U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-KSB



(Mark One)



[X]  Annual report under Section 13 or 15(d) of the Securities Exchange Act

of 1934



For the fiscal year ended December 31, 2003



[ ]  Transition report under Section 13 or 15(d) of the Securities Exchange Act     of 1934



For the transition period from



to







Commission file Number 333-99449



LITERARY PLAYPEN, INC.

(Name of Small Business Issuer in its charter)



Delaware



33-0889194





(State or other jurisdiction of

(I.R.S. Employer



incorporation or organization)

Identification No.)





1495 Ridgeview Drive, Suite 220



Reno, Nevada

89509



(Address or principal executive offices)

(Zip Code)



Issuer's telephone number (775) 827-6300



Securities to be registered pursuant to Section 12(b) of the Act:



Title of each class

Name of each exchange on which registered

None

N/A



Securities to be registered pursuant to Section 12(g) of the Act:





Common Stock, $.001 par value



(Title of class)



Check whether the issuer (1) 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 [ ].



Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]



The registrant's revenues for its most recent fiscal year were $ 0.



As of April 14, 2004, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately

$ 111,600, and the number of shares outstanding of the registrant's only class of common stock, $.001 par value per share, was 5,679,000.



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









PART I



ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL



Literary Playpen was organized in April 1997 for the purpose of listing its securities on an electronic stock exchange and then acquiring an interest in a suitable operating business, which may include assets or shares of another entity to be acquired by the Company directly or through a subsidiary. LPI is newly formed and has no assets, revenues or operations. The Company and companies of this sort are commonly referred to as "public shell corporations" and the transactions through which public shell corporations acquire an interest in a suitable operating business are commonly referred to as "shell reorganizations." The merger of Clusone Acquisition Corp., a Delaware corporation, and Literary Playpen, Inc, a Nevada corporation, was a shell reorganization.



On October 18, 2001, Clusone Acquisition Corp. entered into a Securities Purchase Agreement and Plan of Reorganization ("Agreement"), whereby it agreed to issue 2,000,000 shares of its restricted Common Stock, par value $.001, in exchange for 100% of the total outstanding shares of Literary Playpen, Inc., a Nevada corporation engaged in the literary games software development business. All conditions and terms of the Agreement were satisfied, and the transaction closed on December 31, 2001, and, in January 2002, the name of the company was changed to Literary Playpen, Inc. These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1931, and per rule 506 promulgated thereunder. All of these shares were issued to accredited investors, as that term is defined in Rule 501. Please also refer to the section entitled  Certain Relationships and Related Transactions on this page.



On January 30, 2002, we entered into a Securities Purchase Agreement and Plan of Reorganization ("Agreement"), whereby it agreed to issue 3,000,000 shares of its restricted Common Stock, par value $.001, in exchange for 100% of the total outstanding shares of L1 Systems, Inc., a Nevada corporation engaged in the literary games software development business. All conditions and terms of the Agreement were satisfied, and the transaction closed on February 11, 2002. . These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1931, and per rule 506 promulgated thereunder. All of these shares were issued to accredited investors, as that term is defined in Rule 501.





Jesse Sackman and Michael J. Morrison, current officers, directors and principal shareholders of the Company, were also officers, directors and principal shareholders of both Literary Playpen, Inc., and L1 Systems, Inc.  Messrs. Paul Sackman, Roberto Crawford and Sidney Sheldon, also principal shareholders of the Company, were also principal shareholders of Literary Playpen, Inc. and L1 Systems, Inc. Roberto Crawford was an officer, director and principal shareholder of the Company and also of both Literary Playpen, Inc., and L1 Systems, Inc.



To date, the Company has had no revenues or significant assets.



Literary Playpen, Inc. (LPI) intends to develop video game entertainment and other products, whose intent is to service two marketplaces for video games: the well-served and lucrative young male demographic and the underserved young female audience. Additionally, LPI seeks to service the young male demographic through an innovative, and yet simple new video game product.  A simple look at the video game market --- for example, an EDGAR search on Activision (Nasdaq: ATVI), will reveal the scale of profitability in sales to this demographic.



Our In-House counsel and Member of the Board of Directors, Mr. Morrison, is a securities attorney, with over 25 years experience with start-up public and private companies.





MARKET



Massive success of titillating and humorous game titles such as Grand Theft Auto: Vice City (commonly called GTA) have demonstrated the potential for such products among the young, male demographic.  As such, our video projects --- unique in their use of real video instead of computer generated graphics --- present a variety of humorous and titillating possibilities.



GTA drew some minor outcry over its racy nature from the demographic that doesnt purchase video games, which helped sales of GTA rapidly climb up the bestseller lists by the demographic that does buy video games, and we believe our intended production of video game products may hold similar promise. We believe such products may pave the way for less profitable, but socially valuable realms, such as educational and industrial uses, but also may allow LPI to profit on products sold by our competition.



MARKET POTENTIAL

The video game industry is the fastest growing segment of the entire entertainment industry.   Despite the continuing bear market, interactive game development has continued growth, approximately twice that of the U.S. economy (source: July, 2001 report by the Interactive Digital Software Association [IDSA]).



According to a study by Peter D. Hart Research Associates, 60% of the U.S. population (145 million Americans) regularly plays video games, accounting for revenues of $6.1 billion last year.  Strong growth is projected to continue for the interactive entertainment category as new hardware platforms, such as the Sony PlayStation 2, Nintendos GameCube and Microsofts XBox continue their competition for market share, on-line gaming via the Internet grows and wireless technologies continue to develop.



In the realm of wireless technology, as web-based cellular telephones and handheld organizers (PDAs, or Personal Digital Assistants such as Palm Pilots) have become ubiquitous the video game market is poised to strongly capitalize on that technology as well.  Dataquests Gartner Group shows that more than 10 million PDAs were sold worldwide in 2001, and is anticipated to grow even more in light of Microsofts release of the PocketPC 2002 operating system.  Sales were expected to be about 23 million PDAs in 2003.





PATENTS AND PROPRIETARY RIGHTS



Literary Playpen currently has no patents and proprietary rights. Should Literary Playpen pursue a Patent Application in the future, there can be no assurance that any such patent applications will issue as patents, or that any patent which may be issued will provide a preferred position with respect to the technology or products it covers.



Although Literary Playpen intends to pursue patent protection, significant legal issues remain as to the extent to which patent protection may be afforded, in both the United States and foreign countries. Therefore, Literary Playpen also intends to rely upon

Future development of trade secrets, know-how and continuing technological advancement to develop any competitive position. Disclosure of the Company's know-how is generally protected under confidentiality agreements. There can be no assurance, however, that all confidentiality agreements will be honored, that third parties will not develop equivalent technology independently, that disputes will not arise as to the ownership of technical information or that wrongful disclosure of Literary Playpen's trade secrets will not occur.



