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The following is an excerpt from a 10KSB/A SEC Filing, filed by PEAK ENTERTAINMENT HOLDINGS INC on 5/16/2005.
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ENCORE ENERGY SYSTEMS, INC. - 10KSB/A - 20050516 - NOTES_TO_FINANCIAL_STATEMENT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

1 Description of Business and Future Prospects

Peak Entertainment Holdings, Inc, formerly Peak Entertainment Ltd, was formed on November 20, 2001 as an integrated media group focused on children. Its activities include the production of television entertainment, character licensing and consumer products development, including toy and gift manufacturing and distribution. Integration enables Peak Entertainment Holdings, Inc to take property from concept to consumer in-house, controlling and co-ordinating broadcast, promotions and product launches (toys, apparel, video games, etc.) to build market momentum and worldwide brand quality. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. As shown in the financial statements, at December 31, 2004 and for the twelve months then ended, the Company has suffered recurring losses, negative cash flows from operations, negative working capital, an accumulated deficit of $5,960,203 and a stockholders' deficiency of $2,077,133.

As shown in the accompanying financial statements, the Company incurred a net loss of $2,026,205 during the current period. Current economic conditions have limited the ability of the Company in acquiring additional equity capital.

In response to economic conditions, management has implemented expense reduction and revenue enhancements as well as initiated additional investor financing. Specifically, management has implemented reductions on the salaries of senior management. Also, nonessential capital expenditures, travel and other expenses have either been eliminated or postponed. Management has shifted its corporate and business development activities to focus strategic resources. To that end, the Company continues to pursue a three million dollar bridge financing round directed toward existing and strategic investors. Management believes the combination of these actions maximizes the probability of the Company's ability to remain in business. A portion of that capital has been secured recently but it is still uncertain at this stage whether the Company will be totally successful in accomplishing these objectives. Without this capital there is some uncertainty about the Company's ability to continue as a going concern though management are close to completing this transaction following the appointment of credible merchant bankers and management consultants. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

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

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

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

2 Summary of Significant Accounting Policies

(A) Principals of Consolidation and Combination

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

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

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(B) Basis of Preparation

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

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

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

2 Summary of Significant Accounting Policies (continued)

(C) Risks and Uncertainties

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

(D) Revenue Recognition

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

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

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

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

4. The arrangement fee is fixed or determinable.

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

(E) Intangible assets and amortization

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

Trade marks - 10 years Website development costs - 3 years

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

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

2 Summary of Significant Accounting Policies (continued)

(E) Intangible assets and amortization (continued)

Web Site Development Costs

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

(F) Plant and equipment

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

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

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

(G) Film and television costs

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

(H) Asset Impairment

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

(I) Cash Equivalents

For purposes of the statements of cash flows, all temporary investments purchased with a maturity of three months or less are considered to be cash equivalents. The Company maintains bank accounts in the United States of America, United Kingdom and Hong Kong. The balances held in these accounts are $11,161, UK(pound)(1,123), and HK $1,998 respectively.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

2 Summary of Significant Accounting Policies (continued)

(J) Inventories

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

(K) Advertising costs

Advertising costs, included in selling, general and administrative expenses, are expensed as incurred and were $46,286 and $7,233 for the years ended December 31, 2003 and December 31, 2004, respectively.

(L) Foreign currencies

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

(M) Income taxes

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

(N) Use of Estimates

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

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

2 Summary of Significant Accounting Policies (continued)

(O) Earnings Per Share

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

Basic and diluted earnings per share are the same during the year ended December 31, 2003 and 2004 as the impact of dilutive securities is antidilutive. There were 7,050,000 warrants to purchase shares of the Company's common stock outstanding as of December 31, 2004.

(P) Warrants

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

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

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

(Q) Recent Accounting Pronouncements

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

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

2 Summary of Significant Accounting Policies (continued)

(Q) Recent Accounting Pronouncements (continued)

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

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

3 Significant current assets and liabilities

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

                                             December 31,         December 31,
                                                  2003              2004
                                           ---------------   ---------------
Other current assets
Prepaid consulting                                 153,990                --
Accrued royalty income                              88,925           826,242
Monies in Escrow                                   276,379                --
Other current assets                                69,145            35,486
                                           ===============   ===============
                                                   588,439           861,728
                                           ===============   ===============
Accounts payable
UK professional fees                               182,866           373,613
US professional fees                                    --           222,160
Stock supplies - Countin' Sheep                    164,355                --
TV animation costs - Monster Quest                 119,720           129,689
Other accounts payable                             742,398           575,977
                                           ===============   ===============
                                                 1,209,339         1,301,439
                                           ===============   ===============
Other accrued liabilities
Consultancy fees                                   188,521           196,513
Wumblers pilot show costs                          271,954           111,448
Deferred royalties income                           68,734           957,060
Sales and payroll taxes                            193,084           409,195
Debenture interest                                 120,424           100,802
Legal fees                                          97,753                --
Other accrued liabilities                          385,054           515,611
                                           ===============   ===============
                                                 1,325,524         2,290,629
                                           ===============   ===============

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

4 Plant and Equipment

Plant and equipment comprise the following: 2003 2004

Fixtures and fittings           $135,966   $ 74,051
Moulds and tooling               105,674    123,124
Computer equipment & software     41,405    103,699
                                --------   --------

                                 283,045    300,874
Accumulated depreciation          84,800     41,225
                                --------   --------

                                 198,245    259,649
                                ========   ========

The Company can now utilize the moulds and tooling acquired from the acquisition of Jusco Toys Ltd (Hong Kong). The Company owns other moulds and tooling included above that has a cost of $13,670, which it is currently using and hence depreciating.

5 Intangible Assets

Intangible assets comprise the following at December 31, 2004.

                               Cost       Accumulated      Total
                                         amortization

Licences                    $1,365,959   $  193,214   $1,172,745
Trademarks                     136,642        9,947      126,695
Film and television costs      663,814           --      663,814
Website costs                   24,930       15,501        9,429
                            ----------   ----------   ----------

                            $2,191,345   $  218,662   $1,972,683
                            ==========   ==========   ==========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

5        Intangible Assets (continued)

         Intangible assets comprise the following at December 31, 2003.

                                       Cost             Accumulated        Total
                                                       amortization

Licences                                $1,984,870   $      213,982   $1,770,888
Trademarks                                 126,138            4,025      122,113
Film and television costs                  170,338               --      170,338
Website costs                               23,014            6,637       16,377
                                        ----------   --------------   ----------
                                        $2,304,360   $      224,644   $2,079,716
                                        ==========   ==============   ==========

As of December 31, 2004, the estimated aggregate amortization expense, based on current levels of intangible assets for the succeeding five years is as follows:

                                                              $

December 31, 2005                                            80,606
December 31, 2006                                             391,838
December 31, 2007                                             391,838
December 31, 2008                                             391,838
December 31, 2009                                             386,877

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

5 INTANGIBLE ASSETS (CONTINUED)

Intangible assets comprise the following at December 31, 2003.

