SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                    For the Fiscal Year Ended March 31, 2002

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

                           Commission File No. 0-17953

                        DIAMOND ENTERTAINMENT CORPORATION
                 (Name of small business issuer in its charter)

      New Jersey                          421600                   22-2748019
      ----------                          ------                   ----------
(State or other jurisdiction of  (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)      Classification Code          Identification
                                          Number)                    Number)

                           800 Tucker Lane, Walnut, CA
                      91789 (Address of principal executive
                               offices) (Zip Code)

                                 (909) 839-1989
                (Issuer's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:  None.

Securities registered under to Section 12(g) of the Exchange Act: Common Stock,
no par value.

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]

The issuer's revenue for the fiscal year ended March 31, 2002 totaled
$3,813,981.

The aggregate market value of registrant's Common Stock held by non-affiliates
based upon the closing bid price on July 15, 2002, as reported by the OTC
Bulletin Board, was approximately $1,173,780.

As of July 16, 2002, there were 469,660,096 shares of the registrant's Common
Stock outstanding.

<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

Diamond Entertainment Corporation d/b/a e-DMEC (the "Company" or "e-DMEC") was
formed under the laws of the State of New Jersey on April 3, 1986. In May 1999,
the Company registered in the state of California to do business under the name
e-DMEC. All references to the Company refer to Diamond Entertainment Corporation
doing business as e-DMEC and its subsidiaries unless the context otherwise
requires. The Company's principal executive offices are located at 800 Tucker
Lane, Walnut, California 91789.

DMEC markets and sells a variety of videocassette and DVD (Digital Video Disc)
titles to the budget home video and DVD market. We also purchase and distribute
general merchandise including children's toy products.

Our videocassette and DVD titles include certain public domain programs and
certain licensed programs. Public domain programs are video titles that are not
subject to copyright protection. Licensed programs are programs that have been
licensed by us from a third party for duplication and distribution, generally on
a non-exclusive basis. We market our video programs to national and regional
mass merchandisers, department stores, drug stores, supermarkets and other
similar retail outlets. They generally sell our products to the public at retail
prices ranging from $1.99 to $9.99 per videocassette and $4.99 to $12.99 per DVD
program packs. Our video and DVD products are also offered by consignment
arrangements through one large mail order catalog company and one retail chain.
We are continuing to acquire new licensed video and DVD titles and upgrading the
quality of its packaging and pre-printed materials in order to enhance its
available products.

During fiscal 2001 and 2002, DMEC moved towards transforming our product mix to
become a company specializing in "disc" distribution. Adding to our traditional
product distribution and through third party suppliers, we are continuing to
expand our spectrum of disc products and related services that include:

     o     CD replication and packaging,
     o     CD-R distribution,
     o     CD-ROM business card replication,
     o     DVD replication and packaging and
     o     DVD-ROM replication

We have entered into a verbal agreement regarding a strategic alliance with
Everbright Chung Cheong DVD Co., Ltd., a company located in Hong Kong, through
which we expect to introduce new products during fiscal 2003, such as DVD
tickets, DVD ID card and DVD credit card implanted with a smart chip.

In May 1997, DMEC acquired a wholly owned subsidiary known as Jewel Products
International, Inc. ("JPI"). JPI is in the business of manufacturing and
distributing toy products, purchasing various other general merchandise and
children's toy products from U.S. based importers or directly from Asia for


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distribution, and distributing to mass merchandisers in the United States. In
December, 2001, JPI began formulating an intermediate-term business strategy to
capitalize on its extensive relationships and contacts with its mass
merchandisers to expand our general merchandise product line and sundry items to
include a wide range of low cost, high quality consumer products from China.


VIDEO PROGRAM LINE

     DMEC's principle product is the video program which consists of a total of
nearly 750 titles appealing to all age groups. The programs include cartoons,
horror films, science fiction, dramas, adventure stories, mysteries, musicals,
comedies, fairy tale adaptations, educational programs, sports highlights, and
computer-literacy. Public domain programs account for approximately 475 titles,
licensed programs account for approximately 263 titles of our program inventory
and we own 12 titles.

     o    Motion Pictures - Public Domain. We offer a total of 108 feature
          motion picture titles including many film classics, biblical tales,
          and a large collection of favorite performers. Titles include "Love
          Affair", "Milton Berle" and "Herod the Great".

     o    Children's Programs - Licensed and Public Domain. Most of our cartoons
          are public domain programs, including 21 cartoon programs re-dubbed in
          Spanish. These programs are generally 30 minutes in length and consist
          of a series of cartoons that we select. We also market approximately
          18 children's holiday features, and 49 titles in its Testaments and
          Children's Bible series.

     o    Educational Programs - Licensed. We license approximately 56
          educational videos with titles on topics such as baby animals, nature
          series and nature's newborn.

     o    Educational Programs - Owned. On December 1, 2001, we purchased all
          rights to the Learning Treehouse educational videos which instruct
          preschoolers and school age children on topics such as learning
          numbers, telling time, simple mathematics, color identification.

     o    Sports Programs - Licensed. We have licenses to market 16 sports
          videos including five volumes of "Great Sports Memories" and
          "Basketball's Fabulous 50 Stars."

     o    Computer Software Learning Tutorial Programs - Licensed. We have
          licensed approximately 45 titles of computer tutorial videos including
          titles such as "Family Guide to the Computer," "Family Guide to the
          Internet," "Windows`98," "Word for Windows," "Mastering WordPerfect,"
          "Mastering Excel for Windows," and "Make Your Own Web Page."

     o    TV Episodes - Public Domain. Our TV episodes include such favorites as
          Red "Skelton" and "Andy Griffith."



                                       3
<PAGE>

DVD PROGRAM LINE

The DVD program inventory currently consists of 99 titles, which are public
domain feature films and television episodes.

     o    Motion Pictures - Public Domain. We offer 92 titles in DVD format
          covering many film classics in various categories including drama,
          horror, westerns, action, and comedy.

     o    Television Episodes - Inventory currently consist of 7 public domain
          titles.

We continuously seek to expand our program inventory by identifying titles that
appeal to children and those which include popular performers, characters or
themes. We also identify video and DVD programs which are classic films,
educational, instructional, or those which have been requested by distributors.
We enter into a licensing agreement with respect to those programs that are
subject to copyright protection or obtain documentation confirming public domain
status from various unaffiliated program suppliers.

During the year ended March 31, 2002, we acquired approximate 30 new titles. As
of March 31, 2002, the net book value of our film masters and artwork was
approximately $271,151. We believe that our film masters and artwork are
significant assets since we derive the majority of our revenue from their use.

CONTRACT REPLICATION AND DUPLICATION SERVICES

In January 2001, we commenced offering our replication and packaging services to
corporate customers for the following disc products: DVD, CD, CD-R, CD-ROM
business card, and video/audio tape duplication services. There can be no
assurance that we will be able to market and distribute successfully our
contract replication and duplication services to corporate customers or to its
other customers.

GENERAL MERCHANDISE

In May 1997, we acquired by way of merger, Beyond Design Corporation.
Subsequently, we renamed the company Jewel Products International, Inc. We
acquired JPI in consideration of the issuance of an aggregate of 2,427,273
shares of our common stock and the assumption of certain obligations of Jewel.
The Jewel acquisition was an arms-length transaction. Jewel is in the business
of manufacturing and distributing one toy product, the Woblong Double Wing
Flier, subsequently renamed the Zoombie(R). We also purchase various other
children's toy products from U.S. based importers or directly from Asia for
distribution to mass merchandisers in the United States in addition to
purchasing and distributing general merchandise.

At the time of its acquisition, JPI's sole line of business was the manufacture
and sale of its patented Woblong(R) Double Wing Flier, a bi-wing aerodynamic
flying toy. The Zoombie(R), is a game of catch intended to compete directly with
Frisbee(R), Aerobie(R) and Whoosh(TM). During the year ended March 31, 2002, the
Zoombie was primarily sold through our web-site. In December 2001, we announced
the expansion of our general merchandise product line to include low cost, high


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quality, consumer products from China. In April 2002, we have added to our
general merchandise product line, a line of elegant photo albums and a line of
high-end design train cases (cosmetic box). As of July 14, 2002, the Company has
no outstanding commitment to purchase photo albums. The Company as of July 14,
2002, is committed to purchase 9,600 units of train cases from a manufacturer in
China and has no other outstanding purchase commitment for such product. We are
continuing to seek additional products for our general merchandise line to
replace or add to our existing inventory.

For the years ended March 31, 2002 and 2001 we made purchases from two
suppliers, Addicks Engineering and Duracom Corporation HK Ltd. Purchases for
such periods were minimal.


SUPPLIERS

VIDEO/DVD PRODUCTS

In December 2001, to improve our turn around time for small to medium size
orders, we purchased two Sony high-speed sprinters to duplicate video pancakes
in house. Our large video program orders are duplicated using high speed
sprinters by two duplicators located in the United States. Our DVD disc products
are replicated by two replicators located in California and two other
replicators in Asia. Generally, we arrange with these firms to duplicate or
replicate masters we supply and the product is labeled, packaged, and
shrink-wrapped by us at our Walnut, California plant. We submit our orders and
instructions by purchase order with terms payable within 60 days of delivery.

For the year ended March 31, 2002 we purchased video and DVD products from four
suppliers: Skura Intercontinental, Vida Corporation, Everbright Chung Cheong DVD
Co., Ltd., and L & M Optical Disc West, which amounted to approximately 67% of
our net purchases. During such period, the percentage of net video/DVD product
purchases made from such suppliers were 23%, 15%, 15% and 14%, respectively. For
the year ended March 31, 2001, we purchased video and DVD products from three
suppliers: Everbright Chung Cheong DVD Co., Ltd., Vida Corporation, and United
Media Services, Inc., which amounted to approximately 58% of our net purchases.
During such period, the percentage of net video/DVD product purchases made from
such suppliers were 26%, 19% and 13%, respectively. We believe that, if for any
reason we could not rely on or retain the services of any of our current
suppliers, duplicators or manufacturers, other suppliers would be available in
the marketplace.


MARKETING

VIDEO/DVD PRODUCTS

We market our program inventory to large retail chain outlets and provide each
retail chain operator with brochures, advertising materials and literature
describing and promoting our program inventory. Our products are sold through
more than ten mass merchandisers such as Musicland, Walgreen and Best Buy,
primarily in the Northeast, the South and the East Coast. These outlets sell our
products to the general public at retail prices ranging from approximately $1.99


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to $9.99 per videocassette and $4.99 to $12.99 per DVD program packs. For the
years ended March 31, 2002 and 2001, we derived revenue from our video and DVD
products of approximately $3,803,000 and $3,174,000, respectively. For the year
ended March 31, 2002, we had net sales to four major customers, Musicland, Army
Air Force Exchange Services, Walgreen, and Starcrest of California, who
accounted for 22%, 14%, 14%, and 12%, respectively, of revenues of approximately
$2,324,000. For the year ended March 31, 2001, we had net sales to two major
customers, Walgreen and Musicland, of more than 10% of our revenues, at
approximately $1,443,000. The loss one of these customers would have a material
adverse effect on our financial condition and results of operations.


CUSTOMERS

VIDEO/DVD PRODUCTS

Our marketing strategy of distributing directly to retail chain outlets has
allowed us to market our products at all consumer levels. In particular, we seek
to attract retail customers in department, drug, discount, electronic, music,
toy and book stores as well as supermarkets and convenience stores. We are
continuing to improve the name recognition of our company as a video and DVD
company specializing in educational, children and film classic video, and DVD
titles. In addition, through our sales program, we seek to place increased focus
on the promotion of sales to major mass merchandising companies which would
increase the delivery of high volume orders. In addition to using independent
sales representatives in certain geographical marketing areas, we have revamped
our web-site in May of 2001 to enable us to sell our video/DVD and other
products to our current customer base and directly to the retail customer.

We derive approximately 54% of our gross revenue from sales to mass
merchandisers and other retail outlets. Approximately 27% of gross revenue is
derived from sales through consignment arrangements with a catalog company and
retail company under which we deliver product to their distribution centers. We
only book sales from consignment sales after the catalog company delivers the
actual funds from such sales. Less than one percent of revenues are derived from
products sold on a retail basis directly to consumers via the internet or
telemarketing.


GENERAL MERCHANDISE

We market our general merchandise and toy products using outside sales personnel
and manufacturer representatives and utilized independent manufacturer's
representatives to reach our customers. During fiscal year 2002, the Zoombie toy
product was sold on our web-site. For the years ended March 31, 2002 and 2001,
revenues from toy products were $11,377 and $7,050, respectively.


SEASONALITY

VIDEO AND DVD PRODUCTS

DMEC generally experiences higher sales from our video and DVD programs from
September through January due to increased consumer spending around the year-end


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holidays. During the year ended March 31, 2002, the Company derived
approximately 49% of its gross revenue from sales during those five months, with
approximately 51% of revenue generated in the other seven months of the year.

GENERAL MERCHANDISE

Our revenues are very seasonal and are currently generated during the period
from June to September.


LICENSE ARRANGEMENTS - VIDEO AND DVD PRODUCTS

DMEC enters into various license agreements, which we acquire from licensors the
right to duplicate and distribute a licensed video program. Licenses may be
exclusive or non-exclusive, but typically are non-exclusive. Generally, licenses
cover specific titles. In return for the grant of certain rights by the
licensor, we pay certain advance payments or guarantees and also pay royalties.
Royalty payments under license agreements typically are credited against any
advances paid. Generally, our licenses are for a term of between three and seven
years. While our effort to renegotiate and renew our license agreements have
generally been successful, there can be no assurance that such licenses will be
renegotiated or renewed in the future. The programs that we have acquired under
license contain limitations from the licensors regarding the geographic areas to
which we can distribute our products and are usually restricted to distribution
and sales in the United States and Canada.

The various licensing agreements that we have entered into with licensors
provide for advance payments ranging from $1,500 to $100,000 and subsequent
royalty payments based upon either a per video sold fee or a percentage of
wholesale price fee. During the year ended March 31, 2002, and 2001 we incurred
royalty expenses of approximately $41,000 and $24,000, respectively, under our
licensing agreements.


COMPETITION

VIDEO AND DVD PRODUCTS

DMEC competes with other distributors who sell budget priced videotapes and
DVD's. We also compete with other video duplicators and DVD replicators. We have
been able to compete based on offering low pricing and superior packaging
designs. Most of the companies with which we compete with, such as: Platinum
Entertainment, Brentwood Entertainment and Madacy, are better established, have
broader public and industry recognition, have financial resources substantially
greater than us and have manufacturing and distribution facilities better than
those which now, or in the foreseeable future, become available to us.

GENERAL MERCHANDISE

DMEC competes with other distributors of toy products including distributors of
other flying toys such as "Frisbies". We concentrate on the most popular and new
products available and offer these toy products for limited sales period and, as
demand for products change. We can immediately switch to newer and more popular
products. We compete primarily on uniqueness of product and lower prices. Most
of the distributors with which we compete are better established, have a broader
product line and industry recognition, and have financial resources
substantially greater than ours.

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AMERICAN TOP REAL ESTATE

American Top Real Estate, Inc. ("ATRE") was formed in March 1989 for the
purposes of acquiring, owning and holding real property for commercial
development. ATRE does not engage in any other business operations. We paid
$50,000 for a 50% interest in ATRE. Our arrangement with its partners in ATRE
requires that all parties contribute capital or loans pro rata according to
their interests whenever required by ATRE for land acquisition, principal or
interest payments, property taxes or other expenses. Since the Company does not
have greater than a 50% investment or exercise control in the day to day
operations, this investment is accounted for using the equity method. The
operations of ATRE are not considered to be significant to the Company's
operations; therefore, the Company has not included a summary of ATRE's assets
and liabilities.

Upon sale or development of land, proceeds are used to repay all related loans
and other obligations, with the remaining balance distributed among the
shareholders of ATRE pro rata based on their interests. ATRE has interests in
two real estate parcels.

On September 19, 2000, ATRE closed the sale for one parcel of the remaining
acres for $550,000. The net proceeds of this sale were applied against ATRE'S
outstanding mortgage loan that was collateralized by the property sold. As the
result of the sale, we recorded approximately $15,000 as our share of income
from equity investment for the period ended March 31, 2001.

The Company as of March 31, 2001, had a convertible debenture totaling $809,500
bearing interest at the rate of 7% per annum due and payable on or before
September 30, 2001. At the option of the lender all or part of the balance could
be paid with shares of our common stock. The number of shares was determined by
dividing the principal being converted by the average twenty-day bid price,
prior to the date of such payment request for our common stock. On July 24,
2001, our Board of Directors authorized and approved the issuance of 140,343,755
shares of our common stock to ATRE upon the conversion by ATRE of the entire
unpaid principal amount of $809,500 of its note and all accrued interest thereon
totaling $102,734.41 at the conversion price of $0.0065 per share as of the
close of business on July 23, 2001.

As of March 31, 2002 and 2001, we had outstanding loan balances of $549,558 and
$576,300, respectively, from ATRE, bearing interest at the rate of 14% per
annum, and due on demand.

ATRE believes the remaining parcels of land will be sold, and continues to list
the properties with its real estate agent. Future sales are contingent on market
conditions and there can be no assurance that ATRE will sell the remaining
parcels within the next one to three years.



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<PAGE>

COPYRIGHT, LICENSES AND OTHER PROPRIETARY RIGHTS

We rely on a combination of common law trademark, copyright and trade secret law
to establish and protect our property rights and promote our reputation and the
growth of our business. In addition, in the toys product line, the Woblong(R),
subsequently renamed as the Zoombie(R), is protected by patent claims in the
form of a utility patent registered with the U.S. Patent and Trademark Office.
The U.S. Patent number is 5,131,879. In addition, design patent No. D344,989 was
issued on March 9, 1994.

We license approximately 263 videocassette titles from licensors for duplication
and distribution, generally on a non-exclusive basis. Such licensors could
become subject to third party infringement claims that could result in their
inability or unwillingness to license these titles to us and would impair our
ability to provide such titles to our customers.


ITEM 2.  DESCRIPTION OF PROPERTY.

We lease approximately 20,000 square feet of property located at 800 Tucker
Lane, Walnut, California under a lease that commenced January 6, 2000 and
expires on January 31, 2003, for use as executive offices and manufacturing and
warehouse facilities for a monthly rent of $10,500. We are in the process of
renegotiating our lease for a period of time in excess of 3 years. We closed our
1,200 square foot facility in Freehold, New Jersey in April 2000, which we used
for our sales office. Our lease is with an unaffiliated party. We believe that
we have sufficient space for operations for the next twelve months.


ITEM 3.  LEGAL PROCEEDINGS.

We have in the past been named as defendant and co-defendant in various legal
actions filed against us in the normal course of business. All past litigation
have been resolved without material adverse impact on us.

On February 15, 2000, one of our suppliers brought legal action against us to
collect approximately $35,200 comprising of unpaid invoices, interest, court
costs and attorneys fees owed to the supplier. We recorded the liability upon
receipt of the goods and entered into a monthly payment plan with the supplier
to settle the amount owed. As of March 31, 2002, the balance of the liability
had been fully paid.

During March 2000, our former lessor brought action against us to recover
delinquent rental payment and penalties arising from the termination of our
building lease in Cerritos, California. The action against us resulted in a
stipulated judgment whereby we agreed to pay $72,000.00 at 10% interest by
paying $6,600.00 per month for twelve consecutive months beginning April 1, 2000
through March 1, 2001. There was a penalty clause for a failure to pay in a
timely manner which increases the total amount to $119,000 with immediate
acceleration in the event of a default under the stipulated judgment. All
required payments through March 1, 2001 were made in a timely manner and on June
5, 2001, we received from the lessor, an acknowledgment of full satisfaction of
judgment.

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In April 2001, a former landlord, brought action against us to recover $100,000
in damages, for additional rent for holding over, or not vacating the premises
after the term expired, late fee penalty of 10% for late payment of monthly rent
and for removing the plaintiff's metal storage racks. To avoid incurring
extraordinary legal fees to defend this action against us, we entered into a
stipulation for settlement and dismissal with the landlord in December 2001 to
make three payments of $5,000 to have the legal action dismissed. The final
payment was made in February 2002, and we received from the landlord on March
20, 2002, an acknowledgment that such legal action against us was dismissed.

In June of 2001, we were named as a defendant by one of our suppliers who filed
bankruptcy under Chapter 7. The bankruptcy court brought legal action against us
to recover $100,000.00 we borrowed from the supplier in April of 1999, plus
applicable interest. In accordance with the loan, we made four separate payments
to the supplier during April and May of 1999 totaling $101,166.67 in principal
and interest. As of December 31, 2001, we reflected one check in the amount of
$25,116.67 still outstanding. On March 6, 2002, we entered into a stipulation
for settlement and dismissal whereby we agreed to pay $2,500.00 within ten (10)
days after entry of an order approving the settlement. The stipulation for
settlement and dismissal was approved by the court and a settlement payment of
$2,500 was made on May 8, 2002 and on May 15, 2002, the adversary action was
dismissed.


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

None.

