SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-KSB

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

                   For the fiscal year ended March 31, 1997

                     Commission File Number:    0-17953

                       DIAMOND ENTERTAINMENT CORPORATION
            (Exact Name of Registrant as Specified in its Charter)

                New Jersey                             22-2748019
      (State or other jurisdiction              (IRS Employer ID No.)
      of incorporation or organization)

      16818 Marquardt Avenue
      Cerritos, California                             90703
      (Address of principal                           Zip Code
       executive offices)

Registrant's telephone number, including area code: (310) 921-3999

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:
                               Title of each class
                          Common Stock, no par value

               Class A Redeemable Common Stock Purchase Warrants

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during the preceding 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 |_|

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

On July  28,  1997  the  aggregate  market  value of the  voting  stock  held by
non-affiliates  of the Registrant  was $1,029,315  based upon the average of the
closing bid and asked price.

Number of shares  outstanding of the issuers common stock,  as of July 28, 1997,
was 17,590,941.

                        Documents Incorporated By Reference

Document                                                    Where Incorporated
 None.                                                              N/A


                                                                             1

<PAGE>




                                    PART I

Item 1.      BUSINESS

General

      Diamond  Entertainment  Corporation  (the  "Company"),  formerly  known as
Trans-Atlantic  Video, Inc.  ("TAV"),  was formed under the laws of the State of
New  Jersey on April 3,  1986.  On July 15,  1991,  the  Company  completed  the
acquisition (the  "Acquisition") of one hundred percent (100%) of the issued and
outstanding   shares  of  Diamond   Entertainment   Corporation,   a  California
corporation  (the "California  Subsidiary").  At the Company's annual meeting of
July 15, 1991,  the  shareholders  approved the change of the Company's  name to
"Diamond Entertainment Corporation."

      As a full-service video product duplicating,  manufacturing, packaging and
distribution  company, the Company was engaged in several distinct video product
activities.  The Multi Level  Marketing  Division and Custom  Video  Duplication
Division were  considered the Custom  Duplication  Division.  Through its Custom
Duplication  Division,  the Company duplicated and packaged video cassettes on a
custom-made basis. Customers for this service included companies and individuals
within the  multi-level  marketing  industry,  who utilized video  cassettes for
product  information,  business  recruitment,  training  or sales and  marketing
purposes. On April 13, 1995, the Board of Directors approved the spin off of the
Custom  Duplication  Division.  (See  "Markets  and  Customers"  for  additional
disclosure).

      The Company's  Multi-Media  Division (formerly known as the "Entertainment
Division") markets and sells a variety of video cassette titles (the "Programs")
to the budget home video  market,  principally  through the Company's New Jersey
sales office. The Company markets its Programs for sale to national and regional
chain stores, department stores, drug stores,  supermarkets and similar types of
retail outlets.  These outlets, in turn generally sell the Company's products to
the public at retail prices ranging from $2.99 to $9.99 per video cassette.  The
Standard  Video  Line  and the  Premier  Line  are  considered  the  Multi-Media
Division.  This division  sells products that are either owned by the Company or
licensed to the Company by licensors.  Management is committed to acquiring more
licensed video titles and upgrading the quality of its packaging and pre-printed
materials in order to enhance its  available  products.  The  customer  base for
these products  consists  predominantly of retail stores and  distributors.  The
Company's  present  inventory  of  Programs  consists  of 833  titles  including
children's cartoons,  motion pictures,  sports highlights,  educational computer
and exercise programs,  423 of which are without copyright  protection  ("Public
Domain Programs") and 410 of which are subject to license agreements  ("Licensed
Programs"). The feature motion pictures offered by the Company include such film
classics  as "Life  With  Father"  and "The  Little  Princess".  The  Company is
continually  identifying new titles to add to its Program  inventory and intends
to expand its selection of Licensed  Programs  which have  historically  shown a
higher profit margin than Public Domain Programs.



                                      2

<PAGE>



      For the year ended March 31,  1997 and 1996,  the Company had net sales to
one  customer  that  amounted  to   approximately   $1,154,000  and  $3,121,000,
respectively.  The  significant  customer  in 1997 and 1996 is Sam's  Club.  The
Company  sells to the  non-affiliated  entity on a net sixty (60) day term.  The
loss of this customer would have a material adverse effect on the Company.

      In July 1991, the Company entered into a non-exclusive licensing agreement
with the Victor Company of Japan, Ltd. ("JVC"),  an unrelated third party, which
authorized the Company to sell and market its products as JVC licensed VHS Video
Cassettes ("JVC Agreement").  The VHS label is commonly  recognized in the video
industry as a mark of JVC  licensed  high  quality  tapes,  subject to stringent
technical  evaluation  during the  manufacturing  and  duplication  process.  In
consideration  of the  granting of the license to the  Company,  the Company was
required to pay to JVC the following  licensing fees: (i) an initial  evaluation
fee of (Y)1,000,000 (Yen) per product  (approximately  $7,500), (ii) a fee to be
paid for each product using the JVC license which is sold or otherwise  disposed
of by the Company,  based upon the annual volume of the duplicated  cassettes as
follows: (a) under 10,000,000  cassettes,  (Y)5 (Yen) (approximately  $.035) per
cassette, (b) 10,000,000 to 15,000,000 cassettes at the Company's option, a flat
rate fee of $350,000 per year or (Y)5 (Yen) per cassette  (approximately  $.035)
per cassette,  (c) in excess of 15,000,000  cassettes ($.0233 for each cassette)
plus,  at the  Company's  option,  $350,000  per year or (Y)5 (Yen) per cassette
(approximately  $.035) and (d) in excess of 50,000,000 cassettes ($1,000,001 per
year). Effective April 1993, JVC changed the royalty charges from (Y)5 (Yen) per
tape to (Y)3 (Yen) per tape if the video tape  program was less than 30 minutes;
and to (Y)4 (Yen) per tape of the video tape program was longer than 30 minutes.
Pursuant to the JVC  Agreement,  the Company  agreed to undertake to comply with
certain  standards  and   specifications   involved  in  the  manufacturing  and
duplicating of video tape  cassettes.  In the event the Company failed to comply
with the strict  quality  control  standards of the licensor,  the license could
have been  revoked and the  Company  would have no longer be entitled to use the
VHS system. The JVC Agreement had a term of 5 years and was to expire in July of
1996. On May 12, 1993, JVC filed a lawsuit  against the Company  alleging breach
of  contract.  A  settlement  between  JVC and the  Company  was reached and the
Company agreed to pay JVC (Y)40,950,370  (Yen) for the previous royalty payments
plus 10% per annum interest charges.  The Company also agreed to pay JVC $50,000
on October 1, 1993,  $50,000 on October 15,  1993,  $50,000 on November 15, 1993
and $50,000 every Quarter afterwards until the previous royalty obligations were
completely satisfied.
The Company settled this agreement as of March 31, 1996.

Markets and Customers

      Through its Custom Video  Duplication  Division,  the Company marketed its
services to (i)  multi-level  marketing  companies,  (ii)  companies  which need
production,   duplication  and  post-production   services  in  connection  with
producing a  corporate  or product  profile  video,  and (iii) video  production
companies which need duplication of their video tapes.

      On April 13, 1995, the Company's Board of Directors  approved the spin-off
of the Custom  Duplication  business to Central  Video, a Mexican  Company.  The
Board  believed that this spin off  transaction  was in the best interest of the
Company since it could not compete effectively in the




<PAGE>



manufacturing  and  duplicating  of video tapes.  The Company's  future focus is
product  development,  acquisition and distribution of video related products to
mass  merchandisers and retailers.  Pursuant to this transaction,  Thomas Cheng,
the  Company's  former  president  and the General  Manager of Central Video USA
operation surrendered his employment contract and returned 146,654 shares of the
Company's  Preferred Stock back to the Company as treasury stock in exchange for
equipment with a carrying value of approximately $170,000 being transferred from
the Company and Mr. Cheng  assuming all remaining  obligations  on these assets.
Management  believes that the terms of this transaction were comparable to those
that could have been reached from sources unrelated to the Company. Mr. Cheng no
longer desired to be an officer of the Company since the Company would no longer
be in the custom  duplicating  business.  Instead,  Mr.  Cheng would  return his
shares of  preferred  stock to the  Company  and devote his future  efforts in a
duplicating business.

      On  May  8,  1995,   the  Company   completed  the  sale  of   Multi-Media
manufacturing and duplicating  equipment and related assets to Central Video for
$750,000. The Company did not sell program inventory, customer lists or accounts
receivable.  The Company has guaranteed  Central Video a minimum of $2,500,000 a
year of production  orders for a three year period.  The Company  satisfied this
obligation in fiscal 1996,  however,  in 1997,  the Company did not fulfill this
obligation  and is  delinquent  in  payments to Central  Video.  The Company has
agreed to pay Thomas Cheng a 3% commission on orders placed with Central  Video.
The Company believes this transaction will enable the Company to concentrate its
efforts and resources into product  development,  marketing and distribution and
at the same time reduce certain  overhead  costs.  The Company will utilize four
contractors  who  specialize  in  video  tape  and  CD-Rom   manufacturing   and
duplication.  The  Company  believes  that these  arrangements  will  enable the
Company to meet its sales and distribution needs.

      The Company  presently markets its Program Inventory to large retail chain
outlets and provides  each retail chain  operator  with  brochures,  advertising
materials  and  literature   describing  and  promoting  the  Company's  Program
Inventory.  The Company's  products are sold through  approximately  twenty five
(25) national retail chains  primarily in the Northeast,  the South and the East
Coast. These outlets sell the Company's products to the general public at retail
prices generally  ranging from $2.99 to $9.99 per video cassette.  For the years
ended March 31, 1997 and 1996, the Company has derived revenues from its Program
Inventory of approximately $6,400,000 and $9,100,000, respectively.

      The Company  markets  certain of its  Programs on a  non-guaranteed  sales
basis, net 30 to 60 days. Non-guaranteed sales entitle the Company to be paid by
the retail outlet  regardless of whether the Programs are ultimately sold to the
general  public and does not permit  returns.  The Company also has  consignment
arrangements with certain catalog companies to deliver tapes to their facilities
pending their receipt of orders by customers. The Company only books sales after
the catalog Company delivers the actual funds from such sales.

      The Company's marketing strategy of distributing  directly to retail chain
outlets has allowed the Company to market its products at all  consumer  levels.
In  particular,  the Company seeks to attract  retail  customers in  department,
drug, discount, electronic, music, toy and book stores as well




<PAGE>



as supermarkets and convenience  stores. The Company has implemented a new sales
method  which  seeks to improve the name  recognition  of the Company as a video
Company specializing in educational,  children and film classic video titles. In
addition, through its sales program, the Company sought to place increased focus
on the promotion of sales to major mass  merchandising  which would increase the
delivery of high volume  orders.  The Company  seeks to have sales  personnel at
various   locations  to  improve  sales  which  were   previously   hampered  by
geographical differences.

      The  Company  believes  the  future  will  hold   technological   changes,
alternative  entertainment sources and distribution channels along with shifting
customer  preferences.  The  Company's  plan to enter  into  different  types of
product  distribution  or  different  distribution  is to acquire DVD titles and
introduce  these titles in the 1997 CES Show.  The Company also intends to be on
line with the  Internet  and  secure a World Wide Web site for its  products  in
1997. In addition,  the Company plans to put together an Audio Book operation in
1997 to  increase  sales of new  audio  products.  These  plans  are to help the
Company to handle the competitiveness in the entertainment marketplace.

Program Inventory

      The  Company's  Program  Inventory  consists  of a  total  of  823  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,  instructional and
exercise programs.  Public Domain Programs account for 51% and Licensed Programs
account for 49%of the Company's Program Inventory.

      Motion  Pictures in the Public  Domain.  The Company offers a total of 193
feature motion picture  titles  including many film classics,  such as Life with
Father,  and The Little  Princess,  which generally appeal to an adult audience.
The  Company  also  markets its own special  collection  of favorite  performers
"Festivals,"  including The Three Stooges,  Shirley Temple, Bob Hope, Jack Benny
and Milton Berle.  The Company has recently  added The Our Gang Comedy  Festival
and Sherlock Holmes Double Feature, as well as a science fiction category.