Certain products and processes important to Literary Playpen may be subject, in the future, to patent protection obtained by others. Interactive entertainment and its underlying technologies are developing rapidly. Because many patent applications have been filed in this field in recent years, the scope that courts will give to the claims of patents issued from such applications and the nature of these claims cannot be predicted. It is premature to predict what general trend, if any, will emerge as to the breadth of allowed claims for products and related uses.  The allowance of broader claims may increase the incidence and cost of interference proceedings at the United States Patent and Trademark Office and the risk of infringement litigation. A policy of allowing narrower claims, conversely, could limit the value of Literary Playpen's proprietary rights under its patents. It is possible that Patent and Trademark Office interference proceedings will occur with respect to a number of Literary Playpen's patent applications or issued patents. It is also likely that subject matter patented by others will be required by Literary Playpen to research, develop, or commercialize at least some of Literary Playpen's proposed products. No assurance can be given that licenses under any such patent rights of others will be made available on acceptable terms.



LPI TECHNOLOGY AND DEVELOPMENT

Though we feel our concepts are groundbreaking, the underlying technology is fairly simple, utilizing common techniques.  As such, when the Company obtains sufficient funding of these projects, we anticipate a fairly quick development cycle for the engine that will drive our future products.



This engine, once written, makes the production of future titles in a collection of products a matter of standard television-style production and editing.  This same engine can be licensed (assuming it has legal protection) to competitors or other companies producing products we feel not worthy of our resources (such as industry-specific training) for ongoing revenue beyond simple sales of our intended future products.The key to success with LPIs proposed products rests on the content itself, not the technology behind it.  Simplicity of technological design would be the driving force in LPIs development.



COMPETITION



There is potential competition from video game companies, such as Activision and Electronic Arts, traditional publishing companies, such as Warner Books and Simon & Schuster, other companies seeking convergence of electronic media and literature, such as eBooks, and an unknown number of programmers working in garages and small companies.



SUMMATION OF BUSINESS DESCRIPTION



Not just according to our research, but according most conventional business wisdom, the wireless Internet and video game industries are poised for great growth, and our proposed future products are intended to get a foothold in that market.

Our proposed wireless products, regardless of whether they hold the specific profit goals we believe or not, gets LPI into the wireless marketplace before the anticipated wave hits, and allows us to more easily enter other content and products into this arena later, when it costs much more for newcomers. We further feel that the continued strong growth of the video game industry, combined with our future products geared specifically towards the demographic of that marketplace, may provide substantial profitability to the company. The fact that our proposed future products may also serve socially conscious benefits in education and psychology, as well as industrial beneficial uses may provide a nice side benefit to the profitability we expect of Literary Playpen, Inc.



EMPLOYEES



As of December 31, 2003, Literary Playpen had 1 employee: Jesse A. Sackman, who does not provide 100% of his time to the business of Literary Playpen and receives no remuneration whatsoever at this time. . Literary Playpen considers its relations with its employees to be good. Roberto Crawford resigned as Officer, Director, and Chief Financial officer of the Company during 2003.



None of Literary Playpen's employees are covered by a collective bargaining agreement. Literary Playpen has entered into confidentiality agreements with its Employees, as well as all other officers, directors and past members of our Technology Advisory Board.



SB-2 REGISTRATION STATEMENT



On November 13, 2002 the Securities and Exchange Commission staff notified Literary Playpen, Inc. that the SB-2 Registration Statement filed with the Commission by the company was declared effective.



NASD CLEARING



On February 24, 2003 the NASD notified the companys market maker, Pennaluna and Company, that the NASD cleared the request for an unpriced quotation on the OTC Bulletin Board for Literary Playpen, Inc. Common Stock.

Subsequently the company was assigned the trading symbol LYPP.









RISK FACTORS



INVESTMENT IN THE SECURITIES OF LITERARY PLAYPEN, INC. INVOLVES AN EXCEPTIONALLY HIGH DEGREE OF RISK AND IS EXTEMELY SPECULATIVE IN NATURE. IN ADDITION TO THE OTHER INFORMATION REGARDING LITERARY PLAYPEN CONTAINED IN THIS ANNUAL REPORT, SHAREHOLDERS SHOULD CONSIDER MANY IMPORTANT FACTORS WHICH AFFECT THE COMPANY.  THE FOLLOWING RISK FACTORS ARE NOT EXHAUSTIVE, BUT ARE MERELY ILLUSTRATIVE, OF THE SUBSTANTIAL RISKS INVOLVED.



SAFE HARBOR

This Annual Report contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of Literary Playpens plans and objectives for future operations, assumptions underlying such plans and objectives and other forward-looking statements included in Item 1. Description of Business in this Annual Report. Such statements, which contain terms such as expect, believe, anticipate, suggest, indicate and similar terms of uncertainty, are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Factors which could cause such results to differ materially from those described in the forward-looking statements include those set forth in the risk factors below.





1.

AN INVESTMENT IN OUR SHARES IS A HIGH RISK INVESTMENT. An investment in the Shares of Literary Playpen involves a high degree of risk.  Shareholders should be aware that in the event our technology is not successful, any investment in Literary Playpen's Common Stock may be lost and Literary Playpen may be faced with the possibility of liquidation.



2.

ARMED CONFLICT.  As of the writing of this memorandum, the United States is in an armed conflict, whose result is completely uncertain and whose impact is beyond the control of Literary Playpen management.  Armed conflict is a possibility at any time in the future.  There can be no assurance that political and/or military actions by the United States government will not negatively impact the business operations of Literary Playpen, Inc.



3.

WE MAY HAVE A NEED FOR ADDITIONAL FINANCING.   Literary Playpen believes it has insufficient cash to develop, market and distribute our product. When more cash is required there can be no assurance that additional financing will be available or possible on terms favorable to Literary Playpen.  When more cash is required there is no assurance Literary Playpen will be able to sell additional Shares of its Common Stock or obtain other funding.



4.

OUR COMPANY AND BUSINESS ARE IN THE EARLY STAGE OF DEVELOPMENT. Literary Playpen has not yet generated revenues from the commercialization of its proposed products. There is substantial uncertainty regarding the timing and amount of any such future revenues. We have not yet completed development of any proposed products, and there is no assurance we ever will.



5.

WE HAVE PLACED RELIANCE ON LEAD PRODUCT CANDIDATES.  We believe the success of the initial proposed products for wireless platforms and game consoles to be a key to additional financing.  There can be no assurance of the success of the initial proposed products, nor can there be any assurance that if the initial proposed products are successful that this will help in our endeavors to gain additional funding.



6.

WE ARE UNCERTAIN AS TO THE PROFITABILITY OF OUR BUSINERSS OPERATIONS. Literary Playpen develops product in the emerging markets of wireless, PC-based and console-based technology. In the emerging market of wireless technology the way in which profits are generated has not been fully established.  Though management at Literary Playpen believes in our estimates, those estimates are based on an unproven revenue model.  There can be no assurance that Literary Playpen will ever become profitable.



7.

WE HAVE SUBSTANTIAL NEAR-TERM CAPITAL NEEDS AND NO SOURCE OF ADITTIONAL FUNDING.  We will require funding over the next twelve months to develop our business.  In fact, after paying the expenses of this offering, we will have minimal capital for operations and we will need immediate funding.  We currently have no source of funds. Our capital requirements will depend on the timing of further development of our products and services and the growth of our customer base. Our capital requirements may also depend on many other factors, which may arise and have not yet been identified. If adequate funds are not available when needed or as needed, we may be required to curtail operations or obtain funds by entering into collaboration agreements on unattractive terms. Our inability to raise capital would impair the technical, innovative, creative and presentational aspects of our products and services and our marketing abilities. In fact, if we do not obtain the necessary funding, we may be forced to cease operations.