                                     PART II

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

DMEC's common stock is quoted on the NASD's OTC Bulletin Board under the symbol
"DMEC." The following table set forth, the high and low bid prices for the
Common Stock for each quarterly period during our last three fiscal years. The
source of the quotes is NASD's OTC Bulletin Board quarterly quote summaries.

                                                 Common Stock
                                                  Bid Price
                                         Low                    High
                                         ----                   ----
 Fiscal Year 2000
         First Quarter                   0.06                   0.24
         Second Quarter                  0.06                   0.19
         Third Quarter                   0.02                   0.11
         Fourth Quarter                  0.05                   0.20
 Fiscal Year 2001
         First Quarter                   0.045                  0.125
         Second Quarter                  0.024                  0.067
         Third Quarter                   0.009                  0.039
         Fourth Quarter                  0.007                  0.020
 Fiscal Year 2002
         First Quarter                   0.005                  0.013
         Second Quarter                  0.006                  0.010
         Third Quarter                   0.004                  0.030
         Fourth Quarter                  0.010                  0.025

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On July 15, 2002, the closing bid price for our common stock was $0.007. As of
the same date, there were 2487 holders of record of our common stock.


The transfer agent for our common stock is Continental Stock Transfer & Trust
Company, New York, New York.


Recent Sales of Unregistered Securities
---------------------------------------

On July 24, 2001, the Board of Directors of the Company approved the Company's
2001 Stock Compensation Plan dated July 13, 2001 for the purpose of providing
the Company with a means of compensating selected key employees (including
officers), and directors of the Company and its subsidiaries for their services
rendered in connection with the development of Company with shares of Common
Stock of the Company. The plan authorized the Board of Directors of the Company
to sell or award up to 50,000,000 shares and/or options of the Company's common
stock, no par value at a purchase price of $0.006. On July 13, 2001, 50,000,000
options to purchase the Company's common stock were granted to the selected key
employees, officers and a director of the Company expiring on July 12, 2004. Of
such options granted, James Lu, the President and Jeffrey Schillen the Executive
Vice President of the Company were granted options to purchase 20,000,000 and
10,000,000 shares, respectively, and 5,000,000 options to purchase were granted
to Murray Scott, a Director of the Company. The remaining balance of 15,000,000
options was granted to eight other key employees of the Company. As of March 31,
2002, none of the options granted under this plan were exercised.


On July 24, 2001, the Board of Directors of the Company authorized and approved,
that it was in the best interest of the Company that the exercise rate ranging
from $0.05 to $0.25 of outstanding options granted to the Company's key
employees, officers and directors during the period from April 1996 through May
1999 in the aggregate amount of 11,675,000 shares be amended and lowered to
$0.005. Such outstanding options to purchase the Company's common stock included
options granted to James Lu, Jeffrey Schillen, Murray Scott and three key
employees of the Company of 9,100,000, 2,150,000, 250,000, and 175,000 shares,
respectively. The Board of Directors further authorized and approved the
extension of such options granted to James Lu and Jeffrey Schillen in the amount
600,000 and 400,000 shares, respectively, to April 22, 2004. These options were
outstanding as of March 31, 2002.

The Board of Directors on February 28, 2002, authorized and approved the
extension of options granted to Messrs. Lu, Schillen and Scott of 3,000,000,
750,000 and 250,000 shares, respectively, for an additional three years. Of such
options, Messrs Lu's and Schillen's options were extended to March 31, 2005 and
Mr. Scott's option was extended to August 24, 2005.

On July 24, 2001, the Company granted three consulting firms options to purchase
27,000,000 shares at $0.005 per share. These options expire on July 23, 2002.
These options were exercised on August 15, 2001. These shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering."
Furthermore, these consulting firms are Accredited Investors.

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<PAGE>

Conversion of debt
------------------

On July 24, 2001, the Board of Directors of the Company authorized and approved:

     1)   the issuance of 140,343,755 shares of the company's common stock to
          American Top Real estate, Inc. ("ATRE") upon the conversion by ATRE of
          the entire unpaid principal amount of $809,500 of its note and all
          accrued interest thereon in the amount of $102,734.41 at the
          conversion price of $0.0065 per share as of the close of business on
          July 23, 2001;

     2)   the issuance of 12,343,150 shares of the Company's common stock to Mr.
          Lu, the President of the Company, upon conversion of his $50,000 note
          and accrued interest thereon in the amount of $11,715.75 at the
          conversion price of $0.005. The aggregate amount of these shares was
          issued on August 14, 2001; and

     3)   the issuance of 180,928,097 shares of the Company's common stock to GJ
          Products Corporation upon the conversion of the entire unpaid
          principal amount of $1,037,775 of its note and all accrued interest
          thereon in the amount of $138,257.63 at the conversion price of
          $0.0065 per share as of the close of business on July 23, 2001. These
          shares were issued on August 14, 2001.

On October 18, 2001, the Company granted two consulting firms options to
purchase 30,800,000 shares at $0.005 per share. These options expire on October
17, 2002. 15,800,000 of these options were exercised in November 2001. As of
March 31, 2002, 15,000,000 shares of these options had not been exercised. On
May 5, 2002, 7,500,000 of these options were exercised and as of June 18, 2002,
7,500,000 of such options were outstanding. These shares were issued pursuant to
the exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering." Furthermore, these
consulting firms are Accredited Investors.

November 16, 2001, the Company's Board of Directors approved and the Company
granted the Company's President, options to purchase 14,500,000 shares of the
Company's common stock for his waiving his exercise rights to 29,000,000 options
that were previously granted and for his part in the successful sale of the
Company's Series B Preferred Shares. The President waived his exercise rights to
exercise options previously granted to meet the terms of the reserve requirement
clause for the sale of the Company's Series B Preferred stock. The options
granted to the President on November 16, 2001, are exercisable at $0.006 per
share at such time permitted by the Company's Series B Preferred Shares reserve
clause. The options expire 5 years from the date of grant.

On November 16, 2001, the Company amended its articles of incorporation to
authorize the issuance 87 shares of no par value, Series B Convertible Preferred
Stock with a stated value of $10,000 per share. This new issuance was created
out of the 5,000,000 share of authorized, no par value, preferred stock. These
shares are convertible at the lesser of $.02 or 70% of the average of the
closing bid prices of our common stock on any five trading days during the
conversion of the Series B Convertible Preferred Shares.

                                       12
<PAGE>

On November 16, 2001, the Company entered into a Securities Purchase Agreement
("Securities Purchase Agreement") with four investors. Pursuant to the
Securities Purchase Agreement, the Company issued and sold 58 shares of its
Series B Convertible Preferred Stock at the stated value of $10,000 per share
for total consideration of $580,000.

On November 16, 2001, in connection with the sale of 58 shares of the Company's
Series B Preferred Stock to four investors, the Company issued warrants to
purchase an aggregate of 8,700,000 shares of the Company's Common Stock to such
investors at an exercise price per share equal to $0.02, expiring on November
15, 2006. The purchase rights represented by the warrants may be exercised in
whole or in part at any time and from time to time during the term commencing on
November 16, 2001.

On November 30, 2001, the Company granted a consulting firm an option to
purchase 1,500,000 shares of the Company's stock at $0.03 per share. Of such
options, 1,000,000 shares will be exercisable immediately and 500,000 shares
will be exercisable commencing on November 30, 2002 and will expire on November
29, 2002 and November 29, 2003, respectively. These shares were issued pursuant
to the exemption provided for under Section 4(2) of the Securities Act of 1933,
as amended, as a "transaction not involving a public offering." Furthermore, the
consulting firm is an Accredited Investors. On March 31, 2002, the consulting
agreement was canceled together with the option to purchase the aggregate of
1,500,000.

On January 30, 2001, the Company entered into a Securities Purchase Agreement
with three investors and a Securities Replacement Agreement with another
investor who held a convertible debenture issued by the Company in the amount of
$100,000 plus interest of $30,000. Pursuant to such agreements the Company
issued 29 shares of its Series B Convertible Preferred Stock at the stated value
of $10,000 per share for a total consideration of $290,000. The convertible
debenture held by the investor was canceled on January 30, 2002. All of the
above shares were issued under the exemption to registration provided by
Regulation D Rule 506.

On January 30, 2002, in connection with the sale of 15 shares of the Company's
Series B Preferred Stock to one investor, the Company issued warrants to
purchase an aggregate of 2,250,000 shares of the Company's Common Stock to the
investor at an exercise price per share equal to $0.02, expiring on January 30,
2007. The purchase rights represented by the warrants may be exercised in whole
or in part at any time and from time to time during the term commencing on
January 30, 2002.

On May 6, 2002, one share of the Company's Series B Preferred Stock was
converted into 1,351,351 shares of the Company's common stock at the conversion
price of $0.0074.

On May 23, 2002, two shares of the Company's Series B Preferred Stock were
converted into 3,174,603 of the Company's common stock at the conversion price
of $0.0063.

                                       13
<PAGE>


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

(a) PLAN OF OPERATION

DMEC's primary goal is to generate an operating profit in fiscal 2003 and to
expand its General Merchandise business by sourcing low cost, high quality
consumer products from China, while continuing to establish its self as a
recognized DVD and related product company specializing in educational, children
and film classic titles.

     The short-term objectives of DMEC are the following:
     ----------------------------------------------------

     o    Continue to expand our associations with firms in China to source and
          handle QA functions for our general merchandise line of products.

     o    Re-establish sales to club type stores with our new general
          merchandise line of products.

     o    Capitalize on our extensive network of mass merchandisers as a way to
          becoming a major player in the general merchandise business.

     o    Increase DMEC's percentage in the market segment of high quality
          budget price distribution of videocassettes and DVD titles by
          minimizing the affect of direct competition with larger competitors
          who sell the same product categories by offering higher quality
          budgeted price products.

     o    Continue expanding the overall market share of its core business by
          acquiring new videocassette and DVD titles for distribution.

     o    Maintain and improve our service through improving turnaround time.

     o    Improve communications with our customer base by frequently
          maintaining and updating our web-site to keep up with current
          products.

     The intermediate and long-term objectives are as follows:
     ---------------------------------------------------------

     o    Expand our general merchandise to over $50 million in 2 years and
          increase its growth to $100 million in 3 years.

     o    Continue expanding into contract replication, duplication and
          packaging business.

     o    Implementing marketing and sales programs on its web-site products
          using its new promotional campaigns to increase its revenue and profit
          margins.

     o    Introducing new products during fiscal 2003, such as DVD tickets, DVD
          ID card and DVD credit card implanted with a smart chip.

                                       14
<PAGE>

     The  Company has implemented the following strategies in its effort to
          reach profitability and meet its goals:

     A.   Retailers and Mass Merchandisers Client Base

          1.   Improve pricing and packaging innovations.

          2.   Utilize firms in China to source and handle QA functions for our
               general merchandise line of product.

          3.   Introduce a wide selection of high quality, low price general
               merchandise products such as Photo Albums and Train Cases from
               China.

          4.   Focus on marketing our new general merchandise products by
               re-establishing relationships with our club stores and mass
               merchandisers.

          5.   Expand our contacts with financing sources to support the
               expected growth in our general merchandise product line and
               continue negotiations with Minmetals, USA, for potential line of
               credit between $5 to $8 million in the first quarter of 2003.

          6.   Improve efficiency in quick turnaround of product shipments.


     B.   Internet e-Commerce Customer Base

          1.   Keep our pricing competitive.

          2.   Improve customer service procedures.

          3.   Complete thorough search for a cost effective method for
               marketing and promoting our web-site (www.e-dmec.com).

          4.   Continue to seek viable new products to be added to our web-site.

          5.   Continue to up-date and improve our web-site.

     C.   Contract Duplication, Replication and Contract Packaging Service

          1.   Improve efficiency and speed in DVD high quality replication and
               packaging services.

          2.   Use our association with, Everbright Chung Cheong DVD Co., Ltd.,
               to penetrate into the DVD replication market by broadcasting to
               our potential contract customers the unique capabilities,
               experience and consistency of production capabilities provided
               and to penetrate into the large corporate segment.

          3.   Capitalize on the experience and know-how of Everbright Chung
               Cheong DVD Co., Ltd., to deliver the highest quality replication
               service available on a consistent basis.

                                       15
<PAGE>

          4.   Market our ability to utilize our new Sony high-speed sprinters
               to offer low cost, fast turn around, high quality in house
               duplication services.

We believe we have adequate cash resources to sustain our operations through the
third quarter of fiscal 2003, when we expect to generate a positive cash flow.
We are continuing to negotiate with several reliable investors to provide us
with debt and equity financing for working capital purposes. Our principal
objective is to implement the above strategies in fiscal 2003, which will lead
to a profitable operation if the items are successfully implemented, and subject
to market and other conditions. Although we believe that the outlook is
favorable, there can be no assurance that market conditions will continue in a
direction favorable to our Company.


(b) MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS

Year Ended March 31, 2002 vs. Year Ended March 31, 2001
-------------------------------------------------------
Revenues for the years ended March 31, 2002 and 2001 were approximately
$3,814,000 and $3,181,000, respectively. Our sales increased by approximately
$633,000 from the prior year with increased DVD product sales, general
merchandise sales and custom duplication sales of approximately $800,000,
$11,000 and $10,000, respectively, offset by decreased in video product sales of
approximately $188,000. The higher DVD product sales for the year ended March
31, 2002, were primarily the result of increased acceptance of DVD titles and
shifting our video product sales to DVD product sales and to the lower demand
for video products from our major customers. The increase in duplication sales
when compared to the prior year was primarily attributed to increased marketing
of our in house duplication capabilities. The slight increase in general
merchandise sales was the primarily the result of liquidating slower moving toy
products at substantial discounts. Sales of our products are generally seasonal
resulting in increased sales starting in the third quarter of the fiscal year.
We expect the sales to increase in fiscal year ending March 31, 2003 resulting
from increased DVD product sales and new products in our general merchandise
line of products.

Our net loss for the year ended March 31, 2002 was approximately $848,000 versus
a net loss of approximately $1,040,000 for the same period last year.

Our operating loss for the year ended March 31, 2002 was approximately $55,000
versus an operating loss of approximately $555,000 for last year. The decrease
in our operating loss of approximately $500,000 was the result primarily from
increased gross profit of approximately $70,000 and decreased operating expenses
of approximately $430,000.

Cost of sales for the years ended March 31, 2002 and 2001 were approximately
$2,360,000 and $1,797,000 or 62% and 57% of sales, respectively. The increase in
cost of sales of approximately $563,000 was primarily due to higher sales volume
of DVD product, custom duplication and general merchandise sales partially
offset by decreased sales volume of video product. The increase in the cost of


                                       16
<PAGE>

sales percentage to sales of approximately 5% when compared the same period a
year earlier, was the primarily the result of sales price erosion of our DVD
product line and liquidating slower moving toy inventory at substantially
reduced sales prices.

For the years ended March 31, 2002 and 2001, DVD product cost of sales
percentages when compared to sales were 55% and 39%, respectively. This increase
in the DVD product cost of sales percentage of 16% was caused primarily to the
lower average sales prices charged to customers to compete with our competitors.

For the years ended March 31, 2002 and 2001, video product cost of sales
percentages when compared to sales were 62% and 64%, respectively. This decrease
in the video product cost of sales percentage of 2% was caused primarily by
lowering the average manufacturing costs by the utilization of our newly
acquired capability to duplicate our video products in-house.

Gross profit for the years ended March 31, 2002 and 2001 were approximately
$1,454,000 and $1,384,000 or 38% and 43% of sales, respectively. The decrease in
the gross profit as a percentage of sales was primarily the result of sales
price erosion of our DVD product line and the selling of our slower moving toy
inventory at reduced prices which was slightly offset by an increase in the
video product margins.

Selling, general and administrative expenses for the years ended March 31, 2002
and 2001 were approximately $1,509,000 and $1,939,000, respectively. The
decrease of approximately $430,000 was primarily the result of decreases in
general administrative expenses of approximately $571,000 offset by and increase
in selling expenses of $141,000.

Selling expenses for the years ended March 31, 2002 and 2001 were approximately
$595,000 and $454,000, respectively. The increase in selling expenses of
approximately $141,000 was attributable mainly to higher expense levels in sales
commission expense, freight costs, royalty, and sales promotion related
expenses.

General Administrative expenses for the years ended March 31, 2002 and 2001 were
approximately $914,000 and $1,485,000, respectively. The decrease in general
administrative expenses of approximately $571,000 was primarily the result of
lower expense levels of non-cash expenses in connection with the issuance of
equity instruments as compensation and other fees of approximately $185,000 and
lower expense levels of approximately $386,000 primarily in office rent,
depreciation expenses, consulting expense, bad debt expense and miscellaneous
office expenses.

Interest expense for the years ended March 31, 2002 and 2001 were approximately
$358,000 and $456,000 respectively. The decrease in interest expense in fiscal
2002 over fiscal 2001 of approximately $98,000 was primarily the result of lower
levels of borrowings during fiscal 2002. As of March 31, 2002 and 2001, our
outstanding debt was approximately $1,034,000 and $3,462,000, respectively.

The Company incurred stock discount expense totaling $413,886 during the year
ending March 31, 2002 compared to stock discount expense totaling $125,000
during the year ending March 31, 2001. The primary reason for the increase was
due to the convertibility feature of our Series B Convertible Preferred stock.

Other income for the year ended March 31, 2002 and 2001 were approximately
$95,000 and $80,000, respectively.

                                       17
<PAGE>

Our auditors issued a going concern report for the year ended March 31, 2002.
There can be no assurance that management's plans to reduce operating losses
will continue or our efforts to obtain additional financing will be successful.


LIQUIDITY AND CAPITAL RESOURCES

On March 31, 2002 the Company had assets of $2,304,295 compared to $2,147,962 on
March 31, 2001. The Company had a total stockholder's deficiency of $462,807 on
March 31, 2002, compared to a deficiency of $3,338,493 on March 31, 2001, a
decrease of $2,875,686. The decrease in stockholders' equity for the year ended
March 31, 2002 was the result of i) conversion of notes and interest into common
stock of the company totaling $2,1249,983, ii) sale of common stock upon
exercise of stock option for $210,000, iii) options issued for consulting
services of $212,504, iv)settlement of account payable of $4,000, v) proceeds
from sale of the Company's Preferred B convertible stock of $740,000, vi)
settlement of convertible debenture totaling $130,000, vii) stock discount
totaling $372,857, viii) Preferred B convertible stock offering cost of $96,020,
and ix) the recording of net loss of $847,638 for the period ended March 31,
2002.

As of March 31, 2002 the Company's working capital deficit decreased
approximately $2,600,000 from a working capital deficit of approximately
$3,658,000 at March 31, 2001, to a working capital deficit of approximately
$1,058,000 at March 31, 2002. The decrease was the attributable primarily to a
decrease in notes payable and accrued interest totaling approximately $2,280,000
resulting from conversions by the holders of convertible debentures issued by
the Company. Also contributing to the decrease in the working capital deficit
were the lower levels borrowing against the accounts receivable and inventory
totaling approximately $368,000, the reduction of accounts payable and accrued
expenses of approximately $310,000, with the remaining offset amount of
approximately $318,000 in miscellaneous areas.

Cash flow used for operating activities was approximately $324,000 and $203,000
during the year ended March 31, 2002 and 2001, respectively. The Company's net
cash used in operating activities were $66,597 and $195,358 for fiscal 2002 and
2001, respectively. Cash used in operating activities was primarily attributable
to decreases in amounts due from related party, accounts receivable, amount due
to factor, accounts payable and accrued expenses.

The Company generated approximately $255,000 and $427,000 in cash from financing
activities during the years ended March 31, 2002 and 2001, respectively.

During the years ended march 31, 2002 and 2001, the Company received gross
proceeds totaling $740,000 from the issuance of Series B Preferred Stock and
$500,000 from Series A preferred Stock, respectively.

During the years ended March 31, 2002 and 2001, the Company received $210,00 and
$215,500, respectively from the exercise of stock options.



                                       18
<PAGE>

GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company
has incurred recurring losses from operations, negative cash flows from
operations, a working capital deficit and is delinquent in payment of certain
accounts payable. These matters raise substantial doubt about the Company's
ability to continue as a going concern. In view of the matters described in the
preceding paragraph, recoverability of a major portion of the recorded asset
amounts shown in the accompanying consolidated balance sheet is dependent upon
continued operations of the Company, which, in turn, is dependent upon the
Company's ability to continue to raise capital and generate positive cash flows
from operations. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classifications of liabilities that might be necessary
should the Company be unable to continue its existence

ITEM 7.  FINANCIAL STATEMENTS

The report of independent auditors and financial statements are set forth in
this report beginning on Page F-1.


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

None

















                                       19
<PAGE>






                              FINANCIAL STATEMENTS.

           See Index to Consolidated Financial Statements on page F-1.