      Children's  Programs - Licensed  and/or in the Public  Domain.  All of the
Company's  cartoons  are in the Public  Domain  including  21  cartoon  Programs
redubbed in Spanish.  The Company also recently  licensed an animated version of
Beauty and the Beast.  These  Programs  are  generally  30 minutes in length and
consist of a series of  cartoons  selected  by the  Company.  The  Company  also
markets 19 holiday children's features, including A Christmas Carol. The Company
has recently released eighteen Fabulous Fables which it has licenses for such as
Snow White, Cinderella, Robin Hood and Thumbelina.

      In  August  1995,  the  Company  signed  an  agreement  with  Time  Warner
Entertainment  Company,  L.P. ("Time Warner") to cease any further production or
sale of certain  video  cassettes  and to return the  cassettes and materials to
Time Warner for storage of up to three years.





<PAGE>



      Educational  Programs - Licensed.  The  Company  has  licenses to market a
total of 148  educational  videos  which  instruct  preschoolers  and school age
children on topics such as learning numbers,  telling time, simple  mathematics,
color  identification  and other practical skills. In addition,  the Company has
just  introduced a new series of Adventures in Learning  featuring such animated
classics as Johnny Appleseed, Paul Revere's Ride and King Midas.

      Sports Programs - Licensed.  The Company has licenses to market ten sports
videos Thrilling Moments in Basketball.

      Computer Software  Learning Tutorial Programs - Licensed.  The Company has
licensed to market a total of 42 titles of computer  tutorial  videos  including
titles like Quicken for Windows, etc.

      The costs associated with "film masters and artworks" include the purchase
cost of  masters,  initial  fee for  right  to  duplicate,  shooting  costs  and
developing costs.  During the year ended March 31, 1997, the Company acquired in
excess  of 75 new  titles  for a cost of  $531,277.  As of March 31,  1997,  the
Company  valued its Film  Masters and  Artwork at  approximately  $800,000.  The
Company believes that its Film Masters and Artwork is a significant  asset since
the Company derives all of its revenues from their utilization.

Licensed Programs

      The licensed programs that the Company has acquired do contain limitations
from the licensors  regarding the customer base where the Company can distribute
its products.

      Under its licensing  agreement with Aims Media,  Inc. ("Aims Media"),  the
Company may sell educational  Programs produced by Aims Media to the home market
but  is  limited  in its  distribution  so as not to  sell  to  schools,  public
libraries or government  agencies.  This license agreement expired on October 1,
1995 and is exclusive in the United States and  "non-exclusive"  in Canada.  The
Company obtained an extension of its Licensing  Agreement to October 1, 1997 and
has  acquired  thirteen  new  titles  for  distribution  such as The Life of Lou
Gehrig, The Life of Louis Armstrong, The Life of Knute Rockne, plus two all star
sports videos  featuring Babe Ruth,  Jackie Robinson and Joe Louis.  The Company
has also just released four Music Video Programs  starring such  internationally
known  artists as Nat King Cole,  Count Basie and Spike  Jones.  Pursuant to the
terms of the  licensing  agreement,  the Company  pays Aims Media a fee based on
both the length of the Programs and the cost of producing  the master  delivered
to the  Company.  This fee is paid fifty (50%)  percent  upon  selection  of the
Program and the balance upon receipt of the master. The Company credits this fee
and  production  costs  against a royalty fee payable to Aims Media equal to ten
(10%)  percent  of  gross  revenues  generated  from  the  sale of the  Licensed
Programs.





<PAGE>



      The various licensing  agreements  provide for an advance payments ranging
from $1,500 to $15,000 and subsequent  royalty  payments based upon either a per
video sold fee or a percentage of wholesale price fee. As of March 31, 1997, the
Company expended $135,141 on the various licensing agreements.

Operations and Production

      The  Company  continuously  seeks  to  expand  its  Program  inventory  by
identifying  titles  which appeal to children  and those which  include  popular
performers,  characters or themes.  The Company also identifies videos which are
classic  films,  are  educational  or  instructional  videos or which  have been
requested by  distributors.  The Company enters into a licensing  agreement with
respect to those  Programs  that are subject to copyright  protection or obtains
documentation  confirming public domain status from various unaffiliated Program
suppliers.

Raw Materials

      The  Company  imports  certain  of the raw  materials  for  its  products.
Accordingly, the Company is vulnerable to the possibility of stoppage, delays or
interruptions  of supplies due to foreign  conditions,  such as shipping delays,
acts of war,  political  instability or restrictions on foreign trade over which
the Company has no control.  The Company's  operations  have not previously been
affected by foreign or political unrest.

Competition

      The  Company   competes  with  many  other   companies  which  are  better
established,  have  broader  public and  industry  recognition,  have  financial
resources substantially greater than those of the Company and have manufacturing
and advanced distribution  facilities than those which now or in the foreseeable
future will become  available  to the  Company.  The Company  competes  with all
distributors  of video tapes,  including the major film studios and  independent
production  companies.  The  Company's  competed  with many  custom  duplication
companies,  including Cassette  Duplicating Co.,  Celebrity  Duplicating and VCA
Technicolor.  In order to effectively compete in the marketplace the Company has
implemented  better quality control procedures to ensure its standard quality. A
cost reduction plan has also been established to reduce its raw material cost in
order to be more competitive in price. In June of 1995, the Company spun off its
Custom  Duplication  Division  and sold its  manufacturing  equipment to Central
Video.  The  Company  continues  its  efforts to acquire  and license and better
quality  titles and thus improve the  performance  of the Company's  products in
retail stores. The Company,  has acquired a series of computer software learning
videos and a series of animal  related  tapes to further  provide  products with
strength to  penetrate  additional  markets.  The Company also  acquired  CD-ROM
titles and introduced these titles in the January 1996 CES Show.





<PAGE>



Financing Debt

      In July 1996,  the Company  received a new financing  agreement to provide
the Company with ongoing working  capital.  The credit line is for $2,500,000 of
which $500,000 will be guaranteed by the Company's  President.  The Company will
assign their  accounts  receivable and inventory and will pay interest at 3% per
annum plus the lender's prime rate.  Fees and charges may be charged in addition
to interest.  As of March 31, 1997 the outstanding  loan balance was $1,918,135.
The  Company is  technically  in  default  on this loan  because it did not meet
certain  net  income  criteria.  The line of credit  continues  to be reduced by
$2,500 per day commencing May 1997.

      During the quarter  ended June 30, 1996,  the Company  issued  convertible
promissory notes with 10% interest per annum and a 7% commission.  The principle
amount is  convertible  in whole or in part into  shares of common  stock of the
Company at a conversion  price equal to 65% of the average closing bid price for
the common stock for five days immediately prior to the conversion.  In no event
shall  the  conversion  price be less  than $.20 per share or more than $.75 per
share. In connection with the debentures, the Company granted 1,000,000 warrants
exercisable  at $.25 per share to two  consultants.  Warrants for 46,000  shares
were  exercised for $11,500 during the year ended March 31, 1997.As of March 31,
1997,  convertible  promissory  notes of $290,000 were  converted into 1,450,000
shares  of the  Company's  common  stock by  several  offshore  companies  under
Regulation  S  and  $967,988  of  convertible   promissory   notes  payable  are
outstanding and as of May 1997 are in default by the Company.

American Top Real Estate, Inc. ("ATRE")

      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.  Since its  organization,  ATRE has acquired two (2)
parcels  of  land  as  hereinafter   described   ("Parcel  1"  and  "Parcel  2,"
respectively).  ATRE is owned fifty percent (50%) by the Company and twenty five
percent (25%) by each of Mr. Steven Chen and Mr. Henry Kuo. Mr. Chen and Mr. Kuo
are not related or  affiliated  with the Company.  The Company has a balance due
from ATRE in the amount of $1,588,068 and $1,519,838 on March 31, 1997 and March
31, 1996,  respectively,  (exclusive of an initial $50,000  investment).  In May
1995,   ATRE  entered  into  a  sales  agreement  for  two  acres  of  land  for
approximately  $940,000.  In December  1995, the sale for one parcel of land was
closed and the Company  received  their portion from ATRE of $48,475,  which was
used to reduce the receivable from ATRE. In September 1996 the sale of the other
parcel of land was closed  and the  proceeds  were  retained  for future  sewage
construction needed for the remaining property, however, the Company did receive
$121,600  from ATRE. It is  anticipated  that in 1997 monies will be received by
the Company for  reimbursement  of monies  reinvested from the proceeds of prior
sales of property.  There are two additional  parcels of property to be sold. In
June  1997 the  Company  commenced  negotiations  for the  sale of land  parcels
totaling 10 acres for  approximately  $2,500,000.  The Company  anticipates  the
realization of approximately $1,000,000 from this sale in 1998.





<PAGE>



      Parcel 1 consists of 20 acres of  undeveloped  land in Clark County in the
State of Washington  (83rd Street and I-205) and is owned seventy  percent (70%)
by ATRE and  thirty  percent  (30%) by  unrelated  third  parties.  Parcel 1 was
purchased for  $1,280,086  in 1989, of which  $930,086 has been paid as of March
31, 1997 and a balance of $350,000 remains outstanding. Over the last five years
the Company has contributed 50% of the $930,086 or $465,043 for Parcel I and the
remaining  50% was  contributed  by four  private  investors.  The  Company  has
guaranteed  up to  $175,000  on the  outstanding  balance  and two of the  other
investors  are obligated for the balance.  The  outstanding  balance owed to the
unrelated  sellers of Parcel 1 is evidenced by promissory notes bearing interest
at the approximate average annual rate of 9.5%. The promissory notes are secured
by Parcel 1 and had terms which expired in 1995 and 1996.

      Parcel 2  consists  of 5 1/2  acres of  undeveloped  property  also in the
County of Clark,  State of  Washington.  Parcel 2 is owned  twenty five  percent
(25%) by ATRE, twenty-five percent (25%) by Addie Soo and fifty percent (50%) by
One  Pacific  Corp.  Ms. Soo and One Pacific  Corp.  are  unaffiliated  with the
Company.  The property was  purchased for a total of  approximately  $729,000 in
1989 of which  $568,551 of the  principal has been paid as of March 31, 1995 and
$162,030 remains  outstanding.  ATRE is obligated for $65,415 on the outstanding
balance of which the Company has guaranteed payment of $65,415.  The outstanding
balance owed to the  unrelated  sellers of Parcel 2 is  evidenced by  promissory
note  bearing  interest at the  approximate  average  annual  rate of 9.5%.  The
promissory  note is secured  by Parcel 2 and has terms  which  expired  April 1,
1995. As of July 1997, one parcel was sold in September 1996.

      The  Promissory  Note  maturity  dates and  original  land  owners  are as
follows:

      (a)   Kasma       $-0-                    Parcel 1
      (b)   Swanson     $-0-                    Parcel 1
      (c)   Knable      $204,000.00 extended    Parcel 1
      (d)   Fisher      $ 53,316.00 01/01/98    Parcel 1

      Upon the sale or  development  of the land, the proceeds will be repaid to
all the lenders that loaned ATRE money for land  acquisition  costs and advances
based on their ownership  percentage.  The remaining balance will be distributed
among all the shareholders of ATRE based on their ownership percentage.

      The partnership agreement requires that all partners contribute capital or
loans according to the shareholders'  percentages required by ATRE whenever they
are due either for land  acquisition,  principal,  interest,  property  taxes or
other  expenses.  As of March 31,  1997,  Mr. Kuo has  contributed  a balance of
$479,075,  Mr.  Chen  has  contributed  $459,863  and  DEC is  owed  $1,588,068,
including accrued interest. The source of the Company's  contributions have been
primarily from the financing activities of the Company.

      In June  1997  the  Company  commenced  negotiations  for the sale of land
parcels totaling 10 acres for approximately $2,500,000.  The Company anticipates
the realization of approximately  $1,000,000 from this sale in 1998. The Company
intends  to use the  funds  it  receives  from the  consummation  of the sale to
improve the Company's cash flow for use in the Company's operations.




