SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549
                           _____________________

                               FORM 10-KSB/A
                             (Amendment No. 1)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE
      SECURITIES EXCHANGE ACT OF 1934.

      For the fiscal year ended December 31, 2003.

                     OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      THE SECURITIES EXCHANGE ACT OF 1934.

      For the transition period from ____________ to ___________

                        Commission File No. 0-33145

                    HEADLINERS ENTERTAINMENT GROUP, INC.
            ----------------------------------------------------
           (Exact name of the Registrant as specified in Charter)

          Delaware                                    84-1195628
  --------------------------------------------------------------------------
 (State or other jurisdiction                 (I.R.S. Employer ID Number)
  of incorporation or organization)

                 501 Bloomfield Avenue, Montclair, NJ 07042
                 ------------------------------------------
                  (Address of principal executive offices)

      Registrant's Telephone Number, including Area Code: 973-233-1233

      Securities Registered Pursuant to Section 12(b) of the Act: None

        Securities Registered Pursuant to Section 12(g) of the Act:

                   Common Stock, $.001 par value per share

  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.     Yes   [X]      No   [ ]


  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

   State the issuer's revenues for its most recent fiscal year:  $2,352,800.

   State the aggregate market value of the voting stock held by non-
affiliates of the Registrant.  The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
ask prices of such stock, as of a specified date within 60 days prior to the
date of filing.

   The aggregate market value of the Registrant's common stock,
$.001 par value, held by non-affiliates as of April 12, 2004 was $1,228,610.

   As of April 12, 2001, the number of shares outstanding of the Registrant's
common stock was 18,686,380 shares, $.001 par value.


     Transitional Small Business Disclosure Format:    Yes [ ]   No   [X]

                  DOCUMENTS INCORPORATED BY REFERENCE: None

Amendment No. 1
----------------

This amendment is being filed to include revised financial statements and to
modify Item 6 - Management's Discussion and Analysis of Results and Financial
Conditions as required by the revised financial statements.

             FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED

     This Report contains certain forward-looking statements regarding
Rascals International, its business and financial prospects.  These
statements represent Management's present intentions and its present belief
regarding the company's future. Nevertheless, there are numerous risks and
uncertainties that could cause our actual results to differ from the results
sug gested in this Report.  Among the more significant factors are:

     *  Rascals lacks the capital necessary to expand its operations.
     *  Our debts exceed the book value of our assets.
     *  We have committed to issue shares of common stock that one of our
        creditors will resell to the market until we eliminate $850,000 in
        debt, which is likely to dilute the value of our common stock.

     Because these and other risks may cause Rascals' actual results to differ
from those anticipated by Management, the reader should not place undue
reliance on any forward-looking statements that appear in this Report.
Readers should also take note that Rascals will not necessarily make any
public announce ment of changes affecting these forward-looking statements,
which should be considered accurate on this date only.

                                   PART 1

Item 1.  BUSINESS

     The Business Plan

     Rascals International, Inc. is the successor to a business
operation commenced in 1983.  Rascals began with a comedy club
and restaurant in West Orange, New Jersey.  Until 2003 the West
Orange "Rascals" and a sister club/restaurant of the same name in
the New Jersey resort area of Ocean Township were the source of
substantially all of Rascals' revenue.  Nevertheless the success
of those clubs in booking and promoting both headliners and
rising stars in the field of stand-up comedy made Rascals a name
known throughout the comedy industry.  Most of today's stars of
stand-up comedy made their way to fame appearing at a Rascals
Comedy Club.

     In recent years Rascals has acquired new management, a new
business plan, and a new determination to exploit the value of
the "Rascals" name as leverage for the growth of our company.
Our first effort involved the establishment of a "Rascals Comedy
Club" in the Miami area, which copied in essence the operations
of our two New Jersey clubs.  The expense, however, involved in
outfitting a new facility and pushing traffic to a new site
exceeded the capacity of our financial resources, and the Miami
club was closed in 2000.  Spurred on by that experience, however,
we have formulated a business plan designed to give Rascals a
nationwide presence with a minimum of capital investment.  The
plan contemplates that we will develop a network of "partners"
who recognize the value of the "Rascals" name and our entertain
ment offerings in attracting consumers of comedy.  In exchange
for the opportunity to market to these consumers, our "partners"
will provide the other resources necessary to business success.

     The plan to "go national" with the "Rascals" name can be
understood in four discernable, albeit interrelated, aspects:

     Hotel-Based Clubs.  We are underway with a program of
     establishing "Rascals Comedy Clubs" in premier hotels
     throughout the U.S.  During 2001 we opened a Rascals in the
     Crowne Plaza Hotel in Phoenix, and another in the Sheraton
     Springfield at Monarch Place in Springfield, MA.  Both of
     those clubs have since closed.  However, since December 2002
     we have operated a Rascals Comedy Club in the Hilton Hotel
     in Cherry Hill, NJ. We are currently in negotiation with
     hotels in Tucson, Asbury Park, Atlantic City and Easton, PA.
     In each of these arrangements the hotel will provide the
     facility (rent-free) and operate the food and beverage
     service.  We provide the show and the promotion only, keep
     all admission proceeds, and receive a share of the food and
     beverage gross revenue.

     Embedded Clubs.  Recently we expanded our focus to
     explore the advantages of locating a Rascals Comedy Club in
     a destination location where there is a pre-established
     clientele.  We are under contract to open a Rascals Comedy
     Club next summer in the newly-developed Louisiana Riverwalk
     in Shreveport/Bossier City.  Recently we have also con
     tracted to open a club in the Palisades Center in West
     Nyack, New York, which is the second largest shopping mall
     in the U.S.  The relationship described below that we are
     developing with Banana Joe's Dance Clubs is another example
     of "embedded clubs."

     Licensed Clubs.  At the present time we have granted
     licenses to two groups which will develop and operate Ras
     cals Comedy Clubs.  One licensee is an investment group who
     plan to open a club in Jersey City, New Jersey in the second
     quarter of 2004.  The other licensee is owned by members of
     our management, who are financing the development of a club
     and restaurant in Montclair, New Jersey to replace our West
     Orange facility which was closed in the summer of 2003. The
     Jersey City licensee will pay us a licensing fee and a
     percentage of gross revenue, and may also pay us fees if we
     book entertainment for their club. The Montclair licensee
     will lease back to us the comedy club on a revenue-sharing
     arrangement similar to our hotel-based clubs.

     The Library.  Rascals owns a library of  over 200 hours
     of recorded performances by major comedic entertainers, such
     as Tim Allen, Rosie O'Donnell and Drew Carey, made before
     the comedians became famous.  In exchange for the opportu
     nity to appear at Rascals Comedy Club, these entertainers
     yielded to Rascals the right to market video recordings of
     their performances at Rascals.  This library of videotapes
     provides Rascals the raw materials from which we can manu
     facture a limitless supply of comedy products in every
     audio-visual medium.  For example, "The Rascals Comedy Hour"
     was offered in 35 million homes on pay-per-view television
     during 2002, and we expect pay-per-view distribution to
     recommence in the future.  In the Summer of 2003 a major
     distributor to the home video market commenced marketing the
     first three VHS titles containing comedy performances re
     corded at Rascals.  In addition, Rascals comedy has also
     been broadcast on the Internet, and on the in-house television
     channels in 140,000 Hilton hotel rooms.

     In each of these aspects, our goal is to leverage the
"brand-equity" of our Rascals tradename by joining forces with
another entity which will underwrite the capital-intensive
aspects of marketing comedy, such as site construction, publicity
or distribution.  We believe that in this way we can achieve a
national presence for the Rascals name with a modest capital
investment.

     Rascals Comedy Clubs

     During 2003 we closed our flagship club and restaurant in
West Orange, New Jersey.  This year we are closing our other club
and restaurant, which was located in Ocean, New Jersey.  At the
present time, therefore, there is only one Rascals Comedy Club in
operation: the Rascals Comedy Club at the Hilton Hotel in Cherry
Hill, New Jersey.  This facility opened in December 2002.  It
consists of a comedy room with a seating capacity of 308 in which
we produce six shows per week. Our plan is to develop more hotel-
based clubs, as resources become available.

     Our agreements with the hotels which host our clubs allocate
to Rascals the responsibility for booking, marketing and producing
the comedy shows, and allocate to the hotel the responsibility for
food and beverage service.  Rascals promotes the shows through local
media, sells the tickets, and retains 100% of the revenue from ticket
sales, from which it pays fees to the enter tainers and to the Rascals
personnel involved in producing the show.  The hotel collects payment
for food and beverage service, and is responsible for supervising the
kitchen and wait staff, who are hotel employees.  The hotel is also
responsible for compliance with liquor laws.  Our agreements provide
for a percentage of food and beverage revenue to be paid by the hotel
to Rascals.

     The primary advantage of a hotel-based club for Rascals is
the efficiency of initiating the club's operations.  Since we are
moving into an established facility, we are required to make only
the minimal capital investment necessary to outfit the comedy
room in Rascals' trademark decor.  In addition, since the hotels
in which we locate are already known as entertainment locations
in their communities (even if only as a restaurant location), the
expense incurred in "attracting traffic" to the site is generally
not much greater than the expense we incur in promoting shows at
our established sites.  Our estimate is that our capital commit
ment to a new hotel-based facility, including the working capital
required until the club achieves positive cash flow, will generally
not exceed $130,000.  Occasionally, however, a particular site will
be appropriate for a "premier" build-out, which will require a
larger investment.  This was the case with our club in Cherry Hill,
where we installed cherrywood paneling and a state-of-the-art sound
system.

     Comedy shows at our clubs generally consist of three performers:
one nationally-known headliner, a featured act and a comic master of
ceremonies.  Our ticket prices range from $8.00 to $35.00, and are
determined by the fees we commit to pay the entertainers.  Those fees
may on occasion include a percentage of our ticket revenues.

     Entertainers are booked for our clubs by independent booking
agents.  Most of our bookings at present are made by Top Draw
Entertainment.  Our relationship with Top Draw is at will.  Our
fees to Top Draw are based on services provided.  As the number
of our clubs increases, Rascals should become even more attractive
to entertainers due to our ability to offer "block booking."
In a block booking arrangement, we commit to multiple dates at multiple
locations in exchange for a reduced fee per show.

     We market our shows through traditional local media: newspaper
and radio advertisements, local cable TV commercials, and radio
promotions, often involving the performers that will be appearing.
In addition, tickets to all of our club locations can be purchased
at our Website: www.rascalscomedyclub.com.

     Clubs in Development

     We currently have two new clubs under development, and
several in the planning stage.  Our club that is being constructed
in Montclair, New Jersey includes an attached restaurant and bar.
The club we have designed for the Palisades Center will be located
amidst a complex of restaurants, so we will provide beverage service only.

     At the beginning of 2004 we initiated a relationship with
two individuals who own a chain of dance clubs.  Their best known
clubs operate under the names "Banana Joe's" and "Cactus Lounge."
We are currently negotiating an arrangement under which we and
they will jointly develop projects that will locate a Banana
Joe's or a Cactus Lounge next to a Rascals Comedy Club.  We
expect these combined clubs will be able to attract customers for
a full evening's entertainment: a show followed by dancing.
Although we have not completed negotiation of the terms of this
relationship, we have begun to work with the owners of Banana
Joe's in developing these new project.  To date we have advanced
$825,000 toward the projects.  The first of these joint projects
opened in March in Jackson, Mississippi.  Future joint projects
are intended for Omaha, Pittsburgh and Hampton, Virginia.

     We have also entered into a letter of intent that contem
plates an agreement under which Rascals would acquire ownership
of nine existing Banana Joe's clubs in exchange for cash and
Rascals common stock.  Negotiations toward that end have paused,
however, as we have not been able to secure the funds that we
will need to make the acquisition.