                               Cost        Accumulated       Total
                                           amortization

Licences                    $  1,984,870   $    213,982   $  1,770,888
Trademarks                       126,138          4,025        122,113
Film and television costs        170,338           --          170,338
Website costs                     23,014          6,637         16,377
                            ------------   ------------   ------------
                            $  2,304,360   $    224,644   $  2,079,716
                            ============   ============   ============

As of December 31, 2004, the estimated aggregate amortization expense, based on current levels of intangible assets for the succeeding five years is as follows:

                                                         $

December 31, 2005                                         80,606
December 31, 2006                                        391,838
December 31, 2007                                        391,838
December 31, 2008                                        391,838
December 31, 2009                                        386,877

6 INCOME TAXES

The components of the deferred tax balances at December 31, 2003 and 2004 are as follows.

                                                        2003         2004

Deferred tax assets - non - current
Loss carry forwards                                  $ 728,959    $ 919,690
                                                     ---------    ---------
Total deferred tax assets                              728,959      919,690
                                                     ---------    ---------
Deferred tax liabilities - current
Depreciation and amortization not currently
deductible for tax purposes                             19,401         --
                                                     ---------    ---------
Total deferred tax liabilities                          19,401         --
                                                     ---------    ---------
Net deferred tax asset  before valuation allowance     709,558      919,690
Valuation allowance                                   (709,558)    (919,690)
                                                     ---------    ---------
Net deferred tax asset                               $    --      $    --
                                                     =========    =========

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

6 INCOME TAXES (CONTINUED)

The Company's effective tax rate of 0% differs from the statutory rate of 30% due to the fact that the Company, at this point in time, considers it more likely than not that the deferred tax asset related to net operating loss carryforwards will not be recognized. Accordingly, deferred tax assets at December 31, 2003 and 2004 have been reduced by a valuation allowance relating to the tax benefits attributable to net operating losses. Operating losses can be carried forward indefinitely in the United Kingdom. At December 31, 2004 net operating loss carry forwards totaled $3,065,635.

It has been assumed that any losses will be utilised against the first available profits at a tax rate of 30% but a tax rate of 19% may be used, if the small Company rate of tax is utilised.

7 SHORT TERM BORROWINGS

On July 10, 2002, the Company borrowed $240,000 from an individual lender. The debt bears interest at 20% per year. The debt and all accrued interest was originally due on January 10, 2003. The debt has not been fully repaid and is due upon demand. Accordingly, the outstanding debt of $220,937 and all accrued interest totaling $115,596 is included in short term

borrowings.  The  debt  is  collateralized  by  certain  inventory  of  the
Company's subsidiary, Jusco UK Ltd.

In November 2003, the Company borrowed $250,000 from an individual  lender.
There  were no terms for  repayment  and no  interest  was  charged  to the

Company during the quarter. On April 28, 2004, the Company entered into an agreement whereby it exchanged the debt of $250,000 for 500,000 shares of common stock. See note 10.

8 ADVANCES FROM FACTOR

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

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

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

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

The above agreements ceased on the 21 January 2005.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

9 CONVERTIBLE DEBENTURES

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

Old convertible debentures                                               $
Balance at December 31, 2003                                       754,774
Settlement and release agreement                                  (754,774)
                                                                  ========
New convertible debentures:
Amortized debt discount quarter ended March 31, 2004               120,424
Amortized debt discount quarter ended June 30, 2004                128,586
Released on conversions during quarter ended September 30, 2004    (90,104)
Amortized debt discount quarter ended September 30, 2004            87,035
Amortized debt discount quarter ended December 31, 2004             84,747
                                                                  --------
Balance at December 31, 2004                                       330,652
                                                                  ========

10 COMMITMENTS

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

     2004

     Year ending December 31, 2005                                 $40,415
                                                                    ======


     Rent expense for all operating leases charged against earnings  amounted to
     $69,028 in 2003 and $57,109 in 2004.


11   CONTINGENT LIABILITIES

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

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

On January 26, 2004, we entered into an agreement with POW! Entertainment LLC for the development and exploitation of the property "Tattoo - the Marked Man". We have the worldwide distribution and merchandising rights in perpetuity and the agreement describes a payment of $250,000 to fund project development. The payment was subject to certain deliverables from POW! upon which payment was anticipated to be made on the earlier of August 31, 2004 or ten business days after the effective date of our registration statement filed in February 2004. Stan Lee is to develop the concept, based on characters created by the Shorrocks. The project was geared toward creating a motion picture based on the character.

47

The parties were to share all profits received from the project, after deduction of expenses, and in addition, POW would have been entitled to any executive producer fees from theatrical and television releases. We have not yet paid the amounts due to POW! under the agreement, and it appears that the transaction has been abandoned. We believe that we have meritorious defenses to any potential claims.

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

48

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

On January 5, 2004, we completed a transaction, pursuant to a Settlement Agreement and Release dated as of December 22, 2003, with former debenture holders: AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW Offshore, Ltd, and AJW Qualified Partners, LLC. Pursuant to the terms of the settlement agreement, the former debenture holders had the right, thirteen months after the closing of the transaction, to provide notice to the Company of an exercise of a "put" right pursuant to which we would buy from the former debenture holders all of the 1,000,000 shares of common stock issued to them pursuant to the settlement agreement, at the price of $0.75 per share. Pursuant to the terms of the settlement agreement, the former debenture holders were to provide us with written notice if they wished to exercise the put right after thirteen months and prior to one year and two months after the closing of the transaction, at the expiration of which, the put right terminates. Closing on the put was to occur within ten business days from receipt of notice of the put. On or about January 10, 2005, the former debenture holders submitted a notice to exercise the put right. On or about January 26, 2005, the former debenture holders resent the January 10, 2005 notice to exercise the put right. We believe that the notice was not properly submitted in accordance with the notice procedures provided in the settlement agreement. To the best of our knowledge, and after inquiry to the counsel for the former debenture holders of the "put", no notice of exercise of the "put" was sent to us. Accordingly, we considered the notice ineffective and did not honor the notice. In or about March 2005, an agent for the former debenture holders informed us that the former debenture holders may institute a legal proceeding to enforce their put rights. We understand that the former debenture holders filed a lawsuit in this regard in or about March 21, 2005. As of May 6, 2005, we have not been served with the lawsuit. In the event that we are served with a lawsuit, we intend to contest the matter vigorously. We may be required to pay $750,000 for repurchase of 1,000,000 shares of common stock from the former debenture holders, plus potential interest and costs, if we lose such threatened litigation.

12 TRANSACTIONS WITH RELATED PARTIES

The relationship between the Company and its related parties are:

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

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

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

a) Wilfred and Paula Shorrocks

i) Movements on stockholders' advances account

               Balance due by company, December 31,2002            $894,193
               Reapayments                                          (71,206)
               Foreign exchange loss                                 93,647

--------------------------------------------------------------------------------
               Balance due by the Company, December 31, 2003      $ 916,634
               Cash advances                                         88,598
               Repayments                                          (247,390)
               Foreign exchange loss                                 (5,320)
                                                                  ---------
               Balance due by the Company at December 31, 2004    $ 752,522
                                                                  =========

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

12 TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

Interest amounting to $24,038 in the year to December 31, 2004 and $nil in the year to December 31, 2003 has been accrued.