<PAGE>



Employees

      As of March 31, 1997, the Company employed 28 people, 3 executives;  17 in
warehousing and related activities;  and 8 in administration,  sales and related
activities.   During  the  peak  season  the  Company  has  employed  additional
individuals in the manufacturing operations to help with the surge for Christmas
sales orders. The Company reduces its manufacturing  force after the peak season
to improve  the  profitability  of the  operations  when sales  orders  decline.
Neither the Company's or the  California  Subsidiary's  employees are unionized.
Management believes that it has good working relations with its employees.

Item 2.     PROPERTIES

      The Company leased 41,500 square feet of space at 1395  Manassero  Street,
Anaheim, California from a non-affiliated party at a monthly rent of $24,108.85.
Pursuant to an  amendment to the lease,  the Company  agreed to extend the lease
until July 31, 1996 subject to a five (5%) percent annual increase commencing at
the end of the current term. The Company subleases the facility to Central Video
for the remainder of the lease terms.  The Company  previously used the facility
as its  headquarters.  After  completing the transaction with Central Video, the
Company  moved its  headquarters  to its previous  Custom  Duplicating  Division
office located at 3961 E. Miraloma Avenue,  Anaheim,  California 92806 until the
lease expired on January 31, 1996. The Company  currently  leases  approximately
22,080 square feet of space  located at 16818  Marquardt,  Cerritos,  California
from a non-affiliated party at a monthly rent of $9,273.60. The lease expires on
December 31, 2000.

      The Company  leased 5,805 square feet at 3961  Miraloma  Avenue,  Anaheim,
California from a non-affiliated  party for a monthly rent of $3,250.  The lease
expired on January 31, 1996.

      The Company leases 1,200 square feet at 4400 Route 9 South,  Freehold, New
Jersey from a non-affiliated  party for a monthly rent of $1,950 for the purpose
of marketing and sales of the video tape products for its Multi-Media  Division.
The lease  expired  in May 1997,  however,  such  lease has been  extended  on a
month-to-month basis.

      The  Company  leases  13,000  square  feet at 1501 East  Street,  Anaheim,
California  from  Central  Video for a monthly rent of $5,850 for the purpose of
storage and receiving goods. The lease expires September 1998.

      The Company  believes that it has sufficient  space for operations for the
next twelve months.

Item 3.     LEGAL PROCEEDINGS

      Desktop Images, Inc. v. Diamond Entertainment Corporation, et al. 
(United States District Court, District of Colorado). On August 29, 1995, 
Desktop Images, Inc. filed a civil action against eight defendants including the
Company alleging infringement of Plaintiff's federally registered




<PAGE>



copyright,  unfair and false  advertising  under  federal  law,  and  fraudulent
misrepresentation  under Colorado  common law. The complaint  involves one video
tutorial  product  that was  licensed  to the  Company.  The  license  agreement
contains an  indemnification  of the Company in the event that the  licensor did
not own the rights to the  product.  On or about  October  5,  1995,  one of the
defendants filed a motion to dismiss the complaint or in the alternative to stay
the  proceedings  and to compel  arbitration.  The  Company  joined the  pending
motion.  On June 18, 1996,  the Court  denied the pending  motion and denied the
alternative motion to stay the motion and compel arbitration.  On June 20, 1996,
the Company filed its answer denying that the Company intentionally infringed or
intentionally  unfairly competed.  On June 28, 1996, the Company filed an appeal
of the  District  Court's  order  and a motion  to stay the  proceedings  in the
District Court until the appeal can be heard by the Appellate  Court.  On May 8,
1997,  the  Appellate  Court  granted  the  Company's  motion to be  voluntarily
dismissed as a party to the appeal.  As of May 15, 1997,  each of the defendants
who had joined the appeal had been voluntarily  dismissed by the Appellate Court
except for Anthony Ames, an individual, and Silicon/Ames, Inc. While the Company
may have  liability  to the  plaintiff,  the Company  will seek  partial or full
indemnification  from the licensor.  The Company is not distributing the product
which is the subject of the lawsuit.  Plaintiff is seeking to enjoin the Company
from  infringing  Plaintiff's  copyright,  using  Plaintiff's  trade  name,  and
claiming rights in the subject product;  damages including the Company's profits
or  statutory   damages;   an  increase  of  damages  due  to  alleged   willful
infringement;  damages for unfair  competition and fraudulent  misrepresentation
including exemplary and punitive damages, attorney fees; costs; interest; treble
damages and  punitive  damages.  Discovery  has been taken and was  scheduled to
conclude  on May  29,  1997.  The  parties  have  been  involved  in  settlement
discussions, but settlement does not appear to be likely.

      Superior Fast Freight, Inc. v. Diamond  Entertainment  Corporation (United
States Bankruptcy Court, Central District of California).  On or about March 21,
1996, a default judgment was entered against the Company awarding damages in the
amount of  $65,286.63.  The suit was filed on behalf of Superior  Fast  Freight,
Inc., a carrier that is no longer in existence, against the Company. The Company
was not properly  served,  and filed a motion to set aside the default which was
granted by the court. The Company does not believe that Plaintiff is entitled to
any monies. The case arises out of a carrier bankruptcy and involves claims that
the carrier  undercharged  a number of  companies,  including  the Company,  for
freight services. The Company has been advised by special counsel that the judge
has written an opinion that would wipe out all the undercharged actions filed by
the Plaintiff in this bankruptcy  case, and the judge has entered a blanket stay
on the further prosecution on all those cases.

      Famous Music  Corporation v. Diamond  Entertainment  Corporation and James
K.T. Lu (United States District Court, Southern District of New York). On May 1,
1997,  Famous Music Corporation filed a civil action against the Company and its
President  alleging   infringement  of  the  Plaintiff's   federally  registered
copyright in the musical  composition  entitled "I'm Popeye the Sailor Man" (the
"Composition").  The  Complaint  involves  the  making  and  distribution  of  a
videogram  entitled  "Diamond  Entertainment  Corporation  Presents  Popeye (Two
Pack)" which allegedly contains the Composition. The videogram in question is in
the  public  domain  which  is not  contested  by the  Plaintiff,  however,  the
Plaintiff is claiming the making and distributing of the public domain videogram
infringes Plaintiff's alleged ownership in the Composition. The Company's answer
was due on July 7, 1997. Since December 11, 1986, the Company ceased  production
and distribution of any product which contained the Composition.




<PAGE>



            On July 25,  1996 the  Company  and Fun Time,  Inc.  entered  into a
distribution  agreement with Centre  Entertainment,  Inc.  relating to a program
entitled "A Norman Rockwell Christmas Story." Centre Entertainment, Inc. claimed
that the Company was in breach of the  agreement and on May 12, 1997 the parties
participated in a non-binding  mediation relating to the contractual dispute. As
a result of the mediation,  the parties executed a Memorandum of  Understanding,
pursuant to which the parties settled the contractual  dispute. In June of 1997,
licenses for Norman  Rockwell  Christmas Story and celebration of Christmas were
terminated. As a result all masters and inventory for these titles were returned
to the licensor in June of 1997.

      The Company does not believe  that an adverse  decision in any one lawsuit
would have a material  adverse  impact on the  Company  however,  the  aggregate
affect of an adverse  decision in a majority of the lawsuits  outstanding  could
have a material adverse impact on the Company.

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

            None.

                                    PART II

Item 5.     MARKET FOR REGISTRANT'S COMMON
            EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Common Stock of the Company is traded in the  over-the-counter  market
and was quoted on the NASDAQ system until it was delisted on August 16,1994. The
high and low bid quotations  for the Common Stock for each  quarterly  period of
the Company's last two fiscal years are listed below. There is no public trading
market for the Units or the Class B Warrants contained therein, offered pursuant
to this Prospectus, or the Preferred Stock.

                      Common Stock
                     High       Low
1991
   1st quarter        1/2      1-3/8
   2nd quarter      1-3/8        1/8
   3rd quarter        1/8        3/4
   4th quarter        3/4        3/8

                      Common Stock
                    High        Low
1992 
   1st quarter      1            1/4
   2nd quarter        13/16      1/2
   3rd quarter        13/16      1/2
   4th quarter        23/32      9/32





<PAGE>



1993
   1st quarter        11/32      7/32
   2nd quarter        13/32      5/32
   3rd quarter       4-3/8     1-1/8
   4th quart         2-1/4       7/8

1994
   1st quarter         7/8       5/8
   2nd quarter         5/8       1/4
   3rd quarter         5/16      1/10
   4th quarter        11/16      1/4

1995
   1st quarter         1/4       1/8
   2nd quarter         1/8       1/10
   3rd quarter         1/8          0
   4th quarter           0          0

1996
    1st quarter       7/16          0
    2nd quarter      11/16        .22
    3rd quarter      13/16        .28
    4th quarter       3/8         .15

1997
    1st quarter        .27        .17
    2nd quarter        .27        .13


The quotations set forth in the table above reflect inter-dealer prices, without
retail  mark-up,  mark-down or  commission,  and may not  necessarily  represent
actual transactions.

      On July 28, 1997 the closing price of the Common Stock was $.11.

      As of July 28, 1997,  there were  approximately  1239 holders of record of
the Company's Common Stock.




<PAGE>



Item 6:

DIAMOND ENTERTAINMENT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------


Year ended March 31, 1997 compared with the year ended March 31, 1996

Results of Operations

The Company's operating loss for the year ended March 31, 1997 was $1,186,472 as
compared to an operating  loss of $571,303  for the same period last year.  This
increase in operating  loss was  primarily  attributable  to a 29%  reduction in
sales that could not support the operating expenses of the Company.

The Company's  sales for the years ended March 31, 1997 and 1996 were $6,444,586
and $9,117,113,  respectively. The decrease in sales of approximately $2,700,000
is primarily  attributable  to the Company's lack of working  capital to provide
the Company the ability to deliver  orders.  Management  believes  its  customer
base,  has  decreased  over the prior year,  however,  it also believes it could
recover to previous levels based upon  managements  intent to expand its product
offerings  into higher  growth and higher margin  products  with licensed  title
CD-ROM  and  DVD  distribution,  or  through  the  acquisition  of  an  existing
distribution company.

Cost of sales for the years ended March 31,  1997 and 1996 were  $3,761,175  and
$5,678,340 or 58% and 61% of sales, respectively.

Gross  profit for the years ended March 31,  1997 and 1996 were  $2,683,411  and
$3,438,773,   or  42%  and  39%  of  sales,   respectively.   Depreciation   and
amortization,  included in the cost of sales, for the years ended March 31, 1997
and 1996 were $64,872 and $67,216, respectively.

Operating  expenses for the years ended March 31, 1997 and 1996 were  $3,869,883
and  $4,010,076,  respectively.  The  Company  has  instituted  a plan to reduce
operating expenses by streamlining its operations and reducing personnel from 32
to 22 employees.

Interest  expense for the years ended March 31, 1997 and 1996 was  $267,798  and
$221,140,  respectively.  As of March  31,  1997,  the  outstanding  debt of the
Company was  approximately  $7,000,000  primarily  all of which is classified as
current.

The  Company's  auditors  have issued a going  concern  report.  There can be no
assurance  that  management's   plans  to  reduce  operating  losses  or  obtain
additional financing will be successful.

Liquidity and Capital Resources

The Company's  working capital  [deficit] at March 31, 1997 was  $(2,722,958) as
compared with a working  capital  [deficit] of  $(1,711,626)  at March 31, 1996.
This increase in the working capital  [deficit] of  approximately  $1,000,000 is
primarily the result of the Company's net losses.

Operations

On May 8, 1995,  the Company closed a sales  agreement  with a Mexican  company,
Central  Video,  for  $750,000  by  allowing  credit to the  Company  for future
duplication  services.  The  general  manager  of  Central  Video is the  former
President of the Company.  The Company received $750,000 of duplication services
and surrendered  equipment  having a book value of approximately  $630,000.  The
Company  guaranteed  Central  Video's  general manager a minimum of $2,500,000 a
year of  production  orders for three  years and agreed to pay  Central  Video's
general manager a 3% commission on orders the Company places with Central Video.
The Company  satisfied  this  obligation in fiscal 1996,  however,  in 1997, the
Company did not fulfill this obligation and is delinquent in payments to Central
Video.

On December 21, 1995, the Company entered into a production agreement for annual
minimum  orders  totaling  $500,000  with a company whose sole owner is a former
director  and  officer  of the  Company.  In  January  1996,  the  Company  sold
production equipment with a book value of $64,744 to this entity for $45,000.