8.

WE HAVE SUBSTANTIAL LONG-TERM CAPITAL NEEDS AND NO SOURCE OF ADDITIONAL FUNDING.  Substantial expenditures will be required in the next 12-24 months to further develop software programs and to market our services. The level of expenditures required for these activities will depend in part on whether we develop and market our products and services independently or with other companies through collaborative arrangements. If adequate funds are not available, we may be unable to develop our operations to a sufficient level to generate revenues or become profitable.



9.

WE HAVE A POOR FINANCIAL CONDITION AND MAY BE UNABLE TO ADEQUATELY DEVELOP OUR BUSINESS.     Because we have no operating history, assets, or revenue sources, an investor cannot determine if we will ever be profitable. We will experience financial difficulties during our operational development and beyond. We may be unable to operate profitably, even if we develop operations and generate revenues. We plan to generate revenues from sales to potential users of our products and services. There can be no assurance that our revenues will exceed our costs. There can be no assurance that our revenues will allow us to provide products and services that will attract users in a useful, efficient and timely fashion. Our poor financial condition could adversely affect our ability to generate revenues.



10.

WE DO NOT HAVE ANY MATERIAL CONTRACTS OR FUTURE PROSPECTS FOR MATERIAL CONTRACTS AND THIS MAY CAUSE OUR BUSINESS TO SUFFER. We have no contracts or prospective contracts that will assist us in promoting or further developing our products and services or operations. We have no contracts with programmers, Internet, games, computer, technical or marketing professionals that would assist us in the development, selection, presentational or technical aspects of our products and services. We have no contracts or prospective contracts with other software developers or distributors. We have not developed a plan to obtain any of these contracts.  If we fail to develop contracts with other software developers, programmers, or other professionals, our revenues will be negatively impacted.



11.

POTENTIAL INCREASE IN DEVELOPMENT TIME AND COSTS MAY ADVERSELY AFFECT OUR BUSINESS OPERATIONS. Development of computer software often runs into unforeseen obstacles.  This potential problem may be made worse by the emerging technology our proposed products are based on.  There is no assurance that, despite the years of experience of our management team in technology and video game development, our proposed products will finish development on time or within budgeted costs, or at all.



12.

DEPENDENCE ON EFFORTS OF COLLABORATIVE PARTNERS TO COMMERCIALIZE PRODUCTS MAY ADVERSELY AFFECT OUR BUSINESS OPERATIONS. There are several potential developments in our strategy. One of these strategies allows the PC-based proposed product to gain distribution by inclusion of a CDROM in the dust jacket of best selling books of the writers whose product is represented in the game. To distribute our product in this way we will need to collaborate with both the writer and their publisher.  There is no guarantee that writers and their book publishers will allow this form of distribution. There is no guarantee that writers and their book publishers if they allow this form of distribution will do so on terms favorable to Literary Playpen.



A wireless proposed product may or may not gain exposure from its wireless network partner.  Network providers, especially those in the U.S., earn revenue on the basis of time and minutes of usage, so they often feature high-usage applications (such as the one potentially designed by LPI) on their home page (the screen all wireless web users visit first to gain entry to any application on the network).  Despite the celebrity and literary appeal of our proposed products and their design to increase usage, wireless network providers are under no requirement to feature us on their home pages, or promote our product in any way.



LPI may be reliant on click-through or other advertising mechanisms on e-commerce or other sites (such as Amazon.com).  Though such advertising is common practice, there can be no assurance that we can acquire such advertising on terms favorable to LPI.



13.

DAMAGE TO INFRASTRUCTURE FROM OUTSIDE FORCES; TERRORISTS MAY ADVERSELY AFFECT OR DESTROY OUR BUSINESS.  Interactive literature, as designed by LPIs team, consists of software on large-scale data center systems at one or more physical locations which may be damaged by attacks by hackers, viruses, hardware failure, operating system failure, electrical failure, fire, and many other forces outside the control of LPI staff.  Additionally, hackers may find ways to exploit unknown flaws in systems to gain illegal entry to cheat billing or otherwise cause harm.  Hackers are known to publish flaws they discover in a variety of underground media, so it is possible these flaws may become well known and damage may occur before Literary Playpen fixes the flaw. In addition terrorist activities may cause an interruption and or destruction of our business.



14.

LACK OF INTEREST OF TARGET AUDIENCE MAY ADVERSELY AFFECT OUR BUSINESS.  We believe the core demographic of our proposed literary products based on information provided by Sidney Sheldons publishers to be young women.  We believe the core demographic of our proposed console and other products based on industry information to be young men. This sizeable market is very difficult to penetrate and there is no assurance our marketing efforts will be successful with this or any other audience.



15.

OVERWHELMING NEED FOR CUSTOMER SERVICE MAY ADVERSELY AFFECT OUR BUSINESS.  There are many examples of computer-based products that became successful much faster than anticipated.  While everyone loves success, too much, too fast, often results in customer service getting overwhelmed.  The direct result (i.e.: long on-hold times for telephone support, or the support web site crashing) may lead to an indirect result, namely: a bad reputation for support among critics and the public.  Customer support is often maintained by a third party, and there is a possibility our customer support partner will have problems whose solution is beyond the control of LPI. We have not yet identified or contracted any third party for customer support services and the inability to do so may adversely impact our business and potential revenue. Even in the event customer service systems are not overwhelmed, there can be no guarantee a bad reputation for support or bad support will be avoided, which may or may not impact revenue.



16.

DEPENDENCE ON HOSTING SERVICE PARTNERS MAY ADVERSELY AFFECT OUR BUSINESS.  The technical structure of LPIs proposed products requires very high-end systems in multiple locations.  Vendors, called hosting service providers, supply such services for fees, usually based on usage.  Despite our careful attention, it is possible the hosting partners we choose may encounter problems with their systems, or may otherwise not provide service on acceptable terms; the solution may or may not be within the control of Literary Playpen staff. At this time, we do not have any agreements with hosting partners, and have not identified or contracted any hosting partners, and the inability to do so may have an adverse affect on our business and potential revenue.



17.

RISK OF TECHNOLOGICAL OBSOLESCENCE MAY ADVERSELY AFFECT OUR BUSINESS. Literary Playpens proposed products are being designed to capitalize on two of the most dynamically emerging technologies: wireless Internet and so-called massively multiplayer design.  Whenever systems are designed at the cutting edge of technology, there is a possibility that sudden shifts in standards of programming language, transport protocols and other mechanisms may cause a successful product to be unpopular, as the availability of that product dwindles due to incompatibility with other computer systems.  There can be no assurance that, despite efforts by our staff and outsourced partners, a sudden shift in standards will not negatively affect our revenue or profitability.



18.

INABILITY TO ACQUIRE ADDITIONAL CONTENT MAY ADVERSELY AFFECT OUR BUSINESS.  One of the keys to the successful development of a new literary form for interactive video games is content by writers popular in standard literary forms. There is no guarantee that content will be available on terms favorable to LPI, or at all, for that matter.



19.