               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001






                                    I N D E X
                                    ---------



                                                                       PAGE


INDEPENDENT AUDITORS' REPORT                                            F-2


CONSOLIDATED BALANCE SHEETS                                          F-3 to F-4


CONSOLIDATED STATEMENTS OF OPERATIONS                                   F-5


CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY                      F-6


CONSOLIDATED STATEMENTS OF CASH FLOWS                                F-7 to F-9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          F-10 to F-47









                                       F-1


<PAGE>



                          INDEPENDENT AUDITORS' REPORT


TO THE STOCKHOLDERS' AND BOARD OF DIRECTORS OF
DIAMOND ENTERTAINMENT CORPORATION

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Diamond
Entertainment  Corporation  and  Subsidiaries as of March 31, 2002 and 2001, and
the related consolidated statements of operations,  stockholders' deficiency and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Diamond
Entertainment  Corporation  and  Subsidiaries as of March 31, 2002 and 2001, and
the consolidated  results of their operations and their cash flows for the years
then ended, in conformity with accounting  principles  generally accepted in the
United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred recurring losses and
a negative cash flow from operations, as well as a working capital deficit which
raises  substantial  doubt about its  ability to  continue  as a going  concern.
Management's  plans concerning these matters are also discussed in Note 2. These
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.


                               MERDINGER, FRUCHTER, ROSEN & COMPANY, P.C.
                               Certified Public Accountants

Los Angeles, California
July 9, 2002


                                       F-2

<PAGE>


<TABLE>
<CAPTION>
               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                                                  March 31,
                                                                       ------------------------------
                                                                           2002              2001
                                                                       ------------      -----------
<S>                                                                    <C>               <C>
         ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                           $     15,642      $    29,900
   Accounts receivable, net of allowance for
     doubtful accounts of $106,858 and $144,542                             356,869          413,020
   Inventory                                                                964,988        1,088,951
   Due from related parties                                                 268,435          101,366
   Prepaid expenses and other current assets                                 37,272           45,714
                                                                       ------------      -----------

     Total current assets                                                 1,643,206        1,678,951

PROPERTY AND EQUIPMENT, less
   accumulated depreciation of $1,098,195 and $1,030,785                    296,077          199,487

FILM MASTERS AND ARTWORK, less
   accumulated amortization of $3,956,767 and $3,901,070                    271,151          145,817

INVESTMENT IN EQUITY SUBSIDIARY                                              60,158           60,725

OTHER ASSETS                                                                 33,703           62,982
                                                                       ------------      -----------

       TOTAL ASSETS                                                    $  2,304,295      $ 2,147,962
                                                                       ============      ===========
</TABLE>





The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-3

<PAGE>
<TABLE>
<CAPTION>
               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                                                                  March 31,
                                                                       ------------------------------
                                                                           2002              2001
                                                                       ------------      -----------
                                                                                          (Restated)
<S>                                                                    <C>               <C>
         LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
   Bank overdraft                                                      $      9,823      $   224,681
   Accounts payable and accrued expenses                                  1,479,323        1,799,580
   Due to factor                                                            159,747          319,303
   Financing agreement payable                                              103,777          311,807
   Notes payable - current portion                                           37,800           42,576
   Due to related parties - notes payable                                   666,858        1,478,233
   Convertible debentures                                                         -        1,142,675
   Capital lease obligations                                                      -           17,600
   Customer Deposits                                                        243,624                -
                                                                       ------------      -----------

     Total current liabilities                                            2,700,952        5,336,455

   Notes payable, less current portion                                       66,150                -
   Due to related parties - notes payable, less current portion                   -          150,000
                                                                       ------------      -----------

       TOTAL LIABILITIES                                                  2,767,102        5,486,455
                                                                       ------------      -----------

COMMITMENTS AND CONTINGENCIES (Note 12)                                           -                -

STOCKHOLDERS' DEFICIENCY
   Convertible  preferred  stock, no par value;  4,999,863 and
     5,000,000  shares authorized; 483,251 issued (of which 172,923
     are held in treasury)                                                  376,593          376,593
   Treasury stock                                                        (   48,803)     (    48,803)
   Series A convertible preferred stock, $10,000 per share
     stated value; 50 shares authorized; 40 issued and outstanding          471,400          471,400
   Series B convertible preferred stock, $10,000 per share
     stated value; 87 shares authorized; 87 issued and outstanding        1,146,837                -
   Common stock, no par value; 600,000,000 shares
     authorized; 457,634,122 and 81,219,120 issued and outstanding       17,129,122       14,552,635
   Accumulated deficit                                                  (19,537,956)     (18,690,318)
                                                                       ------------      -----------

     TOTAL STOCKHOLDERS' DEFICIENCY                                      (  462,807)     ( 3,338,493)
                                                                       ------------      -----------
       TOTAL LIABILITIES AND STOCKHOLDERS'
         DEFICIENCY                                                    $  2,304,295      $ 2,147,962
                                                                       ============      ===========
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>

               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                  For the Year Ended
                                                                       March 31,
                                                         --------------------------------
                                                              2002              2001
                                                         -------------    ---------------
                                                                            (Restated)
<S>                                                      <C>              <C>
SALES - net                                              $   3,813,981    $     3,181,079

COST OF GOODS SOLD                                           2,360,143          1,796,722
                                                         -------------    ---------------

GROSS PROFIT                                                 1,453,838          1,384,357

SELLING, GENERAL
    AND ADMINISTRATIVE EXPENSES                              1,508,721          1,939,089
                                                         -------------    ---------------

LOSS FROM OPERATIONS                                           (54,883)          (554,732)
                                                         --------------   ---------------

OTHER INCOME (EXPENSE)
   Interest expense                                           (358,177)          (455,478)
   Interest income                                              16,798                  -
   Stock discount expense                                    ( 545,361)          (125,000)
   Other income (expense)                                       94,552             80,316
   Income (loss) from equity investment                      (     567)            15,000
                                                         --------------   ---------------
     Total other income (expense)                             (792,755)          (485,162)
                                                         --------------   ---------------

LOSS BEFORE PROVISION FOR INCOME TAXES                        (847,638)        (1,039,894)

PROVISION FOR INCOME TAXES                                           -                  -
                                                         -------------    ---------------

NET LOSS                                                 $    (847,638)   $    (1,039,894)
                                                         ==============   ===============


LOSS PER SHARE
   Basic                                                 $    (   0.00)   $    (   0.01)
                                                         =============    =============
   Diluted                                               $    (   0.00)   $    (   0.01)
                                                         =============    =============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-5
<PAGE>
<TABLE>
<CAPTION>
               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

                                            Convertible           Series A Convertible       Series B Convertible
                                          Preferred Stock           Preferred Stock            Preferred Stock
                                        ----------------------   -----------------------    ----------------------
                                         Shares        Amount      Shares       Amount       Shares      Amount
                                        ---------    ---------   ----------     --------    --------   -----------
<S>                                     <C>          <C>         <C>            <C>         <C>        <C>
Balance at March 31, 2000                 483,251    $ 376,593            -     $      -           -   $         -
Prior period adjustment                         -            -            -            -           -             -
                                        ---------    ---------   ----------     --------    --------   -----------
Adjusted Balance at March 31, 2000        483,251      376,593            -            -           -             -

Issuance of common stock:
   Exercise of stock options for cash           -            -            -            -           -             -
   Settlement of debt and interest              -            -            -            -           -             -
   Settlement of accounts payable               -            -            -            -           -             -
   Options issued for consulting                -            -            -            -           -             -
services
Preferred stock                                 -            -           50      500,000           -             -
   Offering costs                               -            -            -      (67,000)          -             -
Conversion of Series A convertible
   preferred stock to common stock              -            -         (10)      (86,600)          -             -
Net loss - as previously reported               -            -            -             -          -             -
Prior period adjustment                         -            -            -      125,000           -             -
                                        ---------    ---------   ----------     --------    --------   -----------
Adjusted balance at March 31, 2001        483,251      376,593           40      471,400           -             -

Issuance of common stock for:
   Settlement of related party notes
payable and accrued interest                    -            -            -            -           -             -
   Settlement of convertible
debentures payable and accrued interest         -            -            -            -           -             -
Stock discount expense                          -            -            -            -           -             -

Exercise of common stock options:
   Cash                                         -            -            -            -           -             -
   Settlement of accounts payable               -            -            -            -           -             -
Options issued for consulting service           -            -            -            -           -             -

Issuance of Series B convertible
 Preferred stock for:
   Cash                                         -            -            -            -          74       740,000
  Settlement of convertible
debentures and accrued interest                 -            -            -            -          13       130,000
   Stock discount expense                       -            -            -            -           -       372,857
   Offering  costs                              -            -            -            -           -       (96,020)
Net loss                                        -            -            -            -           -             -
                                        ---------    ---------   ----------     --------    --------   -----------
Balance at March 31, 2002                 483,251     $376,593           40     $471,400          87   $ 1,146,837
                                        =========    =========   ==========     =========   ========   ===========
(table continued on following page)

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                                        F-6a
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>

               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
          CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY, Continued

                                                Common Stock                                    Total
                                          ----------------------   Accumulated    Treasury   Stockholders'
                                            Shares       Amount       Deficit       Stock     Deficiency
                                         -----------  ----------   ------------   --------   ------------
<S>                                      <C>          <C>          <C>            <C>        <C>
Balance at March 31, 2000                 62,334,029  $14,001,535  ($17,650,424)   ($48,803)  ($3,321,099)
Prior period adjustment                       38,492            -             -           -             -
                                         -----------  ----------   ------------   --------   ------------
Adjusted Balance at March 31, 2000        62,372,521   14,001,535   (17,650,424)    (48,803)   (3,321,099)

Issuance of common stock:
   Exercise of stock options for cash      6,157,143      215,500             -           -       215,500
   Settlement of debt and interest           285,714       10,000             -           -        10,000
   Settlement of accounts payable            857,123       30,000             -           -        30,000
   Options issued for consulting                   -      209,000             -           -       209,000
services
Preferred stock                                    -            -             -           -       500,000
   Offering costs                                  -            -             -           -      (67,000)
Conversion of Series A convertible
   preferred stock to common stock        11,546,619       86,600             -           -             -
Net loss - as previously reported                  -            -      (914,894)          -      (914,894)
Prior period adjustment                            -            -      (125,000)          -             -
                                         -----------  ----------   ------------   --------   ------------
Adjusted balance at March 31, 2001        81,219,120   14,552,635   (18,690,318)    (48,803)   (3,338,493)

Issuance of common stock for:
   Settlement of related party notes
payable and accrued interest             152,686,905      973,950              -           -      973,950
   Settlement of convertible
debentures payable and accrued           180,928,097    1,176,033              -           -    1,176,033
interest
Stock discount expense                             -       37,029              -           -       37,029

Exercise of common stock options:
   Cash                                   42,000,000      210,000              -           -      210,000
   Settlement of accounts payable            800,000        4,000              -           -        4,000
Options issued for consulting service              -      175,475              -           -      175,475

Issuance of Series B convertible
 Preferred stock for:
   Cash                               -            -            -              -           -      740,000
  Settlement of convertible
debentures  and accrued interest                   -            -              -           -      130,000
   Stock discount expense                          -            -              -           -      372,857
   Offering  costs                                  -            -              -          -      (96,020)
Net loss                                           -            -      (847,638)           -     (847,638)
                                         -----------  ----------   ------------   --------    -----------
Balance at March 31, 2002                457,634,122  $17,129,122  ($19,537,956)    ($48,803)   ($462,807)
                                         ===========  ===========  ============   ==========  ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
                                                        F-6b
<PAGE>
<TABLE>
<CAPTION>
               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                           For the Year Ended
                                                                                March 31,
                                                                      ---------------------------
                                                                          2002            2001
                                                                      -----------     -----------
                                                                                       (Restated)
<S>                                                                   <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                           $(  847,638)    $(1,039,894)
     Adjustments to reconcile net loss to net cash
       used in operating activities
       Depreciation and amortization                                      123,107         240,227
       Provision for doubtful accounts                                 (   37,684)          6,792
       Inventory reserve                                                  159,852          23,773
       Issuance of equity instruments as compensation and other fees      589,361         334,000
       Income (loss) from equity investment                                   567       (  15,450)
       Changes in certain assets and liabilities
       (Increase) decrease in:
        Due from related party                                         (  167,069)       (101,366)
        Accounts receivable                                                93,835           1,384
        Inventory                                                      (   35,889)        (17,846)
        Prepaid expenses and other current assets                           8,442          70,742
       Increase (decrease)
        Due to factor                                                  (  159,556)      (  51,158)
        Accounts payable and accrued expenses                          (   27,492)        353,438
         Customer deposits                                                233,567               -
                                                                      -----------     -----------
NET CASH USED IN OPERATING ACTIVITIES                                  (   66,597)       (195,358)
                                                                      ------------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                                     (50,600)       ( 85,670)
   Other assets                                                            29,279           2,725
   Purchase of film masters and artwork                                  (181,031)       (118,867)
                                                                      ------------    -----------
NET CASH USED IN INVESTING ACTIVITIES                                    (202,352)       (201,812)
                                                                      ------------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Increase (decrease) in bank overdraft                                 (214,858)        205,253
   Net repayments of financing agreement                                 (208,030)       (226,863)
   Payments of notes payable                                              (52,026)       (147,058)
   Payments of notes payable (related party)                             (101,875)      (  15,608)
   Payment of convertible debentures                                       (4,900)     (    8,100)
   Payments on capital leases                                             (17,600)      (  29,054)
   Proceeds from the exercise of options                                  210,000         215,500
   Offering costs                                                         (96,020)        (67,000)
   Proceeds from issuance of Series A Preferred Stock                           -         500,000
   Proceeds from issuance of Series B Preferred Stock                     740,000               -
                                                                      -----------     -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                 254,691         427,070
                                                                      -----------     -----------
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-7
<PAGE>
<TABLE>
<CAPTION>
               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                                                                           For the Year Ended
                                                                                March 31,
                                                                      ---------------------------
                                                                          2002            2001
                                                                      -----------     -----------
                                                                                       (Restated)
<S>                                                                   <C>             <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (14,258)         29,900

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                              29,900               -
                                                                      -----------     -----------

CASH AND CASH EQUIVALENTS - END OF YEAR                               $    15,642     $    29,900
                                                                      ===========     ===========


SUPPLEMENTAL INFORMATION
  CASH PAID FOR:
     Interest expense                                                 $   204,603     $   148,500
                                                                      ===========     ===========
     Income taxes                                                     $         -     $         -
                                                                      ===========     ===========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

For the year ended March 31, 2002:

o    The Company issued 800,000 shares of its common stock for the settlement of
     accounts payable relating to consulting fees totaling $4,000.

o    The  Company  issued  140,343,755  shares of its common  stock to a related
     party upon conversion of a note totaling  $809,500 plus accrued interest of
     $102,734.

o    The  Company  issued  12,343,150  shares  of  its  common  stock  to  their
     President,  upon  conversion of a note of $50,000 plus accrued  interest of
     $11,716.

o    The Company issued  180,928,097  shares of its common stock to an unrelated
     third  party,  upon the  conversion  of a  convertible  debenture  totaling
     $1,037,775 plus accrued interest of $138,258.

o    The Company  issued 13 shares of its Series B Convertible  Preferred  Stock
     relating to the  conversion of a convertible  debenture  totaling  $100,000
     plus accrued interest of $30,000.

o    The Company  recognized  $37,029 of stock discount  expense relating to the
     conversion of debt.


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       F-8
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
(continued):

For the year ended March 31, 2002 (continued):

o    The Company granted options to consultants to purchase 27,000,000 shares of
     its common stock,  in connection with  consulting  agreements.  The Company
     recognized consulting expense of $81,000 relating to this transaction.

o    The  Company  cancelled  and  reissued  various  stock  options  to certain
     directors and officers.  The Company  recognized  stock discount expense of
     $35,025 relating to this transaction.

o    The Company granted options to an officer to purchase  14,500,000 shares of
     its common  stock.  The Company  recognized  consulting  expense of $59,450
     relating to this transaction.

o    The Company issued Series B Convertible  Preferred  Stock with a beneficial
     conversion  feature.  The Company has recognized $372,857 of stock discount
     expense relating to this feature.

For the year ended March 31, 2001:

o    The Company granted options to consultants to purchase  7,300,000 shares of
     its common stock,  in connection  with  consulting  agreements  and officer
     compensation. The Company has recognized consulting expense of $209,000.

o    The Company issued 285,714 shares of its common stock for the conversion of
     debt totaling $10,000.

o    The Company  converted  $30,000 of accounts  payable to a  consultant  into
     857,123 shares of its common stock.

o    The Company converted 10 shares of its Series A convertible preferred stock
     into 11,546,619 shares of its common stock.

o    The Company  issued Series A Convertible  Preferred  Stock with  beneficial
     conversion  feature.  The Company has recognized $125,000 of stock discount
     expense relating to this feature.





The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-9
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation
          ---------------------
          The  accompanying   consolidated   financial  statements  include  the
          accounts  of  Diamond   Entertainment   Corporation  (the  "Company"),
          organized  under the laws of the State of New  Jersey on April 3, 1986
          and its wholly owned subsidiaries:

          1)   Jewel Products International, Inc. ("JPI") incorporated under the
               laws of the state of California on November 25, 1991;

          2)   Grand Duplication  ("Grand"),  incorporated under the laws of the
               state of California on August 13, 1996; and

          3)   Galaxy Net ("Galaxy"),  incorporated  under the laws of the state
               of Delaware on July 15, 1998.

          All  intercompany  transactions  and balances have been  eliminated in
          consolidation.

          Nature of Business
          ------------------
          The  Company  is  in  the   business  of   distributing   and  selling
          videocassettes,  general merchandise,  patented toys,  furniture,  and
          Cine-Chrome   gift  cards,   through  normal   distribution   channels
          throughout  the United  States and through a web site. As of March 31,
          2002 and 2001,  the Company's  management  evaluated its operations by
          two separate product lines to assess performance and the allocation of
          resources.  These product lines have been  reflected as two reportable
          segments as follows:

          1.   VIDEO PROGRAMS AND OTHER LICENSED PRODUCTS

          The Company  distributes  and sells  videocassette  titles,  including
          certain  public domain  programs and certain  licensed  programs.  The
          Company  markets  its video  programs to national  and  regional  mass
          merchandisers,  department stores, drug stores, supermarkets and other
          similar retail outlets.  The Company also distributes a product called
          Cine-Chrome utilizing classic images of licensed properties; and

          2.   GENERAL MERCHANDISE

          The Company,  through its wholly owned subsidiary,  JPI, purchases and
          distributes toy products to mass merchandisers in the U.S. The Company
          offers the toy  products  for limited  sale  periods and as demand for
          products  change,  the  Company  switches  to newer  and more  popular
          products.


                                      F-10
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          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 revenue and expenses during the periods presented.
          Actual results could differ from those estimates.

          Reclassification
          ----------------
          As  of  March  31,  2002,   certain   prior  year  amounts  have  been
          reclassified to conform with current presentation.

          Revenue Recognition
          -------------------
          The Company  records  sales when products are shipped to customers and
          are shown net of estimated  returns and allowances.  Customer deposits
          and  credits  are  deferred  until such time  products  are shipped to
          customers.

          Cash and Cash Equivalents
          -------------------------
          The Company  considers all highly liquid  investments  purchased  with
          original maturities of three months or less to be cash equivalents.

          Concentrations of Credit Risk
          -----------------------------
          Financial   instruments  that  potentially   subject  the  Company  to
          concentrations  of  credit  risk are cash  and  cash  equivalents  and
          accounts receivable arising from Company's normal business activities.
          The Company routinely assesses the financial strength of its customers
          and, based upon factors  surrounding  the credit risk,  establishes an
          allowance for uncollectible  accounts and, as a consequence,  believes
          that  its  accounts   receivable  credit  risk  exposure  beyond  such
          allowance  is limited.  The Company  places its cash with high quality
          financial  institutions  and at times  may  exceed  the FDIC  $100,000
          insurance  limit. The Company had no deposits as of March 31, 2002 and
          2001, with financial  institutions subject to a credit risk beyond the
          insured amount.

          Inventory
          ---------
          Inventory  is  stated at the  lower of cost or  market  utilizing  the
          first-in,   first-out   method.   Inventory   consists   primarily  of
          videocassettes,  general merchandise,  patented toys,  furniture,  and
          Cine-Chrome gift cards.

                                      F-11
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Property and Equipment
          ----------------------
          Property  and   equipment  is  presented  at   historical   cost  less
          accumulated  depreciation.  Depreciation  is  computed  utilizing  the
          straight-line method for all furniture, fixtures, and equipment over a
          five-year  period,  which represents the estimated useful lives of the
          respective assets. Leasehold improvements are being amortized over the
          lesser of their estimated useful lives or the term of the lease.

          Film Masters and Artwork
          ------------------------
          The cost of film  masters  and  related  artwork  is  capitalized  and
          amortized  using the  straight-line  method over a three-year  period.
          Film masters  consist of original  "masters",  which are purchased for
          the purpose of reproducing videocassettes that are sold to customers.

          Impairment of Long-Lived Assets
          -------------------------------
          In accordance with Statement of Financial Accounting Standard ("SFAS")
          No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
          Long-Lived Assets to Be Disposed Of," long-lived assets to be held and
          used are  analyzed  for  impairment  whenever  events  or  changes  in
          circumstances  indicate that the related  carrying  amounts may not be
          recoverable.  The Company evaluates at each balance sheet date whether
          events  and   circumstances   have  occurred  that  indicate  possible
          impairment.  If there are indications of impairment,  the Company uses
          future  undiscounted cash flows of the related asset or asset grouping
          over  the  remaining   life  in  measuring   whether  the  assets  are
          recoverable.  In the event  such cash  flows  are not  expected  to be
          sufficient  to  recover  the  recorded  asset  values,  the assets are
          written down to their  estimated fair value.  Long-lived  assets to be
          disposed of are reported at the lower of carrying amount or fair value
          of asset less cost to sell.

