted
into  1,805,500  shares of common  stock.  The  remaining  $958,500  convertible
debentures  due  January  5,  2007  are  protected  by  security   interests  in
substantially all of our collateral.  We will need the approval of the debenture
holders in order to grant  security  interest  rights to third  parties that are
senior to or on par with these debentures.  We used $750,000 of the proceeds for
the retirement of previously issued 12% debentures discussed above.

On January 29, 2004, we entered into a Securities  Purchase  Agreement with Shai
Stern. Pursuant to the agreement,  we sold $50,000 in 8% convertible  debentures
due January 29, 2007 and 100,000  common stock purchase  warrants.  The purchase
price was $50,000. The principal amount of the debentures,  plus any accrued and
unpaid  interest on the  debentures may be converted into shares of common stock
at the  conversion  price of $0.30 per share.  Annual  interest  payments on the
debentures are due on January 29 of each year, commencing with January 29, 2005.
At our  option,  interest  payments  may be accrued  beyond the annual  interest
payment  date,  in which  event the  debenture  holder  shall have the option to
accrue the interest  payment then due for another  interest  payment period,  or
cause us to issue common stock in exchange  for  interest.  We used the proceeds
for working capital purposes.


                                       29
<PAGE>

On March 10, 2004, the Company entered into Securities  Purchase Agreements with
eleven  accredited  investors.  Pursuant to the agreements,  the Company sold an
aggregate of 1,000,000  shares of common stock and 600,000 common stock purchase
warrants, exercisable for three years at $0.75 per share, for the total purchase
price of $500,000.  Legend Merchant Group, Inc. acted as the placement agent for
these transactions.  All of the purchasers were pre-existing customers of Legend
Merchant  Group.  We paid Legend a fee of  $25,000,  and  100,000  common  stock
purchase  warrants  exercisable  for three  years at $0.50 per share and  60,000
common stock purchase  warrants  exercisable for three years at $0.75 per share,
for its services.  We agreed to seek registration of the resale of the shares of
common  stock and the shares  underlying  the  warrants in the  amendment to our
registration  statement  initially  filed in  February  2004,  or in a  separate
registration  statement,  and  to  incur  cash  and  other  penalties  for  late
effectiveness of such a registration statement. No such penalties were occurred.
We used the proceeds from the sale of securities for working capital purposes.

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

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

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

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

CASH MANAGEMENT

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

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

PLAN OF OPERATIONS TO ADDRESS GOING CONCERN ISSUE

In their reports dated April 22, 2004, our independent  auditors stated that our
financial  statements  for the  years  ended  December  31,  2002 and 2003  were
prepared  assuming  that we would  continue as a going  concern.  Our ability to
continue, as a going concern is an issue raised as a result of historical losses
from operations, cash flow deficits and a net capital deficiency. As a result of
the foregoing,  the auditors have expressed  substantial doubt about our ability
to continue as a going concern.

We continue to  experience  net operating  losses.  Our ability to continue as a
going concern is subject to our ability to generate a profit or obtain necessary
funding from outside sources,  including  obtaining  additional funding from the
sale of our  securities,  increasing  sales  or  obtaining  loans  from  various
financial  institutions  where possible.  Our continued net operating losses and
stockholders'  deficit  increases the difficulty in meeting such goals and there
can be no assurances that such methods will prove successful.


                                       30
<PAGE>

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

      o     seeking institutional investors for equity investments in the
            Company;

      o     initiating negotiations to secure short term financing through
            promissory notes or other debt instruments on an as needed basis;

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

      o     renegotiate payments terms of existing contractual obligations;

      o     issue securities of the Company in lieu of cash for certain services
            performed for the Company; and

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

(1) Revenue Recognition.

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

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

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

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

      (d)   the arrangement fee is fixed or determinable.

While this  accounting  treatment has not been material in our past  operations,
from time to time, we expect to receive  funds in advance to produce  television
show  episodes,  the  production  of which  could take from one to three  years.
Advances received will not be recorded as revenues until the revenue recognition
conditions are met.

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


                                       31
<PAGE>

(2) Film and Television Costs.

The Company  capitalizes the costs of developing film and television projects in
accordance  with  Statement  of  Position  00-2   "Accounting  by  Producers  or
Distributors   of   Film".   These   costs   will   be   amortized   using   the
individual-film-forecast-computation  method,  which amortizes costs in the same
ratio  that  current  period  actual   revenue  bears  to  estimated   remaining
unrecognized  ultimate  revenue at the beginning of the current fiscal year. The
Company  has  recorded  no  amortization  to  date  as  revenue  has  yet  to be
recognized.

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

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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


                                       32
<PAGE>

FORWARD LOOKING STATEMENTS

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



                                       33
<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.



                                       34
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

In 2002, we entered into an agreement  with CK  Supermarket  to provide  working
capital  on  a  short-term  basis  secured  against  certain  inventory  of  our
subsidiary,  Jusco UK Ltd. At September 30, 2004,  the balance was $257,751 plus
interest. The debt was originally due on January 10, 2003. At March 31, 2004, it
was envisaged  that the loan would be repaid in 2004 from revenues from the sale
of inventory. In May 2004, the lender notified us regarding immediate payment of
the  balance  owed.  We have  been and  remain  in  discussion  with the  lender
regarding the repayment of the debt through a combination  of cash from the sale
of  certain  inventory  and the  issuance  of our  securities.  In the event the
repayment issue is not resolved,  the lender could institute a legal  proceeding
against  our  subsidiary,  Jusco UK Ltd,  seeking  repayment.  The  lender has a
security  interest on the assets of our subsidiary,  Jusco UK Ltd., but does not
have a security interest in our parent company or our other subsidiaries.  As we
have  previously  targeted  the assets of Jusco UK Ltd.  for use in repaying the
lender, we believe that a proceeding against our subsidiary, Jusco UK Ltd. would
not have a material effect on our operations.