<PAGE>




Year ended March 31, 1997 compared with the year ended March 31, 1996

Liquidity and Capital Resources [Continued]

Operations [Continued]

For the year ended March 31, 1997,  cash utilized for operations was $962,527 as
compared to  $1,433,641 of cash  generated  from  operations  for the year ended
March 31, 1996. The Company  intends to utilize future debt or equity  financing
or debt to equity  conversions to help satisfy past due  obligations  and to pay
down its debt obligations.

The Company has frequently  been unable to pay its  obligations  for merchandise
and services as they become due. The Company has not been  operating  profitably
and it cannot be certain that it will earn sufficient profits in the foreseeable
future which would permit the Company to meet its  anticipated  working  capital
needs. A lack of working capital has inhibited the Company's  ability to deliver
orders.  Should the Company experience continued cash flow deficiencies and lack
of profitability, additional financing may be required.

During fiscal year end March 31, 1997, the Company did engage various  financial
consultants  to assist the Company with its debt  financing.  These  consultants
were issued options as consideration for partial payment of these services.

In May of 1997, the Company entered into an agreement and plan of merger between
BDC Acquisition,  Inc., a newly formed  wholly-owned  subsidiary of the Company,
and Beyond Design Corporation ["BDC"]. The Company's subsidiary has acquired all
of the issued and  outstanding  stock of BDC for the issuance of an aggregate of
2,200,000  shares of the  Company's  common stock and the  assumption of certain
outstanding  obligations  of BDC.  Management  believes  that this  merger  will
contribute an additional  $1,000,000 in sales  revenue.  The Company is pursuing
moving all  locations to one  premises  which will enable the Company to further
reduce expenses.

Investing

Capital  expenditures  for the years ended March 31, 1997 and 1996 were  $47,638
and  $87,524,  respectively.  For the  years  ended  March  31,  1997 and  1996,
investments  in masters and artwork were  $531,277 and  $415,422,  respectively.
Management continues to seek to acquire new titles to enhance its product lines.

The Company has a 50% real estate  interest in ATRE. In May of 1995, the Company
entered into a sales agreement for two acres of land for approximately $940,000.
The Company received proceeds of $48,475 from ATRE on one parcel which closed in
December of 1995.  These proceeds reduced the receivable from ATRE. In September
1996,  the  Company  closed  the  escrow on the second  parcel at  $550,000  and
retained  proceeds for the construction of the sewage  requirement of this whole
parcel of 20 acres,  in order to sell the  remaining  pieces  successfully.  The
Company received $121,600 from ATRE during fiscal 1997. As of July 9, 1997, ATRE
is  negotiating  for the sale of three parcels of property with three  different
non-affiliated  entities.  The Company believes that contracts will be finalized
for  these  properties  and be  signed  by the end of July and  closed  with net
proceeds of approximately  $900,000 by May of 1998 and an additional  $1,000,000
by August of 2000. The Company is required by the partnership  agreement to make
additional  advances to the ATRE  partnership.  A further  delay in the sales of
these parcels will require  additional  capital  contributions to be made. These
additional  capital  contributions  by the Company and any further  delay in the
sales of these parcels will have a negative  impact on the  Company's  financial
position.  Therefore,  ATRE and the Company  continue to seek additional  equity
partners to inject capital to be used for ATRE's short- and long-term needs.






<PAGE>



Year ended March 31, 1997 compared with the year ended March 31, 1996

Liquidity and Capital Resources [Continued]

Financing

On August 30, 1996,  the Company  obtained an asset based lending credit line of
$2,500,000 at interest  rate of 3% above prime rate.  The Company used this line
to repay a revolving credit line provided by a private lender.  The Company owes
approximately $2,000,000 on the line of credit. This amount is backed by pledged
the  Company's  receivables  and  inventory  and $500,000 is  guaranteed  by the
Company's president.  The Company is technically in default on this loan because
it did not meet  certain net income  criteria.  The line of credit is reduced by
$2,500 per day  commencing  May of 1997.  The Company  believes  that  achieving
improved debt financing,  sales growth and obtaining profitability could provide
the means of financial and  operational  support for the next twelve months.  If
any of these factors are not  achieved,  adverse  effects  could result.  Should
these adverse effects materialize,  management intends to seek additional equity
financing from  unaffiliated  individuals in private  offerings and to secure an
additional line of credit until operations generate a positive cash flow. If the
Company is unsuccessful in obtaining  additional  equity or debt financing,  the
Company's liquidity and capital resources could be adversely affected. There can
be no guarantee that the Company will be successful in these efforts.

During fiscal 1997, the Company negotiated convertible promissory notes with 10%
interest per annum and a 7% commission.  The principal  amount is convertible in
whole or in part into shares of the common  stock of the Company at a conversion
price  equal to 65% of the average  closing  bid price for the common  stock for
five trading days  immediately  prior to the  conversion.  In no event shall the
conversion  price be less than $.20 per  share or more than $.75 per  share.  In
conjunction  with  the  debentures,   the  Company  granted   1,000,000  options
exercisable  at $.25 per  share  to two  consultants.  The  Company  recorded  a
financing cost of $25,000 for the fair value of the options granted. As of March
31, 1997,  debentures of $290,000 were converted  into  1,450,000  shares of the
Company's  common stock by several off shore  companies  under  Regulation S and
$967,988 of convertible  promissory notes payable are outstanding and in default
as of May 1997.  Interest  expense of $24,702  was  recorded  for the year ended
March 31, 1997.
 The fair  value of the  options  was  determined  based  upon the fair value of
services received by the Company.

The Company owes approximately $3,000,000 in debt financing by March 31, 1998.

New Authoritative Pronouncements

The FASB has also issued SFAS No. 115,  "Accounting  for Certain  Investments in
Debt and Equity  Securities,"  which the Company  adopted on April 1, 1995. SFAS
No. 115  requires  management  to classify  its  investments  in debt and equity
securities as trading,  held-to-maturity,  and/or available-for-sale at the time
of purchase and to reevaluate such determination at each balance sheet date. The
Company does not anticipate that it will have many investments that will qualify
as  trading  or  held-to-maturity  investments.  Debt  securities  for which the
Company  does  not  have the  intent  or  ability  to hold to  maturity  will be
classified  as  available-for-sale,   along  with  most  investments  in  equity
securities.  Securities  available-for-sale are to be carried at fair vale, with
any  unrealized  holding  gains and losses,  net of tax,  reported in a separate
component of shareholders' equity until realized.

The Financial  Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting  Standards  ["SFAS"]  No.  121,  Accounting  for  the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of 1995.
SFAS No. 121 establishes  accounting  standards for the impairment of long-lived
assets, certain identifiable  intangibles,  and goodwill related to those assets
to be held  and  used,  and  for  long-lived  assets  and  certain  identifiable
intangibles  to be  disposed  of. The Company  adopted  SFAS No. 121 on April 1,
1996.  Adoption of SFAS No. 121 did not have a material  impact on the Company's
financial  statements.  In the future,  if the sum of the expected  undiscounted
cash flows is less than the carrying  amount of the asset,  an  impairment  loss
would be recognized.




<PAGE>



Year ended March 31, 1997 compared with the year ended March 31, 1996

Liquidity and Capital Resources [Continued]

New Authoritative Pronouncements [Continued]

The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995.  SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity  instruments  issued to employees as contrasted
to the  intrinsic  valued based method of  accounting  prescribed  by Accounting
Principles  board  ["APB"]Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees."  The  recognition  requirements  of SFAS No. 123 are  effective  for
transactions  entered into in fiscal  years that begin after  December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company  adopted the  disclosure  requirements  on April 1, 1996.  SFAS 123 also
applies to  transactions  in which an entity  issues its equity  instruments  to
acquire  goods  or  services  from  non-employees.  Those  transactions  must be
accounting for based on the fair value of the consideration received or the fair
value of the equity instrument  issued,  whichever is more reliably  measurable.
This requirement is effective for  transactions  entered into after December 15,
1995.

Impact of Inflation

The Company  does not believe  that  inflation  had an impact on sales or income
during the past several years.  Increases in supplies or other  operating  costs
could adversely affect the Company's  operations;  however, the Company believes
it could  increase  prices to offset  increases  in costs of goods sold or other
operating costs.


Item 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  See Financial Statements following Item 13 of this Annual Report on Form 10-K.

 Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR
            ACCOUNTING AND FINANCIAL DISCLOSURE

  None.

                                    PART III

Item 9.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  The directors and executive officers of the Company are listed below, followed
by a brief description of their business experience during the past five years.


Name                       Age                          Position
-------------              ---                  ------------------------------
James K.T. Lu              50                   Chairman of The Board;
                                                Chief Executive Officer;
                                                Secretary and Director

Jeffrey I. Schillen        51                   Executive Vice President Sales
                                                and Marketing and Director

Murray T. Scott            75                   Director




<PAGE>



   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. Directors receive
no compensation for serving on the Board, except for reimbursement of reasonable
expenses  incurred in attending  meetings.  Officers are elected annually by the
Board of Directors and, subject to existing employment agreements,  serve at the
discretion of the Board.

  Under  the  certificate  of  incorporation  of the  Company  ("Certificate  of
Incorporation"), the Board of Directors of the Company is divided into three (3)
classes,  with each class to be elected by the  shareholders  every three years.
The Company's Board presently  consists of three (3) directors:  one (1) Class 1
director  whose term  expired in 1995,  two (2) Class 2  directors  whose  terms
expired in 1994.

Background of Executive Officers and Directors

  Jeffrey I.  Schillen  (Class 1  Director).  Mr.  Schillen  is  Executive  Vice
President  of Sales and  Marketing of the Company and has been a Director of the
Company since inception in April of 1986. Prior to the Acquisition, Mr. Schillen
was the President  and Treasurer of the Company since 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 which 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.

  James Lu (Class 2 Director).  Mr. Lu has been a director of the Company since
February  1989.  Mr. Lu was elected as Chairman of the Board, Chief Executive 
Officer and Secretary of the Company as of March 1, 1990.  In July 1991, Mr. Lu 
was appointed to the additional position of President.  In order to involve  
other executives in the management of the Company, Mr. Lu resigned in September 
1991 as President and Chief Operating Officer and Mr. Cheng was appointed to 
such positions.  Mr. Lu was President and Chief Executive Officer of the 
California Subsidiary from 1985 to 1990.  In May 1995, Mr. Lu was appointed as 
President of the Company upon Mr. Cheng's departure from the Company. 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 Masters 
of Business Administration (M.B.A.) from California State University in 1981.

  Murray T. Scott (Class 2 Director).  Mr. Scott was appointed as a director by 
the Board of Directors in November 1993 when the Board was increased to 
seven (7) members.  Mr. Scott has been the President and Chief Executive Officer
of Gregg's Furniture, a custom furniture building business in Victoria, Canada, 
since 1958.  His involvement with Gregg's Furniture today is currently in a 
consulting and advisory capacity.

  The Company has no standing audit,  nominating or compensation  committee,  or
committees  performing  similar  functions  except with respect to the Company's
stock option plan. See "RESTRICTED  STOCK PLAN." During the year ended March 31,
1997, the Company held one Board meeting.  No director attended less than 75% of
such meetings.  No director of the Company has resigned or declined to stand for
re-election  due to a  disagreement  on any  matter  relating  to the  Company's
operations, policies or practices. [UPDATE]

Item 10.    Executive Compensation [Update]

                                                    SUMMARY COMPENSATION TABLE
<TABLE>

                                        Annual Compensation         Long-Term Compensation

                                                                             Awards            Payouts
       (a)                  (b)        (c)       (d)      (e)        (f)              (g)        (h)        (i)

                                                       Other         Restricted Securities
                                                       Annual        Stock      Underlying      LTIP     All Other
Name and Principal Posit   Year       Salary    Bonus  Compensation  Award      Options/SARs   Payouts  Compensation
-----------------------    ----      --------   -----  -----------   ---------  -----------    -------  ------------
<S>                        <C>       <C>          <C>      <C>        <C>         <C>            <C>       <C>

James Lu                   1996      $130,500     0          0          0           0              0       $33,742
 Chief Executive Officer   1995       167,885     0          0          0           0              0        37,290
                           1994       185,718     0          0          0           0              0        37,988
 

Jeffrey I. Schille         1996      $ 93,000     0          0          0           0              0       $12,547
 Executive Vice Presiden   1995       122,308     0          0          0           0              0        19,631
                           1994       113,550     0          0          0           0              0        26,340


</TABLE>


<PAGE>




Employment Agreements

      Mr. Lu entered into an employment  agreement with the Company for a period
of ten (10) years  commencing on January 1, 1991. Mr. Lu shall receive  $150,000
per year,  subject to annual  adjustments.  The Company also  maintains two life
insurance  policies on Mr. Lu, both of which total $1,500,000 one of which names
the Company as beneficiary.  Beginning June,  1992, the amount was reduced to an
aggregate  of  $1,000,000.  The  Company  also pays Mr. Lu's  medical  insurance
premiums,   and  leasing  and  insurance   payments  for  Mr.  Lu's  automobile,
aggregating $15,752.81 per annum.