     Rascals Comedy Library

     Between 1985 and 1992 Rascals developed a library of video
tapes of the comedy performances at its West Orange club.  The
performers on the videotapes include many who achieved stardom:
Denis Leary, Drew Carey, Jeff Foxworthy, Rosie O'Donnell, Tim
Allen, Ray Romano and others.  In exchange for the opportunity to
appear at Rascals Comedy Club, each of these performers signed a
release giving Rascals the right to reproduce and market the
videotapes.  Until 2002 the videotapes were co-owned by Rascals
and Rob Perna d/b/a Stand and Deliver.  In 2002 we divided the
library, with Rascals retaining over 200 hours of performances.

     Our library provides an inventory of raw material which
Rascals intends to use to develop products and content in a
variety of media.  At the same time, although Rascals is not
currently adding to its library of videotapes, the ongoing
operations of our comedy clubs is a potential source of addi
tional valuable media content.  A considerable portion of our
energies during 2002, therefore, were devoted to developing
outlets for marketing Rascals' comedy outside of our clubs.  To
date, we have relationships established with powerful marketing
partners in two media:

     VHS Recordings.  In March 2002 we entered into a Memorandum
of Understanding with Razor & Tie Direct L.L.C.  Razor & Tie is a
music producer with a considerable market presence which has had
noteworthy success marketing VHS videos.  Razor & Tie advanced to
Rascals $50,000 in exchange for our agreement to produce two home
videos of performances in the Rascals library, which Razor & Tie
agreed to market through direct response channels. The agreement
provides that, to the extent that direct response marketing was
successful, Razor & Tie would then introduce the videos into
retail stores.  The agreement provides that Razor & Tie would pay
to Rascals and Stand and Deliver 50% of the net profits from
sales of the videos.  Rascals has given Razor & Tie a one year
exclusive license to market the Rascals library in home video
format.  Razor & Tie can extend the license to five years by
paying Rascals a $200,000 advance, provided that it has intro
duced at least one Rascals video into retail distribution.  In
July 2003 Razor & Tie introduced three of our videos into retail
distribution.

     Television Pay-Per-View and Video-On-Demand.  In the Fall of
2001 we entered into a marketing agreement with iN-DEMAND L.L.C.
to market up to 12 programs produced by Rascals.  IN-DEMAND is
the nation's leading provider of pay-per-view and video-on-demand
programming, serving over 1,800 affiliated systems with approxi
mately 28 million addressable households subscribing.  In each of
five months in early 2002, IN-DEMAND broadcast on seven or eight
occasions a 55 minute program taken from Rascals' library - one
new program each month.  The agreement provided that approxi
mately 40% of the gross receipts from the broadcasts would be
paid to Rascals.  The broadcasts were suspended later in 2002, as
we negotiated with Stand and Deliver a division of the library.
We expect iN-DEMAND to commence broadcasts again in the next few
months.

     Employees

     The Company currently employs 25 individuals, of whom 8
are full-time employees.  The other 17 employees are primarily
hosting staff, wait staff, bartenders, and kitchen employees who
work during the performances at our club in Cherry Hill.  None of
our  employees is represented by a union.  We believe that our
relations with our employees are good.

     Insurance

     As a dispenser of alcoholic beverages, Rascals is subject to
state liquor liability ("dram shop") laws.  These laws vary from
state to state.  In general, dram shop laws  impose liability on
the proprietor of an establishment for damage caused by a customer
of the establishment, if the service of alcoholic beverages
by the establishment to that customer was a cause of the damage
and the establishment service was negligent or otherwise culpable.
Since alcoholic beverages are served in all of our clubs, it is
particularly important that we maintain insurance against liability.

     At the present time, Rascals is insured by a policy which
provides $2,000,000 general aggregate liability coverage. as well
as a $10,000,000 commercial umbrella policy.  The annual premium
for our insurance, which includes this liability insurance, is
$102,700.

Item 2.  PROPERTIES

  Since February 2004 the executive offices of Rascals
International, Inc. have been  located in the building in
Montclair, New Jersey where our new Rascals Comedy Club is being
built.  Our lease for the offices terminates in 2014.  We pay a
monthly rental of $4,500 for the offices.

  Our Cherry Hill comedy club is located in the Hilton Hotel,
which provides the comedy room to us free of charge.   We will
have a similar arrangement with the owners of the club and
restaurant facility being developed in Montclair.

Item 3.  LEGAL PROCEEDINGS

  Rascals International, Inc. v. iCapital Finance Inc.,
Randall Letcavage and Rosemary Nguyen  (Court of Common Pleas,
Philadelphia County, Pennsyvalia).  This action commenced in
August 2003.  Rascals alleged that the defendants signed invest
ment banking and consulting agreements with Rascals, in which
they undertook to perform certain services for Rascals.  Rascals
further alleges that the defendants failed to perform the services,
as a result of which Rascals suffered damages in excess of $1,000,000.
The defendants failed to answer the complaint, and a default judgment
was entered against them in October 2003. Rascals does not know to
what extent, if any, it will be able to enforce the judgment.

  Rascals International, Inc. v. P.A. Whalen and Company,
Inc..  (Superior Court, State of New Jersey).  This action
commenced in February 2002.  The action alleges that Whelan
breached a consulting and marketing contract with Rascals.
Rascals is demanding that the contract be rescinded.  Whelan has
counterclaimed alleging breach of the same contract by Rascals,
and demanding damages of $99,260.

  William Hannah v. Rascals International, Inc., Eduardo
Rodriguez, Michael Margolies and Gary Marks.  (Court of Chancery,
State of Delaware).  This action commenced in February 2003.  The
plaintiff is a shareholder claiming to represent the shareholders
of Rascals as a class.  He is also proceeding derivatively on
behalf of Rascals against the members of the Board of Directors.
The complaint alleges (a) that the directors breached their
fiduciary duties in connection with the reverse split of common
stock effected in March 2003, (b) that the reverse split as
originally structured violated the procedural requirements of
Delaware corporation law, and (c) that the directors have engaged
in various acts of self-dealing in violation of their fiduciary
duties.  The complaint demands that the reverse split be en
joined, that the alleged acts of self-dealing be voided, that
there be an accounting and constructive trust imposed on the
fruits of the self-dealing, and damages in an unspecified amount.
Rascals and its directors have not yet answered the complaint,
but believe that the allegations are without merit.  After the
complaint was filed, Rascals restructured the reverse split to
comply with Delaware corporation law.

  Andrew Freundlich v. Eduardo Rodriguez, Rascals International,
Inc., Robert Jaffe, John Doe and Richard Roe.  (Superior Court, Union
County, State of New Jersey).  The plaintiff claims that moneys are
owed to him under the terms of a debenture that Rascals sold to him
several years ago.  We estimate that the unpaid amount of the debenture
is approximately $79,000.

  Stanley Chason v. Eduardo Rodriguez, Michael Margolies,
Rascals Cherry Hill, Inc., D.E.M., Inc., Rascals Comedy Club
Stage Door Grill, Inc., Rascals International, Inc., Marod
Holdings, LLC and Rodmar Holdings, LLC.  (Superior Court, Essex
County, State of New Jersey).  The plaintiff commenced the action
to enforce a promissory note in the principal amount of $200,000
that had been issued by Rascals Cherry Hill, Inc. and guaranteed
by the other defendants.  Judgment in favor of the plaintiff was
entered in July 2003 and a judgment lien against all of Rascals'
assets was filed in August 2003.  In November 2003 a settlement
agreement was executed in which Mr. Chason released his lien on
certain assets in exchange for the defendants' promise to pay a
total of $265,000.  The payments will be made from the proceeds
of the sale of Rodmar's real property in Ocean, New Jersey, from
the sale of the liquor license used at that property, and by
monthly payments of $5,000.  Rascals has also issued 1,000,000
shares of its common stock to Mr. Chason, and the proceeds of his
sale of those shares will be an offset to the judgment debt.

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

  None

                               PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK
         HOLDER MATTERS, AND SMALL BUSINESS ISSUER PURCHASES OF
         EQUITY SECURITIES

  (a) Market Information

  Since mid-December, 2001 our common stock has been listed
for quotation on the OTC Bulletin Board.  It is currently listed
under the trading symbol "RSCA.OB."  Prior to the reverse split
of common stock in March 2003 it was listed under the trading
symbol "RASC.OB."  The following table sets forth the bid prices
quoted for our common stock on the OTC Bulletin Board during the
two years ended December 31, 2003  All prices have been adjusted
to reflect the 1-for-500 reverse split of common stock effected
on March 28, 2003.


                                      Bid
Period:                         High        Low
---------------------------------------------------------
Jan. 1, 2002 - Mar. 31, 2002    $ 65.00    $  35.00
Apr. 1, 2002 - June 30, 2002    $ 40.00    $  20.00
July 1, 2002 - Sep. 30, 2002    $ 25.00    $   5.00
Oct. 1, 2002 - Dec. 31, 2002    $ 35.00    $   2.50

Jan. 1, 2003 - Mar. 31, 2003    $  7.50    $   2.00
Mpr. 1, 2003 - June 30, 2003    $  3.00    $   1.05
July 1, 2003 - Sep. 30, 2003    $  1.55    $    .26
Oct. 1, 2003 - Dec. 31, 2003    $   .60    $    .14


  (b) Shareholders

  Our shareholders list contains the names of 116 registered
shareholders of record.  Based on recent requests for materials
that we mailed to shareholders, we believe that the number of
beneficial shareholders exceeds 800.

  (c)  Dividends

  The Company has never paid or declared any cash dividends on
its Common Stock and does not anticipate doing so in the foresee
able future.  The Company intends to retain any future earnings
for the operation and expansion of the business.  Any decision as
to future payment of dividends will depend on the available
earnings, the capital requirements of the Company, its general
financial condition and other factors deemed pertinent by the
Board of Directors.

  (d) Sale of Unregistered Securities

    In October 2003 Rascals issued 120,000 shares of common
stock to Live Oak Capital LLC. The securities were issued in
consideration for services valued at the market value of the
shares on the date they were issued.  The sale was exempt pursuant
to Section 4(2) of the Act since the sale was not made in a
public offering and was made to an entity whose executives had
access to detailed information about Rascals and which was
acquiring the shares for its own account.  There were no underwriters.

    In October 2003 Rascals issued a total of 321,231 shares
of common stock to Cornell Capital Partners, LP, Butler Gonzalez
LP and Newbridge Securities Corp.  The securities were issued in
consideration for services valued at the market value of the
shares on the date they were issued.  The sales were exempt
pursuant to Section 4(2) of the Act since the sales were not made
in a public offering and were made to entities whose executives
had access to detailed information about Rascals and which were
acquiring the shares for their own accounts.  There were no underwriters.

  In December 2003 Rascals issued 1,000,000 shares of common
stock to Stanley Chason. The securities were issued in partial
satisfaction of a $265,000 obligation.  The sale was exempt
pursuant to Section 4(2) of the Act since the sale was not made
in a public offering and was made to an individual who had access
to detailed information about Rascals and was acquiring the shares
for his own account.  There were no underwriters.

  In December 2003 Rascals issued a total of 1,500,000 shares
of common stock to Mark Magnusson and Drew Magnusson. The securi
ties were issued in satisfaction of an obligation of approximately
$155,000.  The sale was exempt pursuant to Section 4(2) of the
Act since the sale was not made in a public offering and was made
to individuals who had access to detailed information about Rascals
and were acquiring the shares for their own accounts. There were
no underwriters.

  In December 2003 Rascals issued a total of 1,250,000 shares
of common stock to Rodmar Holdings LLC and Marod Holdings LLC.
The securities were issued in satisfaction of an obligation of
approximately $300,000.  The sale was exempt pursuant to Section
4(2) of the Act since the sale was not made in a public offering
and was made to entities whose executives had access to detailed
information about Rascals and which were acquiring the shares for
their own accounts.  There were no underwriters.

  (e) Repurchase of Equity Securities

  The Company did not repurchase any of its equity securities
that were registered under Section 12 of the Securities Exchange
Act during the 4th quarter of 2003.