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

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

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

ii) License agreement

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

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

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

12 TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

b) Terence Herzog and Michael Schenkein

i) Consulting services

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

13 WARRANTS

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

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

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

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

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

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

13 WARRANTS (CONTINUED)

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

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

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

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

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

13 WARRANTS (CONTINUED)

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

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

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

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

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

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

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

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

13 WARRANTS (CONTINUED)

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

14 SHARE TRANSACTIONS

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

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

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

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

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

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

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

14 SHARE TRANSACTIONS (CONTINUED)

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

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

15 REVERSE ACQUISITION

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

16 STOCKHOLDERS' EQUITY

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

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

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

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2004

16 STOCKHOLDERS' EQUITY (CONTINUED)

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

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

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

17 SUBSEQUENT EVENTS

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

On January 5, 2005, the Company sold to Dan Brecher 250,000 warrants, exercisable for three years at $0.50 per share, for $2,500.

On March 1, 2005, the Company entered into a loan agreement for $500,000 with Tayside Trading Ltd. Pursuant to the loan agreement, the Company issued 500,000 warrants, exercisable for five years at $0.50 per share, to the lender. The Company also granted the lender an option exercisable commencing with the date of return of the $500,000 and expiring two weeks thereafter, to acquire, at the purchase price of $100,000, (i) shares of the Company's common stock at $0.30 per share (333,333 shares) and (ii) warrants to purchase 200,000 shares of common stock, exercisable for five years at $0.50 per share. The Company agreed to grant the lender, as collateral, rights to the Company's intellectual property, to the extent not already encumbered. The Company used the funds to fund a $500,000 letter of credit, which was subsequently terminated in April 2005. The principal amount of the loan was returned in April 2005, with accrued interest still owed. As the principal was not paid by March 30, 2005, as penalty, in April 2005, the Company issued 1,800,000 shares as a late payment penalty.

On March 2, 2005, the Company issued 50,000 warrants, exercisable for five years at $0.50 per share, to Aaron M. Lasry in return for business consulting services.

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

56

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

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

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

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

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

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

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

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

57

ITEM 8A. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal year 2004 ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

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

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

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

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

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

58

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

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PART III

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

OUR MANAGEMENT

The persons listed in the table below are our present directors and executive officers.

Name                 Age   Position
----                 ---   --------
Wilfred Shorrocks    55    Chairman, Chief Executive Officer and Director
Paula Shorrocks      52    Vice President - Design and Development, and Director
Phil Ogden           37    Vice President - Managing Director, and Director
Alan Shorrocks       44    Vice President - Licensing Division
Nicola Yeomans       34    Vice President - Finance

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Currently, there are three persons serving on our board of directors.

Officers are elected by the Board of Directors and serve until their successors are appointed by the Board of Directors.

MANAGEMENT PROFILE

WILFRED SHORROCKS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Mr. Shorrocks, co-founded Peak Entertainment Ltd. in November 2001 and he became Chairman, Chief Executive Officer and a director of Peak Entertainment Holdings, Inc. in April 2003. Prior to that, Mr. Shorrocks was co-founder of Just Group, Plc., where he acted as its Chief Executive Officer from 1987 to 2001. At Just Group, Mr. Shorrocks was responsible for all areas of activity relating to development and creation of concepts through to intellectual property acquisition, corporate acquisition, and financing activities. In January 2002, about five months subsequent to his August 2001 departure from Just Group, Just Group entered into administration, a process similar to the Chapter 11 bankruptcy process. In 1980, he founded Acamas Toys, a developer of toys, and he sold his ownership of Acamas Toys in 1987. From 1973 to 1980, Mr. Shorrocks worked in sales at what was, at that time, the world's largest toy maker, Dunbee Combex Marx, makers of Sindy dolls and Hornby railways, and he became Sales & Marketing Director for the Burbank sales division of Dunbee Combex Marx. He is the spouse of Paula Shorrocks, and the brother of Alan Shorrocks.

PAULA SHORROCKS, VICE PRESIDENT - DESIGN AND DEVELOPMENT, AND DIRECTOR

Ms. Shorrocks, co-founded Peak Entertainment Ltd. in November 2001 and she became Vice President and a director of Peak Entertainment Holdings, Inc. in April 2003. Prior to that, Ms. Shorrocks was co-founder of Just Group, Plc., where she acted as its Commercial Director from 1987 to 2001. At Just Group, Ms. Shorrocks identified opportunities and then secured rights to represent blue chip companies as licensing agent for their brands. In January 2002, about five months subsequent to her August 2001 departure from Just Group, Just Group entered into administration, a process similar to the Chapter 11 bankruptcy process. Before co-founding Just Group, Ms. Shorrocks taught Business Studies at The Harwich School, Essex and West Gloucester College of Further Education (1978-1987). She also was the Marketing Manager for Acamas Toys. She is the spouse of Wilfred Shorrocks.

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PHIL OGDEN, VICE PRESIDENT - MANAGING DIRECTOR, AND DIRECTOR

Mr. Ogden, joined Peak Entertainment Ltd. in November 2001 and he became Vice President and a director of Peak Entertainment Holdings, Inc. in April 2003. From October 1998 to October 2001, Mr. Ogden served as Sales and Marketing Director of Just Group, Plc, in a non-executive capacity, at Just Group Plc. Prior to working at Just Group, Mr. Ogden developed his sales and marketing experience with Seymour International, a division of UK's leading magazine distributor, Frontline, from 1989 to 1998. Mr. Ogden was employed as an Account Director with the responsibility for the strategic and commercial success of a portfolio of Seymour's premier clients, including Dennis, Paragon, FT Magazines (Investors Chronicle) and TimeWarner.

ALAN SHORROCKS, VICE PRESIDENT - LICENSING DIVISION

Mr. Shorrocks, has been Vice President - Licensing Division of Peak Entertainment Ltd. since November 2001 and he became Vice President of Peak Entertainment Holdings, Inc. in April 2003. Prior to that time, Mr. Shorrocks was Licensing Director. in a non-executive capacity, of Just Group Plc. from 1991 through October 2001. Before joining Just Group, Mr. Shorrocks ran his own companies specializing in the leisure and surfing markets and was exclusive United Kingdom importer/ distributor for various branded merchandise including Quicksilver from the early 1980's. He sold his company Victory along with the United Kingdom rights to market Victor Wetsuits in 1991. He is the brother of Wilf Shorrocks.

NICOLA YEOMANS, VICE PRESIDENT - FINANCE

Ms. Yeomans joined Peak Entertainment in June 2002 as company accountant. She became Vice President - Finance of Peak Entertainment Holdings Inc. in January 2004 and serves as the principal person in charge of accounting and financials. Prior to that time, she was an accountant, in a non-executive capacity, for Just Group Plc from July 1997 to December 2001. Before joining Just Group Plc, Ms. Yeomans trained as an accountant for the entertainment arm of the BBC (British Broadcasting Corporation) at their London headquarters. She qualified as a Certified Chartered Accountant (A.C.C.A) in October 1998. She is currently studying towards a Masters Degree (M.B.A) in international business studies and corporate finance.