POTENTIAL COMPETITION COULD MAKE IT MORE DIFFICULT FOR US TO SUCCEED IN OUR BUSINESS.  There may be other parties pursuing products similar to our proposed products; however it is possible that a similar product is already being produced and represents unforeseen competition to Literary Playpen.  Further, it is possible that our proposed products may be successful enough to draw the attention of others capable of successfully developing a competitive product.  Such competition may come from existing video game developers large and small, book publishers, or other sources, and present a threat to sales of our proposed products and/or a threat to acquisition of literary content and/or other threats to our success.  Competitors may adversely affect our business.



20.

INABILITY TO GAIN ACCESS TO WIRELESS NETWORKS MAY ADVERSELY AFFECT OUR BUSINESS.  A requirement of distributing a wireless application is for that application to be accepted on the various wireless networks emerging worldwide.  Since each network, often multiple networks, within a single geography may require a separate negotiation; it is likely we will not gain access to all desired wireless networks on terms favorable to Literary Playpen.  It is possible that we will not gain access to any wireless network.



21.

INFRINGEMENT OF PROPRIETARY RIGHTS MAY RESULT IN LEGAL ACTION AGAINST US AND ADVERSELY AFFECT OUR BUSINESS. Literary Playpen may be subject to claims that it infringes the proprietary rights of others including, but not limited to, trademarks, copyrights, patents or other intellectual property.  Others may obtain or own proprietary rights claiming products or processes that are necessary for, or useful to, the development, use or distribution of our proposed products. Such people could bring legal actions against Literary Playpen claiming infringement and seeking damages and injunctive relief. We may be required to obtain licenses from others to continue to develop, distribute or market its proposed products or may be required to cease those activities. There can be no assurance that we will obtain such licenses on acceptable terms, if at all. There can be no assurance that our current and proposed future activities will not be challenged someday in the United States or abroad, there is no assurance that we will necessarily prevail in such a challenge, that proprietary rights have not issued or will not issue containing claims which may significantly limit the proposed activities of Literary Playpen, or that we will not become involved in costly, time-consuming litigation or interference proceedings regarding proprietary rights, including actions brought to challenge or invalidate Literary Playpen's own acquired future proprietary rights.



22.    POTENTIAL INABILITY TO PROTECT UNPATENTED TECHNOLOGY MAY ADVERSELY AFFECT OUR BUSINESS. We will also seek to protect our future proprietary technology, including technology, which may not be patented or patentable, in part, by having confidentiality agreements and, in certain cases, inventors' rights agreements with our collaborators (if any), advisors, employees and consultants. Although we do not have any rights agreements, if we ever do, there can be no assurance that any such agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise be disclosed to, or discovered by, competitors.



23.

DEPENDENCE ON KEY PERSONNEL AND ADVISORY BOARD.Our companys success depends in large part upon Jesse Sackman, its Chief Executive Officer.  The loss of the services of any one of our key personnel or advisors or consultants could have a material adverse effect on Literary Playpen and significantly impede the achievement of its development objectives.  Our continued expansion in areas and activities requiring additional expertise may necessitate the recruitment of additional management and technical personnel. There can be no assurance that we will be able to attract and retain such personnel on acceptable terms, given the competition for such personnel among numerous technology-based companies, many of which are larger and have greater resources than Literary Playpen.



24.

LACK OF STANDARDS IN EMERGING U.S. WIRELESS TECHNOLOGY MAY ADVERSELY AFFECT OUR BUSINESS OPERATIONS. Literary Playpens proposed wireless products may be released in Japan where a standard, called iMode, exists due to the state-run wireless infrastructure.  In the United States, however, such a standard has not emerged and will likely not become accepted for common use for several years.  Different versions of our proposed product, developed to support the various language and protocols used by the many cellular and other wireless networks emerging in the U.S., may present difficulties beyond our control.



25.

DEVELOPMENT PROBLEMS WITH iMODE SYSTEMS MAY ADVERSELY AFFECY OUR ABILITY TO CONDUCT OUR BUSINESS.  We prefer to outsource development of foreign language product, specifically the iMode product in Japan, to programmers and system specialists in those nations or to U.S. developers intimately knowledgeable of those systems.  Development with non-English-speaking teams or individuals presents a challenge to Literary Playpens ability to successfully develop and support products in those nations or on those networks that employ the standards of those nations.  Development with U.S.-based developers knowledgeable in such foreign systems presents a challenge that such product must be compatible with those systems or that translation of the English-language content would occur.  It cannot be guaranteed that we can successfully develop and distribute any product on foreign systems, including iMode-based systems, such as those in Japan.



26.

DETERIORATION OF U.S. AND WORLD ECONOMY MAY ADVERSELY AFFECT THE FINANCIAL MARKETS AND OUR BUSINESS OPERATIONS.  In the currently uncertain U.S. and World economy, there can be no guarantee our company will not be negatively affected by current and/or future circumstances.  Deterioration of the economy may negatively affect the emergence of wireless technology in the United States, the book publishing industry, or any other component of LPIs strategy, which may or may not negatively impact our ability to gain revenue and/or contain costs.



27.

UNCERTAINTY OF REVENUE MAY ADVERSELY AFFECT THE VALUE OF YOUR INVESTMENT IN OUR COMPANY.  As wireless and other markets for LPI proposed products emerge, standards of revenue have, and will likely continue, to shift.  Some wireless network providers license products based on usage of their networks, while others attempt to purchase it outright.  There are potentially as many forms of revenue, both in the U.S. and abroad, as there are wireless networks.  Because of this, there can be no assurance of accurate estimation of revenue, or any revenue at all, from Literary Playpens proposed products.



28.

ABSENCE OF LIABILITY AND ERRORS-AND-OMMISSIONS INSURANCE COULD PUT OUR ASSETS AT RISK IN THE EVENT A CLAIM IS ASSERTED AGAINST THE COMPANY OR OUR MANAGEMENT. As with any business, there is a possibility of the need for liability and errors-and-omissions insurance.  We currently maintain no such insurance, though it is our intent to obtain insurance upon funding. In addition, there can be no guarantee that we will be able to obtain or maintain insurance coverage in the future on acceptable terms or that any claims against Literary Playpen will not exceed the amount of such coverage, if any.



29.

VOLATILITY OF STOCK PRICE MAY AFFECT YOUR ABILITY TO SELL YOUR SHARES. The market prices for securities have been volatile. Many external factors may have a significant impact on our business and on the market price of the Common Stock such as, announcements of technological innovations or new commercial products by us or our competitors, developments concerning proprietary rights, including patents and litigation matters, publicity regarding actual or potential products under development by us or our competitors, regulatory developments in both the United States and foreign countries.  Assuming a market is developed and maintained, of which there can be no assurance, these factors may alter the stock price.  There is currently an extremely limited market for the companys securities.



30.

SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE STOCK PRICE IN ANY MARKET THAT MAY DEVELOP AND AFFECT THE PRICE AT WHICH YOU MAY BE ABLE TO SELL YOUR SHARES. All shares of our total outstanding common stock are currently eligible for sale pursuant to Rule 144 of the Securities Act of 1933, as amended. Sales of substantial amounts of Common Stock in the public market could adversely affect the market price of the Common Stock, assuming a market continues to develop, of which there can be no assurance. The sale of these shares could have a significant adverse effect on the market price of the Common Stock, if any.