          Bank Overdraft
          --------------
          The Company  maintains  overdraft  positions  at certain  banks.  Such
          overdraft positions are included in current liabilities.

          Offering Costs
          --------------
          Offering costs consist primarily of professional fees. These costs are
          charged against the proceeds of the sale of Series A and B convertible
          preferred stock in the periods in which they occur.


                                      F-12
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Advertising Costs
          -----------------
          Advertising  costs are  expensed as incurred.  Advertising  costs were
          approximately  $36,114  and $20,891 for the years ended March 31, 2002
          and 2001, respectively.

          Fair Value of Financial Instruments
          -----------------------------------
          For certain of the Company's financial instruments, including accounts
          receivable,  bank overdraft and accounts payable and accrued expenses,
          the carrying  amounts  approximate fair value, due to their relatively
          short maturities. The amounts owed for long-term debt also approximate
          fair value  because  current  interest  rates and terms offered to the
          Company are at current market rates.

          Stock-Based Compensation
          ------------------------
          The Company  accounts for employee  stock options in  accordance  with
          Accounting  Principles  Board Opinion ("APB") No. 25,  "Accounting for
          Stock  Issued  to  Employees".  Under  APB 25,  the  Company  does not
          recognize  compensation  expense  related to options  issued under the
          Company's employee stock option plans, unless the option is granted at
          a price below market price on the date of grant.

          In 1996,  SFAS No.  123  "Accounting  for  Stock-Based  Compensation",
          became  effective for the Company.  SFAS No. 123, which prescribes the
          recognition of compensation expense based on the fair value of options
          on the grant date,  allows  companies  to continue  applying APB 25 if
          certain pro forma  disclosures  are made  assuming  hypothetical  fair
          value   method,   for  which  the  Company   uses  the   Black-Scholes
          option-pricing model.

          For non-employee stock based  compensation,  the Company recognizes an
          expense  in  accordance  with  SFAS  No.  123 and  values  the  equity
          securities  based on the fair  value  of the  security  on the date of
          grant. For stock-based  awards, the value is based on the market value
          for the stock on the date of grant  and if the stock has  restrictions
          as to transferability, a discount is provided for lack of tradability.
          Stock option awards are valued using the Black-Scholes  option-pricing
          model.

          Income Taxes
          ------------
          Income  taxes  are  provided  for  based on the  liability  method  of
          accounting  pursuant to SFAS No. 109,  "Accounting  for Income Taxes."
          The liability  method  requires the recognition of deferred tax assets
          and liabilities for the expected future tax  consequences of temporary
          differences  between the reported amount of assets and liabilities and
          their tax basis.

                                      F-13
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Net Loss Per Share
          ------------------
          SFAS No. 128,  "Earnings Per Share,"  requires  presentation  of basic
          loss per share  ("Basic  LPS") and  diluted  loss per share  ("Diluted
          LPS"). The computation of basic loss per share is computed by dividing
          loss available to common  stockholders by the weighted  average number
          of outstanding common shares during the period. Diluted loss per share
          gives  effect to all  dilutive  potential  common  shares  outstanding
          during the  period.  The  computation  of diluted  LPS does not assume
          conversion,  exercise or contingent  exercise of securities that would
          have an  anti-dilutive  effect on losses.  . As of March 31,  2002 and
          2001, the weighted average common shares  outstanding  would have been
          increased by 128,494,675 and 12,500,000 shares,  respectively,  if the
          issued and exercisable stock options would have been dilutive.

          The shares used in the computation of loss per share were as follows:

                                                          March 31,
                                              --------------------------------
                                                  2002                 2001
                                              ------------          ----------
                     Basic                     459,349,000          69,359,016
                                              ============          ==========
                     Diluted                   459,349,000          69,359,016
                                              ============          ==========

          Segment Disclosure
          ------------------
          SFAS No. 131,  "Disclosure about Segments of an Enterprise and Related
          Information,"  was  issued,  which  changes  the way public  companies
          report information about segments. SFAS No. 131, which is based on the
          selected  segment  information,  requires  quarterly  and  entity-wide
          disclosures  about  products and services,  major  customers,  and the
          material  countries  in which the  entity  holds  assets  and  reports
          revenues.

          Recent Accounting Pronouncements
          --------------------------------
          On June 29, 2001, SFAS No. 141, "Business  Combinations," was approved
          by the Financial  Accounting  Standards Board  ("FASB").  SFAS No. 141
          requires  that  the  purchase  method  of  accounting  be used for all
          business  combinations  initiated  after June 30,  2001.  Goodwill and
          certain  intangible assets will remain on the balance sheet and not be
          amortized.  On an annual  basis,  and when  there is reason to suspect
          that their values have been diminished or impaired,  these assets must
          be tested  for  impairment,  and  write-downs  may be  necessary.  The
          Company is required to  implement  SFAS No. 141 on April 1, 2002,  and
          its impact,  if any, is not expected to be material,  on its financial
          position or results of operations.

                                      F-14
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Recent Accounting Pronouncements (continued)
          --------------------------------------------
          On June 29,  2001,  SFAS  No.  142,  "Goodwill  and  Other  Intangible
          Assets," was approved by the FASB. SFAS No. 142 changes the accounting
          for  goodwill  from  an  amortization  method  to  an  impairment-only
          approach.  Amortization of goodwill,  including  goodwill  recorded in
          past  business   combinations,   will  cease  upon  adoption  of  this
          statement.  The Company is required to implement SFAS No. 142 on April
          1, 2002 and its impact,  if any, is not expected to be material,  that
          this  statement  will have on its  financial  position  or  results of
          operations.

          In June 2001,  the FASB  issued SFAS No.  143,  "Accounting  for Asset
          Retirement  Obligation."  SFAS No. 143 is  effective  for fiscal years
          beginning after June 15, 2002, and will require  companies to record a
          liability for asset retirement obligations in the period in which they
          are  incurred,  which  typically  could be upon  completion or shortly
          thereafter.  The FASB decided to limit the scope to legal  obligations
          and the  liability  will be  recorded  at fair  value.  The  effect of
          adoption of this standard on the Company's  results of operations  and
          financial positions is being evaluated.

          In August  2001,  the FASB issued SFAS No.  144,  "Accounting  for the
          Impairment  or  Disposal  of  Long-Lived  Assets."  SFAS  No.  144  is
          effective  for fiscal years  beginning  after  December  15, 2001.  It
          provides  a  single  accounting  model  for  long-lived  assets  to be
          disposed of and replaces SFAS No. 121  "Accounting  for the Impairment
          of  Long-Lived  Assets and  Long-Lived  Assets to Be Disposed Of." The
          effect of  adoption  of this  standard  on the  Company's  results  of
          operations and financial positions is being evaluated.


NOTE 2 -  GOING CONCERN

          As reflected in the accompanying  consolidated  financial  statements,
          the Company has incurred  recurring losses from  operations,  negative
          cash  flows  from  operations,   a  working  capital  deficit  and  is
          delinquent in payment of certain accounts payable. These matters raise
          substantial  doubt about the Company's  ability to continue as a going
          concern.



                                      F-15
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 2 -  GOING CONCERN (Continued)

          In  view  of  the  matters  described  in  the  preceding   paragraph,
          recoverability  of a major portion of the recorded asset amounts shown
          in the  accompanying  consolidated  balance  sheet is  dependent  upon
          continued operations of the Company, which, in turn, is dependent upon
          the  Company's  ability to  continue  to raise  capital  and  generate
          positive  cash  flows  from  operations.  The  consolidated  financial
          statements   do  not   include   any   adjustments   relating  to  the
          recoverability and classification of recorded asset amounts or amounts
          and  classifications of liabilities that might be necessary should the
          Company be unable to continue its existence.

          Management  plans to take, or has taken,  the following  steps that it
          believes will be sufficient to provide the Company with the ability to
          continue in existence and mitigate the effects of the uncertainties.

          The Company has  implemented  a plan to  increase  its overall  market
          share of core business and its general merchandise line products,  and
          to expand into the contract  replication,  duplication  and  packaging
          business.   The  Company  has  implemented  the  following  goals  and
          strategies to achieve its plan:

          --   Attain  leadership in the market  segment of high quality  budget
               priced distribution of videocassettes and DVD titles.

          --   Expand our  association  with firms in China to source and handle
               QA  functions  for its general  merchandise  line of products and
               market  a wide  selection  of high  quality,  low  price  general
               merchandise and sundry items from China.

          --   Re-establish  sales to club  type  stores  with  our new  general
               merchandise line of products.

          --   Utilize our relationship with mass merchandisers to introduce and
               market its general merchandise line of products.

          --   Continue to seek out additional  financing sources to support the
               expected growth in our general merchandise line of products.

          --   Avoid direct  competition with larger competitors who sell in the
               same  product  categories  as the  Company,  by  offering  higher
               quality budgeted price products.

          --   Continue  to  acquire  new   videocassette  and  DVD  titles  for
               distribution.

          --   Internet e-Commerce and keep our pricing competitive.

                                      F-16
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 2 -  GOING CONCERN (Continued)

          The Company  believes it has  adequate  cash  resources to sustain its
          operations  through the third quarter of fiscal 2003,  when it expects
          to  generate  a positive  cash flow.  The  Company  is  continuing  to
          negotiate with several reliable  investors to provide the Company with
          debt and equity financing for working capital purposes.  The principal
          objective of the Company is to implement the above  strategies  during
          fiscal  2003.  Although  the  Company  believes  that the  outlook  is
          favorable,  there can be no  assurance  that  market  conditions  will
          continue in a direction favorable to the Company.


NOTE 3 - ACCOUNTS RECEIVABLE

          Accounts  receivable  as of March 31, 2002 and 2001,  net of allowance
          for  doubtful  accounts  were  $356,869  and  $413,020,  respectively.
          Substantially all of the accounts  receivable as of March 31, 2002 and
          2001 have been  factored and pledged as  collateral  under a factoring
          agreement (see Note 9).

          The Company reviews accounts  receivable  periodically during the year
          for  collectability.  An  allowance  for bad debt  expense  and  sales
          returns is  established  for any  receivables  whose  collection is in
          doubt or for estimated returns.

          As of March 31,  2002 and  2001,  the  Company  had an  allowance  for
          doubtful accounts of $106,858 and $144,542, respectively.


NOTE 4 - INVENTORY

          Inventory consisted of the following as of:

                                                            March 31,
                                              -------------------------------
                                                  2002                 2001
                                              -------------       -----------
                  Raw materials               $   1,076,606       $   944,215
                  Finished goods                    748,393           844,895
                                              -------------       -----------
                                                  1,824,999         1,789,110
                  Less:  valuation allowance       (860,011)         (700,159)
                                              -------------       -----------
                  Inventory, net              $     964,988       $ 1,088,951
                                              ==============      ===========


                                      F-17
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 4 - INVENTORY (Continued)

          Allowance
          ---------
          An allowance has been established for inventory  totaling $860,011 and
          $700,159 as of March 31, 2002 and 2001, respectively.  This reserve is
          primarily for the anticipated  reductions in selling prices (which are
          lower than the carrying value) for inventory which has been:

          (a)  restricted to specified  distribution  territories as a result of
               legal settlements; and

          (b)  inventory, which has passed its peak selling season.


NOTE 5 -  RELATED PARTY TRANSACTIONS

          The Company has related  party  transactions  with  several  officers,
          directors and other related parties.  The following summarizes related
          party transactions.

                  Due from related parties:

                                                               March 31,
                                               -------------------------------
                                                    2002              2001
                                               ------------       -----------
                  a) Loan due from - Officer   $    239,318       $   101,366
                  b) Golden Gulf                      5,367                 -
                  c) GJ Products                     23,750                 -
                                               ------------       -----------
                                               $    268,435       $   101,366
                                               ============       ===========


               a)   As of March 31, 2002 and 2001, the Company advanced $222,520
                    and  $101,366,  respectively  to an officer of the  Company.
                    Simple  interest is accrued monthly at an annual rate of 10%
                    on the  outstanding  balance and totals  $16,798 as of March
                    31, 2002. The loan is due in December 2002.

               b)   As of  March  31,  2002,  the  Company  had a  miscellaneous
                    receivable due from Golden Gulf totaling $5,367.

               c)   As of  March  31,  2002,  the  Company  had a  miscellaneous
                    receivable due from GJ Products (shareholder) $23,750.


                                      F-18
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 5 -  RELATED PARTY TRANSACTIONS (Continued)

          Due to related parties - notes payable:

                                                                March 31,
                                                      -------------------------
                                                            2002        2001
                                                      ----------    -----------
      a) Convertible note payable - ATRE              $        -    $   809,500
      b) Note payable - ATRE                             549,558        576,300
      c) Note payable - Jeffrey Schillen                  17,300         71,300
      d) Convertible note payable - Jeffrey Schillen     100,000        100,000
      d) Convertible note payable - James Lu                   -         50,000
      e) Note payable - Golden Gulf                            -         21,133
                                                      ----------    -----------
                                                         666,858      1,628,233
      Less:  current portion                            (666,858)    (1,478,233)
                                                      -----------   -----------
      Long term                                       $        -    $   150,000
                                                      ==========    ===========

          a)   Convertible Note Payable - ATRE
               -------------------------------
               As of March 31,  1999,  the Company had $809,500 due to a related
               party  for  payment  of trade  payables.  In  October  1999,  the
               outstanding balance was converted into a convertible debenture at
               7% per annum due and payable on or before  September 30, 2001. At
               the option of the lender all or part of the  balance  can be paid
               with shares of the Company's  common stock.  The number of shares
               is determined by dividing the  principal  being  converted by the
               average  twenty-day bid price,  prior to the date of such payment
               request,  for the Company's  common stock.  As of March 31, 2001,
               the outstanding balance was $809,500. On July 24, 2001, the Board
               of Directors of the Company  authorized and approved the issuance
               of 140,343,755  shares of the company's  common stock to American
               Top Real estate, Inc. ("ATRE") upon the conversion by ATRE of the
               entire  unpaid  principal  amount of $809,500 of its note and all
               accrued  interest  thereon  in  the  amount  of  $102,734  at the
               conversion price of $0.0065 per share as of the close of business
               on July 23,  2001.  These  shares were issued on August 14, 2001.
               (see Note 13)

          b)   Note Payable - ATRE
               -------------------
               As of March 31, 2002 and 2001, the Company was advanced  $549,558
               and  $576,300,  from ATRE (see Note 8),  bearing  interest at the
               rate of 14% per annum, and due on demand.


                                      F-19
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 5 -  RELATED PARTY TRANSACTIONS (Continued)

          c)   Note Payable - Jeffrey Schillen
               -------------------------------
               As of March 31,  2002 and 2001,  the  Company  has a $17,300  and
               $71,300 note payable, due to an officer,  bearing interest at the
               rate of 10% per annum, and due on demand.

          d)   Convertible Debentures - Related Parties
               ----------------------------------------
               During  March  and  June  1999,  the  Company  entered  into  two
               convertible  debentures  for $50,000 and $100,000,  respectively.
               The  debentures  bear interest at 10% per year with principal and
               interest  due on the first  anniversary  of the date of issuance.
               Each note has been  extended for an  additional  year.  The notes
               also  call for any  amount  of the  outstanding  principal  to be
               converted into restricted shares of the Company's common stock at
               the  option of the  lender's  at a  conversion  rate of $0.05 per
               share.  Since the  debentures  are  convertible  into  restricted
               shares of the Company's common stock at a rate below market,  the
               first 20% of the below market  amount was  attributed to the lack
               of  tradability  of the shares due to restriction on sale and the
               remainder was attributed to additional  interest.  The additional
               amount of  financing  costs for the year ended March 31, 2000 was
               calculated to be $184,400, of which was expensed.

               On July 24, 2001, the Board of Directors of the Company  approved
               the  reduction of the original  conversion  rate of $0.05 down to
               $0.005  per share and  allowed  the  holders of the notes to also
               convert any accrued  interest against such notes. The fair market
               value of the  Company's  common  stock  was  $0.08 as of July 24,
               2001.  On July 24,  2001,  the Board of  Directors of the Company
               authorized and approved the issuance of 12,343,150  shares of the
               Company's  common stock to Mr. Lu, the  President of the Company,
               upon conversion of his $50,000 note and accrued  interest thereon
               in the amount of $11,715 as of July 23,  2001.  Such  shares were
               issued on August 14, 2001. (See note 13). The Company  recognized
               $35,029 of stock discount expense relating to this transaction.

               As of  March  31,  2002,  the  debenture  for  $100,000  was  not
               converted.

          e)   Note Payable - Golden Gulf
               --------------------------
               As of March 31, 2002 and 2001, the Company has a $-0- and $21,133
               note  payable,  due to Golden  Gulf  Capital  Group,  bearing  no
               interest, and due on demand.

                                      F-20
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 5 -  RELATED PARTY TRANSACTIONS (Continued)

          Issuance of stock options
          -------------------------
          During the years  ending March 31, 2002 and 2001,  the Company  issued
          various stock options to certain related parties. (See note 15).


NOTE 6 -  PROPERTY AND EQUIPMENT

          Property and equipment consisted of the following as of:

                                                           March 31,
                                               -------------------------------
                                                     2002              2001
                                               --------------    -------------
           Furniture and equipment             $    1,317,754    $   1,165,610
           Automobile                                  24,487           24,487
           Leasehold improvements                      52,031           40,175
                                               --------------    -------------
                                                    1,394,272        1,230,272
           Less:  accumulated depreciation
             and amortization                      (1,098,195)      (1,030,785)
                                               ---------------   -------------
           Furniture and equipment, net        $      296,077    $     199,487
                                               ==============    =============

          Depreciation  expense  for the years ended March 31, 2002 and 2001 was
          approximately $67,500 and $153,000, respectively.


NOTE 7 -  FILM MASTERS AND ARTWORK

          Film Masters and Artwork consisted of the following as of:

                                                           March 31,
                                               -------------------------------
                                                     2002              2001
                                               --------------    -------------

            Intellectual property              $    3,356,687    $   3,315,962
            Other film masters and artwork            871,231          730,925
                                               --------------    -------------
                                                    4,227,918        4,046,887
            Less:  accumulated amortization        (3,956,767)      (3,901,070)
                                               ---------------   -------------
            Film Masters and Artwork, net      $      271,151    $     145,817
                                               ==============    =============

                                      F-21
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 7 -  FILM MASTERS AND ARTWORK (Continued)

          Amortization  expense  for the years ended March 31, 2002 and 2001 was
          approximately $55,700 and $87,474, respectively.

          The cost of film  masters  and  related  artwork  is  capitalized  and
          amortized  using the  straight-line  method over a three-year  period.
          Film masters  consist of original  "masters",  which are purchased for
          the purpose of reproducing  videocassettes that are sold to customers.
          In accordance  with SFAS No. 121, film masters and related artwork are
          analyzed for impairment  whenever  events or changes in  circumstances
          indicate that the related carrying amounts may not be recoverable. The
          Company  evaluates  at each  balance  sheet  date  whether  events and
          circumstances  have  occurred that indicate  possible  impairment.  If
          there  are   indications  of  impairment,   the  Company  uses  future
          undiscounted  cash flows of the related  asset or asset  grouping over
          the remaining life in measuring whether the assets are recoverable. As
          of March 31, 2002 and 2001, no such events have occurred.


NOTE 8 - INVESTMENT IN EQUITY SUBSIDIARY

          During  1989,  the  Company  paid  $50,000  for 50% of the  issued and
          outstanding  common stock of American Top Real Estate ("ATRE").  Since
          the Company does not have greater  than a 50%  investment  or exercise
          control in the day to day operations, this investment is accounted for
          using the equity method.  The operations of ATRE are not considered to
          be significant to the Company's operations; therefore, the Company has
          not included a summary of ATRE's assets and liabilities.

          For the years ended March 31, 2002 and 2001,  investment income (loss)
          from ATRE was ($567) and $15,500, respectively.

          As of March 31, 2002 and 2001, the investment in ATRE totaled  $60,158
          and $60,725, respectively.









                                      F-22


<PAGE>
               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 9 -  DUE TO FACTOR/FINANCING AGREEMENT PAYABLE

          On August 30, 1996,  the Company  entered  into a financing  agreement
          with  a  financial  institution  for  a  maximum  borrowing  of  up to
          $2,500,000.  The  agreement  called for a factoring  of the  Company's
          accounts receivable,  and an asset-based note related to the Company's
          inventories.   Subsequently,   on  October  29,  1999,  the  financial
          institution sold its financing agreement covering the factoring of the
          Company's accounts  receivable to a factoring  institution  located in
          Dallas,   Texas.  The  original  financial  institution  retained  the
          asset-based note related to the Company's  inventories.  Substantially
          all assets of the  Company  have been  pledged as  collateral  for the
          borrowings.