      The Company has an employment  agreement with Jeffrey I. Schillen expiring
on December 31, 2000.  Pursuant to the agreement,  Mr.  Schillen will receive an
annual  salary of $90,000  subject  to a consumer  price  index  increase  and a
discretionary bonus as determined by the Board of Directors which may not exceed
2% of the Company's  annual pre-tax  income from  operations.  In addition,  the
Company  maintains a  $1,000,000  life  insurance  policy for the benefit of Mr.
Schillen's designated beneficiary.

      On April 23, 1996,  the Board of Directors  reserved  1,000,000  shares of
common stock for  distribution to two officers of the Company.  The common stock
can be purchased in installment  payments with a five year  promissory note with
interest at 6% per annum.

      None of the  employment  agreements  which the Company has with any of the
executives,  indicated  above,  provides for any specific  compensation  to such
individuals should their respective employment agreements be terminated prior to
expiration of the term of such agreements.

      Beginning  January  1,  1997,  both  Mr.  Lu and Mr.  Schillen  agreed  to
temporarily  reduce  their  monthly  salary to $1,000 each until the end of 1997
when the  condition  of the  Company  becomes  more  stable and each will resume
receiving salary at their normal levels.

Restricted Stock Plan

      On May 25, 1989,  the Company's  directors and  stockholders  approved the
Company's 1989 restricted  stock plan (the  "Restricted  Plan")  authorizing the
granting of shares of Common  Stock.  Pursuant  to the  Restricted  Plan,  up to
100,000 shares of Common Stock subject to certain restrictions, (the "Restricted
Shares")  could be granted to officers  and other key  employees  of the Company
until May 2, 1994. The Board of Directors is  responsible  for  determining  the
individual who will be granted Restricted Shares, the consideration,  if any, to
be paid by the grantee,  and the terms and conditions of the Restricted  Shares.
The  terms  and  conditions  of each  grant  of  Restricted  Shares  need not be
identical  to  previous  grants.  No  officer  who  serves  as a  director  will
participate in the granting of Restricted Shares to himself.

      On May 25,  1989,  the  Board  of  Directors  granted  a total  of  85,000
Restricted Shares to certain officers of the Company.  The foregoing  Restricted
Shares are not transferable  unless certain  financial  performance goals of the
Company  are met.  Such  goals  have been set  based  upon  after-tax  income of
$350,000 for fiscal 1989;  $600,000  for fiscal 1990 and  $1,000,000  for fiscal
1991. In the event such income levels are not met in any year, one-third of each
of the  grantee's  Restricted  Shares  will be  forfeited  and  returned  to the
Company.  The  Company  did not meet  any of the  financial  performance  goals.
Accordingly, all of the Restricted Shares have been forfeited as a result of the
Company's  failure to meet the performance goals for fiscal 1989, 1990 and 1991,
respectively.





<PAGE>



Stock Options

      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.

      As to any stockholder who owns 10% or more of the Company's  Common Stock,
the option price per share of an  incentive  option will be no less than 110% of
the fair market value of the  Company's  Common Stock on the date the  incentive
options  are granted  and such  options  shall not have a term in excess of five
years. No stock options have been granted to date.

Item 11.   SECURITY OWNERSHIP OF CERTAIN
                 BENEFICIAL OWNERS AND MANAGEMENT [Update]

      The  following  table sets forth  information  as of July __,  1997,  with
respect to the beneficial  ownership of the outstanding  shares of the Company's
Preferred  Stock and Common  Stock by each person known by the Company to be the
beneficial  owner  of  more  than  5% of the  outstanding  shares,  each  of the
directors and all directors and executive  officers as a group.  See  "DIRECTORS
AND EXECUTIVE  OFFICERS OF THE REGISTRANT."  Unless  otherwise  indicated below,
such  individuals  have the sole power to control  the vote and  dispose of such
shares of capital stock.

<TABLE>

                                                                                       Percentage
                                                                         Shares of     (%) of
                               Shares      Percentage                    Common Stock  Common Stock
                               of          (%) of         Shares         Assuming      Assuming
                               Common      Total          of             Conversion of Conversion
                               Stock       Common         Preferred      Preferred     of Preferred
Name                           Owned       Stock          Stock 3)       Stock(3)      Stock           
----                          ------       ----------     ---------      ----------    ------------
<S>                          <C>            <C>            <C>            <C>            <C>    

James K.T. Lu (1)........    4,412,785      34.22%         209,287        408,110        3.16%
c/o Diamond Entertainment
  Corporation
16818 Marquardt Avenue
Cerritos CA  90703
 
Jeffrey I. Schillen
  (2).............           3,020,750      28.43%          36,282         70,750        0.955%
c/o Diamond Entertainment
  Corporation
4400 Route 9 South
Freehold, NJ  07728

Murray Scott (4)........       800,000       6.20%          75,796        147,802        1.15%
c/o Diamond Entertainment
  Corporation
16818 Marquardt Avenue
Cerritos, CA  90703

Pacesetter Int'l Co.....     2,538,446      19.68%             -0-            -0-          -0-
Hong Kong

All directors and
 officers as a group
 (3 persons)............     8,233,535      63.85%         321,365        626,662        4.86%

(1)   Mr. Lu is the Chief Executive Officer; Secretary and Director of the Company.

</TABLE>




<PAGE>



(2)   Mr. Schillen may be deemed a "parent" or "promoter" of the Company as such
      terms are defined in the Securities Act of 1933, as amended,  by virtue of
      being a founder and a Senior Executive Vice President of the Company.

(3)   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.

(4) Mr. Scott is a Director of the Company.


Item 12.    CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS

      On March 31, 1990, in  consideration  for the issuance of 60,000 shares of
capital  stock  of the  California  Subsidiary,  certain  individuals  including
Messrs.  Lu,  Cheng  and  Winters  issued  unsecured  promissory  notes  to  the
California Subsidiary for $1,380,000.  The promissory notes provided interest at
the annual rate of 9% and were due March 31, 1995. Pursuant to such transaction,
the following individuals issued promissory notes to the California  Subsidiary:
James Lu - $529,000;  Thomas  Cheng - $368,000;  Edward  Winters,  Sam Chang and
Murray  Scott - $160,000  each.  On March 31,  1994,  the Company  canceled  the
promissory  notes  which had an  aggregate  principal  balance of  $865,836  and
recorded  compensation  expense of the same amount.  On December  20, 1994,  the
Board of Directors  revoked its June 23, 1994 election to forgive the receivable
and reduced the price on the unpaid shares of stock to $.125 per share. In March
1995,  the Company  forgave the accrued  interest  receivable of $274,115 on the
stock subscription receivable.

      On July 15, 1991 as a part of a business  combination with  Trans-Atlantic
Video, Inc., the Company issued 1,000,000 shares of voting preferred stock which
were convertible into 1,950,000 shares of voting common stock.

      The  Company has  advanced  approximately  $1,200,000  to ATRE in order to
enable American Top Real Estate to meet the  obligations and thereby  protecting
the Company's 50% owned investment.  The Company paid $50,000 for a 50% interest
in ATRE. This investment is accounted for on the equity method. The investee has
not  incurred  any  significant  earnings  or  losses to date,  therefore,  this
investment does not reflect any  adjustments for earning and losses.  On January
19, 1994,  ATRE  entered into an amended  agreement to sell a parcel of land for
$4,400,000.  ATRE has a 70% interest in this land. In August of 1994, the escrow
agreement for  $4,400,000  was canceled on this contract due to the final user's
request for a two year delay. ATRE declined to accommodate this request.

      In May 1995, ATRE entered into a sales agreement for two acres of land for
approximately  $940,000.  In December  1995,  the sale of one parcel of land was
closed  and the  Company  received  its  portion  of the  proceeds  from ATRE of
$48,475,  which  was used to  reduce  the  accounts  receivable  from  ATRE.  In
September  1996 the sale of the other parcel of land was closed and the proceeds
were retained for future sewage  construction needed for the remaining property,
however,  the Company did receive  $121,600 from ATRE. It is anticipated that in
1997  monies  will be  received  by the  Company  for  reimbursement  of  monies
reinvested  from  the  proceeds  of  prior  sales  of  property.  There  are two
additional  parcels of property to be sold.  In June 1997 the Company  commenced
negotiations  for the sale of land parcels  totaling 10 acres for  approximately
$2,500,000.  The Company anticipates the realization of approximately $1,000,000
from this sale in 1998.

      The  Company  has  loaned  money  to its  President  in the form of a note
receivable totaling $61,986 at an annual interest rate of 10% for the year ended
March 31, 1997. The note is due in March 1998.




<PAGE>



      On July 15, 1992, the Company signed a promissory note for $510,000 with a
former  Underwriter.  The interest  rate for the note was ten (10%)  percent per
annum. The former Underwriter  received a total of 25,500 shares of common stock
purchase warrants exercisable at $15 per share, for a term of three (3) years in
consideration of the entire amount.  On August 28, 1992, the former  Underwriter
voluntarily  surrendered  these  warrants to the Company and the  warrants  were
canceled.  The total  indebtedness of $676,031 was due April 1, 1995 and on June
15, 1995 this  obligation was purchased by an unaffiliated  Company.  On June 2,
1995, an agreement was reached to issue 2,538,446 shares of the Company's common
stock for this  obligation.  The  conversion is effectuated at $.26 per share of
common stock.  The market value at the time of conversion  was $.10 per share of
common stock.

      On August 12,  1992 the  Company  obtained  two (2) lines of credit from a
private  investor.  Interest is twelve  (12%)  percent  interest  per annum.  As
additional  consideration for the line of credit,  the Company issued a total of
25,000 warrants to purchase 25,000 shares of common stock at $30 per share on or
before August 12, 1997.  The lines of credit are  collateralized  by (i) a first
security  interest  [subordinate  to the bank] in certain  accounts  receivable,
inventory  and  equipment  in  connection  and (ii) a security  interest  in the
Company's  shares of ATRE.  These loans are personally  guaranteed by two of the
officers  of the  Company.  On  October  27,  1993 the  Company  was  granted an
extension on the total  indebtedness  of $752,042 to the private  investor until
April 15, 1995 or from the net  proceeds  of a public  offering,  whichever  was
earlier.  On March 31,  1995,  the  Company  owed a total of  $812,455  of which
$752,042 was principal and $60,413 was accrued interest payable. The Company was
in default on the due date,  however  these  obligations  were  assigned  to the
Company's Chief  Executive  Officer in May 1995. in July 1995 this obligation of
$752,042  was  converted  into shares of common stock and the $60,413 of accrued
interest was expensed.

      On August 31, 1995 the Company  renewed a revolving line of credit with an
investor. The revolving line of credit is for up to a maximum of $1,250,000 with
a commitment  to borrow a minimum of $2,000,000  during a one year period.  This
loan is made in amounts  which is equal to 70% of the pledged  invoice's  amount
and it is secured by a first security  interest in certain  accounts  receivable
and personally guaranteed by an officer of the Company.  Repayment is to be made
upon receipt of any payment of pledged  invoices,  with interest rates of 3% for
within 30 days, 6% for within 60 days, and 9% for after 60 days.