31.

POSSIBLE RULE 144 SALES MAY ADVERSELY AFFECT THE STOCK PRICE IN ANY MARKET THAT MAY DEVELOP AND AFFECT THE PRICE AT WHICH YOU MAY BE ABLE TO SELL YOUR SHARES.   A total of 5,679,000 shares of Common Stock have been issued by Literary Playpen as of April 14, 2003, and 5,179,000 of those shares are held beneficially by persons who are officers, directors and control persons, and 500,000 shares are held by other persons, which are registered securities following the filing of the companys SB-2 Registration Statement which became effective on November 13, 2002.



These 5,179,000 shares of Common Stock may only be sold in compliance with Rule 144, which provides, in essence, that a person (or persons whose shares are aggregated) beneficially owning restricted securities for a period of one year may sell, every three months, in brokerage transactions, a number of shares equal to the greater of one percent of the total number Literary Playpens then outstanding shares of Common Stock or the average weekly trading volume in our Common Stock during the preceding four calendar weeks.  All of the 5,679,000 shares presently outstanding were issued between April 1997 and April 2003.  The possible sale of these restricted shares eligible to be sold under Rule 144, may, in the future, have a depressive effect on the price of our Common Stock in the over-the-counter market.  Furthermore, persons holding restricted securities for two years, who are not "affiliates" of Literary Playpen, as that term is defined in Rule 144, may sell their shares pursuant to Rule 144 without any limitations on the number of shares sold.



32.

ABSENCE OF DIVIDENDS MAY REDUCE YOUR OPPORTUNITY TO RECEIVE ANY RETURN ON YOUR INVESTMENT IN OUR SHARES. We have not paid any cash dividends on the Common Stock since inception and do not anticipate paying cash dividends in the foreseeable future.



33.

ANTI-TAKEOVER PROVISIONS MAY MAKE IT DIFFICULT FOR THIRD PARTIES TO ACQUIRE CONTROL OF OUR COMPANY. The Board of Directors has the authority to issue shares of common stock without further action by the shareholders of Literary Playpen. In addition, Literary Playpen's Articles of Incorporation and By-Laws contain certain provisions that could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of Literary Playpen. Such provisions could limit future prices that certain investors might be willing to pay for shares of Common Stock. These provisions, which include indemnification of the Board of Directors, could also have the effect of deterring a hostile takeover or delaying or preventing changes in control or management of Literary Playpen.





34.

CONFLICTS OF INTEREST; TIME DEVOTED BY EMPLOYEES MAY ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS. Our management presently devotes time to other companies or projects that may compete, directly or indirectly, with Literary Playpen, both in existing business activities and in seeking investment/business opportunities and the subsequent operations thereof.  An attempt will be made with regard to any conflicts of interest between Literary Playpen and management to resolve such conflicts in favor of Literary Playpen.  In the future, it may be necessary to hire employees at substantial expense; however, as of the date of this Offering, no specific additional employees are contemplated. None of our employees will devote 100% of their time to the business of Literary Playpen. See "Management" and Certain Relationships and Related Transactions.





ITEM 2.  DESCRIPTION OF PROPERTY



Through an oral agreement with Michael Morrison, a Director and Secretary of the Company, the Company's operations are located at 1495 Ridgeview Drive, Suite 220, Reno, Nevada 89509. The Company's office is located within a suite of offices leased by the law firm owned by Mr. Morrison. There is no rental charge to the Company for office space, equipment rental or phone usage. The Company does not anticipate acquiring separate office facilities until such time as the company has been funded and business has commenced.



ITEM 3.  LEGAL PROCEEDINGS.



There are no legal proceedings against the Company and the Company is unaware of proceedings contemplated against it.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



On October 18, 2001, the Registrant entered into a Securities Purchase Agreement and Plan of Reorganization ("Agreement"), which was approved unanimously by the shareholders, whereby it agreed to issue 2,000,000 shares of its restricted Common Stock, par value $.001, in exchange for 100% of the total outstanding shares of Literary Playpen, Inc., a Nevada corporation engaged in the literary games software development business. All conditions and terms of the Agreement were satisfied, and the transaction closed on December 31, 2001.



On January 24, 2002, our board of directors adopted resolutions proposing and declaring advisable an amendment to our certificate of incorporation to give effect to a change of our name to "Literary Playpen, Inc."



On January 25, 2002, the amendment was adopted by the written consent of holders of a majority of the issued and outstanding shares of our common stock entitled to vote thereon in accordance with Section 228 of the General

Corporation Law of the State of Delaware. Our board of directors decided to obtain the written consent of holders of a

majority of the outstanding common stock entitled to vote on the amendment in order to eliminate the cost and delay involved in holding a special meeting of our stockholders and in order to amend our certificate of incorporation in a timely manner.



PART II



ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.





As of April 14, 2003, the companys eligible Common Stock is offered on the NASD OTC Bulletin Board Market with the trading symbol LYPP



The OTCBB securities are not listed and traded on the floor of any organized national or regional stock exchanges. Instead, OTCBB securities transactions are conducted through a telephone and computer network connecting dealers in stocks. Over-the-counter stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.



However, broker-dealers may be discouraged from effecting transactions in our Shares because they will be considered penny stocks and will be subject to the penny stock rules.



Rules 15g-1 through 15g-9 broadcast under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on NASD brokers-dealers who make a market in a "penny stock." A penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share. Our shares are listed for  trading on the OTCBB and purchases and sales of our shares are expected to be generally facilitated by NASD broker-dealers who will act as market makers for our shares. The additional sales practice and disclosure requirements imposed upon brokers-dealers may discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market, assuming one develops.



Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transactions is otherwise exempt.



In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.



As of December 31, 2003, there were approximately 73 holders of record of our common stock.





As of April 14, 2004, there were 73 record holders of the Company's Common Stock.



The Company has not paid any cash dividends since its inception and does not contemplate paying dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained for the operation of the Company's business.



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



The Company has had no revenues, and the operating costs and expenses incurred by the Company to date are mainly consulting, accounting, legal and investor relations expenses, which totaled $ 22,462 for the year ended December 31, 2003 and $ 68,393 for the period from inception (April 26, 2001) to December 31, 2003.

On August 26, 2003 Mr. Roberto Crawford resigned as Chief Financial Officer and as a member of the Board of Directors when he accepted full-time employment which did not allow him to remain at Literary Playpen, Inc. in these capacities. The Company intends to seek a replacement for the vacated positions. Mr. Crawford remains as a member of the Advisory Board only.

In March of 2003 the Company offered 3,000,000 shares of its common stock, par value $0.001 in a Private Placement Memorandum, which has expired. The Company intends to offer shares of its common stock, par value $0.001 in a Private Placement Memorandum during the next twelve months.  The Companys plan of operation over the next 12 months is to obtain funding to implement its business plan.

The Company is classified as a development stage company because its principal activities involve seeking to develop business activities.

We are an entertainment company that seeks to own rights to literary content. The target use for our proposed technology is a series of wireless and PC-based video games intended to form a new literary art form.