          The  cost  of  funds  for  the  accounts  receivable  portion  of  the
          borrowings  with the new  factor is a 1.5%  discount  from the  stated
          pledged  amount  of each  invoice  for  every 30 days the  invoice  is
          outstanding.  The asset-based  portion of the borrowings is determined
          by the lesser of i)  $800,000,  ii) 25% of the  client's  finished toy
          inventory or iii) 55% of the clients finished videotape inventory. The
          cost of funds for the inventory  portion of the  borrowings is at 1.4%
          per month on the  average  loan  balance  each  month.  The  agreement
          stipulated  an $8,000 per week payment  against the  asset-based  note
          payable,  which was modified on June 5, 2000, to $4,000 per week.  The
          term of  asset-based  note was  extended to  November  15,  2002.  The
          Company paid interest of  approximately  $147,091 and $117,000 for the
          years  ended  March 31,  2002 and 2001,  respectively.  The  financing
          agreement and factor advances were as follows:
                                                             March 31,
                                                    --------------------------
                                                       2002           2001
                                                    ----------     -----------
           Due to factor payable                    $  159,747     $   319,303
           Financing agreement payable - inventory     103,777         311,807
                                                    ----------     -----------
                                                    $  263,524     $   631,110
                                                    ==========     ===========

NOTE 10 - NOTES PAYABLE

          Notes payable represent the following as of:
                                                           March 31,
                                                  --------------------------
                                                     2002           2001
                                                  ----------     -----------
              a) Waring Investments               $        -     $     4,585
              b) Automobile                                -           5,905
              c) Production Equipment                103,950               -
              d) Other                                     -          32,086
                                                  ----------     -----------
                                                     103,950          42,576
              Less current                           (37,800)        (42,576)
                                                  -----------    -----------
              Long term                           $   66,150     $         -
                                                  ==========     ===========
                                      F-23
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 10 - NOTES PAYABLE (Continued)

          a)   Waring Investments
               ------------------
               Note payable  bearing  interest at the rate of 16% per annum with
               twelve monthly  installments of principal of $2,292. This note is
               guaranteed by the President of the Company and is subordinated to
               the  financing  agreement  payable.  Since,  the  Company did not
               pay-off the note on the scheduled  maturity  date, the lender has
               extended the maturity  date and assessed an  additional  interest
               charge of 20% per annum as a penalty on the unpaid  balance  each
               month.  As of March 31, 2002 and 2001, the  outstanding  balances
               were $-0- and $4,585, respectively.

          b)   Automobile
               ----------
               The  Company  has a  vehicle  financing  agreement  with  monthly
               payments of $562 for  principal  and interest at 9.75% per annum.
               The  balance  as of March 31,  2002 and 2001 was $-0- and  $5,905
               respectively.

          c)   Production Equipment
               --------------------
               During  the year  ended  March 31,  2002,  the  Company  incurred
               three-year  note in the amount of $113,400,  bearing  interest at
               10% to purchase a Sony  printer  for in house video  duplication.
               The balance of such note at March 31, 2002 was $103,950.

          d)   Other
               -----
               At March 31,  2001,  Company  had  various  payables  aggregating
               $32,085, due on demand.


NOTE 11 - CONVERTIBLE DEBENTURES

          Convertible debentures consisted of the following as of:

                                                         March 31,
                                            -----------------------------------
                                                 2002                 2001
                                            --------------       --------------

          a)  Balmore Funds$                $            -       $      100,000
          b)  GJ Products Corporation                    -            1,042,675
                                            --------------       --------------
                                                                      1,142,675
             Less:  Current                              -           (1,142,675)
                                            --------------       --------------
             Long Term                      $            -       $            -
                                            ==============       ==============

                                      F-24
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 11 - CONVERTIBLE DEBENTURES (Continued)

          a)   During  March  1999,  the  Company  entered  into  a  convertible
               debenture for $100,000 bearing interest at 10% with principal and
               interest  due on the first  anniversary  of the date of issuance.
               The note also call for any amount of the outstanding principal to
               be converted into restricted shares of the Company's common stock
               at the  option of the  lender at a  conversion  rate of $0.05 per
               share. On January 30, 2001, the Company entered into a Securities
               Replacement Agreement with the debenture holder for the principal
               of the note for $100,000  plus  interest of $30,000.  Pursuant to
               such  agreement the Company  replaced the debenture by issuing to
               the holder of the  debenture,  thirteen  shares of the  Company's
               Series B Convertible Preferred Stock for a total consideration of
               $130,000.  The  convertible  debenture  held by the  investor was
               canceled on January 30, 2002.  The above shares were issued under
               the exemption to registration provided by Regulation D Rule 506.

          b)   As of March 31, 1999, the Company had $1,118,425 due to a related
               party for payment of trade payables. In October 1999, the Company
               ceased to have a relationship  with the party, so the outstanding
               balance of $1,050,775 was converted into a convertible debenture.
               The debenture  bears  interest at 7% with  principal and interest
               due on the  first  anniversary  of the date of  issuance.  At the
               option of the holder, all or part of the balance can be paid with
               shares of the  Company's  common  stock.  The number of shares is
               determined  by dividing  the  principal  being  converted  by the
               average  twenty-day bid price,  prior to the date of such payment
               request, for the Company's common stock.

               On  July  24,  2001,  the  Board  of  Directors  of  the  Company
               authorized and approved the issuance of 180,928,097 shares of the
               Company's  common  stock  to GJ  Products  Corporation  upon  the
               conversion of the entire unpaid principal amount of $1,037,775 of
               its  note and all  accrued  interest  thereon  in the  amount  of
               $138,257 at the  conversion  price of $0.0065 per share as of the
               close of business on July 23,  2001.  These shares were issued on
               August 14,  2001.  As of March 31, 2002 and 2001 the  outstanding
               balance was $-0- and $1,042,675, respectively.


NOTE 12 - COMMITMENTS AND CONTIGENCIES

          Royalty Commitments
          -------------------
          The Company has entered into various royalty  agreements for licensing
          of titles with terms of one to seven years. Certain agreements include
          minimum  guaranteed  payments.  For the years ended March 31, 2002 and
          2001, royalty expense was $41,387 and $23,607, respectively,  pursuant
          to these agreements.

                                      F-25
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 12 - COMMITMENTS AND CONTIGENCIES (Continued)

          Video Agreements
          ----------------
          The  Company has  entered  into  various  agreements  to  manufacture,
          duplicate and distribute  videos.  Commissions are paid based upon the
          number of videos sold.

          Employment Agreements
          ---------------------
          In 1991, two employment  agreements were executed for two officers for
          annual compensation  totaling $240,000.  For the year 1996, one of the
          officers'  employment  agreements  was amended to increase  his annual
          salary by $30,000. These agreements terminate in the year 2005 and are
          adjusted  annually in accordance  with the Consumer  Price Index.  The
          Board of  Directors  agreed on April  23,  1996 to  reserve  1,000,000
          shares  of  common  stock  for  distribution  to two  officers  of the
          Company. The officers at current market prices in installment payments
          with a five-year promissory note with interest can purchase the common
          stock at 6% per annum. As of March 31, 2002 and 2001, the officers did
          not purchase these shares.

          Consulting Agreements
          ---------------------
          On November 30, 2001, the Company entered into a consulting  agreement
          that will terminate on November 29, 2002. The consultant  will provide
          consulting  service  for  the  Company  concerning  various  strategic
          marketing  planning,   licensing   consulting  and  other  matters  in
          connection  with the operation of the  businesses of the Company.  The
          consultant  received  options to purchase a total of  1,500,000 of the
          Company's common stock  exercisable at $0.03 per share in exchange for
          services to be rendered. Of such options,  1,000,000 shares were to be
          exercisable  immediately  and 500,000  shares  were to be  exercisable
          commencing  on November 30, 2002 and expiring on November 29, 2002 and
          November 29, 2003, respectively.  As of March 31, 2002, the consulting
          agreement  was  canceled  together  with the  aggregate  amount of the
          options that were granted.

          On  October  18,  2001,  the  Company   entered  into  two  consulting
          agreements  that will  terminate  on October  17,  2002,  whereby  the
          consultants   will  provide   consulting   services  for  the  Company
          concerning  various  management,   marketing,   consulting,  strategic
          planning,  and financial  matters in connection  with the operation of
          the businesses of the Company.  The  consultants  received  options to
          purchase  a  total  of  30,800,000  of  the  Company's   common  stock
          exercisable  at  $0.005  per  share in  exchange  for  services  to be
          rendered and the options  shall expire on October 17, 2002.  (See note
          13 for the exercise of these options).


                                      F-26
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 12 - COMMITMENTS AND CONTIGENCIES (Continued)

          Consulting Agreements (continued)
          ---------------------------------
          On July 24, 2001, the Company entered into three consulting agreements
          that will  terminate on July 23, 2002,  whereby the  consultants  will
          provide  consulting  service  for the company  concerning  management,
          marketing,  consulting, strategic planning, corporate organization and
          financial  matters in connection  with the operation of the businesses
          of the  Company,  expansion  of  services,  acquisitions  and business
          opportunities. The consultants received options to purchase a total of
          27,000,000 of the  Company's  common stock  exercisable  at $0.005 per
          share in exchange for  services to be rendered  and the options  shall
          expire  on July  23,  2002.  (See  note 13 for the  exercise  of these
          options).

          Lease Commitments
          -----------------
          The Company  leases office and storage  facilities  under an operating
          lease, which expires in January 2003. The Company is in the process of
          renegotiating the lease for a period of time in excess of 3 years.

          Also,  the  Company  leased  equipment  under a capital  leases  which
          expired during December 2001. Per terms of the agreement,  the Company
          utilized  their buy-out option and satisfied all terms and remained in
          possession  of the  equipment.  As of March 31, 2001,  $17,600 was due
          under the capital lease.

          At March 31, 2002,  the Company's  current  portion of future  minimum
          annual  aggregate  rental  payments  for its  operating  leases are as
          follows:


                                                              Operating
                                                                Lease
                                                             ------------
                  Year Ending March 31,
                  2003                                       $    105,000
                                                             ============

          Rent  expense  for the  years  ended  March  31,  2002  and  2001  was
          approximately $133,521 and $142,000,  respectively.  The Company is in
          process of negotiating its operating lease.


                                      F-27
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001


NOTE 12 - COMMITMENTS AND CONTIGENCIES (Continued)

          Litigation
          ----------
          The Company has in the past been named as defendant  and  co-defendant
          in various  legal  actions  filed  against  the  Company in the normal
          course of business.  All past  litigation  has been  resolved  without
          material adverse impact on the Company as follows:

          On February  15,  2000,  one of our  suppliers  brought  legal  action
          against  us to  collect  approximately  $35,200  comprising  of unpaid
          invoices,  interest,  court  costs  and  attorneys  fees  owed  to the
          supplier.  We recorded  the  liability  upon  receipt of the goods and
          entered  into a monthly  payment  plan with the supplier to settle the
          amount owed.  As of March 31, 2001,  the balance of the  liability had
          been fully paid.

          During March 2000,  our former  lessor  brought  action  against us to
          recover  delinquent  rental  payment and  penalties  arising  from the
          termination of our building lease in Cerritos,  California. The action
          against us resulted in a stipulated  judgment whereby we agreed to pay
          $72,000  at 10%  interest  by  paying  $6,600  per  month  for  twelve
          consecutive  months  beginning  April 1, 2000  through  March 1, 2001.
          There was a penalty  clause  for a failure  to pay in a timely  manner
          which   increases  the  total  amount  to  $119,000   with   immediate
          acceleration in the event of a default under the stipulated  judgment.
          All  required  payments  through  March 1,  2001 were made in a timely
          manner  and  on  June  5,  2001,  we  received  from  the  lessor,  an
          acknowledgment of full satisfaction of judgment.

          In April 2001, a former landlord, brought action against us to recover
          $100,000 in damages,  for  additional  rent for holding  over,  or not
          vacating the premises after the term expired,  late fee penalty of 10%
          for late  payment of monthly  rent and for  removing  the  plaintiff's
          metal storage racks.  To avoid incurring  extraordinary  legal fees to
          defend  this  action  against us, we entered  into a  stipulation  for
          settlement  and  dismissal  with the landlord in December 2001 to make
          three payments of $5,000 to have the legal action dismissed. The final
          payment was made in February  2002,  and we received from the landlord
          on March 20, 2002, an acknowledgment that such legal action against us
          was dismissed.





                                      F-28
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 12 - COMMITMENTS AND CONTIGENCIES (Continued)

          Litigation (continued
          ---------------------
          In June of 2001,  we were named as a defendant by one of our suppliers
          who filed  bankruptcy  under Chapter 7. The  bankruptcy  court brought
          legal  action  against us to recover  $100,000  we  borrowed  from the
          supplier in April of 1999,  plus  applicable  interest.  In accordance
          with the loan, we made four separate  payments to the supplier  during
          April and May 1999 totaling $101,166 in principal and interest.  As of
          December  31, 2001,  we  reflected  one check in the amount of $25,116
          still outstanding. On March 6, 2001, we entered into a stipulation for
          settlement  and  dismissal  whereby we agreed to pay $2,500 within ten
          (10)  days  after  entry of an order  approving  the  settlement.  The
          stipulation for settlement and dismissal was approved by the court and
          a settlement  payment of $2,500 was made on May 8, 2002 and on May 15,
          2002, the adversary action was dismissed.


NOTE 13 - STOCKHOLDERS' DEFICIENCY

          Common Stock
          ------------
          As of March 31, 2002,  the aggregate  number of shares of common stock
          that the Company has authority to issue is 600,000,000  shares with no
          par value.  As of March 31, 2002 and 2001,  457,634,142 and 81,219,120
          shares were issued and outstanding.

          During,  the years ended March 31, 2002 and 2001,  the Company had the
          following significant issuances of its common stock:

          Prior Period Adjustment
          -----------------------
          During the year ended  March 31,  2002,  the Company  discovered  that
          38,492 shares of its common stock previously  believed to be issued in
          error were in fact valid issued and outstanding  shares.  These shares
          were issued  prior to March 31,  1999 and have no  material  financial
          effect on the Company's financial statement.

          During the year ended March 31,  2002,  the  Company  recorded a prior
          period adjustment relating to stock discount expense totaling $125,000
          associated with the Series A convertible  preferred  stock  securities
          purchase  agreement  dated May 11,  2000.  (See  Series A  convertible
          preferred stock).



                                      F-29
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 13 - STOCKHOLDERS' DEFICIENCY (Continued)

          Settlement of Related Parties - Notes Payable
          ---------------------------------------------
          On July 24, 2001, the Board of Directors of the Company authorized and
          approved:

          1)   the issuance of 140,343,755  shares of the Company's common stock
               to American Top Real estate, Inc. ("ATRE") upon the conversion by
               ATRE of the entire  unpaid  principal  amount of  $809,500 of its
               note and all accrued  interest  thereon in the amount of $102,734
               at the  conversion  price of $0.0065 per share as of the close of
               business on July 23, 2001 (see note 5); and

          2)   the issuance of 12,343,150  shares of the Company's  common stock
               to Mr. Lu, the President of the Company,  upon  conversion of his
               $50,000  note and  accrued  interest  thereon  in the  amount  of
               $11,716 at the conversion price of $0.005 (see note 5).

          Settlement of Convertible Debentures
          ------------------------------------
          On July 24, 2001, the Board of Directors of the Company authorized and
          approved the issuance of  180,928,097  shares of the Company's  common
          stock to GJ Products  Corporation (see Note 11) upon the conversion of
          the entire unpaid  principal  amount of $1,037,775 of its note and all
          accrued  interest  thereon in the amount of $138,258 at the conversion
          price of  $0.0065  per share as of the close of  business  on July 23,
          2001.

          Settlement of debt and accrued interest
          ---------------------------------------
          During the year ended  March 31,  2001,  the  Company  issued  285,714
          shares  of the  Company's  common  stock  for the  exercise  of  stock
          options. The consideration  received by the Company was the settlement
          of debt and accrued interest totaling $10,000.

          Settlement of accounts payable
          ------------------------------
          During the year ended March 31,  2001,  857,123 of options  issued for
          consulting  services were exercised.  The  consideration  received was
          amounts owed by the Company to the consultant totaling $30,000.





                                      F-30
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 13 - STOCKHOLDERS' DEFICIENCY (Continued)

          Common stock issued for exercise of stock options
          -------------------------------------------------
          During November 2001, the Company received $75,000 for the exercise of
          15,000,000  stock  options  into  15,000,000  shares of the  Company's
          common stock. (See note 12)

          During  November 2001, the Company issued 800,000 shares of its common
          stock for the exercise of 800,000  stock  options.  The  consideration
          received was for consulting  services incurred and owed by the Company
          to one of the consultants totaling $4,000. (See note 12)

          On August 15, 2001, the Company received  $135,000 for the exercise of
          27,000,000  stock  options  into  27,000,000  shares of the  Company's
          common stock. (See note 12)

          During the year ending March 31, 2001, the Company  received  $215,500
          in cash for the exercise of stock options into 6,157,143 shares of the
          Company's common stock.

          Conversion of Series A convertible preferred stock
          --------------------------------------------------
          During  the year ended  March 31,  2001,  11,546,619  shares of common
          stock  were  issued  for the  conversion  of 10  Series A  convertible
          preferred shares (see Series A Convertible Preferred Stock).

          Convertible Preferred Stock
          ---------------------------
          As of March 31, 2002 and 2001,  the Company had  authorized  4,999,863
          and 5,000,000  shares of no par value,  convertible  preferred  stock,
          respectively.  The Company had issued 483,251 shares (of which 172,923
          valued at $48,803 are held in treasury). The preferred stock has:

          i)   voting  rights upon all matters  upon which  common  stockholders
               have at a 1.95 vote for each share of preferred stock,

          ii)  conversion  rights at 1.95 shares of common  stock for each share
               of preferred,

          iii) no rights of redemption and

          iv)  no dividend  preferences,  but entitled to a preference  of $0.01
               per share in the event of liquidation.



                                      F-31
<PAGE>

               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 13 - STOCKHOLDERS' DEFICIENCY (Continued)

          Series A Convertible Preferred Stock
          ------------------------------------
          On May 11, 2000, the Company amended its articles of  incorporation to
          authorize the issuance 50 shares of no par value, Series A Convertible
          Preferred  Stock with a stated  value of $10,000  per share.  This new
          issuance  was  created  out  of the  5,000,000  shares  of  previously
          authorized, no par value, convertible preferred stock.

          On May 11,  2000,  the  Company  entered  into a  Securities  Purchase
          Agreement  ("Securities  Purchase  Agreement")  with eight  investors.
          Pursuant to the Securities Purchase Agreement,  the Company issued and
          sold 50  shares  of  Series A  Convertible  Preferred  Stock for total
          consideration  of $500,000,  at the stated value of $10,000 per share.
          The Company incurred a stock discount expense of $125,000  relating to
          this  issuance  (see prior  period  adjustment).  In  connection  with
          agreement, the Company incurred $67,000 of offering costs.

          Commencing   August  9,  2000,   the  Series  A  Preferred   Stock  is
          convertible,  at the investor's  option,  into shares of the Company's
          Common Stock and automatically converts into Common Stock on April 12,
          2002.  The  conversion  price of the Series A  Preferred  Stock is the
          lower  of $.08 per  share or 80% of the  average  of the  closing  bid
          prices of the  Company's  Common Stock on any five trading days in the
          ten  trading  day  period  preceding  the  date  of  conversion.   The
          conversion  price of the Series A Preferred  Stock is also adjusted in
          the  event  of  stock  dividends,  stock  splits,   recapitalizations,
          reorganizations,  consolidations,  mergers  or  sales of  assets.  The
          Series A Preferred  stock also provides for a dividend upon conversion
          of the Series A Preferred Stock at the rate of 6% per annum payable in
          additional  shares of the Company's  Common Stock. In no event can the
          Series A Preferred Stock be converted into more than 11,575,000 shares
          of Common Stock.

          Additional  features of the Series A Preferred  Stock  include,  among
          other things:

          i)   a  redemption  feature  at the option of the  Company  commencing
               September 8, 2000, of shares of Series A Preferred Stock having a
               stated value of up to $100,000;

          ii)  a mandatory  redemption  feature upon the  occurrence  of certain
               events   such  as  a   merger,   reorganization,   restructuring,
               consolidation or similar event, and a liquidation preference over
               the  Common  Stock in the event of a  liquidation,  winding up or
               dissolution of the Company; and

          iii) the Series A Preferred  Stock does not provide any voting rights,
               except as may be required by law.

                                      F-32
<PAGE>

               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 13 - STOCKHOLDERS' DEFICIENCY (Continued)

          Series A Convertible Preferred Stock (continued)
          ------------------------------------------------
          Under Registration Rights Agreements the Company entered into with the
          purchasers of the Series A Preferred Stock, the Company is required to
          file a  registration  statement to register the Common Stock  issuable
          upon  conversion of the Series A Preferred  Stock under the Securities
          Act to provide  for the resale of such  Common  Stock.  The Company is
          also required to keep such a registration  statement  effective  until
          all of such shares have been resold.