INSOLVENCY OF JUST GROUP PLC

In January 2002, Just Group Plc, a United Kingdom company, entered into administration, a process similar to the Chapter 11 bankruptcy process in the United States. Wilf and Paula Shorrocks were executive officers at Just Group in 2001, and their employment at Just Group ended in August 2001. Alan Shorrocks, Phil Ogden and Nicola Yeomans also had worked at Just Group, in non-executive level positions, prior to joining Peak Entertainment.

TERMINATION OF EMPLOYMENT FROM JUST GROUP PLC (UK) AND LEGAL PROCEEDINGS AGAINST JUST GROUP PLC

In August 2001, Wilf Shorrocks and Paula Shorrocks were dismissed from their officer and director positions at Just Group Plc, purportedly on the basis of internal disagreement on accounting policy and breaches of employment contract and fiduciary duties, allegations which the Shorrocks deny. In November 2001, Wilf Shorrocks and Paula Shorrocks instituted claims for breach of employment contract, wrongful dismissal, and in the case of Paula Shorrocks, a claim of sex discrimination against Just Group before the High Court of Justice, Queen's Bench Division, in the United Kingdom, and claims of unfair dismissal before the Nottingham Employment Tribunal in the United Kingdom. The proceedings against Just Group were stayed due to Just Group Plc entering into administration in January 2002. In 2004, Just Group Plc submitted its defense denying the claims on the basis of breaches of employment contract and fiduciary duties and Just Group asserted counterclaims for unjust enrichment and restitution. In May 2004, the parties entered into a settlement of all claims, whereby the Shorrocks are to receive payment based on an agreed total amount of UK (pound)175,000, payment of which is subject to the terms of Just Group's arrangement with its creditors.

61

BOARD COMMITTEES AND MEETINGS

During the fiscal year that ended on December 31, 2004, the Board of Directors held one meeting, attended or participated in by all of the directors. Other matters were undertaken by written consent by the Board of Directors.

The Board of Directors are responsible for matters typically performed by an audit committee. We do not have a separate audit committee, nor any other committee, of the Board of Directors. No person serving on our Board of Directors qualifies as a financial expert. We seek to attract persons with financial experience to serve on our Board of Directors and we intend to form an audit committee of the Board of Directors during our fiscal year 2005

We have not yet adopted a code of ethics applicable to our directors, officers and employees. However, we expect to adopt a code of ethics during our fiscal year 2005.

We presently do not have a separate nominating committee of the Board of Directors for the selection of directors, and do not have a nominating committee charter. Presently, all such actions are performed by the entire Board of Directors.

OTHER INFORMATION ABOUT DIRECTORS

Other than as reported, none of the directors are directors of other reporting companies, are associated by family relationships, or have been involved in legal proceedings.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires Peak's directors and executive officers, and persons who own more than ten percent of Peak's common stock, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of Peak's common stock. Such persons are also required by SEC regulations to furnish Peak with copies of all such
Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to Peak, Peak is not aware of any material delinquencies in the filing of such reports.

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ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following tables set forth certain information regarding our Chief Executive Officer and each of our most highly compensated executive officers whose total annual salary and bonus for the past three fiscal years exceeded $100,000:

                                                                          Fiscal
Name and Principal Position              Year            Salary            Bonus         Other (1)
---------------------------              ----            ------            -----         ---------
Wilfred Shorrocks,(2)                    2004            $9,074             $0               $0
  Chief Executive Officer                2003             7,556              0                0
                                         2002             5,200              0                0

(1) Does not include repayment of advances made by the executive to us.
(2) We intend to enter into an employment agreement with Mr. Shorrocks and other executive officers during our 2005 fiscal year.

DIRECTOR COMPENSATION

We do not have a compensation plan for directors. We may adopt one during our 2005 fiscal year.

EMPLOYEE STOCK OPTION

During our fiscal year 2005, we intend to adopt and implement, subject to stockholder approval, an employee stock incentive plan, whereby we may issue shares of common stock and stock options to our employees and consultants. We intend for the plan to cover the issuance of an amount equal to, or up to 10% of our outstanding shares of common stock.

OPTION GRANTS IN FISCAL 2004

No options were granted to employees, including executive officers and directors, during the year ended December 31, 2004.

OPTION EXERCISES IN FISCAL 2004 AND YEAR END OPTION VALUES

No options were held by employees, including executive officers and directors, during the year ended December 31, 2004.

EMPLOYMENT AGREEMENT WITH EXECUTIVE OFFICER

We do not have a written employment agreement with any of our executive officers.

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth,  as of May 1, 2005,  the shares of our common  stock
beneficially owned by

o     by each person who is known by us to beneficially  own more than 5% of our
      common stock;

o by each of our officers and directors; and
o by all of our officers and directors as a group.

This information was determined in accordance with Rule 13(d)-3 under the Securities Exchange Act of 1934, and is based upon the information provided by the persons listed below. As of May 1, 2005, we had 31,180,530 shares of common stock issued and outstanding.

All persons named in the table have the sole voting and dispositive power with respect to common stock beneficially owned. Beneficial ownership of shares of common stock that are acquirable within 60 days upon the exercise or conversion of stock options, warrants, or other convertible securities are listed separately. For each person named in the table, the calculation of percent of class gives effect to those additional shares acquirable within 60 days.

The address of each of the persons named in the table, unless otherwise indicated, is c/o Peak Entertainment, Ltd. Bagshaw; Hall, Bagshaw Hill, Bakewell, Derbyshire, UK DE45 1DL.

----------------------------------------------------------- ----------------------  -------------------  -------------
                                                                                     Additional Shares
Name and Address                                              Amount and Nature         Acquirable         Percent
of Beneficial Owner                                          of Beneficial Owner      Within 60 days       Of Class
----------------------------------------------------------- ----------------------  -------------------  -------------
Wilfred Shorrocks  (1)(2)(3)                                             8,361,899                    0           26.8%
Paula Shorrocks  (1)(2)(3)                                               8,361,899                    0           26.8%
Phil Ogden   (1)                                                           476,792                    0            1.5%
Alan Shorrocks  (1)(3)                                                     476,792                    0            1.5%
Nicola Yeomans  (1)                                                              0                    0              0%
Platinum Partners Global Macro Fund LP (4)(5)                              650,000            3,500,000           12.0%
   152 West 57th Street
   New York, NY 10019
Dan Brecher  (5)(6)                                                      1,196,667            1,570,000            8.4%
   c/o Law Offices of Dan Brecher
   99 Park Ave
   New York, NY 10016
----------------------------------------------------------- ----------------------  -------------------  -------------
All officers and directors as a group (5 persons)                       17,677,382                    0           56.7%
----------------------------------------------------------- ----------------------  -------------------  -------------