      On  August  30,  1996  the  Company  established  a line of  credit  up to
$2,500,000.  Of this amount,  $2,000,000  is backed by pledged  receivables  and
inventory  and $500,000 is  guaranteed  by the  Company's  President.  Interest,
billed  quarterly,  is at Chemical  Bank's prime rate plus 3%. The prime rate at
March 31,  1997 was 8.5%.  The  Company is  technically  in default on this loan
because  it did not  meet  certain  ent  income  criteria.  The  line of  credit
continues to be reduced by $2,500 per day commencing May 1997.

      During the  quarter  ended June 30, 1996 the  Company  issued  convertible
promissory notes with 10% per annum and a 7% commission. The principal amount is
convertible  in whole or in part into shares of the Company's  Common Stock at a
conversion  price equal to 65% of the  average  closing bid price for the Common
Stock for five days immediately  prior to the conversion.  In no event shall the
conversion  price be less than $.20 per  share or more than $.75 per  share.  In
conjunction  with  the  debentures,   the  Company  granted  1,000,000  warrants
exercisable  at $.25 per share to two  consultants.  Warrants for 46,000  shares
were exercised for $11,500 during the year ended March 31, 1997. As of March 31,
1997,  convertible  promissory  notes of $290,000 were  converted into 1,450,000
shares  of the  Company's  Common  Stock by  several  offshore  companies  under
Regulation  S  and  $967,988  of  convertible   promissory   notes  payable  are
outstanding and as of May 1997 are in default by the Company.  Interest  expense
of $24,702 was recorded for the year ended March 31, 1997.




<PAGE>



      In March 1993, a loan was renegotiated for the sum $292,058 with principal
payments of $5,000 per month with  interest of 10% per annum until  November 14,
1999. The balance due at March 31, 1997 was $137,720.

      On November  18,  1995,  the Company  entered  into a loan  agreement  for
$200,000  with an  individual  and a  Company  with  interest  at a rate of 50%.
Principal  and interest  were due on February 18, 1996.  At March 31, 1996,  the
outstanding balance on this loan was $150,000. The Company was in default on the
loan agreement. As of July 10, 1996, this loan was paid off.

      Louis  Chase,  the former  Senior  Vice  President  and a Director  of the
Company is an owner of  National  Media,  Inc.  ("National  Media").  On January
8,1990,  the Company  entered into a ten year  agreement  with  National  Media,
whereby the Company agreed to manage all phases of National  Media's  production
equipment.  The Company has been paying National Media  $88,032.36  annually for
the use of all  production  equipment.  In  addition,  on January  6, 1992,  the
Company signed an agreement with Sony Corp. of America to guarantee an equipment
lease that Sony extended to National  Media,  Inc. In the event  National  Media
Inc. fails to pay Sony, the Company will be  responsible  for the payments.  The
monthly lease payment was $8,285 and expired on December 31, 1993.  For the year
ended March 31, 1994, the Company has paid $99,420 to Sony on behalf of NMI. The
Company treated this payment as equipment  rental expense.  Commencing  April 1,
1994,  the  Company  pays  NMI  $161,999.76  annually  for the use of all  their
equipment.  National  Media has  agreed to replace an  equipment  which  becomes
obsolete,  based on  industry  standards.  the  company  also has an  option  to
purchase  the  production  equipment  during the length of the  agreement  at an
agreed upon fair market value.  On December 21, 1995,  Louis Chase  resigned and
terminated  his  employment  agreement  with the Company as part of a settlement
agreement.  Effective  January 1, 1996 and ending December 31, 1996, the company
entered into a monthly $10,000  consulting  agreement with this individual.  The
individual  agreed to surrender der 30,769 shares of preferred  stock and 10,000
shares  of  common  stock  upon  execution  of  the   settlement   agreement  in
consideration  for 5% of net profits of the  Company for the fiscal  years ended
March 31, 1997 and 1998.

      On April 13, 1995, the Company's Board of Directors  approved the spin-off
of the Custom Duplication business to Central Video, a Mexican company. Pursuant
to this  transaction,  Thomas  Cheng,  the  Company's  former  President and the
General  Manager of Central  Video,  USA Operations  surrendered  his employment
contract and returned  146,654 shares of the Company's  Preferred  Stock back to
the Company as treasury stock.  The  consideration  for the sale was $750,000 of
future duplication services.

      On May 8, 1995,  the  Company  closed the sales  agreement  with a Mexican
company,  Central  Video,  for  $750,000 by  allowing  credit to the Company for
future duplication services.  The General Manager of Central Video is the former
President  of  the  Company.   The  Company  is  receiving  $750,000  of  future
duplication  services and is giving up equipment  with a value of  approximately
$630,000.  In addition,  Central Video entered into a sublease for the remaining
thirteen month lease.  The Company has guaranteed the Company's former President
a minimum of $2,500,000 a year production  orders for the next three years.  For
the year ended March 31, 1997 the Company did not meet the annual  minimum order
requirement.  The Company has agreed to pay the Company's  former President a 3%
commission on orders the Company places with Central Video.

      As of December 31, 1996, there are two employment agreements in effect for
annual compensation  totaling $240,000.  These agreements  terminate in the year
2001 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.




<PAGE>



The common  stock can be  purchased  in  installment  payments  with a five year
promissory note with interest at 6% per annum at $.25 per share.

      In May of 1995, three debt obligations  totaling  $1,131,434 were assigned
to the Company's Chief Executive  Officer.  This officer issued promissory notes
to the three  entities.  On July 19, 1995,  the Chief  Executive  Officer of the
Company converted the three debt obligations  totaling $1,131,434 into 8,212,785
shares of the Company's  common stock.  The conversion was  effectuated at a 38%
premium rate of .138 per share of common stock.  The market value at the time of
conversion was .10 per share of common stock.

      On April 23,  1996,  the Board of  Directors  agreed to cancel an existing
$86,636 stock subscription receivable.

      The Company engaged Wharton Capital for three months  commencing  April 1,
1996 to arrange a line of credit of  $2,000,000  or more for a 2%  commission at
closing.

      In May and June of 1996, the Company  engaged three  consultants for total
fees of $11,000  monthly for a period of six months.  In addition to the monthly
compensation,  the Company will repay the consultants for business  expenses not
to exceed $750 per month.

      One of the consultants,  Trenwith  Company,  also received an aggregate of
1,000,000 warrants with an exercise price of $.25 per share.

      In October 1996 the Company entered into a joint venture agreement with an
unrelated  party  whereby the parties  distribute  each  other's  catalogues  of
products and share  equally in any profits of such  distribution.  The agreement
will expire in October 1997. In connection with the joint venture agreement, the
Company  loaned  $18,000 at a 6% interest rate to the other party.  The loan was
due in January 1997 and remains unpaid as of March 31, 1997.

      On April 30, 1997 the  Company  through its wholly  owned  subsidiary  BDC
Acquisition  Corp., a New Jersey corporation (the  "Subsidiary"),  closed on the
merger  with  Beyond  Design  Corporation,  a  California  corporation  ("BDC"),
pursuant to an Agreement  and Plan of Merger which had been executed on February
27,  1997.  According  to the terms of the  Agreement  and Plan of  Merger,  the
Subsidiary  acquired all of the issued and outstanding  capital stock of BDC for
the issuance of an aggregate of 2,200,000  shares of Common Stock of the Company
and the assumption of certain outstanding obligations of BDC.

      The Company  believes each of the foregoing  transactions  are on terms no
less favorable than could be obtained from unaffiliated third parties.






<PAGE>



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

Reports on Form 8-K

      The  Company  filed a report on Form 8-K on April 30,  1997.  Such  report
covered the  Company's  merger  with Beyond  Design  Corporation,  a  California
corporation,   ("BDC")whereby  the  Company  acquired  all  of  the  issued  and
outstanding capital stock of BDC in exchange for the issuance of an aggregate of
2,200,000  shares of common stock of the Company and the  assumption  of certain
outstanding obligations.

Exhibits.

  The  following is a list of exhibits  filed as part of this  filing.  Where so
indicated by footnote,  the exhibits have been  previously  filed and are hereby
incorporated by reference.

Exhibit No.


2.1     Agreement  dated  December  28,  1990,  by and  among the  Company,  the
        California   Subsidiary   and  the   shareholders   of  the   California
        Subsidiary*****

3.1     Articles of Incorporation, as amended**

3.2     By-laws, as amended**

4.1     Certificate for shares of Common Stock**

10.1    Agreement  between the  Registrant  and the  California  Subsidiary,  as
        amended on March 13, 1989***

10.2    Agreement between the Registrant and Aims Media, Inc., dated 
        October 12, 1988**

10.3    Agreement between Registrant and Hollywood Video, Inc., dated 
        May 18, 1988**

10.4    Employment Agreement between the Registrant and Jeffrey I. Schillen, 
        dated January 1, 1989**

10.5    Sublease  agreement  between  National Media and the  Registrant,  dated
        March 1,  1989,  for  property  leased at 920 Route  33,  Freehold,  New
        Jersey**

10.6    Registrant's Incentive Stock Option Plan, effective January 1, 1989**

10.7    Registrant's Restricted Stock Plan, effective May 25, 1989**

10.8    Consulting Agreement between Registrant and Hibbard Brown & Co., Inc**

10.9    Amended Agreement  between the Registrant and the California  Subsidiary
        dated September 9, 1989****

10.10   Agreement between the Registrant and Imageways,  Inc., dated February 1,
        1990****




<PAGE>



10.11   Agreement between the Registrant and Majestic Entertainment, Inc., dated
        February 2, 1990****

10.12   Agreement between the Registrant and American Media, Inc., dated 
        January 1, 1990****

10.13   Agreement between the Registrant and Coe Films, Inc., dated 
        February 15, 1990****

10.14   Agreement  between the Registrant and the California  Subsidiary,  dated
        December 29, 1990****

10.15   Employment Agreement between James Lu and the Company's California 
        Subsidiary*

10.16   Form of Exclusive Agreement with Independent Distributors of Multi-Level
        Marketing Company*

10.17   Lease for Office Space in Anaheim, California*

10.18   Employment Agreement between Edward Winters and the Company's California
        Subsidiary*



<PAGE>



10.19   Employment Agreement between Thomas Cheng and the Company's California 
        Subsidiary*

10.20   Loan Agreement and Related Documents between General Bank and the 
        California Subsidiary dated December 27, 1990*

10.21   Unsecured Promissory Notes of certain stockholders of the Company, 
        aggregating $1,380,000*

10.22   $150,000 Promissory Note to Hibbard Brown & Co., Inc. dated 
        September 11, 1991*

10.23   $50,000 Promissory Note to Hibbard Brown & Co., Inc. dated 
        September 24, 1991*

10.24   $100,000 Promissory Note to Hibbard Brown & Co., Inc. dated 
        October 2, 1991*

10.25   Form of Agreement by and between JVC and the Company dated June 25,1991*

10.26   Agreement by and between  Macrovision  Corporation and the Company dated
        May 23, 1991*

10.27   General Bank Loan Extension Agreements*

10.28   Employment Agreement between Roger Wu and the Company's California 
        Subsidiary*

10.29   $500,000 Promissory Note to First National Realty Associates, Inc. dated
        June 28, 1991*

10.31   Form of  Financial  Consulting  Agreement by and between the Company and
        Hibbard Brown & Co., Inc.(1)

10.32   $510,000 Promissory Note to Hibbard Brown & Co., Inc. dated as of 
        July 9, 1992.

10.33  Agreement  and Plan of Merger by and between BDC  Acquisition  Corp.  and
       Beyond Design Corporation, dated February 27, 1997.

22.1    Subsidiaries*

*       Incorporated by reference to Registrant's Registration Statement on 
        Form S-1, No. 33-4213 dated November 29, 1991.

**      Incorporated by reference to Registrant's Registration Statement on 
        Form S-18, No. 33-33997.

***     Incorporated  by  reference  to  Amendment  No.  1 to  the  Registrant's
        Registration  Statement  on Form  S-18  filed  with the  Securities  and
        Exchange Commission on June 14, 1989 under Registration Number 33-27596.

****    Incorporated  by  reference  to  Amendment  No.  3 to  the  Registrant's
        Registration  Statement  on Form  S-18  filed  with the  Securities  and
        Exchange  Commission  on  August  11,  1989  under  Registration  Number
        33-27596.