Item 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
          AND FINANCIAL CONDITION

Results of Operations

     At the beginning of 2002 Rascals embarked on a new business
plan.  While our business through 2001 consisted entirely of the
operation of stand-alone restaurant/comedy club facilities, in
2002 we began to develop alternative locations for Rascals'
comedy by organizing hotel-based clubs and by granting licenses
to utilize the name "Rascals."  We also began to develop multiple
channels of distribution for the comedic entertainment produced
in our clubs, such as home video sales and pay-per-view sales.
As the year progressed, however, it became apparent that our
efforts in developing and managing these multiple channels of
distribution, though profitable, were not cost-effective.  These
distribution channels that we developed early in 2002 remain in
place, and we expect them to be a source of revenue in the future.
However, in the third quarter of 2002 we refocused our attention
on the development of new Rascals clubs, both hotel-based and
licensed.  Our focus today is on developing a sufficient number
of clubs to achieve an efficient level of operations.

     The results of our hotel-based operations, which commenced
in the Fall of 2001, have been mixed to date.   Our first two
clubs, one in Springfield, MA and one in Phoenix, AZ, have
closed.  The Springfield club closed after less than 8 months of
operations; the Phoenix club closed after 18 months of operations.
Each made a modest contribution to our revenue and incurred
relatively insignificant losses, as start-up expenses such as
marketing, offset the initial revenues. We closed the clubs when
we determined that their growth rate was falling short of our
expectations.  However, because we had only a very modest capital
investment in either club, we were able to quickly cut our losses
without damage to the Company's balance sheet.  Our experiences
in Springfield and Phoenix, though disappointing, lent support to
our rationale for entering into hotel-based relationships.  The
operations require only a modest capital investment, and the
measure of their success can be determined relatively quickly.

     The most recent tangible result of our new focus on hotel-
based clubs was the opening in December 2002 of a  Rascals club
in the prestigious Hilton Hotel in Cherry Hill, NJ.  During 2003
the Cherry Hill club contributed $261,677 to our revenue and
recorded net income of $8,205.  We expect that as the community
becomes familiar with the club, we will realize increased attendance
as well as sales in the special event market (parties, meetings,
etc.) which will make Cherry Hill a more profitable operation.

     The discontinuance of the operations of our principal clubs in 2003
has resulted in marked differences in the results of operations for 2003
compared to the results for 2002.  Net sales and cost of sales for both
years are attributable entirely to our Cherry Hill club.  However, that
club was in operation for only one month in 2002.  As a result, net sales
and cost of sales were approximately ten times greater in 2003 than in
2002.


     Recently we have expanded our new direction from hotel-based
clubs to clubs in entertainment venues, where a large, pre-existing
clientele can be converted into customers of our club. Our first
two efforts in this new type of environment are now under contract:

     *  During the Summer of 2003 we reached agreement to lease a
        7,000 square foot facility in the newly-developed Louisiana
        Riverwalk Project, a $150 Million entertainment, dining
        shopping complex in Shreveport/Bossier City, Louisiana.
        If we can obtain the funds necessary to develop the facility,
        we expect to open a comedy club with beverage and snack service
        there in the summer of 2004.

     *  In December 2003 we signed a ten year lease for 7,000 square
        feet in the Palisades Center, the second largest retail mall
        in the United States.  Again, if the necessary funds become
        available, we plan to open a 350-seat comedy club in the Palisades
        Mall later in 2004.

     The most dramatic example of our new focus on entertainment
venues is our ongoing joint venture with JHF Properties, the
owners of a chain of dance clubs called either "Banana Joe's" or
"Cactus Lounge."  In January 2004 we entered into an informal
arrangement under which Rascals is contributing funds to JHF
Properties, which is using the funds to develop "mega-entertainment
complexes, each consisting of a Rascals Comedy Club and a dance club,
either a Banana Joe's or a Cactus Lounge.  To date Rascals has
contributed $825,000 to the project.  The first such mega-entertainment
complex opened in Jackson, Mississippi at the end of March.  Our
understanding with JHF Properties is that an additional three complexes
will be built.  Rascals will own one-third of the equity in these
complexes if it contributes no less than $2.9 million to the project.
Moreover, it is understood that if Rascals purchases the nine existing
Banana Joe's clubs owned by JHF Properties, Rascals will also acquire
100% ownership of the new mega-entertainment complexes.  However,
there is no contract in effect that formalizes either the arrangement
for development of the mega-entertainment complexes or the acquisition
of the nine Banana Joe's.

     Our efforts to increase the number of our clubs with a minimal
capital commitment have also led us into a number of licensing
arrangements.  For example, we have given a license to a group
which is planning to open a 300-seat "Rascals Comedy Club" in
Jersey City, New Jersey during the first quarter of 2004.  Rascals
provides the group with its plans and designs for the club, consults
with the group during the development stage, and will provide bookings
for a fee.  In return, the licensee pays an initial fee to Rascals
and a monthly royalty throughout the ten-year term of the license.

     The transitions in our business plan during 2002 resulted in a
marked disparity between revenues and expenses.  Since our new operations
were only in their early stages in 2003, we continued to realize over 86%
of our net sales from our two New Jersey restaurant/comedy club
facilities.  Since these clubs have now been closed, the results of their
operations have been summarized as "Discontinued Operations."  Therefore
the gross profit of $48,292 that we reported was attributable almost
entirely to our Cherry Hill operation, and was not sufficient to support
the corporate activities involved in developing our new business plan.
These widespread efforts to implement new revenue sources  resulted in
general and administrative expenses during 2003 of $3,398,455.  The
portion of general and administrative expenses that are payable in cash
was significantly reduced from 2002 ($1,340,969) to 2003 ($999,412).
However, the non-cash expense increased by $2,192,176, as we incurred
$2,399,043 in expenses for "stock based compensation" during 2003.

     In 2004 we expect most of our revenue to arise from new operations.
This will occur because:

        (1)     We closed our West Orange club and restaurant at
                the end of June.  In recent years that club had
                produced over 60% of our annual revenue.  We
                have also scheduled the closing of our club and
                restaurant in Ocean, New Jersey for the summer
                of 2004.  That club produced most of the remaining
                40% of our revenues in recent years.   Each of these
                clubs will be replaced in a nearby location - the
                West Orange club is being replaced by a new club and
                restaurant in Montclair, New Jersey.  But the Montclair
                club will be owned by a licensee from Rascals and the
                replacement for the Ocean club is likely to likewise be
                built by someone other than Rascals itself.

        (2)     We are now realizing revenue from our Cherry
                Hill hotel-based operation which, albeit far
                less in amount than revenue from West Orange,
                will, after its start-up phase is completed,
                produce far greater gross profit margins.

        (3)     Our interest in the mega-entertainment complexes
                being constructed by JHF Properties will begin
                to contribute to our revenues in the second
                quarter of this year.

        (4)     The first three videos licensed from the Rascals
                Library were introduced to the market for home
                videos in July 2003.  They are on sale at Best
                Buy and other national retail chains.  Depending
                on the success of this marketing effort, succes
                sive offerings may be made, which could contribte
                substantially to our operating results.

     These new directions in our operations bode well for the
future.  Initial results from these ventures, however, are not
likely to be profitable due to start-up costs; so 2004 will be a
year of transition.  Our goal is to return to profitability in
2005.

Liquidity and Capital Resources

     The magnitude of our losses in recent years has not been
matched by reductions in cash, as we have used stock grants to
pay expenses whenever possible.  Nevertheless, our operations
during 2002 consumed $755,199 in cash, and our operations in 2003
used $554,188 in cash.  Since we began 2002 with virtually no
cash, our continued operations for the past two years required
that we borrow the funds needed by our operations.  For this
reason in November 2002 we borrowed $659,361 from Marod Holdings
LLC and Rodmar Holdings LLC, two entities which are controlled by
our executive officers.  To secure the debt Rascals gave the two
entities a secured interest in Rascals' restaurant/clubs in Ocean
and West Orange, New Jersey.

     In May 2003 Rodmar Holdings and Marod Holdings agreed to
accept 1,000,000 shares of Rascals common stock in satisfaction
of $500,000 that Rascals owed to them.  In December 2003 the
remainder of that debt, accrued interest, and certain unpaid rent
obligations were satisfied when Rascals issued 1,250,000 shares
of its common stock to Rodmar Holdings and Marod Holdings.  Both
of those transactions served to reduce our working capital deficit
and increase our shareholders equity.

     In December 2002 our subsidiary which operates the Rascals
Comedy Club in Cherry Hill borrowed $200,000 for its operations
from Stanley Chason.  The loan to Rascals Cherry Hill was guaranteed
by Rascals International as well as by Marod Holdings, Rodmar Holdings
and our two executive officers.  When that loan went into default, Mr.
Chason obtained a judgment lien on our assets.  We have reached an
agreement with Mr. Chason releasing the lien, which permits us to close
the Ocean operation and sell its liquor license to pay some of our
debts.  In the agreement Mr. Chason agreed to accept 1,000,000 shares
of our common stock in partial satisfaction of the debt.  That transaction
likewise will increase our shareholders equity.

     On October 8, 2003 Rascals signed an Equity Line of Credit
Agreement with Cornell Capital Partners, LP.   The Equity Line of
Credit Agreement provides that during the two years commencing
January 8, 2004 Rascals may demand that Cornell Capital Partners
purchase shares of common stock from Rascals.  Rascals may make a
demand no more than once every seven trading days.  The maximum
purchase price on each demand is $150,000.  The aggregate maximum
that Rascals may demand from Cornell Capital Partners is
$10,000,000.  The number of shares that Cornell Capital Partners
will purchase after a demand will be determined by dividing the
dollar amount demanded by a per share price.  The per share price
used will be 98% of the lowest daily volume-weighted average
price during the five trading days that follow the date a demand
is made by Rascals.  Cornell Capital Partners is required by the
Agreement to pay each amount demanded by Rascals, unless (a)
there is no prospectus available for Cornell Capital Partners to
use in reselling the shares, (b) the purchase would result in
Cornell Capital Partners owning over 9.9% of Rascals outstanding
shares, or (c) the representations made by Rascals in the
Agreement prove to be untrue.

     During 2004 Rascals has sold a total of 7,955,121 shares to
Cornell Capital Partners pursuant to the terms of the Equity Line
of Credit Agreement, and received $650,000 for those shares.  In
addition, Cornell Capital Partners has made loans to Rascals, the
remaining balance of which totals $850,000.  The loans will be
satisfied at a rate of $50,000 per week by Rascals issuing shares
to Cornell Capital Partners under the terms of the Equity Line of
Credit Agreement.  The number of shares that will be issued in
this way will depend on the market price of our common stock from
time to time.

     From the funds provided by Cornell Capital Partners, Rascals
has advanced $825,000 to JHF Properties to fund the development
of the four mega-entertainment complexes that we are developing
jointly with JHF Properties.  Our understanding with JHF Proper
ties calls for Rascals to contribute a minimum of $2,165,000 to
the project, in exchange for a 33 % interest in the four complexes.
Our interest will increase to 100% if Rascals purchases nine existing
clubs owned by JHF Properties.  Although we do not have a contract
for the purchase of the clubs, it is likely that purchase of the nine
clubs would require payment of at least $1,250,000 plus issuance of
Rascals common stock.  We are currently investigating sources for
the funds required for this purpose.

     At the present time, our liquid assets are negligible, while
we had over $2.4 million in accounts and notes payable on Decem
ber 31, 2003.  We also have plans to fund the build-out of three
new clubs during 2003 (Palisades, Montclair, and Shreveport) in
addition to funding the joint venture with JHF Properties.  Our
plan is to use the proceeds from our equity line of credit with
Cornell Capital Partners to reduce our payables and to fund our
building plans.  We are also actively seeking alternative sources
of capital investment, as the Cornell Capital Partners equity
line is not likely to be sufficient for all of our purposes.

Off-Balance Sheet Arrangements

     We do not have any "off-balance sheet arrangements," as
defined in the Regulations of the Securities and Exchange Commission.