(1) Officer and/or director of Peak.
(2) For purposes of reporting beneficial ownership in the table, the ownership of shares of common stock by Wilfred and Paula Shorrocks are listed separately. Wilfred and Paula Shorrocks are each other's spouse. Accordingly, each may be deemed the beneficial owner of the shares held by the other.
(3) Alan Shorrocks is the brother of Wilfred Shorrocks. Alan Shorrocks disclaims beneficial ownership of shares held by Wilfred and Paula Shorrocks. Each of Wilfred and Paula Shorrocks disclaims beneficial ownership of shares held by Alan Shorrocks.
(4) Platinum Partners Global Macro Fund LP owns $600,000 in principal amount of 8% convertible debentures, which are convertible at $0.30 per share into 2,000,000 shares, and warrants exercisable at $0.50 per share into 1,500,000 shares. Does not include shares potentially issuable for accrued interest on the debentures.
(5) Person is subject to an agreement restricting the ability to convert debentures or exercise warrants so that the person would not own more than 4.9% of our common stock at a given time.
(6) Mr. Brecher owns $171,000 in principal amount of 8% convertible debentures, which are convertible at $0.30 per share, into 570,000 shares and warrants exercisable at $0.50 per share into 1,000,000 shares. Does not include shares potentially issuable for accrued interest on the debentures.

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CHANGES IN CONTROL

We do not have any arrangements that may result in a change in control.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes stock options and warrants outstanding as of December 31, 2004.

                                        Number of securities to       Weighted average
                                        be issued upon exercise       exercise price of        Number of securities
                                        of outstanding options,     outstanding options,     remaining available for
            Plan category                 warrants and rights        warrants and rights         future issuance
            -------------                 -------------------        -------------------         ---------------
Equity compensation plans approved by                  0                   $   0                       0
securities holders

Equity compensation plans not                  7,300,000                   $0.51                       0
approved by security holders

Total                                          7,300,000                   $0.51                       0

Plans Not in the Shareholder Approved Category

In July 2003, pursuant to a consulting agreement with POW! Entertainment LLC and Stan Lee, we issued to POW warrants to purchase 750,000 shares of our common stock, exercisable for five years at $0.35 per share. Warrants to purchase 375,000 shares vested upon execution of the consulting agreement, and the remaining warrants to purchase the remaining 375,000 shares vested in July 2004.

In December 2003, we entered into an Amendment to the Consulting Agreement, dated as of December 17, 2003, amending a July 2003 consulting agreement with Jack Kuessous pursuant to which we issued to Kuessous warrants to purchase 240,000 shares of common stock, exercisable for three years at $1.20 per share. Under the amendment, we issued warrants to purchase 240,000 shares of common stock, exercisable for three years at $0.50 per share in exchange for the previously issued warrants.

In December 2003, we entered into a Cancellation of Debt in Exchange for Securities Agreement, dated as of December 17, 2003, whereby we exchanged a debt of $100,000 owed to Jack Kuessous in exchange for 583,333 shares of common stock and 150,000 common stock purchase warrants exercisable for three years at $0.50 per share. Kuessous had loaned $100,000 to us in or about July 2003.

On January 5, 2004, we entered into Securities Purchase Agreements with four accredited investors: Platinum Partners Global Macro Fund LP, Gary Barnett, Millstones Brands Inc. and Dan Brecher. Pursuant to the agreements, we sold $1,500,000 in 8% convertible debentures due January 5, 2007 and 3,000,000 common stock purchase warrants. The purchase price totaled $1,500,000. The warrants are exercisable for three years at $0.50 per share.

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

On January 29, 2004, we entered into a Securities Purchase Agreement with Shai Stern. Pursuant to the agreement, we sold $50,000 in 8% convertible debentures due January 29, 2007 and 100,000 common stock purchase warrants. The warrants are exercisable for three years at $0.50 per share.

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On March 10, 2004, we entered into Securities Purchase Agreements with eleven accredited investors: Kenneth Grief, Wayne Saker, Gilad Ottensoser, Samuel F. Ottensoser, Boro Durakovic, JG Products, Inc., Gerald Griffin, Al Lehmkuhl, Kevin Bostenero, Eisenberger Investments, and David Herzog. Pursuant to the agreements, we sold an aggregate of 1,000,000 shares of common stock and 600,000 common stock purchase warrants, exercisable for three years at $0.75 per share, for the total purchase price of $500,000. Legend Merchant Group, Inc. acted as the placement agent for these transactions. We paid Legend a fee of $25,000, and 100,000 common stock purchase warrants exercisable for three years at $.50 per share and 60,000 common stock purchase warrants exercisable for three years at $0.75 per share, for its services.

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

On November 2, 2004, we sold to Dan Brecher 250,000 warrants, exercisable for three years at $0.50 per share, for $2,500.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From time to time, Mr. and Mrs. Shorrocks loaned money to Peak Entertainment to fund day-to-day operations, as well as for the acquisition of certain properties. Since company inception through December 31, 2002, the Shorrocks loaned to Peak Entertainment an aggregate of $972,386, and we repaid $78,193 to the Shorrocks in 2002 and $71,206 in 2003. As of December 31, 2003, we owed $916,634 to the Shorrocks. As of December 31, 2004, we owed $752,522 to the Shorrocks. These monies are loaned without interest and do not have a due date, and are due on demand. In March 2004, we gave the Shorrocks an unsecured promissory note for the monies due establishing a repayment schedule. The amount due is to be repaid in installments, consisting of six periodic payments of $25,000 from January 31, 2005 through September 30, 2006, two payments of $100,000 on March 31, 2007 and September 30, 2007, and the balance due on January 31, 2008. The promissory note provides for earlier repayment of any unpaid balance subject to various future financial results of Peak Entertainment, such as Peak Entertainment obtaining a shareholders' equity in excess of 150% of the amount due, or positive net income from operations in excess of 150% of the amount due.

On April 30, 2002, we entered into a license agreement with Wilfred and Paula Shorrocks whereby we acquired from the Shorrocks the exclusive rights to apply various intellectual properties to the manufacture, distribution and sale of products on a worldwide basis. Under the terms of the agreement, we undertook to pay to Wilfred and Paula Shorrocks 10% of the royalties payable quarterly in perpetuity, with a guaranteed minimum royalties amount of $1,000,000. There were no set payment terms in the original license agreement for payment of the minimum royalties. In April 2004, the Company amended the license agreement to establish a minimum quarterly royalty payment of $12,500, to be credited against the guaranteed minimum, due beginning September 30, 2004. Through March 31, 2005, the Shorrocks elected to defer receipt of the September 30, 2004, December 31, 2004 and March 31, 2005 quarterly payments.

On April 22, 2003, Peak Entertainment Ltd., together with its subsidiaries, was acquired by Palladium Communications, Inc., a Nevada corporation, which subsequently changed its name to Peak Entertainment Holdings, Inc. Under the terms of the agreement, we acquired 100 percent of Peak Entertainment Ltd's stock in exchange for the issuance by us of 19,071,684 shares of our common stock to the holders of Peak Entertainment Ltd. The new shares constituted 90 percent of the outstanding shares of Peak Entertainment Holdings, Inc. after the acquisition. Officers and directors who received shares pursuant to the acquisition are:

o Wilfred Shorrocks, 8,486,899 shares;
o Paula Shorrocks, 8,486,899 shares;
o Phil Ogden, 476,792 shares;
o Alan Shorrocks, 476,792 shares; and
o Terence Herzog, 743,585 shares.