We intend to develop and market a series of online and wireless interactive products, which merge contemporary best-selling fiction by established writers with communication and interactive media to create a new literary entertainment form, distributed by existing wireless networks and as CDROMs in book jackets of best-selling published works. We intend to create a series of online interactive video games and believe that these proposed products may enjoy large-scale distribution through enclosure of a CDROM in the book jacket of published books by writers who have licensed content to LPI.

On September 30, 2003 the Intellectual Property Rights licensed to the Company by Mr. Jesse Sackman expired. The Company intends to obtain Intellectual Property license rights for use in developing interactive games. We have a strong technical foundation to develop intellectual property licensed by the Company.  The technical background of our management and advisory team span more than thirty years.

Short Term Goal

We intend to seek funding to obtain Intellectual Property Rights and we intend to then develop interactive literature products.  Each product is anticipated to draw advances on royalties to offset development costs, with actual royalties to provide ongoing revenue. The first wireless games may be targeted at the teen and young woman demographics and possibly released in Japan.

Long Term Goal

We intend to build an ongoing library of interactive literature products.  It is our hope that eventually this library will be quite sizable, with products for wireless and wired technologies.  One of our goals is that over the first two-years of the development cycle, we intend to seek to develop a role-playing game based on, and to be distributed with, a current hardcover release. These games, to be played on personal computers and game consoles, are expected to be far more sophisticated in design and more far-reaching in possibilities







FORWARD LOOKING STATEMENTS



This Annual report contains forward-looking statements that are based on the Company's beliefs as well as assumptions made by and information currently available to the Company. When used in this annual report, the words "believe," "endeavor," "expect," "anticipate," "estimate," "intends," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions which described in Part I, Item 1, Description of Business - Risk Factors," above. Should one or more of those risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. The Company cautions potential investors not to place undue reliance on any such forward-looking statements all of which speak only as of the date made.





































(this space left blank intentionally)























ITEM 7.  FINANCIAL STATEMENTS









LITERARY PLAYPEN, INC.



(A DEVELOPMENT STAGE COMPANY)



FINANCIAL STATEMENTS



FOR THE YEARS ENDED



DECEMBER 31, 2003



AND



DECEMBER 31, 2002



WITH



AUDIT REPORT OF



INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS









TABLE OF CONTENTS

Independent Auditors Report

2
Balance Sheet

4
Statements of Operations

5
Statement of Changes in Shareholders Deficit

6
Statements of Cash Flows

7
Notes to Financial Statements

8







































MARK BAILEY & CO. LTD.



Certified Public Accountants

Management Consultants

|Office Address:
1495 Ridgeview Drive, Ste. 200
Reno, Nevada 89509-6634 | Phone: 775/332.4200
Fax: 775/332.4210 | Mailing Address:
P.O. Box 6060
Reno, Nevada 89513
|---------------------------------------------------------------------- | ------------------------------------- | -------------------------------------------------



Independent Auditors Report





April 9, 2004





Board of Directors

Literary Playpen, Inc.



We have audited the accompanying balance sheet of Literary Playpen, Inc., (a company in the development stage) as of December 31, 2003, and the related statements of operations, shareholders deficit and cash flows for the years ended December 31, 2003 and 2002. These financial statements are the responsibility of the Company's management.Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Literary Playpen, Inc., (a company in the development stage), as of December 31, 2003, and the results of its operations and its cash flows for the years ended December 31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States.









The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As described in Note 1 to the financial statements, the Company is in the development stage, and existing cash and available credit are insufficient to fund the Companys cash flow needs for the next year.  These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.









Mark Bailey & Company, Ltd.

Reno, Nevada



































































LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

BALANCE SHEET

December 31, 2003







ASSETS

December 31, 2003



Current Assets

Cash

$

6

Prepaid Expenses

79

Deferred tax asset (net)

0



Total current and total assets

$

85





LIABILITIES AND SHAREHOLDERS' DEFICIT



Current Liabilities



Accounts payable

$

25,055

Note Payable

12,500

Interest Payable

938

Shareholder advances



17,940



Total current and total liabilities



56,433



Commitments and Contingencies





Shareholders' Deficit



Preferred stock, $.001 par value, 10,000,000 share

authorized and none issued and outstanding

-

Common stock, $.001 par value, 20,000,000 shares

authorized, 5,679,000 shares issued and outstanding

5,679

Common Stock subscribed

25

Additional paid-in-capital

6,341

Deficit accumulated during the development stage



(68,393)



Total shareholders' deficit



(56,348)



Total liabilities and shareholders' deficit

$

85









The Accompanying Notes are an Integral Part of These Financial Statements

LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2003 and 2002







Cumulative





During

Year Ended

Year Ended



Development

December 31,

To December 31,

Stage

2003

2002



Revenue

$

-

$

-

$



-







General and administrative expenses

4,615



2,076

2,480

Consulting services

9,045

3,605

0

Investor relations

4,692

1,540

1,602

Filing expenses

2,549

249

2,300

Loss on impairment of license agreement

3,000

0

3,000

Legal and accounting expense



43,500



14,000



19,500



Net loss before interest and income taxes

67,401



21,470



28,882





Interest Expense

992

992

0



Net loss before income taxes

68,393

22,462

28,882



Provision for income taxes



-



-



-



Net loss

$        68,393

$

22,462

$

28,882





Loss per common share



basic and diluted

$

.02

$

.00

$

.01





Weighted average common shares



basic and diluted



4,403,700

5,634,250

4,750,500





















The Accompanying Notes are an Integral Part of These Financial Statements

LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

STATEMENT OF CHANGES IN SHAREHOLDERS DEFICIT

The Period from Inception (April 26, 2001) to December 31, 2003







Accumulated



Additional

Deficit During





Common Stock

Paid-in

Development

Total



Shares



Amount

Capital

Stage

Equity

Shares issued to officers

and directors for

consulting services in April 2001

1,470,404

$

1,470

$

2,530

$

-

$

4,000



Shares issued to a co-founder

for consulting services in April 2001

529,596

530

910

1,440



Shares issued for the net assets of

Clusone Acquisition Corp. in

December,  2001

500,000

500

(500)

-



Net loss for the period ended



December 31, 2001







(17,049)

(17,049)



Balance at December 31, 2001



2,500,000

2,500



2,940

(17,049)



(11,609)



Shares issued in merger with



L1 Systems, Inc. in January 2002

3,000,000

3,000

-



3,000



Net loss for the year ended



December 31, 2002



(28,882)



(28,882)



Balance at December 31, 2002

$

5,500,000

$

5,500

$

2,940

$

(45,931)

$

(37,491)



Shares issued for consulting

Services in March 2003                                         179,000                  179               3,401                                                 3,580



Common Stock subscribed                                                           25                                                         25



Net Loss for the year ended

December 31, 2003                                                                                                           (22,462)             (22,462)



Balance at December 31, 2003                        5,679,000               5,679         25     6,341                  (68,393)               (56,348)















The Accompanying Notes are an Integral Part of These Financial Statements

LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

STATEMENTS OF CASHFLOWS

For the Years Ended December 31, 2003 and 2002





Cumulative



During

Year Ended

Year Ended

Development

December 31, 2003

December 31, 2002



Cash Flows from Operating Activities



Net loss

$

(68,393)