          As of March 31,  2001,  10 shares  of Series A  Convertible  Preferred
          Stock with a stated  value of $10,000  per share were  converted  into
          11,546,619 shares of common stock at a price per share equaling 80% of
          the average of the closing bid prices of the Company's Common Stock on
          any five trading days in the ten trading day period preceding the date
          of conversion.  The conversion prices ranged from $0.00832 to $0.00920
          and totaled $86,600.

          Series B Convertible Preferred Stock
          ------------------------------------
          On  November   16,   2001,   the  Company   amended  its  articles  of
          incorporation  to  authorize  the  issuance 87 shares of no par value,
          Series B  Convertible  Preferred  Stock with a stated value of $10,000
          per share.  This new issuance was created out of the 5,000,000  shares
          of previously authorized, no par value, convertible preferred stock.

          Commencing May 15, 2002, the Series B Preferred  Stock is convertible,
          at the investor's  option,  into shares of the Company's  Common Stock
          and automatically converts into Common Stock on November 16, 2003. The
          conversion  price of the Series B Preferred Stock is the lower of $.02
          per  share or 70% of the  average  of the  closing  bid  prices of the
          Company's  Common Stock on any five trading days in the 30 trading day
          period  preceding the date of conversion.  The conversion price of the
          Series  B  Preferred  Stock  is also  adjusted  in the  event of stock
          dividends,   stock   splits,    recapitalizations,    reorganizations,
          consolidations,  mergers  or sales of assets.  The Series B  Preferred
          Stock also  provides for  additional  shares of the  Company's  Common
          Stock  calculated at a rate of 6% to determine the conversion  rate of
          the Company's Common Stock upon conversion.

          Additional  features of the Series B Preferred  Stock  include,  among
          other things:

          i)   a redemption  feature at the option of the Company commencing May
               15,  2002 of shares of Series B Preferred  Stock  having a stated
               value of up to $100,000;


                                      F-33
<PAGE>


              DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001
NOTE 13 - STOCKHOLDERS' DEFICIENCY (Continued)

          Series B Convertible Preferred Stock (continued)
          ------------------------------------------------
          ii)  a mandatory  redemption  feature upon the  occurrence  of certain
               events   such  as  a   merger,   reorganization,   restructuring,
               consolidation or similar event, and a liquidation preference over
               the  Common  Stock in the event of a  liquidation,  winding up or
               dissolution of the Company;

          iii) and the  Series B  Preferred  Stock does not  provide  any voting
               rights, except as may be required by law.

          Under Registration Rights Agreements the Company entered into with the
          purchasers of the Series B Preferred Stock, the Company is required to
          file a  registration  statement to register the Common Stock  issuable
          upon  conversion of the Series B Preferred  Stock under the Securities
          Act to provide  for the resale of such  Common  Stock.  The Company is
          required to keep such a registration  statement effective until all of
          such shares have been resold.

          On November 16, 2001, the Company  entered into a Securities  Purchase
          Agreement with four  investors.  Pursuant to the  Securities  Purchase
          Agreement,  the  Company  issued  and sold 58 shares  of its  Series B
          Convertible  Preferred Stock for total  consideration of $580,000,  at
          the stated  value of $10,000 per share.  The Company  incurred a stock
          discount  expense of $248,571  relating to the  beneficial  conversion
          feature. The Company incurred offering costs totaling $96,020 relating
          to the agreement.

          On January 30, 2002,  the Company  entered into a Securities  Purchase
          Agreement with three investors and a Securities  Replacement Agreement
          with another  investor who held a convertible  debenture issued by the
          Company totaling  $100,000 plus interest of $30,000.  Pursuant to such
          agreements  the Company  issued 29 shares of its Series B  Convertible
          Preferred  Stock at the stated  value of $10,000 per share for a total
          consideration of cash and settlement of debentures  totaling $290,000.
          The convertible debenture held by the investor was canceled on January
          30, 2002. The Company  incurred a stock  discount  expense of $124,286
          relating to the beneficial conversion feature.







                                      F-34
<PAGE>


              DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 14 - WARRANTS

          The following schedule  summarizes  warrants for the years ended March
          31, 2002 and 2001:

                                                                      Weighted
                                                                       Average
                                                                      Exercise
                                                         Warrants      Price
                                                       ----------- ----------
             Warrants outstanding, March 31, 2000               -   $   0.00
              Granted                                   1,525,000   $   0.07
              Exercised                                         -   $   0.00
             Expired/cancelled                                  -   $      -
                                                       ----------- ----------
             Warrants exercisable, March 31, 2001       1,525,000   $   0.07
             Granted                                   10,950,000   $   0.02
             Exercised                                          -   $   0.00
             Expired/cancelled                                   -  $   0.00
                                                       -----------  ----------

             Warrants  exercisable, March 31, 2002     12,475,000 $     0.03
                                                       ========== ==========

          On November 16, 2001, in connection  with the sale of 58 shares of the
          Company's  Series B  Preferred  Stock to four  investors,  the Company
          issued  warrants to purchase an aggregate  of 8,700,000  shares of its
          Common Stock to such investors at an exercise price per share equal to
          $0.02,  expiring on November  15,  2006.  The fair market value of the
          stock on the date of issuance of the warrants was $0.01 per share. The
          purchase rights  represented by the warrants may be exercised in whole
          or in  part  at any  time  and  from  time to  time  during  the  term
          commencing on November 16, 2001.

          On January 30, 2002, in  connection  with the sale of 15 shares of the
          Company's Series B Preferred Stock to one investor, the Company issued
          warrants to purchase an aggregate of 2,250,000 shares of the Company's
          Common Stock to the  investor at an exercise  price per share equal to
          $0.02,  expiring on January  30,  2007.  The fair market  value of the
          stock on the date of  issuance of the  warrants  was $0.019 per share.
          The purchase  rights  represented  by the warrants may be exercised in
          whole or in part at any time and  from  time to time  during  the term
          commencing on January 30, 2002.


                                      F-35
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 14 - WARRANTS (Continued)

          On May 11, 2000, in connection with the sale of the Company's Series A
          Preferred  Stock,  The May Davis Group,  Inc. ("May Davis"),  acted as
          placement  agent for the offering and the Company  issued  warrants to
          purchase  1,500,000  shares of Common  Stock to May Davis and  certain
          designees  of May Davis and  warrants  to  purchase  25,000  shares of
          Common  Stock to Butler  Gonzalez,  LLP,  counsel to May  Davis.  Such
          warrants are exercisable at a price of $.07 per share. The fair market
          value of the stock on the date of issuance of the  warrants  was $0.01
          per share.


NOTE 15 - COMMON STOCK OPTIONS

          The following  summarizes the common stock option transactions for the
          years ended March 31, 2002 and 2001:

          Options issued and outstanding not under a stock option plan:
          -------------------------------------------------------------

                                                                       Weighted
                                                                        Average
                                            Officers/                  Exercise
                                            Directors    Consultants    Price
                                          ----------    ----------    ----------
    Options outstanding, March 31, 2000    11,500,000     4,204,000   $  0.100
    Granted                                         -             -
    Exercised                                       -             -   $
    Expired/cancelled                               -             -   $      -
                                          -----------   -----------   ----------
    Options exercisable, March 31, 2001    11,500,000     4,204,000   $   0.010
    Granted                                26,000,000    59,300,000   $   0.006
    Exercised                                       -   (42,800,000)  $   0.005
    Expired/cancelled                     (11,500,000)   (4,704,000)  $   0.100
                                          -----------   -----------   ----------

    Options exercisable, March 31, 2002    26,000,000    16,600,000   $   0.007
                                          ===========    ==========   =========




                                      F-36
<PAGE>

               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001



NOTE 15 - COMMON STOCK OPTIONS (Continued)

          Options  issued  and   outstanding  not  under  a  stock  option  plan
          ----------------------------------------------------------------------
          (continued):
          ------------

          Officers/directors
          ------------------
          On July 24, 2001, the Board of Directors of the Company authorized and
          approved,  that it was in the best  interest  of the  Company the that
          exercise  rate  ranging  from  $0.05 to $0.25 of  outstanding  options
          granted to the Company's key officers and directors  during the period
          from April 1996 through May 1999 in the aggregate amount of 11,500,000
          shares be cancelled and reissued at an exercise  price of $0.005.  The
          options  expire on various  dates  starting in September  2002 through
          August 2005. The Company  recognized $35,025 of stock discount expense
          relating to these options.

          On November 16, 2001,  the Company's  Board of Directors  approved and
          the  Company  granted  the  Company's  President,  options to purchase
          14,500,000  shares of the  Company's  common stock for his waiving his
          exercise rights to 29,000,000 options that were previously granted and
          for  his  part  in the  successful  sale  of the  Company's  Series  B
          Preferred Shares. The President waived his exercise rights to exercise
          options   previously   granted  to  meet  the  terms  of  the  reserve
          requirement  clause for the sale of the  Company's  Series B Preferred
          stock.  The options granted to the President on November 16, 2001, are
          exercisable  at  $0.006  per  share  at  such  time  permitted  by the
          Company's Series B Preferred Shares reserve clause. The options expire
          5 years from the date of grant.  The Company incurred a stock discount
          expense of $59,450 relating to this issuance.

          Consultants
          -----------
          On July 24, 2001, the Company granted three  consulting  firms options
          to  purchase  27,000,000  shares of common  stock at $0.005.  The fair
          value of the stock on the date of issuance was $0.008 per share. These
          options expire on July 23, 2002. The Company incurred a stock discount
          expense of $81,000  relating  to this  issuance.  These  options  were
          exercised on August 15, 2001. These shares were issued pursuant to the
          exemption  provided for under  Section 4(2) of the  Securities  Act of
          1933, as amended,  as a "transaction not involving a public offering."
          Furthermore, these consulting firms are Accredited Investors.



                                      F-37
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 15 - COMMON STOCK OPTIONS (Continued)

          Options  issued  and   outstanding  not  under  a  stock  option  plan
          ----------------------------------------------------------------------
          (continued):
          ------------

          Consultants (continued)
          -----------------------
          On October 18, 2001, the Company granted two consulting  firms options
          to  purchase  30,800,000  shares at $0.005 per share,  the fair market
          value of the common  stock as of the date of issuance.  These  options
          expire on October 17, 2002. 15,800,000 of these options were exercised
          in November  2001.  As of March 31, 2002,  15,000,000  shares of these
          options had not been  exercised.  On May 5, 2002,  7,500,000  of these
          options  were  exercised  and as of June 18,  2002,  7,500,000 of such
          options were  outstanding.  These  shares were issued  pursuant to the
          exemption  provided for under  Section 4(2) of the  Securities  Act of
          1933, as amended,  as a "transaction not involving a public offering."
          Furthermore, these consulting firms are Accredited Investors.

          On November 30, 2001, the Company  granted a consulting firm an option
          to  purchase  1,500,000  shares  of the  Company's  stock at $0.03 per
          share.  Of  such  options,   1,000,000   shares  will  be  exercisable
          immediately  and 500,000  shares  will be  exercisable  commencing  on
          November  30, 2002 and will expire on November  29, 2002 and  November
          29,  2003,  respectively.  These  shares were  issued  pursuant to the
          exemption  provided for under  Section 4(2) of the  Securities  Act of
          1933, as amended,  as a "transaction not involving a public offering."
          Furthermore,  the consulting firm is Accredited Investors. As of March
          31, 2002,  the  consulting  agreement  was canceled  together with the
          aggregate amount of the options that were granted.

          2001 Stock Compensation Plan
          ----------------------------
          The following summarizes the 2001 stock compensation plan transactions
          for the year ended March 31, 2002:

                                                                        Weighted
                                                                         Average
                                                       Stock Options    Exercise
                                                        Outstanding       Price
                                                       ------------    --------
     Options, exercisable, March 31, 2001                         -           -
     Granted                                             50,000,000    $  0.006
     Expired                                                      -          -
     Canceled                                                     -          -
                                                       ------------    --------
     Options, Exercisable and Outstanding,
        March 31, 2002                                   50,000,000    $  0.006
                                                       ============    ========


                                      F-38
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 15 - COMMON STOCK OPTIONS (Continued)

          2001 Stock Compensation Plan (continued)
          ----------------------------------------
          On July 24, 2001,  the Board of Directors of the Company  approved the
          Company's  2001 Stock  Compensation  Plan dated July 13,  2001 for the
          purpose of providing the Company with a means of compensating selected
          key employees (including  officers),  and directors of the Company and
          its  subsidiaries  for their services  rendered in connection with the
          development of Company with shares of Common Stock of the Company. The
          plan authorized the Board of Directors of the Company to sell or award
          up to 50,000,000  shares and/or options of the Company's common stock,
          no par value at a purchase price of $0.006, which represented the fair
          value of the common stock on that date.  On July 24, 2001,  50,000,000
          options to purchase  the  Company's  common  stock were granted to the
          select key employees,  officers and a director of the Company expiring
          on July 24, 2004. Of such options granted, James Lu, the President and
          Jeffrey  Schillen,  the Executive  Vice  President of the Company were
          granted  options  to  purchase   20,000,000  and  10,000,000   shares,
          respectively, and 5,000,000 options to purchase were granted to Murray
          Scott, a Director of the Company.  The remaining balance of 15,000,000
          options was granted to eight other key employees of the Company. As of
          March 31, 2002,  none of the options that were granted under this plan
          were exercised.

          2000 Stock Compensation Plan
          ----------------------------
          The following summarizes the 2000 stock compensation plan transactions
          for the years ended March 31, 2002 and 2001:

                                                                        Weighted
                                                                         Average
                                                       Stock Options    Exercise
                                                        Outstanding       Price
                                                       ------------    --------
  Options Outstanding, March 31, 2000                             -    $  0.000
  Granted                                                 7,900,000    $  0.036
  Expired                                               ( 7,300,000)   $  0.035
                                                        -----------    --------
  Options, Exercisable and Outstanding, March 31, 2001      600,000    $  0.036
                                                        ===========    ========

  Granted                                                         -    $  0.000
  Expired                                                         -    $  0.000
                                                        -----------    --------
  Options, Exercisable and Outstanding, March 31, 2002      600,000    $  0.036
                                                        ==========     =======


                                      F-39
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 15 - COMMON STOCK OPTIONS (Continued)

          2000 Stock Compensation Plan (continued)
          ----------------------------------------
          On June 9, 2000,  the Board of Directors  of the Company  approved the
          Company's  2000 Stock  Compensation  Plan  ("Plan") for the purpose of
          providing  the  Company  with a means  of  compensating  selected  key
          employees  (including  officers),  directors  and  consultants  to the
          Company and its subsidiaries for their services rendered in connection
          with the development of Diamond Entertainment  Corporation with shares
          of  common  stock of the  Company.  The Plan  authorized  the Board of
          Directors  of the  Company  to sell or award up to  13,000,000  shares
          and/or options of the Company's  common stock,  no par value.  For the
          fiscal year ended March 31, 2001, the Company had the following common
          stock options transactions under this Plan:

          o    On June 1,  2000,  the  Company  entered  into  three  consulting
               agreements  that will  terminate  on May 31,  2001,  whereby  the
               consultants  will  provide  consulting  services  for the Company
               concerning management, marketing, consulting, strategic planning,
               corporate  organization and financial  matters in connection with
               the  operation of the  businesses  of the  Company,  expansion of
               services,   acquisitions   and   business   opportunities.    The
               consultants  received options to purchase a total of 7,300,000 of
               the  Company's  common stock  exercisable  at $0.035 per share in
               exchange for services to be rendered and the options shall expire
               on May 31, 2001.

               The per unit  weighted-average fair value of unit options granted
               on June 1,  2000,  was  $0.029  at the  date of grant  using  the
               Black-Scholes   options   pricing   model   with  the   following
               weighted-average assumptions:

          o    weighted-average  risk-free  interest  rates of  5.86%;  dividend
               yields of 0%; weighted-average volatility factors of the expected
               market  price  of the  Company's  common  stock  of  178%;  and a
               weighted  average  expected  life of the option was 2 months.  In
               June and July of 2000, the Company received  $215,500 in cash for
               the issuance of the  6,157,143  shares upon the exercise of these
               options and the remaining options of 1,142,857 were exercised for
               consulting  services  incurred  and owed by the Company to one of
               the consultants  totaling $30,000 and from the cancellation of an
               obligation  of $10,000 in principal and interest owed to the same
               consultant.  The options had an aggregate  fair value at the date
               of grant of approximately $209,000. F-37


                                      F-40
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 15 - COMMON STOCK OPTIONS (Continued)

          2000 Stock Compensation Plan (Continued)
          ----------------------------------------
          o    On July 24, 2000,  the Company  engaged a  consulting  firm for a
               period of one year to provide advice to undertake for and consult
               with the Company concerning  management,  marketing,  consulting,
               strategic   planning,   corporate   organization  and  structure,
               financial  matters  in  connection  with  the  operation  of  the
               businesses  of the Company,  expansion of services,  acquisitions
               and  business  opportunities,  and shall  review  and  advise the
               Company regarding its overall progress, needs and conditions. The
               consulting firm was granted options to purchase 600,000 shares of
               the  Company's  common stock with an exercise  price at $0.05 per
               share  and the  options  shall  expire  on July 24,  2003.  These
               options were not exercised as of March 31, 2001,  and the Company
               believes the firm has not performed under the agreement.

          The Plan expired on May 31, 2001, and the unissued outstanding balance
          of options  of  5,100,000  shares to be awarded or sold in  accordance
          with this plan was canceled.

          The Company  applies  SFAS No. 123, and related  interpretations,  for
          stock  options  issued  to  consultants  in  accounting  for its stock
          options.  Compensation  expense has been  recognized for the Company's
          stock-based  compensation  for  consulting  services  in the amount of
          $40,000  and  $209,000  for the years  ended  March 31, 2002 and 2001,
          respectively.

         1988 Stock Option Plan
          ----------------------
          On October 12, 1988, the Company's directors and stockholders approved
          the Company's 1988 Stock Option Plan (the "Option  Plan")  authorizing
          the  granting of  incentive  options and  non-qualified  options.  The
          incentive  options are  intended to qualify  under  Section 422 of the
          Internal  Revenue  Code of 1986,  as  amended.  Pursuant to the Option
          Plan,  options to purchase up to 10,000  shares of common stock may be
          granted to officers,  directors and key employees of the Company.  The
          Stock Option  Committee,  consisting of Messrs.  Lu and  Schillen,  is
          responsible  for  determining  the  individuals  who  will be  granted
          options, the number of shares to be subject to each option, the option
          price per share,  and the exercise  period of each option.  The option
          price  will not be less than the fair  market  value of the  Company's
          common  stock  on the date  the  option  is  granted.  Options  may be
          exercised by payment of cash.  No option will have a term in excess of
          ten years.




                                      F-41
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 15 - COMMON STOCK OPTIONS (Continued)

          1988 Stock Option Plan (Continued)
          ----------------------------------
          The following summarizes the Company's stock option transactions under
          the stock option plan:

                                                                        Weighted
                                                                         Average
                                                       Stock Options    Exercise
                                                        Outstanding       Price
                                                       ------------    ---------
 Options Outstanding, March 31, 1999                      550,000      $  0.100
 Granted                                                  300,000      $  0.100
 Expired                                                ( 550,000)     $  0.100
                                                        ---------      --------
 Options, Exercisable and Outstanding, March 31, 2000     300,000      $  0.100
                                                        =========      ========

 Granted                                                        -      $  0.000
 Expired                                                        -      $  0.000
                                                        ---------      --------
 Options, Exercisable and Outstanding, March 31, 2001     300,000      $  0.100
                                                        =========      ========

 Granted                                                  175,000      $  0.005
 Expired                                                        -             -
 Canceled                                                (175,000)     $  0.100
                                                        ----------     --------
 Options, Exercisable and Outstanding, March 31, 2002     300,000      $  0.045
                                                        ==========     ========

          The  weighted  average  remaining  contract  lives  of  stock  options
          outstanding are 0.5 years.


          Black-scholes calculation
          -------------------------
          The Company has adopted only the disclosure provisions of SFAS No. 123
          for stock  options  issued to  employees  for  services  rendered.  It
          applies APB 25 and related  interpretations in accounting for its plan
          and  does  not  recognize  compensation  expense  for its  stock-based
          compensation  plan  other  than for stock  and  options  issued  under
          compensatory  plans and to outside third  parties.  If the Company had
          elected to recognize compensation expense based upon the fair value at
          the grant date for awards  vested under the plan  consistent  with the
          methodology  prescribed  by SFAS 123, the  Company's net loss would be
          increased  by $215,000 and $-0- for the years ended March 31, 2002 and
          2001, respectively, to the pro forma amounts indicated below.

                                      F-42
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 15 - COMMON STOCK OPTIONS (Continued)

          Black-scholes calculation (Continued)
          -------------------------------------
                                            2002                2001
                                      -------------       ------------
                  Net Loss:
                    As Reported       $  (1,062,638)       $ (1,039,894)
                                      =============       =============
                    Pro forma         $  (1,062,638)       $ (1,039,894)
                                      =============       =============

          The fair value for these  options was  estimated  at the date of grant
          using  a  Black-Scholes   option  pricing  model  with  the  following
          weighted-average assumptions for years ended March 31, 2000: weighted-
          average  risk-free  interest  rates of 5.5%;  dividend  yields  of 0%;
          weighted-average  volatility  factors of the expected  market price of
          the Company's  common stock of 178%; and a weighted  average  expected
          life of the option of 2.5 years.