On October 3, 2003, each of Wilf and Paula Shorrocks gifted 125,000 shares to Cary Fields.

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On October 6, 2003, Terence Herzog gifted an aggregate of 178,500 shares to six persons, none of whom are affiliates of the Company.

Two former outside directors of the Company, Terence Herzog and Michael Schenkein, are principals of Agora Capital Partners, Inc., a management consulting company. From March 2003 through March 2004, Agora Capital Partners, through Terence Herzog and Michael Schenkein, provided management consulting services to the Company. The Company paid aggregate fees of $46,000 in 2003 for such consulting services. Terence Herzog and Michael Schenkein resigned as directors in December 2004.

ITEM 13. EXHIBITS

Exhibits required to be filed by Item 601 of Regulation S-B are included in Exhibits to this Report as follows:

Exhibit No.   Description
----------    -----------


2.1           Agreement and Plan of Reorganization between Corvallis and
              USAOneStar, dated October 31, 2000 (Incorporated by reference to
              exhibit 2.1 of Form 10-QSB filed on November 14, 2000)
2.2           Agreement and Plan of Reorganization between USAOneStar and
              Palladium, dated August 31, 2001 (Incorporated by reference to
              exhibit 2.1 of Form 8-K filed on September 14, 2001)
2.3           Agreement and Plan of Acquisition by and among Palladium
              Communications, Inc., Peak Entertainment, Ltd., Wilfred Shorrocks
              and Paula Shorrocks, made as of the 22nd day of April, 2003
              (Incorporated by reference to exhibit 10.1 of Form 8-K filed on
              May 7, 2003)
2.4           Asset Purchase Agreement, dated as of April 22, 2003, between
              Palladium Communications, Inc. and Palladium Consulting Group LLC
              (Incorporated by reference to Exhibit 2.4 of Form SB-2 filed on
              February 2, 2004)
3(i)(1)       Articles of Incorporation of Corvallis, Inc. (Incorporated by
              reference to exhibit 4 of Form S-18 filed on November 9, 1987.)
3(i)(2)       Articles of Merger for Corvallis, Inc. (Incorporated by reference
              to Exhibit 3(i)(2) of Form 10-KSB filed on April 15, 2005)
3(i)(3)       Certificate of Amendment to Articles of Incorporation of
              Corvallis, Inc. (Incorporated by reference to Exhibit 3(i)(3) of
              Form 10-KSB filed on April 15, 2005)
3(i)(4)       Certificate of Amendment to Articles of Incorporation of
              USAOneStar.Net, Inc. (Incorporated by reference to Exhibit 3(i)(4)
              of Form 10-KSB filed on April 15, 2005)
3(i)(5)       Articles of Share Exchange (Incorporated by reference to Exhibit
              3(i)(5) of Form 10-KSB filed on April 15, 2005)
3(i)(6)       Certificate of Amendment to Articles of Incorporation of Palladium
              Communications, Inc. (Incorporated by reference to Exhibit 3(i)(6)
              of Form 10-KSB filed on April 15, 2005)
3(ii)(1)      Bylaws (Incorporated by reference to exhibit 5 of Form S-18 filed
              on November 9, 1987)
3(ii)(2)      Resolution dated October 20, 2000 amending bylaws (Incorporated by
              reference to exhibit 3.1 of Form 10-Q filed on November 14, 2000)
3(ii)(3)      Bylaws, as amended and restated (Incorporated by reference to
              Exhibit 3.1 of Form 10-KSB filed on April 27, 2004)
4.1           Securities Purchase Agreement, dated as of February 2002
              (Incorporated by referenced to exhibit 4.1 of Form SB-2 filed on
              February 2, 2004)
4.2           Amendment to Securities Purchase Agreement, dated June 17, 2003
              (Incorporated by referenced to exhibit 4.2 of Form SB-2 filed on
              February 2, 2004)
4.3           Securities Purchase Agreement, dated as of April 22, 2003
              (Incorporated by reference to Exhibit 4.3 of Form SB-2 filed on
              February 2, 2004)
4.4           Disclosure Schedules to Securities Purchase Agreement dated April
              22, 2003 (Incorporated by reference to exhibit 10.1 of Form 10-QSB
              filed on November 26, 2003)
4.5           January 2004 Securities Purchase Agreement for $1,000,000
              (Incorporated by referenced to exhibit 4.5 of Form SB-2 filed on
              February 2, 2004)

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4.6           January 2004 Securities Purchase Agreement for $500,000
              (Incorporated by referenced to exhibit 4.6 of Form SB-2 filed on
              February 2, 2004)
4.7           January 2004 Securities Purchase Agreement for $50,000
              (Incorporated by referenced to exhibit 4.7 of Form SB-2 filed on
              February 2, 2004)
4.8           Form of Securities Purchase Agreement, dated as of March 3, 2004
              (Incorporated by reference to Exhibit 10.2 of Form 10-KSB filed on
              April 27, 2004)
4.9           Stock Purchase Warrant Agreement issued to Legend Merchant Group
              in connection with Securities Purchase Agreement, dated as of
              March 3, 2004 (Incorporated by reference to Exhibit 10.3 of Form
              10-KSB filed on April 27, 2004)
4.10          September 2004 Securities Purchase Agreement for $500,000
              (Incorporated by reference to Exhibit 4 of Form 8-K filed on
              October 1, 2004)
4.11          Form of Warrant issued November 2, 2004 (Incorporated by reference
              to Exhibit 4.11 of Form 10-KSB filed on April 15, 2005)
4.12          Loan Agreement, dated March 1, 2005 (Incorporated by reference to
              Exhibit 4.12 of Form 10-KSB filed on April 15, 2005)
4.13          Form of Warrant issued March 2, 2005 (Incorporated by reference to
              Exhibit 4.13 of Form 10-KSB filed on April 15, 2005)
10.1          License Agreement with Morrison Entertainment Group, Inc., dated
              February 25, 2002 (Incorporated by referenced to exhibit 10.7 of
              Form SB-2 filed on February 2, 2004)
10.2          License Agreement with Wilf and Paula Shorrocks, dated April 30,
              2002 (Incorporated by reference to Exhibit 10.1 of Form SB-2/A
              filed on May 3, 2004)
10.3          License Agreement with Jesco Imports, Inc., dated June 1, 2002
              (Incorporated by referenced to exhibit 10.8 of Form SB-2 filed on
              February 2, 2004)
10.4          Memorandum of an Agreement, dated July 10, 2002 with CK's
              Supermarket (Incorporated by reference to Exhibit 10.4 of Form
              10-KSB filed on April 15, 2005)
10.5          License Agreement with Toontastic Publishing Ltd, dated December
              5, 2002 (Incorporated by referenced to exhibit 10.9 of Form SB-2
              filed on February 2, 2004)
10.6          Distribution Agreement, dated January 20, 2003, with Character
              Options Ltd. (Incorporated by referenced to exhibit 10.11 of Form
              SB-2 filed on February 2, 2004)
10.7          License Agreement with CCA Group Ltd., dated February 10, 2003
              (Incorporated by referenced to Exhibit 10.34 of Form SB-2/A filed
              on June 7, 2004)
10.8          Agreement between Peak Entertainment Ltd. and GMTV of the London
              Television Centre, dated February 17, 2003 (Incorporated by
              referenced to exhibit 10.13 of Form SB-2 filed on February 2,
              2004)
10.9          Agreement, dated April 28, 2003, with The Silly Goose Company, LLC
              (Incorporated by reference to Exhibit 10.14 of Form SB-2 filed on
              February 2, 2004)
10.10         Distribution Agreement, dated July 1, 2003 with Perfectly Plush
              Inc. (Incorporated by reference to Exhibit 10.15 of Form SB-2
              filed on February 2, 2004)
10.11         Consulting Agreement with POW! Entertainment and Stan Lee dated
              July 2003 (Incorporated by reference to exhibit 10.2 of Form
              10-QSB filed on November 26, 2003)
10.12         Consulting Agreement, dated July 2003, with Jack Kuessous with
              Form of Warrant (Incorporated by reference to exhibit 10.3 of Form
              10-QSB filed on November 26, 2003)
10.13         International Representation Agreement with Haven Licensing Pty
              Ltd, dated August 19, 2003 (Incorporated by reference to Exhibit
              10.16 of Form SB-2 filed on February 2, 2004)
10.14         International Representation Agreement with Character Licensing &
              Marketing, dated September 17, 2003 (Incorporated by reference to
              Exhibit 10.17 of Form SB-2 filed on February 2, 2004)
10.15         International Representation Agreement with Kidz Entertainment,
              dated October 31, 2003 (Incorporated by referenced to exhibit
              10.18 of Form SB-2 filed on February 2, 2004)
10.16         License Agreement with Radica UK Ltd., dated December 12, 2003
              (Incorporated by referenced to exhibit 10.19 of Form SB-2 filed on
              February 2, 2004)
10.17         Entertainment Production Agreement, dated as of December 16, 2003,
              with The Silly Goose Company, LLC (Incorporated by referenced to
              exhibit 10.20 of Form SB-2 filed on February 2, 2004)