*****  Incorporated by reference to the Company's proxy statement dated June 11,
1991.



<PAGE>



Financials Statements

The following financial statements are included in Item 7:

  Independent Auditor's Report......................................F-1

  Balance Sheet as of March 31, 1997 ...............................F-2....F-3

  Statements of Operations for the years ended March 31, 1997
  and 1996..........................................................F-4

  Statements of Stockholders' Equity [Deficit] for the years ended
  March 31, 1997 and 1996...........................................F-5

  Statements of Cash Flows for years ended March 31, 1997 and 1996..F-6....F-7

  Notes to Financial Statements.....................................F-8....F-18



<PAGE>



                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors and Stockholders of
  Diamond Entertainment Corporation



            We  have  audited  the   accompanying   balance   sheet  of  Diamond
Entertainment  Corporation as of March 31, 1997,  and the related  statements of
operations,  stockholders' equity [deficit],  and cash flows for each of the two
fiscal years in the period ended March 31, 1997. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

            We  conducted  our  audits in  accordance  with  generally  accepted
auditing  standards.  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 financial  statements referred to above present
fairly,   in  all  material   respects,   the  financial   position  of  Diamond
Entertainment  Corporation  as of  March  31,  1997,  and  the  results  of  its
operations  and its cash  flows for each of the two  fiscal  years in the period
ended  March  31,  1997,  in  conformity  with  generally  accepted   accounting
principles.

            The accompanying  financial  statements have been prepared  assuming
that the Company will  continue as a going  concern.  As discussed in Note 15 to
the  financial  statements,  the  Company  has  suffered  recurring  losses from
operations,  has a  significant  working  capital  deficiency,  has  encountered
difficulties in paying its creditors on a timely basis, and is in default on the
convertible  debentures  and a  production  agreement.  These  conditions  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's plans in regard to these matters are also described in Note 15. The
financial  statements do not include any adjustments  that might result from the
outcome of these uncertainties.





                                          MOORE STEPHENS, P.C.
                                          Certified Public Accountants.

Cranford, New Jersey
May 20, 1997


                                       F-1

<PAGE>



Item 7:   Financials

DIAMOND ENTERTAINMENT CORPORATION
------------------------------------------------------------------------------


BALANCE SHEET AS OF MARCH 31, 1997.
------------------------------------------------------------------------------



Assets:
Current Assets:
  Accounts Receivable - Net                                         $ 2,121,579
  Inventory                                                           1,858,420
  Prepaid Expenses and Deposits                                          33,542
  Related Party Receivable                                               61,986
  Other Receivables                                                      18,802
                                                                    -----------

  Total Current Assets                                                4,094,329

Property and Equipment:
  Leasehold Improvements                                                 28,258
  Furniture, Fixtures and Equipment                                     762,060

  Total - At Cost                                                       790,318
  Less:  Accumulated Depreciation                                       568,428

  Property and Equipment - Net                                          221,890
                                                                    -----------

Film Masters and Artwork                                              4,590,445

Less:  Accumulated Amortization                                       3,780,634

  Total Film Masters and Artwork - Net                                  809,811
                                                                    -----------

Other Assets:
  Accounts Receivable - ATRE                                          1,588,068
  Investment in ATRE                                                     50,000
  Security Deposits                                                      43,491
                                                                    -----------

  Total Other Assets                                                  1,681,559

  Total Assets                                                      $ 6,807,589
                                                                    ===========


The Accompanying Notes are an Integral Part of These Financial Statements.



                                        F-2

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
------------------------------------------------------------------------------


BALANCE SHEET AS OF MARCH 31, 1997.
------------------------------------------------------------------------------




Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
  Cash Overdraft                                                    $   157,746
  Accounts Payable                                                    2,842,152
  Convertible Promissory Notes Payable                                  967,988
  Notes Payable                                                       2,043,859
  Royalties Payable                                                      23,278
  Lease Obligations Payable                                              14,770
  Accrued Expenses                                                      424,356
  Customer Deposit                                                      322,450
  Related Party Payable                                                  20,688
                                                                    -----------

  Total Current Liabilities                                           6,817,287

Long-Term Liabilities:
  Notes Payable                                                          89,313
  Lease Obligations Payable                                              14,355

  Total Long-Term Liabilities                                           103,668

  Total Liabilities                                                   6,920,955

Commitments and Contingencies [5]                                            --

Stockholders' Equity [Deficit]:
  Convertible Preferred Stock - No Par Value, 5,000,000
   Shares Authorized, 483,251 Issued as of March 31,
   1997 [of which 172,923 are held in Treasury]                         376,593

  Common Stock - No Par Value, 100,000,000 Shares
   Authorized; 15,390,941 Shares Issued and Outstanding              10,013,334

  Additional Paid-in Capital                                         (1,310,231)

  Retained Earnings [Deficit]                                        (9,129,401)

  Sub-Total                                                             (49,705)
  Less: Treasury Stock [Preferred] - At Cost                             48,803
        Deferred Costs [5I]                                              14,858

  Total Stockholders' Equity [Deficit]                                 (113,366)

  Total Liabilities and Stockholders' Equity [Deficit]              $ 6,807,589
                                                                    ===========



The Accompanying Notes are an Integral Part of These Financial Statements.



                                        F-3

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
------------------------------------------------------------------------------


STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------


                                                             Years ended
                                                               March 31,
                                                         1 9 9 7       1 9 9 6
                                                         -------       -------

Sales - Net                                            $6,444,586   $ 9,117,113

Cost of Sales                                           3,761,175     5,678,340
                                                       ----------   -----------

  Gross Profit                                          2,683,411     3,438,773
                                                       ----------   -----------

Operating Expenses:
  Selling Expenses                                      1,676,506     1,478,772
  General and Administrative Expenses                   1,837,450     1,853,837
  Factoring Fees                                          236,119       556,445
  Bad Debt Expense                                        119,808       121,022
                                                       ----------   -----------

  Total Operating Expenses                              3,869,883     4,010,076
                                                       ----------   -----------

  Operating [Loss]                                     (1,186,472)     (571,303)
                                                       ----------   -----------

Other Expenses [Income]:
  Interest Expense                                        267,798       221,140
  Interest Income - Related Party                        (106,391)     (116,440)
  Other Income                                            (44,333)           --
                                                       ----------   -----------

  Other Expenses - Net                                    117,074       104,700
                                                       ----------   -----------

  [Loss] Before Extraordinary Item                     (1,303,546)     (676,003)

Extraordinary Item                                             --       390,000
                                                       ----------   -----------

  Net [Loss]                                           $(1,303,546) $  (286,003)
                                                       ===========  ===========

Net Income [Loss] Per Share:
  Before Extraordinary Item                            $     (.08)  $      (.08)
  Extraordinary Item                                           --           .05
                                                       ----------   -----------

  Net [Loss] Per Share                                 $     (.08)  $      (.03)
                                                       ==========   ===========

  Weighted Average Number of Shares Outstanding        16,287.280     8,605,246
                                                       ==========   ===========




The Accompanying Notes are an Integral Part of These Financial Statements.



                                        F-4

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
------------------------------------------------------------------------------


STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]
------------------------------------------------------------------------------


<TABLE>


                           Convertible                                                                   Treasury           Total
                         Preferred Stock       Common Stock       Additional   Retained       Stock       Stock        Stockholders'
                        Number of           Number of               Paid-in    Earning     Subscription[Preferred]Deferred  Equity
                          Shares    Amount   Shares     Amount      Capital    [Deficit]   Receivable    At Cost   Costs   [Deficit]
<S>                       <C>      <C>      <C>        <C>        <C>          <C>          <C>        <C>      <C>       <C>

  Balance - March 31,1995  629,905 $376,593  2,143,710 $7,804,369 $(1,410,231) $(7,539,852) $(125,000) (13,000)       --  $(907,121)

Preferred Stock Returned  (146,654)      --         --         --          --           --         --  (35,803)       --    (35,803)

Stock Subscription 
Canceled                        --       --         --         --          --           --     38,364       --        --     38,364

Conversion of Debt to 
Equity                          --       -- 10,751,231  1,807,465          --           --         --       --        --  1,807,465

Net [Loss] for the year 
ended March 31, 1996            --       --         --         --          --     (286,003)        --       --        --   (286,003)
                           -------   ------    --------   --------  ---------       ------    -------  -------      ----   --------

  Balance - April 1,1996   483,251  376,593  12,894,941  9,611,834 (1,410,231)  (7,825,855)   (86,636) (48,803)       --    616,902

Stock Options Issued 
[5I][7E][13D]                   --       --          --         --    100,000           --         --       --  (100,000)        --

Stock Options Exercised  
[13D]                           --       --   1,000,000    100,000         --           --         --       --        --    100,000

Financing Expense 
[7E][13D]                       --       --          --         --         --           --         --       --    50,000     50,000

Consulting Expense [5I]         --       --          --         --         --           --         --       --    35,142     35,142

Stock Subscription 
Canceled                        --       --          --         --         --           --     86,636       --        --     86,636
 
Exercise of Options [7E]        --       --      46,000     11,500         --           --         --       --        --     11,500

Debt Converted to Shares 
of Common Stock [7E]            --       --   1,450,000    290,000         --           --         --       --        --    290,000

Net [Loss] for the year 
ended March 31, 1997            --       --          --         --         --   (1,303,546)        --       --        -- (1,303,546)
                            ------  -------    --------   --------  ---------   ----------     ------  -------   -------  ---------

 Balance - March 31, 1997  483,251  376,593  15,390,941 10,013,334 (1,310,231)  (9,129,401)        --  (48,803)  (14,858)  (113,366)
                           =======  =======  ========== ==========  =========    =========     ======  =======   ========   ========



The Accompanying Notes are an Integral Part of These Financial Statements.

</TABLE>


                                        F-5

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                              Years ended
                                                                March 31,
                                                          1 9 9 7       1 9 9 6
                                                          -------       -------
Operating Activities:
  Net [Loss]                                           $(1,303,546) $  (286,003)
                                                       -----------  -----------
  Adjustments  to  Reconcile  Net  [Loss] to Net Cash
  [Used  for]  Provided  by Operating Activities:
   Depreciation                                            64,872        67,216
   Amortization of Film Masters and Artwork               269,420       385,016
   Provision for Doubtful Accounts                        119,808       121,022
   Losses Resulting from Write-off of Fixed Assets
     and Film Masters and Artwork                              --       933,123
   Cancellation of Stock Subscription Receivable           86,636        38,364
   Increase in Inventory Valuation Allowance               90,931            --
   Amortization of Deferred Compensation                   85,142            --
   Services Received for Payment on Exercise of Options   111,500            --

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable - Trade                         (661,654)    1,523,874
     Inventory                                           (505,807)      431,473
     Prepaid Expenses and Deposits                          6,190        (6,000)
     Other Assets                                         (24,217)      (19,274)
     Accounts Receivable - Related Party                  (18,801)      (13,561)
     Other Receivables                                         --       (40,280)
   Increase [Decrease] in:
     Accrued Payable                                           --      (628,499)
     Accounts Payable                                     648,328    (1,216,435)
     Related Party Payable                                 20,688       (40,537)
     Deposits                                             258,054        64,397
     Accrued Expenses                                    (210,071)      119,745
                                                       ----------   -----------

   Total Adjustments                                      341,019     1,719,644
                                                       ----------   -----------

  Net Cash - Operating Activities - Forward              (962,527)    1,433,641
                                                       ----------   -----------

Investing Activities:
  Advances to ATRE                                       (189,830)     (464,664)
  Repayments by ATRE                                      121,600        55,475
  Proceeds from Sale of Equipment                              --        60,500
  Payment of Officers' Loans Receivable                   (48,426)           --
  Capital Expenditures                                    (47,638)      (87,524)
  Masters and Artwork                                    (531,277)     (415,442)
  Maturity of Certificate of Deposit                           --       600,000
                                                       ----------   -----------

  Net Cash - Investing Activities - Forward            $ (695,571)  $  (251,655)


The Accompanying Notes are an Integral Part of These Financial Statements.