Critical Accounting Policies and Estimates

     In preparing our financial statements we are required to
formulate working policies regarding valuation of our assets and
liabilities and to develop estimates of those values.  In our
preparation of the financial statements for 2003, there was only
one estimate made which was (a) subject to a high degree of
uncertainty and (b) material to our results.  That was our
determination, detailed in Note 9 to the Consolidated Financial
Statements, that we should record a valuation allowance for the
full value of the deferred tax asset created by our net operating
loss carryforward.  The primary reason for the determination was
our lack of certainty as to if and when Rascals would commence
profitable operations.

     We have made no material changes to our critical accounting
policies in connection with the preparation of financial statements
for 2003.

Item 7.   FINANCIAL STATEMENTS

     The Company's financial statements, together with notes and
the Report of Independent Certified Public Accountants, are set
forth immediately following Item 14 of this Form 10-KSB.


Item 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AC
          COUNTING AND FINANCIAL DISCLOSURE

     None.

Item 8A.  CONTROLS AND PROCEDURES

     Eduardo Rodriguez, our Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the Company's disclosure controls and
procedures as of December 31, 2003.  Based on his evaluation, he concluded
that the controls and procedures in place are sufficient to assure that
material information concerning the Company which could affect the
disclosures in the Company's quarterly and annual reports is made known to
him by the other officers and employees of the Company, and that the
communications occur with promptness sufficient to assure the inclusion of
the information in the then-current report.

     There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls subsequent
to the date on which Mr. Rodriguez performed his evaluation.


                             PART III

Item 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

     This table identifies our management team.  Directors serve
until the next annual meeting of shareholders and until their
successors are elected and qualify.  Officers serve at the pleasure
of the Board of Directors.


Name                  Age             Position with            Director
                                      the Company              Since
-----------------------------------------------------------------------
Eduardo Rodriguez     42              Chairman, Chief
                                       Executive Officer         1998
                                       Officer, Chief Financial
                                       Officer
Michael Margolies     76              Vice Chairman,
                                       Secretary,2001
                                       Director
Gary Marks            45               Director2000

     Eduardo Rodriguez has served as Chief Executive Officer of
Rascals since 1998.  Immediately prior to joining Rascals, Mr.
Rodriguez served as President of Lancaster Consultants, Inc., a
company involved in financial management and consulting.

     Michael Margolies became Vice Chairman and Secretary of Rascals
in January 2002, after having served on our Board of Directors for the
prior year.  Since 1998 Mr. Margolies has been employed as Chief
Executive Officer of Transportation Logistics Int'l, Inc. (OTC Bulletin
Board: TRPL.OB), which provides logistics and logistic-related services.

     Gary Marks is currently a partner at Roxiticus Ventures in
Bedminster, New Jersey. Prior to joining Roxiticus Ventures, Mr.
Marks held senior technology sales and marketing positions at
Cybertel, Intel, Conner Peripherals, SyQuest and Western Digital.


Audit Committee

     The Board of Directors does not have an audit committee
financial expert.  The Board of Directors has not been able to
recruit an audit committee financial expert to join the Board of
Directors because of the Company's poor financial condition.

Code of Ethics

     The Company does not have a written code of ethics applicable
to its executive officers.  The Board of Directors has not adopted a
written code of ethics because there are so few members of management.

Compliance with Section 16(a) of the Exchange Act

     None of the directors, officers or beneficial owners of more
than 10% of Rascals's common stock failed to file on a timely basis
reports required during 2003 by Section 16(a) of the Exchange Act,
except as follows: Messrs. Rodriguez and Margolies each failed to file
three reports on Form 4 when due, and Mr. Marks failed to file one
report on Form 4 when due.

Item 10.  EXECUTIVE COMPENSATION

     This table itemizes the compensation we paid to Eduardo
Rodriguez, who served as our Chief Executive Officer during 2003,
and to Michael Margolies, our Vice Chairman.  There was no
officer whose salary and bonus for services rendered during the
year ended December 31, 2003 exceeded $100,000.

                                                       Other
                                 Year     Salary       Compensation
     --------------------------------------------------------------
     Eduardo Rodriguez.......    2003     $145,288 (1)  $ 10,800 (2)
                                 2002       40,000        10,800 (2)
                                 2001       74,400        22,000 (2)

     Michael Margolies.......    2003     $145,288 (1)
                                 2002            0
                                 2001            0
                            ______________________


(1)  Represents shares acquired in lieu of salary under the Employee
     Stock Purchase Plan.
(2)  Represents premiums paid for health insurance and payments made to
     supply Mr. Rodriguez with an automobile.



          Employment Agreements; Affiliation Agreement

          In connection with the refinancing of the mortgages on
Rascals' two New Jersey restaurant/clubs on December 31, 2001,
Rascals entered into employment agreements with Eduardo Rodriguez,
its Chief Executive Officer, and Michael Margolies, its Vice Chairman
and Secretary.  The refinancing is described in "Certain Relationships
and Related Transactions" below.

          Rascals' employment agreement with Eduardo Rodriguez provides
that Mr. Rodriguez will serve as President of Rascals during the term
of the agreement, which ends on December 31, 2006.  Mr. Rodriguez
covenants in the agreement that he will not compete with Rascals
for one year after termination of his employment.  The agreement
further provides that Rascals will pay Mr. Rodriguez an annual
salary of $250,000, and will spend up to $12,000 per year to provide
him an automobile.  In the event of Mr. Rodriguez' death or disability,
Rascals commits to pay him or his estate an amount equal to one year's
salary.

          Rascals' employment agreement with Michael Margolies provides
that Mr. Margolies will serve as Vice Chairman and Secretary during the
term of the agreement, which ends on December 31, 2006.  Mr. Margolies
covenants in the agreement that he will not compete with Rascals for
one year after termination of his employment.  The agreement further
provides that Rascals will pay Mr. Margolies an annual salary of $150,000.
In the event of Mr. Margolies' death or disability, Rascals commits to
pay him or his estate an amount equal to one year's salary.  In order
to induce Mr. Margolies to enter into the agreement, Rascals issued 2,000
shares of common stock to the Margolies Family Trust and 1,000
shares to Mr. Margolies.  In September 2002 the Margolies Family
Trust and Mr. Margolies surrendered those shares to Rascals.

          At the same time as the employment agreements, an "Affiliation
Agreement" was made among Rascals, Mr. Rodriguez and Mr. Margolies.  The
stated consideration for Rascals' covenants in the Affiliation Agreement
was Mr. Margolies' agreement to partic ipate in the refinancing of the
New Jersey mortgages.  The Affiliation Agreement provides, with respect
to both Mr. Rodri guez and Mr. Margolies, that as long as he or his family
own one percent of Rascals, he will be nominated at any election of Board
members.  The Affiliation Agreement further provides that until December
31, 2006 the salary and benefits paid to Mr. Margolies will equal
no less than 60% of the salary and benefits paid to Mr. Rodriguez;
that Rascals will not issue stock to Mr. Rodriguez or Mr. Margolies
or their families without the consent of the other; and that neither
Mr. Rodriguez nor Mr. Margolies will sell any Rascals shares without
affording the sale opportunity to the other of them.


          Restricted Stock Grant Program and Surrender of Shares

          On August 5, 2003, Rascals' Board of Directors adopted a
Restricted Stock Grant Program (the "Program") pursuant to which
2,000,000 shares of Common Stock were reserved.  On the same day,
the restricted shares were issued as follows:

         Eduardo Rodriguez       - 1,000,000 shares
         Michael Margolies       - 1,000,000 shares

     The shares issued under the Program are subject to the
following restrictions:

     1.  After 2003 and each of the following four fiscal years
(2004 through 2007) one-fifth of the shares granted (the "At-Risk
Shares") will be forfeited if Rascals' revenue during the year
does not exceed the following thresholds:

         2003  - $ 1,000,000
         2004  - $ 1,500,000
         2005  - $ 2,000,000
         2006  - $ 2,500,000
         2007  - $ 3,000,000

     2.  All shares held by a Grantee shall be forfeited if his
employment by Rascals terminates prior to the date the restrictions lapse.

     3.  The shares granted under the Program cannot be sold,
assigned, pledged, transferred or hypothecated in any manner, by
operation of law or otherwise, other than by writ or the laws of
descent and distribution, and shall not be subject to execution,
attachment or similar process.  These restrictions will lapse with
respect to any At-Risk Shares that are not forfeited as described above.

     4.  The restrictions shall also lapse as to all shares granted
to a Grantee on the first to occur of (i) the termination of that
Grantee's employment with the Company by reason of his disability,
(ii) the Grantee's death, (iii) termination of the Grantee's
employment by the Company without good reason, or (iv) a change
of control of the Company.  The Program defines "Change of Control"
as an acquisition by a person or group of more than 50% of the
Company's outstanding shares, a transfer of the Company's property
to an entity of which the Company does not own at least 50%, or the
election of directors constituting a major ity of the Board who have
not been approved by the existing Board.

     During any tax year in which a Grantee realizes taxable
income by reason of the lapse of the restrictions on the shares
granted under the Program, the Company shall pay to such Grantee
a "Gross-Up Bonus" in cash equal to the aggregate of (i) the
additional federal, state and local income taxes incurred by
Grantee as a result of realization of such taxable income, and
(ii) the federal, state and local income tax incurred by the
Grantee as a result of the Gross-Up Bonus.  In no event shall the
Gross-Up Bonus exceed the aggregate of (i) the amount of the tax
deduction for which the Company receives a benefit for the tax
year of the Company beginning during the tax year of the Grantee
in which he realizes taxable income by virtue of the lapse of the
restrictions referred to above, and (ii) the amount of the tax
deduction for which the Company receives a benefit for such tax
year of the Company by virtue of the Gross-Up Bonus.

     Employee Stock Purchase Plan

     In July 2003 Rascals Board of Directors adopted the 2003
Employee Stock Purchase Plan.  Each employee of Rascals who is
either an executive officer or a manager was eligible to participate
in the Plan.  The Plan permitted participants to purchase Rascals
common stock through payroll deductions.  The purchase price was
85% of market value.  500,000 shares were included in the Plan,
and all have been purchased as follows: 245,750 shares by Eduardo
Rodriguez, 245,750 shares by Michael Margolies, and 8,500
share by Rascals' Director of Operations.

     Stock Options

     None of our officers or directors holds any options to purchase
Rascals securities.

     Compensation of Directors

     Our directors are reimbursed for out-of-pocket expenses
incurred on our behalf, but receive no additional compensation
for service as directors.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

     The following table sets forth information known to us with
respect to the beneficial ownership of our common stock as of the
date of this prospectus by the following:

     *  each shareholder known by us to own beneficially more
        than 5% of our common stock;

     *  each officer named in the Executive Compensation table
        above.

     *  each of our directors; and

     *  all directors and executive officers as a group.

     There are 18,686,380 shares of our common stock outstanding
on the date of this Report.  Except as otherwise indicated, we
believe that the beneficial owners of the common stock listed
below have sole voting power and investment power with respect to
their shares,  subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission.

     In computing the number of shares beneficially owned by a
person and the percent ownership of that person, we include
shares of common stock subject to options or warrants held by
that person that are currently exercisable or will become exercisable
within 60 days. We do not, however, include these "issuable" shares
in the outstanding shares when we compute the percent ownership of
any other person.