68

10.19         Amended Consulting Agreement, dated as of December 17, 2003, with
              Jack Kuessous (Incorporated by referenced to exhibit 10.4 of Form
              SB-2 filed on February 2, 2004)
10.20         Cancellation of Debt Agreement, dated December 2003, with Jack
              Kuessous (Incorporated by referenced to exhibit 10.5 of Form SB-2
              filed on February 2, 2004)
10.21         Settlement of Debt Agreement (Incorporated by referenced to
              exhibit 10.6 of Form SB-2 filed on February 2, 2004)
10.22         Agreement for the Provision of Co Production Services with
              Cosgrove Hall Films Ltd., dated January 9, 2004 (Incorporated by
              referenced to exhibit 10.21 of Form SB-2 filed on February 2,
              2004)
10.23         Agreement with POW! Entertainment, entered January 2004
              (Incorporated by referenced to exhibit 10.23 of Form SB-2 filed on
              February 2, 2004)
10.24         Amendment, dated January 2004, to License Agreement with Radica UK
              Ltd. dated December 12, 2003 (Incorporated by reference to Exhibit
              10.24 of Form 10-KSB filed on April 15, 2005)
10.25         Agreement for Services with Vintage Filings, LLC, dated January
              23, 2004 (Incorporated by referenced to exhibit 10.25 of Form SB-2
              filed on February 2, 2004)
10.26         License Agreement with Toontastic Publishing Ltd., Renewal, dated
              April 1, 2004 (Incorporated by reference to Exhibit 10.5 of Form
              10-KSB filed on April 27, 2004)
10.27         Financial Advisor Agreement with Ameristar International Capital,
              Inc. dated February 11, 2004 (Incorporated by reference to Exhibit
              10.1 of Form 10-KSB filed on April 27, 2004)
10.28         Financial Advisor Agreement with Source Capital Group, Inc. dated
              March 23, 2004 (Incorporated by reference to Exhibit 10.4 of Form
              10-KSB filed on April 27, 2004)
10.29         Promissory Note to Shorrocks dated March 2004 (Incorporated by
              reference to Exhibit 10.6 of Form 10-KSB filed on April 27, 2004)
10.30         Amendment to Shorrocks License Agreement dated as of April 2004
              (Incorporated by reference to Exhibit 10.7 of Form 10-KSB filed on
              April 27, 2004)
10.31         Cancellation of Debt in Exchange for Securities Agreement with
              Laura Wellington entered into April 2004 (Incorporated by
              reference to Exhibit 10.33 of Form SB-2/A filed on May 3, 2004)
10.32         International Representation Agreement with The Sharp Company
              Inc., dated April 22, 2004 (Incorporated by reference to Exhibit
              10.6 of Form 10-QSB filed on August 26, 2004)
10.33         Distribution Agreement with Cadaco, dated April 27, 2004
              (Incorporated by reference to Exhibit 10.7 of Form 10-QSB filed on
              August 26, 2004)
10.34         Agreement with Video Collection International Limited, dated April
              29, 2004 (Incorporated by referenced to Exhibit 10.35 of Form
              SB-2/A filed on June 7, 2004)
10.35         Agreement for the Provision of Co Production Services Re: "Monster
              Quest - The Quest" with Persistence Of Vision Sdn Bhd., dated May
              18, 2004 (Incorporated by reference to Exhibit 10.3 of Form 10-QSB
              filed on December 16, 2004)
10.36         Amendment, dated June 2004, to Distribution Agreement with Radica
              UK Ltd. dated 12 December 2003 (Incorporated by reference to
              Exhibit 10.36 of Form 10-KSB filed on April 15, 2005)
10.37         Amendment, dated June 2004, to Distribution Agreement with
              Character Options Ltd., dated January 20, 2003 (Incorporated by
              reference to Exhibit 10.37 of Form 10-KSB filed on April 15, 2005)
10.38         Amendment, dated June 2004, to Distribution Agreement with GMTV,
              dated February 17, 2003 (Incorporated by reference to Exhibit
              10.38 of Form 10-KSB filed on April 15, 2005)
10.39         Amendment, dated June 2004, to Distribution Agreement with Video
              Collection International Ltd., dated April 29, 2004 (Incorporated
              by reference to Exhibit 10.39 of Form 10-KSB filed on April 15,
              2005)
10.40         Cancellation of Debt in Exchange for Securities Agreement with
              Laura Wellington, dated July 23, 2004 (Incorporated by reference
              to Exhibit 10.8 of Form 10-QSB filed on August 26, 2004)
10.41         Consultant Agreement with CEOcast, Inc. dated as of September 1,
              2004 (Incorporated by reference to Exhibit 10.4 of Form 10-QSB
              filed on December 16, 2004)
10.42         Distribution Agreement with Impact International Ltd 2004, dated
              as of November 1, 2004 (Incorporated by reference to Exhibit 10.42
              of Form 10-KSB filed on April 15, 2005)