$

(22,462)

$

(28,882)



Adjustments to reconcile net loss to net cash

Used in operating activities



Loss on impairment of license agreement

3,000

0

3,000

-

Increase in accounts payable



25,055

780

19,275

Increase in prepaid expenses

(79)

(79)

0

Increase in interest payable

938

938

0

Expense paid by issuance of stock



9,045

3,605

0



Net cash used in operating activities



(30,434)



(17,218)



(6,607)



Cash Flows from Financing Activities



Proceeds received from shareholder advances

23,940

540

8,400

Proceeds from issuance of note payable

12,500

12,500

0



Repayment of shareholder advances



(6,000)



0



(3,000)



Net cash provided by financing activities



30,440



13,040



5,400



Net increase (decrease) in cash



6

(4,178)

(1,207)



Cash and cash equivalents at April 26, 2001

December 31, 2003, and December 31, 2002



-



4,184

5,391



Cash and cash equivalents at December 31, 2003

December 31, 2003, and December 31, 2002

$

6

$

6

$

4,184



Supplementary Information:



$55 and $0 were paid for interest and income taxes, respectively in the year ended December 31, 2003. No amounts were paid for either interest or income taxes during the year ended December 31, 2002.





In January 2002 the Company issued 3,000,000 shares of its common stock for the purchase of L1 Systems, Inc., at a fair market value of $3,000.



The Accompanying Notes are an Integral Part of these Financial Statements

LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS

December 31, 2003



Organization and Significant Accounting Policies

The Company was organized April 26, 2001. It is a Delaware corporation. The Company is in the development stage as its operations principally involve research and development, market analysis, and other business planning activities. No revenue has been generated from its business activities.  The Company plans to operate wireless hand- held and on-line games based on books written by best selling authors.



These financial statements have been prepared assuming that the Company will continue as a going concern.  Existing cash and available credit are insufficient to fund the Companys cash flow needs for the next year. The ability of the Company to emerge from the development stage with respect to any planned principal business activity is dependent upon its successful efforts to raise additional equity financing and/or attain profitable operations. Management has plans to seek additional capital through private investors. There is no guarantee that the Company will be able to complete any of the above objectives. These factors raise substantial doubt regarding the Company's ability to continue as a going concern.



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.



At December 31, 2003, the Company had working capital deficit of $56,348. A minimum of $5,750 per quarter is needed to cover expenses. Thus in the next year the Company will require a minimum of $23,000 to cover new expenses. This amount would operate the Company but leave little or nothing for new activities. The Company expects to fund itself in the next twelve months through issuance of additional stock.













LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS

December 31, 2003



Cash and Cash Equivalents

For the purpose of the statements of cash flows, all highly liquid investments with the maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 2003.



Income Taxes

The Company provides for income taxes under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109 Accounting for Income Taxes. SFAS No. 109, requires an asset and liability based approach in accounting for income taxes.



Deferred income tax assets and liabilities are recorded to reflect the tax consequences in future years of temporary differences between revenue and expense items for financial statement and income tax purposes. Valuation allowances are provided against assets that are not likely to be realized. (See Note 5)



Loss Per Share

Net loss per share is provided in accordance with SFAS No. 128 Earnings Per Share. Basic loss per share for each period is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share reflects per share amounts that would have resulted if dilutive common stock equivalents had been converted to common stock. As of December 31, 2003, the Company had no dilutive common stock equivalents such as stock options.



Revenue Recognition

In 2000 the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. Pursuant to SAB No. 101 and the relevant generally accepted accounting principles, the Company will recognize revenue upon the passage of title, ownership and the risk of loss to the customer. During the period ended December 31, 2003, there was no revenue.





LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS

December 31, 2003



New Accounting Pronouncements

In April 2003 the Financial Accounting Standards Board (FASB) issued SFAS 149 Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement, which amends and clarifies existing accounting pronouncements, addresses financial accounting and reporting for derivative or other hybrid instruments. This Statement requires that contracts with comparable characteristics be accounted for similarly. It is effective for contracts entered into or modified after September 30, 2003. The Company does not expect the adoption of SFAS 149 to have any impact on the financial statements.



In May 2003 the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which is effective at the beginning of the first interim period beginning after March 15, 2003. This statement establishes standards for the Companys classification of liabilities in the financial statements that have characteristics of both liabilities and equity. The Company believes the adoption of SFAS 150 will have no effect on the Companys financial position or results of operations.



In December 2003 the FASB issued SFAS 132R, Employers Disclosures about Pensions and Other Postretirement Benefitsan amendment of SFAS 87, 88, and 106. This Statement revises employers disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS 87, Employers Accounting for Pensions, SFAS 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and SFAS 106, Employers Accounting for Postretirement Benefits Other Than Pensions. This Statement retains the disclosure requirements contained in SFAS 132, Employers Disclosures about Pensions and Other

















LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS

December 31, 2003



Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information is required to be provided separately for pension plans and for other postretirement benefit plans. The Company has no Pension or Other Postretirement Benefits.



Note payable and Common Stock Subscribed

In March 2003 a note payable agreement was entered into in the amount of $12,500. The interest rate is 10% per annum. The terms of the note have been modified and the note and related interest are now due on demand. The Company is obligated to provide 25,000 restricted common shares to the lender when the note is paid.



Capital Stock

In March 2003 the Company entered into two consulting contracts and issued 179,000 restricted common shares for prepaid consulting services valued at $3,580.



Federal Income Taxes

The Company recognizes deferred tax liabilities and benefits for the expected future tax impact of transactions that have been accounted for differently for book and tax purposes.



Deferred tax benefits and liabilities are calculated using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance has been provided to reduce the asset to the amount of tax benefit management believes it will realize.

















LITERARY PLAYPEN, INC.

(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS

December 31, 2003







The following is a schedule of the composition of the provision for income taxes:

|                                 | December 31, 2003  |  | 
|-------------------------------- | ------------------ |  | 
|Deferred noncurrent tax asset    | $      23,254      |  | 
|Valuation allowance              | (23,254)           |  | 
|Total provision for income taxes | $              -0- |  | 



The net change in the valuation account was $7,637 for the year ended December 31, 2003. The Company has available net operating loss carryforwards totaling approximately $70,000, which begin to expire in 2021.

5.         Related Party Transactions

The officers of Literary Playpen, Inc., have advanced the Company funds to pay expenses in prior years. The advances are due upon demand and carry no interest. As of December 31, 2003, the outstanding advance balance was $17,940.





















































PART II



Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.



The accounting firm of Mark Bailey and Company, Ltd. Certified Public Accountants audited our financial statements. Since inception, we have had no changes in or disagreements with our accountants.



PART III



Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.



EMPLOYEES



As of December 31, 2003, Literary Playpen had 1 employees: Jesse A. Sackman, who does not provide 100% of his time to the business of Literary Playpen and receives no remuneration whatsoever at this time. . Literary Playpen considers its relations with its employees to be good. Roberto Crawford resigned as Officer, Director, and Chief Financial officer of the Company during 2003.



None of Literary Playpen's employees are covered by a collective bargaining agreement. Literary Playpen has entered into confidentiality agreements with its Employees, as well as all other officers, directors and past members of our Technology Advisory Board.