                                    Amount and
                                    Nature of
Name and Address                    Beneficial             Percentage
of Beneficial Owner(1)              Ownership(2)           of Class
--------------------------------------------------------------------------
Eduardo Rodriguez                 3,533,404(3)(4)            18.9%
Michael Margolies                 3,528,963(3)(4)            18.9%
Gary Marks                           25,750                   0.1%

All Officers and Directors
As a Group (3 persons)            4,810,905(3)(4)            25.7%
     ____________________________________

     (1)  Except as noted, the address of all shareholders is c/o Rascals
          International, Inc.,  501 Bloomfield Avenue, Montclair, NJ 07042
     (2)  All shares are owned of record unless otherwise indicated.
     (3)  The shares beneficially owned by Messrs. Rodriguez and Margolies
          each include 1,000,000 shares subject to the terms of the Restricted
          Stock Grant Program.
     (4)  The shares beneficially owned by Messrs. Rodriguez and Margolies
          each include 1,638,606 shares owned of record by Rodmar Holdings,
          LLC and 638,606 shares owned of record by Marod Holdings, LLC.  Mr.
          Rodriguez and Mr. Margolies are the two Managers of Rodmar and of
          Marod.  Mr. Rodriguez' wife owns a 50% interest in Rodmar and a 50%
          interest in Marod in trust for their minor children.  The remaining
          50% interest in each LLC is owned by The Margolies Family Trust.
          The Trustee of the Margolies Family Trust is Mr. Margolies' spouse,
          and the beneficiaries of the Trust are Mr. Margolies' spouse and
          children.


Equity Compensation Plan Information

     The information set forth in the table below regarding equity
compensation plans (which include individual compensation arrangements)
was determined as of December 31, 2003.

                                               Weighted       Number of
                             Number of         average        securities
                             securities        exercise       remaining
                             to be issued      price of       available for
                             upon exercise of  outstanding    future issuance
                             outstanding       options,       under equity
                             options, warrants warrants       compensation
                             and rights        and rights     plans
                             ------------------------------------------------

Equity compensation plans
 approved by security
 holders..........                   0            --              0

Equity compensation plans not
 approved by security
 holders*.........                   0            --          6,380
                              -----------------------------------------------
 Total..............                 0            --          6,380
                              ===============================================


     Our Board of Directors has adopted three equity compensation plans
without shareholder approval under which shares remain available for
issuance.  The three plans are identical in their material terms.  They
permit the Board to award to employees, directors or consultants
(other than consultants whose services to Rascals are related to
capital-raising transactions) stock, restricted stock, stock options
or performance shares.

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Refinance

     On December 31, 2001, the management and affiliates of
Rascals completed a refinancing of the mortgages on the proper
ties in West Orange, New Jersey and Ocean Township, New Jersey on
which Rascals Comedy Clubs were located (the "Realty").  The
refinanced mortgage loan was a two-year loan in the principal
amount of $2,250,000.  As a condition to its willingness to
complete the refinancing, the mortgagee received personal guarantees
of the loan from Michael Margolies and his wife and Eduardo
Rodriguez and his wife.

     In order to induce Mr. Margolies and his wife to assist in
the refinancing, including giving a personal guarantee of the
mortgage loan, Rascals and Mr. Rodriguez entered into the Affiliation
Agreement with Mr. Margolies.  In addition, Mr. Margolies acquired
the greater part of the interest that Mark Magnusson had held in Rascals
and all of his interest in the Realty.  Specifically:

     *  Mr. Magnusson agreed to the assignment of the Realty by
        Comrest and W.H.R. Realty, two general partnerships
        comprised of Mr. Magnusson and Eduardo Rodriguez, Ras
        cals President, to Marod Holdings, L.L.C. ("Marod") and
        Rodmar Holdings, L.L.C. ("Rodmar").  The members of
        Marod and Rodmar are Mr. Rodriguez' spouse (in trust for
        their minor children) and the Margolies Family Trust.
        The Managers of Marod and Rodmar are Messrs. Eduardo
        Rodriguez and Michael Margolies, who are members of
        Rascal's Board).  In consideration of his agreement to
        the transfer, the Margolies Family Trust paid Mr.
        Magnusson $24,000 and promissory notes for $56,000.

     *  Rascals, Marod and Rodmar agreed that the leases of the
        Realty to Rascal's subsidiaries would continue in effect
        and unchanged.

     *  The Margolies Family Trust purchased four thousand
        shares of Rascals common stock from Mark Magnusson for
        $96,000.

     *  Comrest and W.H.R. Realty, the previous landlords of the
        Realty, released Rascals from past debts, primarily
        unpaid rental, totaling approximately $570,000.

     *  Rascals reaffirmed the agreement it had made with Mr.
        Magnusson dated January 24, 2001, and agreed to commence
        paying Mr. Magnusson $1,500 per week without interest
        until the debt of $114,000 was satisfied.

     Sale and Lending

     On September 26, 2002 Marod Holdings, LLC sold to Commerce
Bank the land and buildings at 425 Pleasant Valley Way in West
Orange, New Jersey.  D.E.M., Amusements, Inc., a subsidiary of
Rascals, by lease from Marod Holdings, carried on the operation
of a restaurant and comedy club on those premises.  By
arrangement with Commerce Bank, D.E.M. Amusements, Inc. continued
to carry on that business until June 2003, at which time D.E.M.
Amusement's lease for the premises expired.

     Marod utilized a portion of the proceeds of the sale of the
West Orange property to reduce the principal amount of the
mortgage held by Hudson United Bank on the West Orange premises
as well as on the premises in Ocean.   The mortgage loan encumbering
the properties was reduced from a principal amount of approximately
$2,250,000 to a principal amount of approximately $1,250,000.
That amount was retired in December 2003 when Rodmar sold the
property in Ocean Township, New Jersey where Rascals other club
and restaurant complex was located.

     Upon completion of the sale of the West Orange property,
Marod Holdings assigned to Rodmar Holdings a beneficial interest
in a portion of the proceeds from the sale.  Marod Holdings and
Rodmar Holdings subsequently loaned to Rascals a total of $659,361.
Rascals used the proceeds of the loan primarily to reduce its
outstanding payables.  The Loan Agreement  provided for the sale
to each of Rodmar Holdings and Marod Holdings of fifteen thousand
shares of Rascals's common stock for a price of $7,500.

     In consideration of the loan, Rascals entered into a Loan
Agreement and a Pledge Agreement with Rodmar Holdings and Marod
Holdings, and Rascals executed a Promissory Note in favor of
Rodmar Holdings and Marod Holdings.  The Promissory Note was in
the principal amount of $641,204 and bore interest at twelve
percent per annum.  The Promissory Note called for payment of
$25,000 per month, commencing on January 2, 2003, with payment of
the unpaid balance of the Note on December 31, 2003.  In May 2003
Rascals reduced its obligation under the Promissory Note by
$500,000 by issuing 1,000,000 shares of common stock to Rodmar
Holdings, LLC.  In December 2003 Rascals satisfied the remainder
of the obligation on the Promissory Note and other debts to
Rodmar Holdings and Marod Holdings by issuing them 1,250,000
shares of common stock.

     The members of Marod Holdings and Rodmar Holdings are the
spouse of Eduardo Rodriguez (in trust for their minor children)
and the Margolies Family Trust.  The Managers of Marod Holdings
and Rodmar Holdings are Messrs. Eduardo Rodriguez and Michael
Margolies, who are members of Rascals's  Board of Directors.

     Rascals Montclair, Inc.

     In June 2003 Rascals' lease for the property in West Orange,
New Jersey on which Rascals operated a club and restaurant
terminated.  For several months, Rascals' management looked for a
location where the club and restaurant could be reopened.
However, because of Rascals lack of capital, landlords were
unwilling to rent space to Rascals on favorable terms and contractors
were unwilling to extend credit to Rascals for construction of the
new facility.  Therefore Eduardo Rodriguez and Michael Margolies,
Rascals' officers, organized Rascals Montclair, Inc., which is owned
by The Margolies Family Trust, the Rodriguez Family Trust and
Jerry Pontones, Rascals' General Manager.  Rascals Montclair, Inc. has
entered into a lease for space in Montclair, New Jersey where a
replacement for the West Orange club and restaurant will be opened.

     Rascals has entered into a licensing agreement with Rascals
Montclair, Inc., similar to the licensing agreement it has made
in connection with the owners of the Rascals Comedy Club being
built in Jersey City.   The agreement permits Rascals Montclair
to use the Rascals name and its club style.  After the facility
is constructed, however, Rascals Montclair will lease the comedy
club alone to Rascals International.  That arrangement will be
similar to our arrangement with the hotels which have housed our
comedy clubs, as we will receive the revenue from the club and a
share of the revenue from the restaurant and bar.

     The lease arrangement between Rascals and Rascals Montclair
requires Rascals to advance the funds needed to develop the
comedy room.  During 2003 Rascals advanced $44,000 to Rascals
Montclair, Inc. for this purpose.  In 2004 Rascals has advanced
an additional $318,000 to Rascals Montclair for this purpose.

Item 13.  EXHIBIT LIST AND REPORTS ON FORM 8-K

     (a) Financial Statements

Report of Independent Auditors                         F-1

Consolidated Balance Sheets                            F-2

Consolidated Statements of Operations                  F-3

Consolidated Statements of Shareholders' Equity        F-4

Consolidated Statements of Cash Flows                  F-5

Notes to Consolidated Financial Statements             F-7

     (b) Exhibit List

3-a Articles of Incorporation, as amended through December 11, 2001. (1)

3-a(1)    Certificate of Amendment to Articles of Incorporation
          dated March 17, 2003 - filed as an exhibit to the
          Quarterly Report on Form 10-QSB for the period ended
          March 31, 2003 and incorporated herein by reference.

3-b       By-laws. (1)

10-a      Affiliation Agreement dated December 31, 2001 among Ras
          cals International, Inc., Edward Rodriguez and Michael
          Margolies. (2)

10-b      Employment Agreement - Michael Margolies dated January 1,
          2002. (2)

10-c      Employment Agreement - Eduardo Rodriguez dated January 1,
          2002. (2)

10-d      Restricted Stock Grant Program - filed as an exhibit to
          the Current Report on Form    8-K dated August 5, 2003 and
          incorporated herein by reference.

10-e      Equity Line of Credit Agreement with Cornell Capital
          Partners dated October 8, 2003 - filed as an exhibit to
          the Company's Registration Statement on Form SB-2 (Reg.
          No. 333-111296) and incorporated herein by reference.

21  Subsidiaries -  Rascals Comedy Club Stage Door Grill, Inc.
                    D.E.M. Amusements, Inc.
                    Rascals Cherry Hill, Inc.

31  Rule 13a-14(a) Certification

32  Rule 13a-14(b) Certification
_____________________________

(1)       Filed as an exhibit to the Company's Registration
          Statement on Form 10-SB and incorporated herein by
          reference.
(2)       Filed as an exhibit to the Company's Current Report on
          Form 8-K dated December 31, 2001 and incorporated
          herein by reference.

    (c) Reports on Form 8-K

    None

Item 14       PRINCIPAL ACCOUNTANT FEES AND SERVICES

  Audit Fees

  Rosenberg Rich Baker Berman & Company billed $26,865 to the Company for
professional services rendered for the audit of our 2003 financial
statements and review of the financial statements included in our
reports on Form 10-QSB for the first three quarters of 2003.

  Audit-Related Fees

  Rosenberg Rich Baker Berman & Company billed $0 to the Company in
2003 for assurance and related services that are reasonably related
to the performance of the 2003 audit or review of the quarterly
financial statements.

  Tax Fees

  Rosenberg Rich Baker Berman & Company billed $0 to the Company
in 2003 for professional services rendered for tax compliance, tax
advice and tax planning.

  All Other Fees

  Rosenberg Rich Baker Berman & Company billed $0 to the Company in
2003 for services not described above.

   It is the policy of the Company's Board of Directors that all
services other than audit, review or attest services, must be
pre-approved by the Board of Directors.  All of the services described
above were approved by the Board of Directors.





                         Independent Auditors' Report

To the Stockholders and Board of Directors of
Headliners Entertainment Group, Inc. and Subsidiaries

    We have audited the accompanying consolidated balance sheet of Headliners
Entertainment Group, Inc. and Subsidiaries as of December 31, 2003, and the
related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years ended December 31, 2003 and 2002.
These consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Headliners Entertainment Group, Inc. and Subsidiaries as of
December 31, 2003, and the consolidated results of their operations,
stockholders' equity (deficit) and their cash flows for the years ended
December 31, 2003 and 2002, in conformity with accounting principles
generally accepted in the United States of America.