69

10.43         License Agreement with Zoo Digital Publishing Limited, dated
              October 4, 2004 (Incorporated by reference to Exhibit 10.43 of
              Form 10-KSB filed on April 15, 2005)
10.44         Agreement made as of December 22, 2004 with Morrison Entertainment
              Group, Inc. (Incorporated by reference to Exhibit 10.44 of Form
              10-KSB filed on April 15, 2005)
10.45         Consulting Agreement with Salvani Investments, dated as of January
              4, 2005 (Incorporated by reference to Exhibit 10.45 of Form 10-KSB
              filed on April 15, 2005)
10.46         Form of International Representation Agreement, dated August 2,
              2004, with Blue Chip Brands Pty Ltd. (Incorporated by reference to
              Exhibit 10.46 of Form 10-KSB filed on April 15, 2005)
10.47         Letter of Intent with Maverick Entertainment Group plc, dated
              March 1, 2005, and Representation Agreement, dated March 1, 2005
              (Incorporated by reference to Exhibit 10.47 of Form 10-KSB filed
              on April 15, 2005)
10.48         The Wumblers Deal Memo with 4Kids Entertainment, Inc. dated March
              7, 2005 (Incorporated by reference to Exhibit 10.48 of Form 10-KSB
              filed on April 15, 2005)
11            Statement Concerning Computation of Per Share Earnings is hereby
              incorporated by reference to "Financial Statements" of Part II -
              Item 7, contained in this Form 10-KSB.
16.1          Letter on change in certifying accountant (Incorporated by
              reference to Exhibit 16.1 of Form 8-K filed on February 7, 2002)
16.2          Letter on change in certifying accountant (Incorporated by
              reference to Exhibit 1 of Form 8-K filed on June 10, 2003)
16.3          Letter on change in certifying accountant (Incorporated by
              reference to Exhibit 16 of Form 8-K/A filed on September 3, 2004)
21            List of Subsidiaries (Incorporated by reference to Exhibit 21 of
              Form SB-2 filed on February 2, 2004)
31.1*         Certification of Chief Executive Officer Pursuant to Securities
              Exchange Act Rule 13a-14(a)/15d-14(a)
31.2*         Certification of Principal Financial Officer Pursuant to
              Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32.1*         Certification of Chief Executive Officer Pursuant to 18 U.S.C.
              Section 1350
32.2*         Certification of Principal Financial Officer Pursuant to 18 U.S.C.
              Section 1350


---------

* Filed herewith.

70

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

Fees for audit services provided by Garbutt & Elliott Ltd., our current principal independent registered public accounting firm, during the year ended December 31, 2004 was $92,477. Fees for audit services provided by Goodband Viner Taylor, our former principal accountant, during the years ended December 31, 2003 and 2004 were $250,848 and $148,348, respectively.

Audit services consisted primarily of the annual audits, review of our financial statements, and services that are normally provided by our accountants in connection with statutory and regulatory filings or engagements for those fiscal years.

Audit-Related Fees

There were no fees billed for services reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under the caption Audit Fees for fiscal years ended December 31, 2003 and 2004.

Tax Fees

Fees for tax services provided by Garbutt & Elliott Ltd., our current principal independent registered public accounting firm, during the year ended December 31, 2004 was $0. Fees for tax services provided by Goodband Viner Taylor, our former principal accountant, during the year ended December 31, 2003 was $5,397.

Tax services related primarily to the preparation of company tax filings with regulatory agencies.

All Other Fees

There were no other fees billed for services.

Audit Committee Procedure

The Board of Directors is responsible for matters typically performed by an audit committee. We do not have a separate audit committee of the Board of Directors. The Board of Directors considered whether, and determined that, the auditor's provision of non-audit services was compatible with maintaining the auditor's independence. All of the services described above for fiscal years ended 2003 and 2004 were approved by the Board of Directors. We intend to continue using our principal accountant, Garbutt & Elliott Ltd., solely for audit and audit-related services, tax consultation and tax compliance services, and, as needed, for due diligence in acquisitions and similar transactions.

Pre-Approval Policies and Procedures

The Board of Directors approved all of the services described above, and all fees paid. The Board of Directors did not have pre-approval policies and procedures in place during our fiscal years ended 2003 and 2004. In fiscal year 2005, we intend to implement a policy whereby, we will, prior to engaging our accountants to perform a particular service, obtain an estimate for the service to be performed and begin pre-approving all services.

71

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PEAK ENTERTAINMENT HOLDINGS, INC.

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

                     Dated: May 12, 2005

In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated:

SIGNATURE                        TITLE                                                DATE
---------                        -----                                                ----

/s/ WILFRED SHORROCKS            President, Chairman, and Chief Executive Officer     May 12, 2005
---------------------            (Principal Executive Officer)
Wilfred Shorrocks


/s/ PAULA SHORROCKS              Vice President and Director                          May 12, 2005
-------------------
Paula Shorrocks


/s/ PHIL OGDEN                   Vice President and Director                          May 12, 2005
--------------
Phil Ogden


/s/ ALAN SHORROCKS               Vice President                                       May 12, 2005
------------------
Alan Shorrocks


/s/ NICOLA YEOMANS               Vice President                                       May 12, 2005
------------------               (Principal Accounting Officer)
Nicola Yeomans

72

EXHIBIT 31.2

CERTIFICATION

I, Wilfred Shorrocks, certify that:

1. I have reviewed this report on Form 10-KSB/A for the fiscal year ended December 31, 2004 of Peak Entertainment Holdings, Inc.;

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

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

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

(b) [omitted];

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  May 12, 2005

                                                          /s/ Wilfred Shorrocks
                                                         ----------------------
                                                         Wilfred Shorrocks
                                                         Chief Executive Officer


2

EXHIBIT 31.2

CERTIFICATION

I, Nicola Yeomans, certify that:

1. I have reviewed this report on Form 10-KSB/A for the fiscal year ended December 31, 2004 of Peak Entertainment Holdings, Inc.;

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

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

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

(b) [omitted];

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  May 12, 2005

                                                     /s/ Nicola Yeomans
                                                     ------------------
                                                     Nicola Yeomans
                                                     Principal Financial Officer


EXHIBIT 32.1

CERTIFICATION
PURSUANT TO SECTION 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350

In connection with the Annual Report of Peak Entertainment Holdings, Inc. (the "Company") on Form 10-KSB/A for the fiscal year ended December 31, 2004, as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), the undersigned, Wilfred Shorrocks, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Wilfred Shorrocks
---------------------
Wilfred Shorrocks
Chief Executive Officer
Date: May 12, 2005


EXHIBIT 32.2

CERTIFICATION
PURSUANT TO SECTION 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350

In connection with the Annual Report of Peak Entertainment Holdings, Inc. (the "Company") on Form 10-KSB/A for the fiscal year ended December 31, 2004, as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), the undersigned, Nicola Yeomans, as Principal Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Nicola Yeomans
------------------
Nicola Yeomans
Principal Financial Officer
Date: May 12, 2005

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