NOTE 16 - MAJOR CUSTOMERS/SUPPLIERS

          Customers
          ---------
          For the year ended March 31,  2002,  the Company had net sales to four
          customers  that  accounted  for  approximately  22%, 14%, 14% and 12%,
          respectively.

          For the year ended  March 31,  2001,  the  Company  had net sales to 2
          customers   that   amounted   to   approximately   28.3%  and   17.1%,
          respectively.

          Suppliers
          ---------
          For the year ended March 31, 2002 the Company  purchased video and DVD
          products from four suppliers that accounted for  approximately  67% of
          the Company's net purchases. During such period, the percentage of net
          video/DVD  product  purchases  made from such suppliers were 23%, 15%,
          15% and 14%, respectively.

          For the year ended March 31, 2001, the Company purchased video and DVD
          products from three suppliers that accounted for  approximately 58% of
          the Company's net purchases. During such period, the percentage of net
          video/DVD product purchases made from such suppliers were 26%, 19% and
          13%, respectively.


                                      F-43
<PAGE>

               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 17 - INCOME TAXES

          The components of the provision for income taxes are as follows:

                                                      For The Years Ended
                                                           March 31,
                                               ------------------------------
                                                     2002            2001
                                               ------------     ------------
                  Current Tax Expense
                     U.S. federal              $         -      $         -
                     State and local                     -                -
                                               ------------     ------------
                  Total Current                          -                -
                                               ------------     ------------

                  Deferred Tax Expense
                     U.S. federal                        -                -
                     State and local                     -                -
                                               ------------     ------------
                  Total deferred                         -                -
                                               ------------     ------------
                  Total tax provision from
                   continuing operations       $         -       $         -
                                               ============      ===========

          The  reconciliation  of the  effective  income tax rate to the Federal
          statutory  rate is as follows  for the years  ended March 31, 2002 and
          2001:

                  Federal income tax rate                           (     34.0)%
                  Effect of valuation allowance                           34.0%
                                                                   -----------
                  Effective income tax rate                                0.0%
                                                                  ============

          At March 31, 2002 and 2001, the Company had net carryforward losses of
          approximately  $19,538,000 and $18,690,000,  respectively.  Because of
          the  current   uncertainty   of  realizing  the  benefit  of  the  tax
          carryforwards,  a  valuation  allowance  equal to the tax  benefit for
          deferred taxes has been  established.  The full realization of the tax
          benefit associated with the carryforwards  depends  predominantly upon
          the  Company's   ability  to  generate   taxable   income  during  the
          carryforward period. The net change in the valuation allowance for the
          years  ended  March 31,  2002 and  2001,  increased  by  approximately
          $288,000 and $354,000, respectively.

          Deferred  tax assets  and  liabilities  reflect  the net tax effect of
          temporary  differences  between  the  carrying  amount of  assets  and
          liabilities  for  financial  reporting  purposes  and amounts used for
          income tax purposes.  Significant components of the Company's deferred
          tax assets and liabilities are as follows:

                                      F-44
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 16 - INCOME TAXES (Continued)

                                                            March 31,
                                                ----------------------------
                                                      2002             2001
                                                ------------    ------------
              Deferred Tax Assets
                 Loss carryforwards             $  6,643,000    $  6,355,000
                 Less:  valuation allowance       (6,643,000)     (6,355,000)
                                                ------------    ------------
              Net Deferred Tax Assets           $          -    $          -
                                                ============    ============

          Net operating loss carryforwards expire starting in 2007 through 2019.
          Per year  availability  is subject to change of ownership  limitations
          under Internal Revenue Code Section 382.


NOTE 17 - SEGMENT INFORMATION

          The following  financial  information is reported on the basis that is
          used internally for evaluating segment performance and deciding how to
          allocate resources.  During 2002 and 2001, the Company operated in two
          principal industries;

          a)   Video programs and other licensed products
          b)   General merchandise

                                                       Year Ended March 31,
                                                -------------------------------
                                                      2002            2001
                                                --------------   --------------
  Revenues:
    Video programs and other licensed products  $    3,802,604   $    3,174,029
    Merchandise                                        11,377,            7,050
                                                --------------   --------------
                                                $    3,813,981   $    3,181,079
                                                ==============   ==============

  COGS:
    Video programs and other licensed products  $    2,230,709   $    1,794,934
    Merchandise                                        129,434            1,788
                                                --------------   --------------
                                                     2,360,143        1,796,722
                                                ==============   ==============

  Loss before taxes:
    Video programs and other licensed products  $     (717,477)  $     (789,204)
    Merchandise                                       (130,161)        (250,690)
                                                ---------------  --------------
                                                $     (847,638)  $   (1,039,894)
                                                ===============  ==============

                                      F-45
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 17 - SEGMENT INFORMATION (Continued)

                                                        Year Ended March 31,
                                                 -------------------------------
                                                       2002            2001
                                                 --------------   --------------
     Depreciation and amortization:
     Video programs and other licensed products  $      123,147   $      168,205
     Merchandise                                            131           72,059
                                                 --------------   --------------
                                                 $      123,278   $      240,264
                                                 ==============   ==============
   Segment assets:
     Video programs and other licensed products  $    3,483,039   $    1,103,356
     Merchandise                                     (1,178,744)       1,044,606
                                                 ---------------  --------------
                                                 $    2,304,295   $    2,147,962
                                                 ==============   ==============
   Expenditure for segment assets:
     Video programs and other licensed products  $      345,031   $      204,574
     Merchandise                                              -                -
                                                 --------------   --------------
                                                 $      345,031   $      204,574
                                                 ==============   ==============


NOTE 18 - SUBSEQUENT EVENTS

          On April 1, 2002,  Board of Directors of the Company,  appointed James
          Lu and Jeffrey Schillen Co-Chief Executive Officers and Co-Chairman of
          the Company effective immediately.

          On May 6, 2002,  one share of the Company's  Series B Preferred  Stock
          was converted into 1,351,351  shares of the Company's  common stock at
          the conversion price of $0.0074.

          On May 23, 2002, two shares of the Company's  Series B Preferred Stock
          were  converted  into  3,174,603 of the Company's  common stock at the
          conversion price of $0.0063.


                                      F-46
<PAGE>


               DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2001

NOTE 18 - SUBSEQUENT EVENTS (Continued)

          On October 18, 2001, the Company  granted a consulting firm options to
          purchase  30,000,000  shares at $0.005 per share (See note 15). On May
          5, 2002, 7,500,000 of these options were exercised.

          On June 2, 2002, a $100,000  convertible note issued by the Company to
          one of its officers  matured.  On June 27, 2002, the officer  extended
          the maturity date of note until June 2, 2003 bearing the same terms.














                                      F-47
<PAGE>


                                    PART III

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

The Company's current officers and directors consist of the following persons:

Name                           Age     Position with Company
----                           ---     ---------------------
James K.T. Lu................  55      Chairman of the Board, President,
                                        Co-Chief Executive Officer, Co-Chairman,
                                        Secretary and Director
Jeffrey I. Schillen..........  56      Executive Vice President, Sales and
                                        Marketing, Co-Chief Executive Officer,
                                        Co-Chairman  and Director
Murray T. Scott..............  80      Director

Fred U. Odaka................  65      Chief Financial Officer


JAMES K.T. LU (Class 2 Director). Mr. Lu has been a director since February
1989, Chairman of the Board, Chief Executive Officer and Secretary since March
1, 1990, and President since July 1991. As of April 1, 2002, Mr. Lu became
Co-Chairman and Co-CEO.

Mr. Lu received his B.S.I.E. degree from Chung Yuen University Taiwan in 1969,
his M.S.I.E. degree from the Illinois Institute of Technology in 1972 and a
Master of Business Administration (MBA) from California State University in
1981. Mr. Lu entered a plea and cooperation agreement with the Office of the
United States Attorney for the Eastern District of New York. The agreement
involved Mr. Lu pleading guilty to one count of Conspiracy to Launder Money and
one count of violation of the Travel Act. The conduct for which Mr. Lu pled
guilty had no relationship to our business or his activities as an officer of
Diamond Entertainment Corporation. On April 18, 2002 Mr. Lu, (Case No. CR
00-920JG), was committed to the custody of the United States Bureau of Prisons
to be imprisoned for a term of one year and one day on each of count 1,
conspiracy to commit money laundering and count 2, interstate travel with intent
to launder money. Upon release from imprisonment, the defendant shall be on
supervised release for term of three (3) years on each count to run
concurrently.

JEFFREY I. SCHILLEN (Class 1 Director). Mr. Schillen has been our Executive Vice
President of Sales and Marketing since 1993 and has been a director since our
inception in April 1986. From May 1984 to April 1986, Mr. Schillen was President
and Chief Operating Officer of Music Corner Inc., a retail record, tape and
video chain he co-founded. From 1974 to April 1984, Mr. Schillen founded and
served as Vice President in charge of purchasing, store openings and
acquisitions of Platter Puss Records, Inc., a retail record, tape and video
chain. As of April 1, 2002, Mr. Schillen became Co-Chairman and Co-CEO.


                                       20
<PAGE>

MURRAY T. SCOTT (Class 2 Director). Mr. Scott became a director in November
1993. Mr. Scott was the President and Chief Executive Officer of Gregg's
Furniture, a custom furniture building business in Victoria, Canada, from 1958
to 1995. Mr. Scott remains involved with Gregg's Furniture in a consulting and
advisory capacity.

FRED U. ODAKA. Mr. Odaka has been our Chief Financial Officer since September
2000. From December 1998 to September 2000 Mr. Odaka was a consultant to Diamond
Entertainment and was our "acting" Chief Financial Officer. From July 1996 to
July of 1998, Mr. Odaka served as chief financial officer for Front Row
Collectibles, Inc., a manufacturer and distributor of super event collectibles.
From January 1993 to June 1996, Mr. Odaka was a financial consultant and analyst
for Kibel, Green Inc., a West Coast business advisory and financial services
firm specializing in corporate re-structuring and crisis intervention. From July
1986 to December 1992, Mr. Odaka was a partner and principal of two investment
banking firms concentrating in mergers and acquisitions. From November 1984 to
June 1986, Mr. Odaka was vice president and chief financial officer for Ibex
Computer Corporation, a manufacturer of computer tape drives. Mr. Odaka was a
founder of Rexon, Inc., a publicly traded manufacturer of computers and computer
peripheral equipment and, from May 1978 to October 1984, held the positions of
vice president and chief financial officer and was instrumental in taking the
company public. From January 1970 to April of 1978, Mr. Odaka was controller of
the computer division of Perkin-Elmer Corporation, a publicly traded company
that manufactures life sciences systems and analytical instruments. Mr. Odaka
received his Bachelor of Science degree in finance from Fresno State College,
Fresno, California.

Under our certificate of incorporation, our board of directors is divided into
three (3) classes, with each class to be elected by the shareholders every three
years. All directors hold office for terms of three (3) years and until the next
annual meeting of stockholders scheduled to vote on such class of directors and
the election and qualification of their respective successors. Our board
presently consists of three directors and our directors were elected at the 2000
annual meeting of stockholders for concurrent three year terms. None of our
directors have resigned or declined to stand for re-election due to a
disagreement on any matter relating to our operations, policies or practices.

Officers are elected annually by our board of directors and, subject to existing
employment agreements, serve at the discretion of our board.











                                       21
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth aggregate compensation earned by each Executive
Officer for services rendered in all capacities during the year ended March 31,
2002.

<TABLE>
<CAPTION>
                                   Summary Compensation Table

                                                  Annual Compensation              Long Term Compensation
                                               ------------------------  ------------------------------------------
                                                                           Awards                Payouts
                                                                         ------------ -----------------------------
                                                                         Securities                     All Other
                                                                         Underlying   LTIP Payouts    Compensation
Name and Principal Position          Year      Salary ($)    Bonus ($)   Options (#)       ($)             ($)
--------------------------------     ----      ----------- ------------  ------------ -------------- --------------
<S>                                  <C>      <C>           <C>          <C>          <C>             <C>
James K.T. Lu (1) President,         2002       150,000         0           0               0               28,060
Co-Chief Executive Officer and       2001       150,000         0           0               0               26,739
Secretary                            2000       150,000         0           0               0               27,606


Jeffrey I. Schillen (2)              2002       120,000         0           0               0               15,813
Co-CEO, Executive Vice               2001       120,000         0           0               0               17,148
President of Sales and               2000       120,000         0            0              0               15,618
Marketing
</TABLE>


(1)  Mr. Lu's annual salary was $150,000 during the fiscal year ended March 31,
     2002 and he has elected to defer a substantial portion of his salary for
     this period. During March 2000, Mr. Lu waived all of his deferred salary
     owed as of March 31, 1999. During the fiscal years ended March 31, 2002,
     2001 and 2000, Mr. Lu was paid salaries totaling $ 68,846, $59,230, and
     $45,000, respectively.

(2)  Mr. Schillen's annual salary was $120,000 during the fiscal year ended
     March 31, 2002 and he elected to defer a substantial portion of his salary
     for this period. During March 2000, Mr. Schillen waived all of his deferred
     salary owed as of March 31, 1999. During the fiscal years ended March 31,
     2002, 2001 and 2000, Mr. Schillen was paid salaries totaling $50,646,
     $45,907, and $44,000, respectively.


OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information with respect to the options
granted and canceled during the year ended March 31, 2002, 2001 and 2000, for
the persons named in the Summary Compensation Table (the "Named Executive
Officers"):


                                       22
<PAGE>
<TABLE>
<CAPTION>
                                                         Percent of Total
                                                           Options/SARs
                                Number of Securities        Granted to
                               Underlying Options/SARs     Employees in      Exercise or Base
     Name               Year     Granted (Canceled)         Fiscal Year        Price ($/Sh)    Expiration Date
     ----               ----   -----------------------   ---------------     ----------------  ---------------
<S>                     <C>    <C>                       <C>                 <C>               <C>
James K.T. Lu           2002           20,000,000                28.2%             $0.006           7/12/04
James K.T. Lu           2002              600,000                  .2%             $0.005           4/22/04
James K.T. Lu           2002            2,000,000                 2.8%             $0.005           3/31/03
James K.T. Lu           2002            3,000,000                 4.2%             $0.005           3/31/05
James K.T. Lu           2002            3,500,000                 4.9%             $0.005           5/24/04
James K.T. Lu           2002           (9,100,000)              (12.8%)      $0.05 - $0.25         (Various)
James K.T. Lu           2002           14,500,000                20.4%             $0.006          11/15/06

Jeffrey I. Schillen     2002           10,000,000                14.1%             $0.006           7/12/04
Jeffrey I. Schillen     2002              400,000                  .6%             $0.005           4/22/04
Jeffrey I. Schillen     2002              750,000                 1.1%             $0.005           3/31/05
Jeffrey I. Schillen     2002            1,000,000                 1.4%             $0.005           5/24/04
Jeffrey I. Schillen     2002           (2,150,000)               (3.0%)      $0.05 - $0.25         (Various)


James K.T. Lu           2001                   --                   --                 --                --
Jeffrey I. Schillen     2001                   --                   --                 --                --

James K.T. Lu           2000            3,500,000                77.8%      $0.05 - $0.10           5/24/04
Jeffrey I. Schillen     2000            1,000,000                22.2%      $0.05 - $0.10           5/24/04
</TABLE>


AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

The following table sets forth certain information with respect to options
exercised during the fiscal year ended March 31, 2002 by the Named Executive
Officers and with respect to unexercised options held by such persons at March
31, 2002


<TABLE>
<CAPTION>
                                                 Number of Securities Underlying     Value of Unexercised
                        Shares                        Unexercised Options/SARs      In-the-Money Options/SARs
                     Acquired On        Value               At FY-End (#)                 at FY-End ($)
     Name            Exercise (#)   Realized ($)     Exercisable     Unexercisable  Exercisable    Unexercisable
     ----            ------------   ------------ ----------------    -------------  -----------    -------------
<S>                  <C>            <C>          <C>                 <C>            <C>            <C>
James K.T. Lu             0               0              100,000        43,500,000      $1,500         $652,500
Jeffrey I. Schillen       0               0           12,150,000                 0                     $182,250
</TABLE>


                                       23
<PAGE>

                              Employment Agreements
                              ---------------------

In 1991, we entered into employment agreements with each of Messrs. Lu and
Schillen for annual compensation of $150,000 and $90,000, respectively; both
provide for annual adjustments in accordance with the consumer price index.
Subsequently Mr. Schillen's annual salary was increased to $120,000 annually. In
March 2000, Mr. Lu and Mr. Schillen both waived all of their deferred salaries
owed as of March 31, 1999. See "Summary Compensation Table" above, and the notes
thereto.

On April 23, 1996 we agreed to reserve 1,000,000 shares of common stock for
distribution to Messrs. Lu and Schillen. Such shares could be purchased for $.25
per share, in installment payments with a five year promissory note with
interest at 6% per annum. On July 24, 2001, our Board of Directors approved the
lowering of the exercise rate per share to $.005 to purchase such shares and
extended the expiration date of such options to April 22, 2004. As of March 31,
2002 such officers had not purchased any of such shares.

In September 1997 as consideration for each of Messrs. Lu and Schillen agreeing
to defer up to 90% of their salaries through March 31, 1998, we issued 3,000,000
shares of common stock and warrants to purchase 3,000,000 shares of common stock
to Mr. Lu, and issued 750,000 shares of common stock and warrants to purchase
750,000 shares of common stock to Mr. Schillen. All of such warrants have an
exercise price of $.10 per share. The warrants are fully vested and were
exercisable until March 31, 1999. On July 24, 2001, we lowered the exercise
price of such warrants to $.005 per share. In February 2002, we extended the
term of the warrants until March 31, 2005.

We maintain a life insurance policy on Mr. Lu, for our benefit in the amount of
$1,000,000.

On September 1, 1997 we entered into employment agreements with nine other
employees holding important positions. The agreements provided for the issuance
of an aggregate of 550,000 shares of common stock with a fair value of $11,000,
as payment for services, warrants for 550,000 shares with an exercise price of
$.10 per share and the semi-monthly compensation of approximately $14,000 in the
aggregate. On September 1, 1999, the warrants to exercise the 550,000 shares of
common stock expired. On August 27, 1999, we granted warrants to purchase
300,000 shares of common stock, which expire on September 1, 2002, at an
exercise price of $.10 per share to the five remaining employees with employment
agreements. On July 24, 2001, we lowered the exercise price of 175,000 warrants
granted to three employees with employment agreements from $.10 per share to
$.005 per share.

None of the employment agreements which we have with any of our executives,
indicated above, provides for any specific compensation to such individuals
should their respective employment agreements be terminated prior to expiration
of their respective terms.



                                       24
<PAGE>

                     Employee and Director Stock Option Plan
                     ---------------------------------------

In July 24, 2001, DMEC approved the 2001 Stock Compensation Plan dated July 13,
2001 in order to attract and retain qualified personnel. The Plan authorized our
Board of Directors to sell or award up to 50,000,000 shares and/or options of
the Company's common stock, no par value at a purchase price of $0.006. On July
13, 2001, our Board of Directors granted an aggregate of 50,000,000 options to
purchase shares of our Common Stock to our officers, directors, and key
employees. As of March 31, 2002, none of these options were exercised.



                 Employee and Directors Stock Compensation Plan
                 ----------------------------------------------

On June 9, 2000, we adopted our 2000 Stock Compensation Plan for the purpose of
providing a means of compensating selected key employees including officers,
directors and consultants of Diamond Entertainment and our subsidiaries for
their services rendered in connection with our development through the issuance
of shares of common stock. We were authorized to sell or award up to 13,000,000
shares and/or options to purchase our common stock. The plan was administered by
our board of directors which had the discretion to determine the grantees, the
number of shares, the date of each grant, the consideration for the shares and
such other terms and conditions as the board may determine. In June 2000, we
entered into three consulting agreements that terminated on May 31, 2001. The
consultants provided consulting services for us concerning management,
marketing, consulting, strategic planning, corporate organization and financial
matters in connection with the operation of our businesses, expansion of
services, acquisitions and business opportunities. The consultants received
options to purchase a total of 7,300,000 of our common stock exercisable at
$0.035 per share in exchange for services rendered. Such options were exercised
as of March 31, 2001. The plan expired on May 31, 2001, and the outstanding
balance of options of 5,700,000 shares to be awarded or sold in accordance with
this plan was canceled.


                            Compensation of Directors
                            -------------------------

To date, directors who are not also our employees have received no compensation
for attending meetings of our board of directors. All directors are entitled to
reimbursement of reasonable travel and lodging expenses related to attending
meetings of our directors. There are no standard arrangements or agreements to
provide compensation to directors for attending meetings of our board of
directors.



                                       25
<PAGE>

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth current information as of March 31, 2002,
relating to the beneficial ownership of the outstanding shares of our common
stock and preferred stock by (i) each person owning beneficially more than 5% of
our common stock, (ii) each Director of the Company, (iii) each Named Executive
Officer; and (iv) all Executive Officers and directors of the Company as a
group. Unless otherwise indicated below, such individuals have the sole power to
control the vote and dispose of such shares of capital stock.