    The accompanying consolidated financial statements have been prepared
assuming Headliners Entertainment Group, Inc. and Subsidiaries will
continue as a going concern.  As discussed in Note 1, the Company has
suffered recurring losses from operations and has a net capital deficiency
that raises substantial doubt about its ability to continue as a going
concern.   Management's plans in regard to these matters are also described
in Note 1.   The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

    As discussed in Note 19 to the consolidated financial statements, the
accompanying consolidated balance sheet as of December 31, 2003 and the
related consolidated statements of operations,  stockholders' equity
(deficit), and cash flows for the year then ended have been restated.

                                /s/ Rosenberg Rich Baker Berman & Company
                                -----------------------------------------
                                Rosenberg Rich Baker Berman & Company

    Bridgewater, New Jersey
    April 10, 2004, except for Note 19 as
    to which the date is August 5, 2004
                                                                   F-1






            Headliners Entertainment Group, Inc. and Subsidiaries
                          Consolidated Balance Sheet
                             December 31, 2003
                                As Restated



Assets

Current Assets
 Cash (Note 1)                            $        70
 Assets to be disposed of (Note 16)           186,815
                                             --------
 Total Current Assets                         186,885
                                             --------

Property and equipment, net (Notes 1 and 4)    29,965
                                             --------
 Total Assets                                 216,850
                                             ========

Liabilities and Stockholders' Deficit

Current Liabilities
 Accounts payable and accrued expenses      2,088,764
 Due to officer (Note 8)                       15,143
 Notes payable (Note 5)                       317,000
                                            ---------
 Total Current Liabilities                  2,420,907
                                            ---------

Commitments and Contingencies (Note 10)             -

Stockholders' Deficit
 Common stock, authorized 100,000,000
  shares, $.001 par value, 10,731,731
  shares issued and outstanding
  (Notes 1, 3 and 6)                           10,732
 Additional paid-in capital                 9,263,091
 Accumulated deficit                       (8,628,031)
 Prepaid consulting                        (1,729,849)
 Deferred compensation                     (1,120,000)
                                            ---------
 Total Stockholders' Deficit               (2,204,057)
                                            ---------
 Total Liabilities and Stockholders'
  Deficit                                 $   216,850
                                            =========




See notes to the consolidated financial statements.

                                                                   F-2

          Headliners Entertainment Group, Inc. and Subsidiaries
                   Consolidated Statements of Operations




                                               Year Ended December 31,
                                                2003
                                             As Restated        2002
                                           -----------------------------
Net Sales                                  $   264,317     $    25,119

Costs and Expenses
 Cost of sales                                 145,465          17,807
 Restaurant operating expenses                  70,560           9,295
                                             ---------       ---------
 Total Costs and Expenses                      216,025          27,102
                                             ---------       ---------

Gross Profit (Loss)                             48,292          (1,983)
                                             ---------       ---------
General and Administrative expenses
 General and administrative expenses           999,412       1,340,969
 Stock based compensation (Note 3)           2,399,043         206,867
                                             ---------       ---------
Total General and Administrative Expenses    3,398,455       1,547,836
                                             ---------       ---------
Other Income (Expense)
 Interest expense                             (167,057)        (23,301)
 Other income                                        -          12,887
 Loss on disposal of fixed assets               (1,040)              -
                                             ---------       ---------
Total Other Expense                           (168,097)        (10,414)
                                             ---------       ---------
Loss From Continuing Operations Before
 Income Tax Provision                       (3,518,260)     (1,560,233)

Provision for Income Taxes (Note 1 and 9)          436             240
                                             ---------       ---------
Loss From Continuing Operations             (3,518,696)     (1,560,473)

Discontinued Operations
 Income from operations of the
  discontinued operations
  (net of tax effect of $0)                    239,947         143,384

Loss on disposal of operations
 (net of tax effect of $0)                     (81,321)              -
                                             ---------       ---------
Income From Discontinued Operations            158,626         143,384

Net Loss                                   $(3,360,070)    $(1,417,089)
                                             =========       =========

Earnings (Loss) Per Share From Continuing
 Operations                                $     (1.20)    $    (29.80)
Earnings (Loss) Per Share From
 Discontinued Operations                          0.06            2.73
                                             ---------       ---------
Earnings (Loss) Per Share                  $     (1.14)    $    (27.07)
                                             =========       =========
Weighted Average Number of Common Shares
 Outstanding                                 2,953,237          52,359




See notes to the consolidated financial statements.

                                                                   F-3

            Headliners Entertainment Group, Inc. and Subsidiaries
          Consolidated Statements of Stockholders' Equity (Deficit)
                                 As Restated


<TABLE>
                                                                                                          Total
                                Common Stock        Additional                                            Shareholders'
                            -------------------     Paid-in      Accumulated   Prepaid     Deferred       Equity
                             Shares      Amount     Capital      (Deficit)     Consulting  Compensation   (Deficit)
----------------------------------------------------------------------------------------------------------------------
<S>                         <C>          <C>        <C>          <C>          <C>           <C>            <C>

Balance - December 31, 2001  15,827,422 $  15,827   $ 2,439,293  $(3,850,872)  $        -    $        -    $(1,395,752)

Issuance of Common Stock      1,416,700     1,417       110,033            -            -             -        111,450

Stock Issued for Loan
 Extension                      186,000       186        22,134            -            -             -         22,320

Stock Issued for Services    11,730,000    11,730       906,342            -            -             -        918,072

Stock issued for conversion
 of debt and accrued
 interest                       833,334       833       166,667            -            -             -        167,500

Stock issued for officer
 compensation                   400,000       400         5,200            -            -             -          5,600

Retroactive effect of 500:
 1 reverse common stock
 split                      (30,332,669)  (30,332)       30,332            -            -             -              -

Net Loss                              -         -             -   (1,417,089)           -             -     (1,417,089)
                            ------------------------------------------------------------------------------------------
Balance - December 31, 2002      60,787 $      61   $ 3,680,001  $(5,267,961)  $        -    $        -    $(1,587,899)
                            ------------------------------------------------------------------------------------------
Issuance of Common Stock        120,000 $     120   $    59,880  $         -   $        -    $        -    $    60,000

Stock Issued for Services       895,944       895       843,478            -            -             -        844,373

Stock issued for conversion
 of debt and accrued expenses 4,771,500     4,772       893,342            -            -             -        898,114

Stock issued under employee
 stock purchase plan            500,000       500       267,367            -            -             -        267,867

Stock issued for officer
 compensation                 2,000,000     2,000     1,398,000            -            -    (1,400,000)             -

Amortization of deferred
 officer compensation                 -         -             -            -            -       280,000        280,000

Shares issued for consultant
 services to be provided      2,383,500     2,384     2,121,023            -   (2,123,407)            -              -

Amortization of consultant
 services                             -         -             -            -      398,558             -        398,558

Net Loss                              -         -             -   (3,360,070)           -             -     (3,360,070)
                             -----------------------------------------------------------------------------------------
Balance - December 31, 2003  10,731,731  $ 10,732   $ 9,263,091  $(8,628,031) $(1,729,849)  $(1,120,000)   $(2,204,057)
                             =========================================================================================


</TABLE>

See notes to consolidated financial statements.

                                                                   F-4


<PAGE>
            Headliners Entertainment Group, Inc. and Subsidiaries
                    Consolidated Statements of Cash Flows


                                                   Year Ended December 31,
                                                       2003
                                                   As Restated      2002
                                                  -------------  ----------
Cash Flows From Operating Activities
 Continuing Operations
  Loss From Continuing Operations                 $ (3,518,260)  $ (1,549,819)

 Adjustments to Reconcile Loss to Net Cash
  Used in Operating Activities
  Depreciation                                          12,188         62,109
  Stock issued for services                          1,154,670        278,292
  Amortization of deferred compensation              1,259,104        206,867

 Decrease (Increase) in Assets
  Deferred charges                                     221,327       (221,327)
  Prepaid expenses                                      10,021         42,289
 Increase (Decrease) in Liabilities
  Accounts payable and accrued expenses                306,762        (74,691)
                                                    ----------     ----------
 Cash (Used in) Continuing Operations                 (554,188)    (1,256,280)
                                                    ----------     ----------
 Discontinued Operations
  Income from discontinued operations                  158,626        143,384

 Adjustments to Reconcile Income to Net Cash
  Provided by Operating Activities
  Decrease in net assets of discontinued operations    259,144        357,697
                                                    ----------     ----------
 Cash Provided by Discontinued Operations              417,770        501,081
                                                    ----------     ----------
 Net Cash (Used in) Operating Activities              (136,418)      (755,199)
                                                    ----------     ----------
Cash Flows From Investing Activities
 Purchase of property and equipment                     (4,526)       (40,845)
                                                    ----------     ----------
 Net Cash Used by Investing Activities                  (4,526)       (40,845)
                                                    ----------     ----------
Cash Flows From Financing Activities
 Repayment of notes payable                             (2,000)       (51,310)
 Repayment on officer loans                            (38,700)             -
 Proceeds from common stock issued                      60,000        111,450
 Proceeds from related party                            90,639        659,361
 Proceeds from officer                                       -         53,843
                                                    ----------     ----------
 Net Cash Provided by Financing Activities             109,939        773,344
                                                    ----------     ----------

Net Decrease in Cash and Equivalents                   (31,005)       (22,700)

Cash and Equivalents at Beginning of Period             31,075         53,775
                                                    ----------     ----------
Cash and Equivalents at End of Period             $         70   $     31,075
                                                    ==========     ==========


                                                                   F-5

See notes to consolidated financial statements.

            Headliners Entertainment Group, Inc. and Subsidiaries
                    Consolidated Statements of Cash Flows


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 Cash paid during the year for:
  Interest                                        $    15,357    $          -
                                                    =========      ==========
  Income taxes                                    $       430    $        480
                                                    =========      ==========


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

  During the year ended December 31, 2003, the Company converted a
related party debt of $890,459 into 2,281,213 shares of common stock.

  During the year ended December 31, 2003, the Company converted $16,053
of accrued expenses into 15,000 shares of common stock.

  During the year ended December 31, 2003, the Company issued 2,383,500
share of common stock for $2,123,407 of prepaid consulting services.

  During the year ended December 31, 2002, the Company converted notes
payable of $150,000 as well as accrued interest of $17,500 into 105,000
shares of common stock.












                                                                   F-6



See notes to consolidated financial statements.


           Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1)

Basis of Presentation and Business

Headliners Entertainment Group, Inc. (formerly Rascals International, Inc.)
was organized as a Delaware corporation in 1992.  It is currently engaged in
the business of operating comedy clubs in the State of New Jersey.  Each club
is owned and operated by one of three subsidiaries of Headliners Entertainment
Group, Inc.: Rascals Stage Door Grill, Inc., D.E.M., Inc. and Rascals Cherry
Hill, Inc.  The club operating under D.E.M., Inc. was closed in 2003.

These financial statements are presented on a consolidated basis and include
the results of operations of the parent corporation, Headliners Entertainment
Group, Inc.,  the three subsidiaries aforementioned, and Rascals Kendall, Inc.,
a 75%-owned subsidiary which owned and operated a now-closed club in Kendall,
Florida.

The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
As reflected in the consolidated financial statements, the Company has
incurred recurring net losses from operations, an accumulated deficit, and
recurring negative cash flows from operations.  Further, at December 31, 2003,
current liabilities exceed current assets by $1,155,307 and total liabilities
exceed total assets by $474,208.  These factors all raise substantial doubt
about the ability of the Company to continue as a going concern.

Management's plan in regard to the going concern issues it to raise capital
through the sale of the Company's stock via the equity line of credit that
has been established.  In addition, the Company is focusing on developing a
significant number of clubs to achieve an efficient level of operations.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiaries.  All intercompany transactions
and balances have been eliminated in consolidation.

Cash and Cash Equivalents

Cash equivalents are comprised of certain highly liquid investments with a
maturity of three months or less when purchased.  At December 31, 2003, the
Company had no cash equivalents.