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

On August 13, 2004, in a labor action  entitled  Thomas Bernard  Skahill v. Peak
Entertainment  Holdings,  Inc.  before  the Labor  Commissioner  of the State of
California,  the  Company  was  ordered to pay  $24,358.27  in wages,  expenses,
penalties,  and interest in connection with an employment  claim. The matter has
not been confirmed as a judgment.

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 is geared toward  creating a motion picture based on the
character. The parties are to share all profits received from the project, after
deduction of  expenses,  and in  addition,  POW will be entitled  any  executive
producer fees from theatrical and television releases.  We have not yet paid the
amounts due to POW!  under the  agreement.  We believe that we have  meritorious
defenses to any potential claims.

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.


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<PAGE>

ITEM 5. OTHER INFORMATION.

From time to time, Mr. and Mrs.  Shorrocks loaned money to Peak Entertainment to
fund  day-to-day  operations,   as  well  as  for  the  acquisition  of  certain
properties.  Since company  inception  through  December 31, 2002, the Shorrocks
loaned to Peak Entertainment an aggregate of $972,386,  and we repaid $78,193 to
the  Shorrocks in 2002 and $71,206 in 2003.  As of December  31,  2003,  we owed
$916,634 to the Shorrocks.  These monies are loaned without  interest and do not
have a due date, and are due on demand.  In March 2004, we gave the Shorrocks an
unsecured  promissory note for the monies due establishing a repayment schedule.
The  amount  due is to be repaid in  installments,  consisting  of six  periodic
payments of $25,000  from  January 31, 2005  through  September  30,  2006,  two
payments of $100,000 on March 31, 2007 and September  30, 2007,  and the balance
due on January 31, 2008. The promissory  note provides for earlier  repayment of
any  unpaid  balance  subject  to  various  future  financial  results  of  Peak
Entertainment,  such as Peak Entertainment  obtaining a shareholders'  equity in
excess of 150% of the amount  due, or positive  net income  from  operations  in
excess of 150% of the amount due. As of September  30, 2004, we owed $781,107 to
the Shorrocks.

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

We entered into an Agreement for the  Provision of Co  Production  Services with
Persistence Of Vision Sdn Bhd, dated May 18, 2004, for the  co-production  of 26
thirty  minute  episodes  of  an  animated   television   program  for  children
provisionally  entitled  "Monster  Quest  - The  Quest."  We are  providing  the
intellectual  property,  format and concept  for the  television  episodes,  and
Persistence Of Vision will supply the production services. Persistence Of Vision
will be paid for its  production  services.  The costs of the  production of the
episodes is projected to be approximately $3,250,000.

The Company is negotiating a mutual release from the agreements between Morrison
Entertainment Group and the Company.  whereby the Company intends to produce and
promote  the  Monster  Quest  production  and  products  under  that name and to
disassociate itself from Monster In My Pocket. The agreement between the Company
and  Morrison  Entertainment  Group for the use of Monster In My Pocket has been
terminated. The Company has informed licensees of the discontinuation of the use
of Monster In My Pocket,  and the Company is in the  process of amending  all of
the Company's existing agreements in this regard. The Company cannot yet predict
whether its negotiations with Morrison  Entertainment Group will succeed, and if
unsuccessful,  whether or not litigation  between the parties may ensue.  In the
event of such litigation, the Company believes it has defenses to claims against
it, and that its  affiliates  may have  claims  against  Morrison  Entertainment
Group.


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<PAGE>

ITEM 6. EXHIBITS

The following exhibits are filed with this report:

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

10.1              Cancellation of Debt in Exchange for Securities Agreement with
                  Laura Wellington, dated July 23, 2004 (Incorporated by
                  reference to Exhibit 10.8 of Form 10-QSB filed on August 26,
                  2004)

10.2              Securities Purchase Agreement for $500,000 (Incorporated by
                  reference to Exhibit 4 of Form 8-K filed on October 1, 2004)

10.3*             Agreement for the Provision of Co Production Services Re:
                  "Monster Quest - The Quest" with Persistence Of Vision Sdn Bhd

10.4*             Consultant Agreement with CEOcast, Inc.

Exhibit 11*       Statement re: computation of per share earnings is hereby
                  incorporated by reference to "Financial Statements" of Part I
                  - Financial Information, Item 1 - Financial Statements,
                  contained in this Form 10-QSB.

Exhibit 31.1*     Certification of Chief Executive Officer Pursuant to
                  Securities Exchange Act Rule 13a-14(a)/15d-14(a)

Exhibit 31.2*     Certification of Principal Financial Officer Pursuant to
                  Securities Exchange Act Rule 13a-14(a)/15d-14(a)

Exhibit 32.1*     Certification of Chief Executive Officer Pursuant to
                  Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
                  1350

Exhibit 32.2*     Certification of Principal Financial Officer Pursuant to
                  Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
                  1350

------
* Filed herewith.



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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:  December 16, 2004                   By:  /s/ WILFRED SHORROCKS
                                                 ---------------------
                                            Wilfred Shorrocks,
                                            Chairman and Chief Executive Officer

Dated:  December 16, 2004                   By:  /s/ NICOLA YEOMANS
                                                 ------------------
                                            Nicola Yeomans
                                            Principal Financial Officer



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