<TABLE>
<CAPTION>
                                                                                          Percentage of
                                                                                          Common Stock
                                                                                            Assuming
                                       Common Stock   Percentage of      Preferred        Conversion of
               Name (1)                    Owned       Common Stock   Stock Owned (2)  Preferred Stock (3)
               --------                 -----------   -------------   ---------------  -------------------
<S>                                     <C>           <C>             <C>              <C>
James K. T. Lu (4)                      62,288,110        10.72%          209,287            10.78%
Diamond Entertainment Corporation
800 Tucker Lane
Walnut, CA  91789

Jeffrey I. Schillen (5)                 40,666,024        7.00%           36,282              7.00%
Diamond Entertainment Corporation
48 St. Lawrence Way
Marlboro, NJ  07746

Murray T. Scott (6)                      6,300,000        1.08%           75,796              1.11%
Diamond Entertainment Corporation
800 Tucker Lane
Walnut, CA  91789

American Top Real Estate Inc.           140,343,755       24.15%             0               24.12%
313 S.E. 199th Ave.
Camas, WA 98607

Hung Yi Chen                            80,000,000        13.77%             0               13.75%
2F. No 79, Sec 1, Jung Shung Rd
Gueishan Shiang
Taoyuan Hsien, Taiwan, 333, R.O.C

Yulie Lin                               80,000,000        13.77%             0               13.75%
9F1.3, No 510, Sec 5, Jung Shiau
E. Rd
Taipei, Taiwan, 110, R.O.C

All directors and officers as a group   109,254,134       18.80%          321,365            18.89%
(3 persons) (7)
</TABLE>

                                       26
<PAGE>

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

(1)  Beneficial ownership is determined in accordance with Rule 13d-3 under the
     Securities Exchange Act of 1934, and is generally determined by voting
     and/or investment power with respect to securities. Unless otherwise noted,
     all shares of common stock listed above are owned of record by each
     individual named as beneficial owner and such individual has sole voting
     and dispositive power with respect to the shares of common stock owned by
     each of them. Such person or entity's percentage of ownership is determined
     by assuming that any options or convertible securities held by such person
     or entity which are exercisable within 60 days from the date thereof
     exercised or converted as the case any be.

(2)  The preferred stock entitles the holder to 1.95 votes for each share owned
     and each share may be converted into 1.95 shares of common stock.

(3)  Assumes conversion of shares of preferred stock beneficially owned.

(4)  Mr. Lu is President, Co-Chief Executive Officer, Secretary and a director.
     Includes 43,600,000 shares of common stock issuable upon exercise of
     warrants and options. Of such options 43,500,000 of Mr. Lu's outstanding
     stock options will be exercisable at such time permitted by the Company's
     convertible series B preferred share reserve clause.

(5)  Mr. Schillen is Co-Chief Executive Officer, Executive Vice President and a
     director. Includes 37,810,750 shares of common stock issuable upon exercise
     of warrants, options, convertible notes and unpaid interest.

(6)  Mr. Scott is a director. Includes 5,250,000 shares of common stock issuable
     upon exercise of warrants.

(7)  Represents 22,593,860 shares of common stock outstanding and 86,660,274
     shares of common stock issuable upon exercise of warrants, options or
     convertible notes and interest.


     There are no agreements or other arrangements or understandings known to us
concerning the voting of our common stock or otherwise concerning control of us
which are not disclosed herein. There are no pre-emptive rights applicable to
our securities.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On August 25, 1997 we executed a consulting agreement with Murray T. Scott, one
of our directors, for long term strategic planning including development of
marketing strategies and development and acquisition of new products. Mr.
Scott's consulting agreement had a term of two years. As compensation under the
agreement, Mr. Scott was issued 250,000 shares of common stock, and warrants to
purchase an additional 250,000 shares of common stock at an exercise price of
$0.10 per share. On July 24, 2001 we lowered the exercise price of the warrants
from $0.10 to $0.005 per share. Such warrants expires on August 24, 2005.

                                       27
<PAGE>

On September 1, 1997, we issued to each of Messrs. Lu and Schillen shares and
granted warrants as consideration for agreeing to defer payment of their
salaries. Mr. Lu was issued 3,000,000 shares of common stock and granted
warrants to purchase an additional 3,000,000 shares of common stock at $0.10 per
share through March 31, 1999. Mr. Schillen was issued 750,000 shares of common
stock and granted warrants to purchase an additional 750,000 shares of common
stock at $0.10 per share through March of 1999. The warrants are fully vested
and were exercisable until March 31, 1999. In March of 1999, we extended the
exercise periods of the warrants until August 24, 2002. On July 24, 2001 we
lowered the exercise price of the warrants from $0.10 to $0.005 per share.

During the quarter ended December 31, 1999, our Board of Directors authorized
the conversion of approximately $1,880,725 in related parties payables into one
year 7% convertible promissory notes of $1,071,225 and $809,500 to GJ Products
Corporation and American Top Real estate, Inc. ("ATRE"), respectively. The due
dates of both notes were extended to September 30, 2001. The terms of the new
convertible notes allow us to make partial principal and interest payments from
time to time and the holders of the convertible notes have the option to request
such payments of the indebtedness evidenced by the notes either in lawful money
of the United States or in an equivalent value consisting of our common stock,
the number of shares to be determined by dividing the payment amount by the
average twenty day bid price for our common stock during the twenty trading days
prior to the date of such payment. Also, during the quarter ended December 31,
1999, GJ Products Corporation to which $1,071,225 in related parties note was
owed by us, transacted a change in ownership of its common stock in which 100%
of its outstanding shares of common stock was sold to a non-related party. On
July 24, 2001, the we authorized and approved the issuance of 140,343,755 shares
of the company's common stock to ATRE upon the conversion by ATRE of the entire
unpaid principal amount of $809,500 of its note and all accrued interest thereon
in the amount of $102,734.41 as of July 23, 2001 at the conversion price of
$0.0065 per share as of the close of business on July 23, 2001, and we also
authorized and approved the issuance of 180,928,097 shares of our common stock
to GJ Products Corporation upon the conversion of the entire unpaid principal
amount of $1,037,775.00 of its note and all accrued interest thereon in the
amount of $138,257.63 as of July 23, 2001 at the conversion price of $0.0065 per
share as of the close of business on July 23, 2001.

At March 31, 1999, we were owed approximately $69,000 from Mr. Lu for advances
and loans. Simple interest is accrued monthly at an annual rate of 10% on the
outstanding balance. For the years ended March 31, 1999 and 1998, we recorded
interest income of $1,170 and $6,607, respectively. This loan amount is due in
December 2001. On March 15, 1999, the unpaid balance of approximately $69,000
was forgiven by us in consideration for Mr. Lu's 1999 and 1998 personal
guarantees for two leases and promissory notes.

In March and June 1999, we issued callable convertible notes for $50,000 and
$100,000 to James Lu and Jeffrey I. Schillen, respectively. The notes bear
interest at 10% per year with principal and interest due on the first
anniversary of the date of issuance. Each note has been extended for an
additional year. The notes also call for any amount of the outstanding principal
to be converted into restricted shares of our common stock at the option of the
lenders at a conversion rate of $0.05 per share. The notes contain certain
demand and piggyback registration rights. On July 24, 2001, we authorized and


                                       28
<PAGE>

approved an amendment of the foregoing callable convertible whereby by we
reduced the conversion rate from. $0.05 to $0.005 and allowed the note holders
to also convert any accrued interest against such notes. Also on July 24, 2001,
we approved the issuance of 12,343,150 shares of our common stock to Mr. Lu upon
conversion of his $50,000.00 note and accrued interest thereon in the amount of
$11,715.75 as of July 23, 2001. As of March 31, 2002, the note for $100,000 was
not converted.

On May 25, 1999, we issued to Mr. Lu, as a bonus, options to purchase 2,500,000
shares of our common stock at $0.05 and options to purchase 1,000,000 shares of
our common stock at $0.10 per share. The options expire on May 24, 2004. On July
24, 2001 we lowered the exercise price of the warrants from $0.10 to $0.005 per
share.

On May 25, 1999, we issued to Mr. Schillen, as a bonus, options to purchase
500,000 shares of common stock at $0.05 and options to purchase 500,000 shares
of our common stock at $0.10 per share. The options expire on May 24, 2004. On
July 24, 2001 we lowered the exercise price of the warrants from $0.10 to $0.005
per share.

On July 24, 2001, the Board of Directors of the Company approved the Company's
2001 Stock Compensation Plan dated July 13, 2001 for the purpose of providing
the Company with a means of compensating selected key employees (including
officers), and directors of the Company and its subsidiaries for their services
rendered in connection with the development of Company with shares of Common
Stock of the Company. The plan authorized the Board of Directors of the Company
to sell or award up to 50,000,000 shares and/or options of the Company's common
stock, no par value at a purchase price of $0.006. On July 13, 2001, 50,000,000
options to purchase the Company's common stock were granted to the selected key
employees, officers and a director of the Company expiring on July 12, 2004. Of
such options granted, James Lu, the President and Jeffrey Schillen the Executive
Vice President of the Company were granted options to purchase 20,000,000 and
10,000,000 shares, respectively, and 5,000,000 options to purchase were granted
to Murray Scott, a Director of the Company. The remaining balance of 15,000,000
options was granted to eight other key employees of the Company. As of March 31,
2002, none of the options granted under this plan were exercised.

On July 24, 2001, the Board of Directors of the Company authorized and approved,
that it was in the best interest of the Company that the exercise rate ranging
from $0.05 to $0.25 of outstanding options granted to the Company's key
employees, officers and directors during the period from April 1996 through May
1999 in the aggregate amount of 11,675,000 shares be amended and lowered to
$0.005. Such outstanding options to purchase the Company's common stock included
options granted to James Lu, Jeffrey Schillen, Murray Scott and three key
employees of the Company of 9,100,000, 2,150,000, 250,000, and 175,000 shares,
respectively. The Board of Directors further authorized and approved the
extension of such options granted to James Lu and Jeffrey Schillen in the amount
600,000 and 400,000 shares, respectively, to April 22, 2004. These options were
outstanding as of March 31, 2002.



                                       29
<PAGE>

On November 16, 2001, Mr. Lu, the company's president waived his right to
exercise 29,000,000 of his outstanding stock options to provide for the company
to meet the stock reserve requirement of it's convertible series B preferred
stock.

On November 16, 2001, for consideration of waiving his aforementioned exercise
rights and for his part in completing the sale of the company's convertible
Series B preferred shares, Mr. Lu was awarded option to purchase 14,500,000
shares of the company's common stock. The option will be exercisable at $0.006
per share at such time permitted by the company's convertible series B preferred
share reserve clause.

The reserve clause calls for a 130% reserve requirement of estimated shares
needed to cover for the conversion of the convertible series B preferred stock.

As of March 31, 2002 and 2001, the Company advanced $222,520 and $101,366,
respectively to an officer of the Company. Simple interest is accrued monthly at
an annual rate of 10% on the outstanding balance and totals $16,798 as of March
31, 2002. The loan is due in December 2002.

As of March 31, 2002, the Company had a miscellaneous receivable due from Golden
Gulf totaling $5,367.

As of March 31, 2002, the Company had a miscellaneous receivable due from GJ
Products (shareholder) $23,750.

As of March 31, 2002 and 2001, the Company was advanced $549,558 and $576,300,
from ATRE (see Note 8), bearing interest at the rate of 14% per annum, and due
on demand.

As of March 31, 2002 and 2001, the Company has a $17,300 and $71,300 note
payable, due to an officer, bearing interest at the rate of 10% per annum, and
due on demand.

As of March 31, 2002 and 2001, the Company has a $-0- and $21,133 note payable,
due to Golden Gulf Capital Group, bearing no interest, and due on demand.




                                       30
<PAGE>


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits


Exhibit
Number       Description
-------      -----------
3.1.1  (6)   Certificate of Incorporation of Trans-Atlantic Video, Inc. filed
              April 3, 1986.
3.1.2  (6)   Certificate of Amendment to Certificate of Incorporation of
              Trans-Atlantic Video filed October 12, 1988.
3.1.3  (6)    Certificate of Amendment to Certificate of Incorporation of
               Trans-Atlantic Video filed March 10, 1989.
3.1.4  (6)   Certificate of Amendment to Certificate of Incorporation of
              Trans-Atlantic Video filed June 9, 1989.
3.1.5  (6)   Certificate of Amendment to Certificate of Incorporation of
              Trans-Atlantic Video filed December 31, 1990.
3.1.6  (6)   Certificate of Amendment to Certificate of Incorporation of
              Trans-Atlantic Video filed July 17, 1991.
3.1.7  (6)   Certificate of Amendment to Certificate of Incorporation of Diamond
              Entertainment Corporation filed November 16, 1993.
3.1.8  (6)   Certificate of Amendment to Certificate of Incorporation of Diamond
              Entertainment Corporation filed March 3, 1994.
3.1.9  (6)   Certificate of Amendment to Certificate of Incorporation of Diamond
              Entertainment Corporation filed October 15, 1996.
3.1.10 (3)   Certificate of Amendment to Certificate of Incorporation of Diamond
              Entertainment Corporation filed with the State of New Jersey State
              Treasurer on May 11, 2000 (originally filed as Exhibit 3.1.2).
3.1.11 (3)   Certificate of Amendment to Certificate of Incorporation of Diamond
              Entertainment Corporation filed with the State of New Jersey State
              Treasurer on July 6, 2000 (originally filed as Exhibit 3.1.3).
3.2    (1)   By-laws, as amended.
4.1    (1)   Certificate for shares of Common Stock.
10.1   (2)   10% Callable  Convertible Note,  dated  March 22, 1999,  in  the
              principal amount of $50,000 issued to Mr. Lu.
10.2   (2)   0% Callable  Convertible  Note,  dated  June  3, 1999,  in the
              principal amount of $100,000 issued to Mr. Schillen.
10.3   (3)   Securities  Purchase Agreement dated May 11, 2000 between the
              Company and eight investors  concerning the issuance and sale of
              50 shares of the Company's Series A Convertible Preferred Stock.
10.4   (3)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Anthony E. Rakos concerning the issuance and sale of
              shares of the Company's Series A Convertible Preferred Stock.
10.6   (3)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Gerald Holland  concerning the issuance and sale of
              shares the Company's Series A Convertible Preferred Stock.
10.7   (3)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Jeffrey Hrutkay, MD concerning the issuance and sale
              of shares of the Company's Series A Convertible Preferred Stock.
10.8   (3)   Registration Rights Agreement, dated May 11, 2000 between Company
              and Charles and Jane Adkins concerning the issuance and sale of
              shares of the Company's Series A Convertible Preferred Stock.


                                       31
<PAGE>

Exhibit
Number       Description
-------      -----------
10.9   (3)   Registration Rights Agreement, dated May 11, 2000 between Company
              and Gordon D. Mogerley concerning  the issuance and sale of shares
              of the Company's Series A Convertible Preferred Stock.
10.10  (3)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Michelle  Levite  concerning the issuance and sale of
              shares of the Company's Series A Convertible Preferred Stock.
10.11  (3)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Ralph Lowry concerning the issuance and sale of shares
              of the Company's Series A Convertible Preferred Stock.
10.12  (3)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and John Bolliger concerning the issuance and sale of
              shares of the Company's Series A Convertible Preferred Stock.
10.13  (3)   Consulting Agreement dated June 1, 2000 between  the  Company and
              Peter Benz.
10.14  (3)   Consulting Agreement dated June 1, 2000 between  the Company and S.
              Michael Rudolph.
10.15  (3)   Consulting Agreement dated June 1, 2000 between  the  Company and
              Owen Naccarato.
10.16  (4)   10% Callable Convertible Note,  dated  June  3, 1999,  in the
              principal amount of $100,000 issued to Mr. Schillen.
10.17  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Anthony E. Rakos concerning the issuance and sale
              of shares of our Series A Convertible Preferred Stock.
10.18  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Gerald Holland concerning the issuance and sale
              of shares our Series A Convertible Preferred Stock
10.19  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Jeffrey Hrutkay, MD concerning the issuance and
              sale of shares of our Series A Convertible Preferred Stock.
10.20  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Charles and Jane Adkins concerning the issuance
              and sale of shares of our Series A Convertible Preferred
              Stock.
10.21  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Gordon D. Mogerley concerning the issuance and
              sale of shares of our Series A Convertible Preferred Stock.
10.22  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Michelle Levite concerning the issuance and sale
              of shares of our Series A Convertible Preferred Stock.
10.23  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and Ralph Lowry Concerning the issuance and sale of
              shares of our Series A Convertible Preferred Stock.
10.24  (4)   Registration Rights Agreement, dated May 11, 2000 between the
              Company and John Bolliger concerning the issuance and sale of
              shares of our Series A Convertible Preferred Stock.
10.25  (4)   Consulting Agreement dated June 1, 2000 between the Company
              and Peter Benz.
10.26  (4)   Consulting Agreement dated June 1, 2000 between the Company
              and S. Michael Rudolph.


                                       32
<PAGE>

Exhibit
Number       Description
-------      -----------
10.27  (4)   Consulting Agreement dated June 1, 2000 between the Company
              and Owen Naccarato.
10.28  (4)   2000 Stock Option Plan dated June 9, 2000.
10.29  (5)   Stonestreet Convertible Series B Preferred Stock Purchase
              Agreement, November 2001
10.30  (5)   Stonestreet LP Warrant Agreement, November 2001
10.31  (5)   Stonestreet Corp Warrant Agreement, November 2001
10.32  (5)   Stonestreet Registration rights Agreement November 2001
10.33  (5)   Filter International Convertible Series B Preferred Stock
              Purchase Agreement, November 2001
10.34  (5)   Filter International Warrant Agreement, November 2001
10.35  (5)   Filter International Registration rights Agreement November
              2001
10.36  (5)   Kaufman Convertible Series B Preferred Stock Purchase
              Agreement, November 2001
10.37  (5)   Kaufman Warrant Agreement, November 2001
10.38  (5)   Kaufman Registration rights Agreement November 2001
10.39  (5)   Alpha Capital Convertible Series B Preferred Stock Purchase
              Agreement, January 2002
10.40  (5)   Alpha Capital Warrant Agreement, January 2002
10.41  (5)   Alpha Capital and Bakmore S.A Registration rights Agreement
              January 2002
10.42  (5)   Balmore S.A. Convertible Series B Preferred Stock Purchase
              Agreement, January 2002
10.43  (5)   Balmore S.A Warrant Agreement, January 2002
10.44  (3)   2000 Stock Option Plan dated June 9, 2000 (originally filed as
              Exhibit 10.16)
10.45  (6)   Lease dated January 6, 2000.
21.1   (6)   Subsidiaries of the Registrant.

---------------
(1)  Incorporated by reference to Registrant's Registration Statement on Form
     S-18, File No. 33-33997.

(2)  Incorporated by reference to Registrant's exhibits to the Annual Report on
     Form 10-KSB for the year ended March 31, 1999, filed July 14, 1999, File
     Number 0-17953 and Annual Report on Form 10-KSB/A for the year March 31,
     1999, filed August 23, 1999, File Number 0-17953.

(3)  Incorporated by reference to Registrant's exhibits to the Annual Report on
     Form 10-KSB for the year ended March 31, 2000, filed August 21, 2000, File
     Number 0-17953.

(4)  Incorporated by reference to Registrant's exhibits to the Annual Report on
     Form 10-KSB/A for the year ended March 31, 2000, filed October 26, 2000
     (File No. 0-17953)

(5)  Incorporated by reference to Registrant's exhibits to the Registration
      Statement on Form SB-2, filed April 18, 2002 (File No. 333-86570).

(6)  Filed herewith.



                                       33
<PAGE>




(b) Reports on Form 8-K

Form 8-K dated April 19, 2002 reported Mr. James Lu's plea and cooperation
agreement with the Office of the United States Attorney for the Eastern District
of New York and the accompanying sentencing. The agreement involved Mr. Lu
pleading guilty to one count of Conspiracy to Launder Money and one count of
violation of the Travel Act. The conduct for which Mr. Lu pled guilty had no
relationship to the Company's business or his activities as an officer of
Diamond Entertainment Corporation.










                                       34
<PAGE>




                                   SIGNATURES

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

                             DIAMOND ENTERTAINMENT CORPORATION


Dated:  July 16, 2002        By:   /s/ James K.T. Lu
                                   ---------------------
                                   James K.T. Lu
                                   President and Co-Chief Executive Officer


Dated:  July 16, 2002       By:    /s/ Fred U. Odaka
                                   ----------------------
                                   Fred U. Odaka
                                   Chief Financial Officer, Principal Financial
                                   Officer and Principal Accounting Officer


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

   Signature                          Title                     Date
   ---------                          -----                     ----

/s/ James K.T. Lu          President, Co-Chief Executive      July 16, 2002
-----------------           Officer, Secretary and
James K.T. Lu               Director

/s/ Jeffrey I. Schillen    Co-Chief Executive Officer,        July 16, 2002
-----------------------     Executive Vice President and
Jeffrey I. Schillen         Director


/s/ Murray T. Scott        Director                           July 16, 2002
----------------
Murray T. Scott







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