Inventories

Inventories consist of food, beverages and supplies.  Inventories are stated
at the lower of cost, determined by the first-in, first-out method, or market.
As of December 31, 2003, inventories of $8,938 are included in assets to be
disposed of on the balance sheet.

Property and Equipment, Depreciation and Amortization

Property and equipment is presented at cost.  Depreciation is computed utilizing
the straight-line method over the estimated useful lives of the assets: 5-15
years for Machinery and Equipment and Furniture and Fixtures.  Amortization
of leasehold improvements is computed utilizing the straight-line method over
the lesser of the remaining lease term or the useful life of the leasehold.


                                                                   F-7


<PAGE>
            Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1), Continued

Advertising

The Company expenses advertising costs as incurred.  Advertising costs for
the years ended December 31, 2003 and 2002 were $53,739 and $82,277,
respectively.

Concentrations

The Company maintains cash balances at financial institutions in New Jersey.
The balances are insured by the Federal Deposit Insurance Corporation up to
$100,000.  All cash balances were fully insured at December 31, 2003.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles 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 reporting period.
Actual results could differ from those estimates.

Earnings (Loss) Per Share

Earnings (Loss) per common share represents the amount of earnings (loss) for
the period available to each share of common stock outstanding during the
reporting period.  Diluted earnings (loss) per share reflects the amount of
earnings (loss) for the period available to each share of common stock
outstanding during the reporting period, while giving effect to all dilutive
potential common shares that were outstanding during the period, such as
common shares that could result from the potential exercise or conversion
of securities into common stock.  The computation of diluted earnings (loss)
per share does not assume conversion, exercise, or contingent issuance of
securities that would have an antidilutive effect on earnings (loss) per share.

Potential future dilutive securities include 2,200 shares issuable under
outstanding warrants as of December 31, 2003.

Income Taxes

The Company accounts for income taxes using the liability method.  Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using tax rates and laws expected to be in effect when the differences
are expected to reverse.  Valuation allowances are provided against deferred
tax assets for which it is "more likely than not" the assets will not be
realized.

Revenue Recognition

Revenue from restaurants are recognized when services are provided.  Revenues
from the comedy clubs are recognized when the show is performed.  The Company
is paid by cash or credit card when services are provided, therefore, there
are no accounts receivable or allowance for doubtful accounts at the date of
these financial statements.

The Company accounts for revenue from license agreements by amortizing the
up-front license fee over the life of the agreement.  Revenues from royalties
are recognized upon the sale by the licensee with whom the Company has
licensing agreements.  As of December 31, 2003, the Company did not recognize
any revenue from license agreements.

The Company accounts for the revenue from its VIP Platinum memberships by
deferring the up-front fee and recognizing the revenue ratably over the
membership term, generally one year.  As of December 31, 2003, the Company
did not recognize any revenue from its VIP Platinum membership.




                                                                   F-8

            Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1), Continued

Stock Based Compensation

Financial Accounting Statement No. 123 ("SFAS No. 123), Accounting for Stock
Based Compensation, encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.  The Company has
adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied.

As required by Statement No. 123 the Company accounts for stock issued for
services to non-employees by reference to the fair market value of the Company's
stock on the date of issuance as it is the more readily determinable value.

Reclassification

Certain amounts in the 2002 financial statements have been reclassified to
conform with 2003 financial statement presentation.  The reclassification had
no effect on the net loss reported for the year ended June 30, 2002.


DEFERRED CHARGE (NOTE 2)

In August 2002, the Company entered into an agreement for their location in
Cherry Hill, New Jersey.  As part of the agreement the Company was responsible
for renovating the existing club.  The agreement calls for the owners of the
club to reimburse the Company, for their "investment cost" at 10% of monthly
beverage revenues generated in the showroom during scheduled shows.   The
agreement is for five years.  This deferred charge is being amortized over
the five year period and will be decreased by reimbursement.  The collections
are being held by the hotel, as Company never fully paid the contractors for
the renovation.  In 2003, the entire deferred charge was reserved to $0.

PREPAID CONSULTING (NOTE 3)

The Company issued 3,279,444 fully vested, non-forfeitable shares of common
stock to various consultants for services.  2,383,500 of the shares issued
were for $2,123,407 of services that extend into the future and are amortized
monthly over the period of the agreement, ranging from one to four years.
895,944 of the shares issued were for $837,559 of services performed in
2003 and were expensed in 2003.  All shares issued were valued at the fair
market value at the date of the agreement, as there was no readily
determinable value for the consulting services provided or to be provided.
The Company accounted for the prepaid value of consulting services in
accordance with EITF 00-18, Accounting Recognition for Certain Transactions
Involving Equity Instruments Granted to Other Than Employees.  Due to factors
that may lead to uncertainty regarding the future economic benefit of the
prepaid consulting services, the asset has been classified as a contra equity
account.

The amortization of the value of the prepaid services for which shares were
issued in 2003 for the next four years is as follows:

                               Year Ended

                               2004              $ 1,035,700
                               2005                  638,016
                               2006                   40,875
                               2007                   15,258
                                                   ---------
                                                   1,729,849
                               2003 Amortization     393,558
                                                   ---------
                                                 $ 2,123,407
                                                   =========

                                                                   F-9


            Headliners Entertainment Group, Inc. and Subsidiaries
               Notes to the Consolidated Financial Statements

PROPERTY AND EQUIPMENT (NOTE 4)

A summary of property and equipment is as follows:


  Machinery and Equipment            $   36,996
  Furniture and Fixtures                 35,525
                                       --------
  Total                                  72,521

  Less:  Accumulated Depreciation        42,556
                                       --------
                                     $   29,965
                                       ========

Depreciation expense was $12,188 and $54,931 for the years ended December 31,
2003 and 2002, respectively.

NOTES PAYABLE (NOTE 5)

  Notes payable are as follows:

  Note payable, at 16% interest per annum, secured by
   liquor licence on the West Orange, NJ club.  The Note is
   in litigation.  Subsequent to December 31, 2003, the liquor
   license on the West Orange, NJ Club was sold for $68,000.
   These proceeds were used to reduce this note.                   $ 119,000

  Note payable, at 18% interest.  This note is currently in
   default. In December of 2003, the Company and the creditor
   reached an agreement, whereby, the Company issued 1,000,000
   common shares to the creditor. The issuance of the 1,000,000
   shares have been recorded at par value with a corresponding
   decrease to paid-in capital.  Upon the sale of the shares by
   the note holder, the note will be reduced by the amount of
   the proceeds with a corresponding increase to paid-in
   capital.  The Company will still be liable for any shortfall
   from the proceeds realized by the note holder.  The ultimate
   amount to be recorded in satisfaction of the debt will not
   exceed the balance of the debt recorded.  As of December
   31, 2003 the creditor did not sell any of these shares.           198,000
                                                                    --------
   Total                                                             317,000

   Less: current maturities                                          317,000
                                                                    --------
   Notes Payable, net of Current Maturities                        $       -
                                                                    ========

EQUITY LINE OF CREDIT (NOTE 6)

On October 8, 2003 the Company signed an Equity Line of Credit Agreement with
Cornell Capital Partners, LP.  The Equity Line of Credit Agreement provides
that during the two years commencing January 8, 2004 the Company may demand
that Cornell Capital Partners purchase shares of common stock from the Company.
The Company may make a demand no more than once every seven trading days.
The maximum purchase price on each demand is $150,000.  The aggregate maximum
that the Company may demand from Cornell Capital Partners is $10,000,000.
The number of shares that Cornell Capital Partners will purchase after a
demand will be determined by dividing the dollar amount demanded by a per
share price.  The per share price used will be 98% of the lowest daily volume-
weighted average price during the five trading days that follow the date a
demand is made by the Company.  Cornell Capital Partners is required by the
Agreement to pay each amount demanded by the Company, unless (a) there is no
prospectus available for Cornell Capital Partners to use in reselling the
shares, (b) the purchase would result in Cornell Capital Partners owning over
9.9% of Rascals outstanding shares, or (c) the representations made by the
Company in the Agreement prove to be untrue.


                                                                   F-10
         Headliners Entertainment Group, Inc. and Subsidiaries
             Notes to the Consolidated Financial Statements

CONVERSION OF DUE TO RELATED PARTIES (NOTE 7)

During the year ended December 31, 2003, payable due to related parties in the
amount of $890,459 were converted into 2,280,000 shares of the Company's
common stock.

TRANSACTIONS WITH RELATED PARTIES (NOTE 8)

Facilities Rental

The companies lease their facilities from two entities owned by the families
of the Company's executive officers.  Total rent expense to the entities
during the years ended December 31, 2003 and 2002 was $114,477 and $312,000,
respectively.

Due to Officer

The Company has an amount due to officer for $15,643.  The note is non-interest
bearing and has no repayment terms.

INCOME TAXES (NOTE 9)

Provision for income taxes consist of the following:

                                         December 31,
                                       2003       2002
                                    --------------------
        Currently Payable
         Federal                    $   -         $   -
         State                        436           240
                                     ----          ----
         Total                      $ 436         $ 240
                                     ====          ====

The components of the Company's deferred tax asset is as follows:


      Federal and State Net Operating Losses     $ 5,072,000
      Deferred Items                                  34,000
                                                   ---------
                           Totals                  5,106,000
      Less:  Valuation Allowance                  (5,106,000)
                                                   ---------
      Net Deferred Tax Asset                     $         -
                                                   =========

The Company has net operating loss carryforwards for federal income tax
purposes of approximately $12,664,000 of which approximately $2,100,000
expires in 2009, $300,000 in 2010, $700,000 in 2011, $300,000 in 2012,
$1,000,000 in 2018, $1,200,000 in 2019, $1,580,000 in 2020 $354,000 in 2021
$1,224,000 in 2022 and $3,906,000 in 2023.  Certain of the net operating
losses arose prior to various subsidiaries joining the consolidated group
and are therefore limited in there usage only against profits of that
particular subsidiary.  In addition, a change in ownership has occurred with
respect to approximately $4,000,000 of the net operating losses and their
usage will be severely restricted under the net operating loss limitations
provided in section 383 of the Internal Revenue Code.

Due to the uncertainty of profitable operations, and the restrictions and
limitations on the usage of the Company's net operating losses, a valuation
allowance for the full amount of the deferred tax asset has been recorded.
At December 31, 2003, the valuation allowance increased $1,500,000 over the
preceding period.

A reconciliation of the federal statutory tax amount to the Company's actual
tax amount for the year ended December 31, 2003 and 2002 is as follows:

                                                                   F-11


<PAGE>
           Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements

INCOME TAXES (NOTE 9), Continued

                                                 December 31,
                                              2003         2002
                                           -----------------------

             Statutory Benefit             $ 1,500,000  $  457,000

             Loss for Which No Benefit was
              Received                      (1,470,000)   (433,000)
             Non Deductible Expenses           (30,000)    (24,000)
                                             ---------    --------
             Effective Rate                $         -  $        -
                                             =========    ========

COMMITMENTS (NOTE 10)

Leases

The Company entered into a lease in October 2002 for office space in New
Jersey under an operating lease through December 31, 2005.  This lease was
terminated in 2003, and the Company is currently in negotiations with the
former landlord.

Total non-related party rent expense was $32,867 and $3,941 for the years
ended December 31, 2003 and 2002, respectively.

Financial Consulting Agreements

In 1999, the Company entered into a five year agreement with a consultant to
act as a finder for equity and/or debt financing on the Company's behalf.
Terms of the agreement provide the consultant with the following fee schedule:


             5% of the first $1,000,000
             4% of the consideration between $1,000,001 and $2,000,000
             3% of the consideration between $2,000,001 and $3,000,000
             2% of the consideration between $3,000,001 and $4,000,000
             1% of such consideration in excess of $4,000,000

In addition, the Company issued 100 warrants to purchase the Company's common
stock at $1,000 per share and 100 warrants to purchase the Company's common
stock at $750 per share for a total fair value of $77,954.  The warrants are
issued for a 5 year period and vest immediately.  The Company recorded
amortization of $19,491 and $15,590 in the statement of operations for the
years ended December 31, 2003 and 2002, respectively.