MANAGEMENT



The executive officers and directors are as follows:



NAME

AGE

POSITION



Jesse A. Sackman

38

C.E.O., President and Director



Michael J. Morrison

58

Secretary and Director





Background of Officers and Directors



Director, President and Chief Executive Officer - Jesse A. Sackman

Since 1985 Mr. Sackman has been president of NetReady Systems, Inc., a consulting firm managing network and Internet systems for companies such as Wyndham Hotel Group and Dial Corporation.  Mr. Sackman is a twenty-three year veteran of the personal computer industry dating back to 1977.



Director and Secretary  Michael J. Morrison

Mr. Morrison has been an attorney for 26 years. Mr. Morrison received a B.S. Degree in Engineering Management from the U.S. Air Force Academy in 1968, and a J.D. Degree from the University of the Pacific, McGeorge School of Law in 1976. He is admitted to practice in Nevada (1977), California (1976) and the District of Columbia (1978). He is a member of the Washoe County, State of Nevada (Member, Business Section) and American (Member, Business Section) Bar Associations.





Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



PRINCIPAL SHAREHOLDERS



The following table sets forth certain information regarding beneficial ownership of Literary Playpen's Common Stock as of March 10, 2003, by (i) each stockholder known by Literary Playpen to be the beneficial owner of more than 10% of the outstanding shares of Common Stock, (ii) each director of Literary Playpen, (iii) Literary Playpen's Chief Executive Officer and other executive officers, and (iv) all directors and executive officers as a group.





Shares

Percent



Name  of Beneficial Owner (**)

Owned(1)

Owned (1))



Sidney Sheldon

1,257,416

22.14%





Paul Sackman

882,941

15.55%





Jesse A Sackman

875,874

15.42%





Roberto Crawford

756,295

13.32%





Michael Morrison

676,294

11.91%







All Beneficial Owners of 5% or more as a group

4,598,820

78.34%

All Directors and officers as a group

1,552,168

27.33%







**

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Schedule includes Beneficial Owners of 5% of the outstanding Common Stock at December 31, 2003 only.



1.

Percentage of beneficial ownership is based on 5,679,000 shares of Common Stock outstanding as of December 31, 2003.





Item 12. Certain Relationships and Related Transactions.



Literary Playpen was organized in April 1997 for the purpose of listing its securities on an electronic stock exchange and then acquiring an interest in a suitable operating business, which may include assets or shares of another entity to be acquired by the Company directly or through a subsidiary. LPI is newly formed and has no assets, revenues or operations. The Company and companies of this sort are commonly referred to as "public shell corporations" and the transactions through which public shell corporations acquire an interest in a suitable operating business are commonly referred to as "shell reorganizations." The merger of Clusone Acquisition Corp., a Delaware corporation, and Literary Playpen, Inc, a Nevada corporation, was a shell reorganization.



On October 18, 2001, Clusone Acquisition Corp. entered into a Securities Purchase Agreement and Plan of Reorganization ("Agreement"), whereby it agreed to issue 2,000,000 shares of its restricted Common Stock, par value $.001, in exchange for 100% of the total outstanding shares of Literary Playpen, Inc., a Nevada corporation engaged in the literary games software development business. All conditions and terms of the Agreement were satisfied, and the transaction closed on December 31, 2001, and, in January 2002, the name of the company was changed to Literary Playpen, Inc. These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1931, and per rule 506 promulgated thereunder. All of these shares were issued to accredited investors, as that term is defined in Rule 501. Please also refer to the section entitled  Certain Relationships and Related Transactions on this page.



On January 30, 2002, we entered into a Securities Purchase Agreement and Plan of Reorganization ("Agreement"), whereby it agreed to issue 3,000,000 shares of its restricted Common Stock, par value $.001, in exchange for 100% of the total outstanding shares of L1 Systems, Inc., a Nevada corporation engaged in the literary games software development business. All conditions and terms of the Agreement were satisfied, and the transaction closed on February 11, 2002. . These shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1931, and per rule 506 promulgated thereunder. All of these shares were issued to accredited investors, as that term is defined in Rule 501. Please also refer to the section entitled  Certain Relationships and Related Transactions on this page.





Jesse Sackman and Michael J. Morrison, current officers, directors and principal shareholders of the Company, were also officers, directors and principal shareholders of both Literary Playpen, Inc., and L1 Systems, Inc.  Messrs. Paul Sackman, Roberto Crawford and Sidney Sheldon, also principal shareholders of the Company, were also principal shareholders of Literary Playpen, Inc. and L1 Systems, Inc. Roberto Crawford was an officer, director and principal shareholder of the Company and also of both Literary Playpen, Inc., and L1 Systems, Inc.



Item 13. Exhibits and Reports on Form 8-K.



(a)

Exhibits



3.1

Certificate of Incorporation of the Company (1)



3.2

Bylaws of the Company (1)



4.1

Specimen of Common Stock Certificate (1)



10.1

[Form of] Indemnity Agreement. (1)



(1)

Previously filed as an exhibit to the Company's Registration Statement on Form 10-SB with the Commission on February 15, 2000.



(b)

Reports on Form 8-K



Form 8-K filed on January 15, 2002 reporting a Change in Control of the registrant as of December 31, 2001.



Form 8-K/A filed on March 6, 2002 amending the Form 8-K filed on January 15, 2002 reporting a Change in Control of the registrant as of December 31, 2001 and including Financial Statements and Pro Forma Financial Statements.



Form 8-K filed on February 14, 2002 reporting a Change in Control of the registrant as of January 30, 2002.



Form 8-K/A filed on March 18, 2002 amending the Form 8-K filed on February 14, 2002 reporting a Change in Control of the registrant as of January 30, 2002 and including Financial Statements and Pro Forma Financial Statements.









Item 14. Controls and Procedures.



Within the 90 days prior to the date of this annual report, the Company's management concluded its evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. As of the Evaluation Date, the Company's Chairman and Chief Executive Officer concluded that the Company maintains disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in the Company's reports under the Securities Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation.



It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.













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.



LITERARY PLAYPEN, INC.

(A Company in the Development Stage)





By: /s/ Jesse A. Sackman

Jesse A. Sackman

Chief Executive Officer







Dated: April 14, 2004







CERTIFICATIONS



SECTION 302 CERTIFICATION



I, Jesse A. Sackman, certify that:



1. I have reviewed this annual report on Form 10-KSB of Literary Playpen, Inc.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial

information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrant's other certifying officers and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other

employees who have a significant role in the registrant's internal controls; and



6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





By /s/ Jesse A. Sackman               Date:  November 19, 2003

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

Jesse A. Sackman

Chief Executive Officer





EXHIBIT 99



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY OF 2002



In connection with the annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934 of Literary Playpen, Inc. on Form 10QSB dated for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbannes-Oxley Act of 2002, that to the best of his knowledge:



1.   The Registration Statement fully complies with the requirements of Section 13 (a) pr 15(d) of the Securities Exchange Act of 1934; and



2.   The information contained in the Registration Statement fairly presents, in all material respects, the financial condition and results of operation of the Company.





November 19, 2003



By: /s/ Jesse A. Sackman

Jesse A. Sackman

Chief Executive Officer

Chairman