DEFERRED INCOME AND CREDITS (NOTE 11)

The Company sells comedy tickets in advance for certain performances as well
as gift certificates.  The deferred income recorded by the Company for prepaid
tickets and gift certificates was $31,782 at December 31, 2003 and is included
in liabilities to be disposed of on the balance sheet.

FAIR VALUE OF FINANCIAL INSTRUMENTS (NOTE 12)

The carrying amount of cash,  inventory, prepaid expenses, accounts payable
and deferred income and credits approximates fair value because of the short
maturity of these instruments.  The fair value of the Company's capital lease
obligations approximates its carrying value and is based on the current rates
offered to the Company for debt of the same remaining maturities with similar
collateral requirements.

                                                                   F-12


<PAGE>
          Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements

LIMITATIONS (NOTE 13)

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial statement.  These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

STOCK BASE COMPENSATION PLANS (NOTE 14)

In July 2003, the Company's Board of Directors adopted the 2003 Employee
Stock Purchase Plan, (the "Plan").  The Plan was established to provide
employees with an opportunity to acquire a proprietary interest in the
Company through the purchase of stock.  The Plan qualifies under Section 423
of the Internal Revenue Code.  Eligible employees are able to purchase up to
an aggregate 500,000 shares of the Company's common stock at 85% of the lesser
of (a) the fair market value on the first date of the purchase period
consisting of two calendar weeks, each commencing on a Sunday and ending on a
Saturday, or b the fair market value on the purchase date.  In accordance with
APB opinion No. 25, Accounting for Stock Issued to Employees, the Company did
not recognize compensation expense for the difference between the employees'
purchase price and the fair value of the stock.  During 2003, 208,500 shares
were issued at $0.99 and 291,500 shares were issued at $0.16 under
the Plan.  Had the Company accounted for the Plan under the fair value method
of SFAS 123, additional compensation expense of $47,342 would have been
recognized.

Effective December 21, 2001, the Company adopted the 2001 Stock and Stock
Option Plan.  During 2002  the Company adopted the 2002 Stock and Stock Option
Plan and the 2002 Equity Incentive Plan. The terms of the Plans are
substantially identical.   Under the Plans the Board of Directors is
authorized to  grant up to 28,000 shares of common stock to employees,
directors or consultants.  The grants could be made in the form of outright
grants of stock, grants of restricted stock, grants of qualified or non-
qualified options or grants of performance shares.  Through December 31, 2002
a total of 21,620 shares had been granted under the Plans, all in the form of
stock grants.  No options have been granted under the Plans.

        A summary of the status of the Company's warrants as of December 31,
2003 and changes during the year then ended is presented below:


                                                        Weighted
                                                         Average
                                        Shares        Exercise Price
                                     --------------------------------

Outstanding at beginning of year        2,200          $    193

Granted                                     -                 -

Exercised                                   -                 -

Expired                                     -                 -
                                       ------             -----
Outstanding at end of year              2,200          $    193
                                       ======            ======



                                                                   F-13

<PAGE>
          Headliners Entertainment Group, Inc. and Subsidiaries
             Notes to the Consolidated Financial Statements

STOCK BASE COMPENSATION PLANS (NOTE 14)

On August 5, 2003, Rascals' Board of Directors adopted a Restricted Stock
Grant Program (the "Program") pursuant to which 2,000,000 shares of Common
Stock were reserved, in August 2003 the restricted shares were issued.  Upon
issuance of the restricted shares, deferred compensation, equivalent to the
fair value of the shares at the date of grant, was charged to equity and is
being amortized over the vesting period.  Forfeited shares will return to
treasury.

The shares issued under the Program are subject to the following restrictions:

     1.   After 2003 and each of the following four fiscal years (2004 through
2007) one-fifth of the shares granted (the "At-Risk Shares") will be forfeited
if Rascals' revenue during the year does not exceed the following thresholds:


             2003 - $ 1,000,000
             2004 - $ 1,500,000
             2005 - $ 2,000,000
             2006 - $ 2,500,000
             2007 - $ 3,000,000

     2.   All shares held by a Grantee shall be forfeited if his employment by
Rascals and his membership on the Board terminates prior to the date the
restrictions lapse.

DISCONTINUED OPERATIONS (NOTE 15)

During 2003, the Company ceased operations at its West Orange, NJ location.
The decision to cease operations was based on the expiration of the lease and
the landlord's decision to sell the property.  The prior years operating
activities of the West Orange, NJ location have been reclassified to
discontinued operations in the accompanying Statement of Operations.  The
discontinued operations generated sales of $1,206,750 and $2,886,483 in 2003
and 2002, respectively, and operating income of $192,436 and $223,080,
respectively.

In November 2003, the Company decided to cease operations at its Ocean, NJ
location, effective in the first quarter of 2004.  The decision to cease
operations was based on the decline in sales and major renovations needed for
the building.  The prior years operating activities of the Ocean, NJ location
have been reclassified to discontinued operations in the accompanying
Statement of Operations.  The discontinued operations generated sales of
$818,853 and $1,238,159 in 2003 and 2002, respectively, an operating loss of
$27,062 in 2003 and operating income of $102,423 in 2002.

ASSETS TO BE DISPOSED OF (NOTE 16)

Assets to be disposed of comprise the following at December 31, 2003:

                Liquor licences           $  158,105
                Inventories                    8,938
                Security deposit               2,500
                Property and equipment        17,272
                                             -------
                Assets to be disposed of  $  186,815
                                             =======

The Company expects to sell the assets to be disposed of in the next fiscal
year.

                                                                   F-14

          Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements

NEW ACCOUNTING PRONOUNCEMENTS (NOTE 17)

Standards Implemented

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.  This statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that statement, SFAS No.
44, Accounting for Intangible Assets of Motor Carriers, and SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.  This
statement amends SFAS No. 13, Accounting for Leases, to eliminate
inconsistencies between the required accounting for sales-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sales-leaseback transactions.
Also, this statement amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions.  Provisions of SFAS No. 145 related
to the rescissions of SFAS No. 4 were effective for the Company on November
1, 2002 and provisions affecting SFAS No. 13 were effective for transactions
occurring after May 15, 2002.  The adoption of SFAS No. 145 did not have a
significant impact on the Company's results of operations or financial
position.

In June 2003, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.  This statement covers restructuring type
activities beginning with plans initiated after December 31, 2002.  Activities
covered by this standard that are entered into after that date will be recorded
in accordance with provisions of SFAS No. 146.  The adoption of SFAS No. 146 did
not have a significant impact on the Company's results of operations or
financial position.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, Accounting for
Stock-Based Compensation.  Additionally, SFAS No. 148 required more prominent
and more frequent disclosures in financial statements about the effects of
stock-based compensation.  The provisions of this Statement are effective for
fiscal years ending after December 15, 2002.  The adoption of this statement
did not have a significant impact on the Company's results of operations of
financial position.

In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities", which amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities.  This Statement is effective for contracts entered into or
modified after June 30, 2003, except for certain hedging relationships
designated after June 30, 2003.  Most provisions of this Statement should be
applied prospectively.  The adoption of this statement did not have a
significant impact on the Company's results of operations or financial position.

In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity.  It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances).  This
statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities, if applicable.  It
is to be implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim
period of adoption.  The adoption of this statement is did not have a
significant impact on the Company's results of operations or financial
position.

                                                                   F-15

          Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements


NEW ACCOUNTING PRONOUNCEMENTS (NOTE 17), Continued

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.  FIN 45 requires a company, at the time
it issues a guarantee, to recognize an initial liability for the fair value of
obligations assumed under the guarantees and elaborates on existing disclosure
requirements related to guarantees and warranties.  The recognition
requirements are effective for guarantees issued or modified after December 31,
2002 for initial recognition and initial measurement provisions.  The adoption
of FIN 45 did not have a significant impact on the Company's results of
operations or financial position.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.  FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003.  For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003.  The adoption of FIN
46 did not have a significant impact on the Company' results of operations or
financial position.

SUBSEQUENT EVENTS (NOTE 18)

In January 2004, the Company entered into an informal arrangement with the
owners of a chain of dance clubs ("the owners"), whereby the Company is
contributing funds to a joint venture, which is using the funds to develop
"mega-entertainment complexes", each consisting of a Rascals Comedy Club and
a dance club.  Subsequent to December 31, 2003, the Company has contributed
$850,000 to the project.  The informal agreement with the owners calls for
our "mega-entertainment complexes" to be built.  The Company will own one-
third of the equity in these complexes if it contributes at least $2.9
million to the project.

Subsequent to December 31, 2003, the Company has sold a total of 7,955,121
shares to Cornell Capital Partners pursuant to the terms of the Equity Line
of Credit Agreement, and received $650,000 for those shares.  In addition,
Cornell Capital Partners has made loans to the Company, the remaining balance
of which totals $850,000.  The loans will be satisfied at a rate of $50,000
per week by the Company issuing shares to Cornell Capital Partners under the
terms of the Equity Line of Credit Agreement.  The number of shares that will
be issued in this way will depend on the market price of the Company's common
stock from time to time.

From the funds provided by Cornell Capital Partners, Rascals has advanced
$825,000 to JHF Properties to fund the development of the four "mega-
entertainment complexes" that the Company is developing jointly with JHF
Properties.

RESTATEMENT OF PRIOR PERIOD RESULTS (NOTE 19)

The Company restated its financial statements for the year ended December 31,
2003.  The restated financial results reflect the following errors:

     - the closing of the West Orange, NJ and Ocean, NJ Club as discontinued
       operations.
     - a reclassification of prepaid consulting expense to a conta equity in
       the statement of Stockholders' Equity.
     - a revision to Note 14, STOCK BASE COMPENSATION PLANS, to describe the
       accounting for the 500,000 shares issued under the 2003 Employee
       Stock Purchase Plan.
     - NOTE 1, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, has been revised to
       reflect managements plan with respect to the Company's ability to
       overcome its financial difficulties.
     - NOTE 1, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, has been revised to
       disclose the Company's policy for accounting for stock based
       compensation.

                                                                   F-16

           Headliners Entertainment Group, Inc. and Subsidiaries
              Notes to the Consolidated Financial Statements


RESTATEMENT OF PRIOR PERIOD RESULTS (NOTE 19), Continued

     - an adjustment to correct the accounting for our liquor license which
       was being amortized.  In accordance with SFAS 142, the liquor license
       should not have been amortized.
     - an expansion of the revenue recognition disclosure.
     - an expansion to NOTE 5, NOTES PAYABLE, to further explain the Company's
       accounting treatment for the 1,000,000 shares issued in consideration
       of debt.

     The impact of these adjustments on the Company's financial results as
originally reported are summarized below:


                                               Year Ended December 31, 2003

                                               As Reported      As Restated
                                             --------------------------------

Assets                                       $ 1,940,421      $ 1,946,699

Net Sales                                    $ 2,352,800      $   264,317

Accumulated deficit                          $(9,739,578)     $(8,628,031)

Net Loss                                     $(4,471,617)     $(3,360,070)

Earnings (Loss) Per Share From Continuing
 Operations                                  $     (1.51)     $     (1.20)

Earnings (Loss) Per Share From Discontinued
 Operations                                  $         -      $      0.06



                                                                F-17




                                SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                              Rascals International, Inc.

                              By: /s/ Eduardo Rodriguez
                              ------------------------------------------
                              Eduardo Rodriguez, Chief Executive Officer



     In accordance with the Exchange Act, this Report has been
signed below on April 14, 2004 by the following persons, on behalf
of the Registrant and in the capacities and on the dates indicated.


/s/ Eduardo Rodriguez         Chief Executive Officer, Chief Financial
---------------------          Officer, Chief Accounting Officer
    Eduardo Rodriguez


/s/ Michael Margolies          Director
---------------------
    Michael Margolies


---------------------          Director
    Gary Marks