                                        F-6

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                              Years ended
                                                                March 31,
                                                          1 9 9 7       1 9 9 6
                                                          -------       -------

  Net Cash - Operating Activities - Forwarded          $ (962,527)  $ 1,433,641
                                                       ----------   -----------

  Net Cash - Investing Activities - Forwarded            (695,571)     (251,655)
                                                       ----------   -----------

Financing Activities:
  Proceeds from Notes Payable                           6,204,232     5,664,128
  Payments of Notes Payable                            (4,695,401)   (6,403,262)
  Payments of Lease Payable                                (8,479)     (193,296)
  Cash Overdraft                                          157,746      (213,753)
  Purchase of Treasury Stock                                   --       (35,803)
                                                       ----------   -----------

  Net Cash - Financing Activities                       1,658,098    (1,181,986)
                                                       ----------   -----------

  Net [Decrease] Increase in Cash and Cash Equivalen           --            --

Cash - Beginning of Years                                      --            --
                                                       ----------   -----------

  Cash - End of Years                                  $       --   $        --
                                                       ==========   ===========

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the years for:
     Interest                                          $  259,247   $   750,620
     Income Taxes                                      $    1,900   $        --

Supplemental Schedule of Non-Cash Investing and Financing Activities:
  On April 13, 1995, the Company's former  President  surrendered his employment
contract and returned  146,654 shares of the Company's  preferred  stock back to
the Company as treasury stock.  Equipment with a carrying value of approximately
$170,000 was  transferred  from the Company and the Company's  former  President
assumed all remaining obligations on these assets of approximately $75,000.

  On May 8, 1995,  the Company closed the sales  agreement with an  unaffiliated
company for  $750,000 by allowing  credit to the Company for future  duplication
services.  The Company received $750,000 of duplication services and surrendered
equipment having a book value of approximately $630,000.

  In May of 1995,  three debt obligations  totaling  $1,131,434 were assigned to
the Company's Chief Executive Officer. In July of 1995,  8,212,785 shares of the
Company's common stock were issued to the officer for this obligation.

  Pursuant to the June 15, 1995  assignment  of debt  agreement,  the  Company's
$658,750  obligation to its former  underwriter was purchased by an unaffiliated
Company. On July 19, 1995, an agreement was reached to issue 2,538,446 shares of
the Company's common stock to the underwriter for this obligation.

  In December 1995, the Company settled a debt with a creditor for $390,000 less
than the carrying amount.

  During the year ended March 31, 1997, the Company entered into a capital lease
agreements for equipment totaling $25,900.

  During 1997,  $290,000 in convertible debt was converted into 1,450,000 shares
of common  stock.  During the year ended March 31,  1997,  46,000  options  were
exercised and the Company  received  $11,500 in  consulting  services in lieu of
cash for the exercise price. Additionally,  1,000,000 options were exercised and
the Company  received  $100,000 in advertising  services in lieu of cash for the
exercise price.

The Accompanying Notes are an Integral Part of These Financial Statements.


                                        F-7

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------


[1] Summary of Significant Accounting Policies

Organization  and Business - The Company is engaged in the distribution of video
tapes  for  the  budget  home  video  market  including   children's   cartoons,
educational  programs,  motion  picture,   television  programs,   instructional
computer  videos,  as well as  computer  software  and  principally  markets its
products to national and regional chain stores,  department stores, drug stores,
supermarkets and similar types of retail outlets.  Its products are sold through
national retail chains primarily in the northeast, the south and the east coast.
The Company has  licensing  agreements  with  numerous  entities and in addition
maintains products without licensing agreements.  The licensing agreements grant
the Company the right to  manufacture,  duplicate,  distribute and advertise the
video or computer  software.  Prior to August 21, 1990, the Company was known as
ATI Mark V Products,  Inc. On July 15, 1991, it completed a reverse  acquisition
with  Trans-Atlantic  Video,  Inc.  ["TAV"].  On April  13,  1995,  the Board of
Directors approved the spin-off of its custom duplication business.

Revenue  Recognition  - Sales are  recorded by the  Company  when  products  are
shipped to customers and are shown net of returns and allowances.

Inventories -  Inventories  are stated at the lower of cost [under the first-in,
first-out method] or market.

Depreciation  - Property and equipment  are  presented at cost less  accumulated
depreciation.  Depreciation  is  computed  by the  straight-line  method for all
furnniture,  fixtures,  and  equipment  over 5-10 years,  which  represents  the
estimated useful lives of the respective asset.

Leasehold  improvements  are being  amortized over the lesser of their estimated
useful lives or the remaining term of the lease.

Depreciation  expense for the years ended March 31, 1997 and 1996 is $64,872 and
$67,216, respectively.

On sale or retirement,  the asset cost and related accumulated  depreciation are
removed from the respective accounts,  and any related gain or loss is reflected
in income. Repairs and maintenance are charged to expense when incurred.

Film  Masters  and Artwork - The cost of film  masters  and  related  artwork is
capitalized and amortized using the individual-film-forecast  computation method
which  amortizes  costs  in the  ratio  that  current  gross  revenues  bear  to
anticipated total gross revenues over a period of up to three years. The Company
periodically  reviews its  estimates  of future  revenues for each master and if
necessary  a  revision  is made to  amortization  rates and a  writedown  to net
realizable  value may occur.  The net film masters and artwork are  presented on
the balance  sheet at the net  realizable  value for each  master.  Film masters
consist  of  original   "masters"   which  are  purchased  for  the  purpose  of
reproduction and sale.

Amortization expense for the years ended March 31, 1997 and 1996 is $269,420 and
$385,016, respectively.

Advertising  Costs - Adverting cost are expensed as incurred.  Advertising costs
of $65,000 and $8,888 were expensed for the years ended March 31, 1997 and 1996,
respectively.

Bad Debts - An allowance for doubtful  accounts is computed based on a review of
each  individual  account  receivable  and its  respective  collectibility.  The
allowance for doubtful accounts is $656,112 at March 31, 1997.

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


                                       F-8

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------



[1] Summary of Significant Accounting Policies [Continued]

Stock Options Issued to Employees - The Company  adopted  Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation"
on April 1, 1996 for  financial  note  disclosure  purposes and will continue to
apply the intrinsic value method of Accounting  Principles Board ["APB"] Opinion
No. 25,  "Accounting  for Stock Issued to  Employees"  for  financial  reporting
purposes.

Deferred Taxes - There are no material temporary differences that will result in
taxable  amounts in future  years.  The Company has  sustained  losses in recent
years and has a large net operating  loss  carryforward.  No deferred  taxes are
reflected in these financial statements [See Note 9].

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 its 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 and
cash equivalents with high credit quality financial institutions.  The amount on
deposit in any one institution that exceeds  federally insured limits is subject
to credit risk. The Company had no deposits as of March 31, 1997, with financial
institutions subject to a credit risk beyond the insured amount.

[2] Accounts Receivable

Accounts  receivable  at March 31, 1997 net of allowance  for doubtful  accounts
were $2,121,579. Substantially all of the accounts receivable at March 31, 1997,
have been pledged as collateral for the line of credit [See Note 7B].

[3] Inventory

Inventory as of March 31, 1997 consists of:

Raw Materials                             $  163,080
Finished Goods                             1,695,340

  Totals                                  $1,858,420

An  allowance  of  $280,000  has  been   established   for  idle   inventory  of
approximately $280,000.

[4A] Related Parties Receivables

At March 31, 1997, the Company was owed $61,986 from the President of the 
Company for advances and loans.  Simple interest is accrued monthly at an annual
rate of 10% on the outstanding balance.  This amount is due in March 1998.

[4B] American Top Real Estate ["ATRE"]

Investment  - The  Company  paid  $50,000  for  a 50%  interest  in  ATRE.  This
investment is accounted for on the equity method.  The investee has not incurred
any significant earnings or losses to date.




                                       F-9

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[4B] American Top Real Estate ["ATRE"] [Continued]

Sale of ATRE  Real  Estate  Parcel  - In May  1995,  ATRE  entered  into a sales
agreement for two acres of land for approximately $940,000. In December of 1995,
the sale for one parcel of land was closed and the Company received $48,475.  In
September  1996, the other parcel was sold and proceeds were retained for future
sewage  construction  needed for this 20 acre  property,  however,  the  Company
received $121,600 from ATRE [See Note 19C].

Accounts  Receivable - The Company has a receivable  [including  interest]  from
ATRE of $1,588,068 as of March 31, 1997. This balance  includes  interest income
of $102,592 for the year ended March 31, 1997 at an annual rate of 10%.

[5] Commitments

[A]  Royalty  Commitments  -  The  Company  has  entered  into  various  royalty
agreements  for  exclusive  licensing  of titles for terms of one to five years.
Certain  agreements  include minimum  guaranteed  payments.  For the years ended
March  31,  1997  and  1996,   royalty   expense  was  $135,141  and   $213,541,
respectively, pursuant to these agreements.

[B] 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.

[C] Accounts  Payable - The Company is  currently  delinquent  on a  significant
amount of its accounts payable.

[D]  Employment  Agreements - As of December 31, 1996,  there are two employment
agreements in effect for two officers for annual compensation totaling $240,000.
These  agreements  terminate  in the year  2001  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 common stock can be purchased at $.25 per share in
installment  payments with a five year  promissory  note with interest at 6% per
annum. These shares have not been issued.

[E] Sale of Multi  Media  Assets - On May 8, 1995,  the  Company  closed a sales
agreement with a Mexican company, Central Video, for $750,000 by allowing credit
to the Company for future duplication  services.  The general manager of Central
Video is the former President of the Company.  The Company received  $750,000 of
duplication   services  and  surrendered   equipment  having  a  book  value  of
approximately $630,000. The Company guaranteed Central Video's general manager a
minimum of $2,500,000 a year of production  orders for three years and agreed to
pay Central Video's general manager a 3% commission on orders the Company places
with  Central  Video.  The Company  satisfied  this  obligation  in fiscal 1996,
however,  in 1997, the Company did not fulfill this obligation and is delinquent
in payments to Central Video.

[F] Termination of Employment - On December 21, 1995, an officer and director of
the Company resigned and terminated his employment agreement with the Company as
part of a settlement  agreement.  Effective  January 1, 1996 and ending December
31, 1996, the Company entered into a monthly $10,000  consulting  agreement with
this individual.  The individual  agreed to surrender 30,769 shares of preferred
stock and  10,000  shares of  common  stock  upon  execution  of the  settlement
agreement in  consideration  for 5% of net profits of the Company for the fiscal
years ended March 31, 1997 and 1998.

[G]  Production  Agreement - On December  21, 1995,  the Company  entered into a
production  agreement for annual minimum orders totaling $500,000 with a company
whose sole owner is a former  director  and officer of the  Company.  In January
1996, the Company sold production equipment with a book value of $64,744 to this
entity for $45,000.


                                      F-10

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------



[5] Commitments [Continued]

[H]  Duplication  Agreement/Line  of Credit - On January 3,  1996,  the  Company
entered into a two year Duplication  Agreement with a $200,000 revolving line of
credit with a non-affiliated  entity. The line of credit was unused at March 31,
1997.

[I]  Financial  Consultant  Commitments - In June of 1996,  the Company  engaged
three  consultants  for a period of two years.  The Company will  reimburse  the
consultants'  business  expenses  not to exceed  $750 per month.  The  financial
consultants  received a total of 1,000,000  warrants  with an exercise  price of
$.25 per share in exchange  for services to be  rendered.  The Company  recorded
deferred  consulting  costs of  $50,000  for the fair value of the  warrants  to
purchase the 1,000,000  shares of common stock and expensed $35,142 for the year
ended March 31, 1997. The fair value of the warrants was  determined  based upon
the fair value of services to be rendered by the consultant [See Note 13B].

[J] Transfer of Custom  Duplication  Business - On April 13, 1995,  the Board of
Directors approved the transfer of its custom duplication business.  Pursuant to
this  transaction,  the Company's  former  President  surrendered his employment
contract and returned  146,654 shares of the Company's  preferred  stock back to
the Company as treasury stock.  Equipment with a carrying value of approximately
$170,000 was  transferred  from the Company and the Company's  former  President
assumed all remaining obligations on these assets of approximately  $75,000. The
Company agreed to a non competition  agreement with this new custom  duplication
venture by the Company's former President.

[K] Joint  Venture - In October 1996,  the Company  entered into a joint venture
agreement  with an unrelated  party whereby the parties  distribute  each others
catalogues  of  products  and  share in the  profits  of any  such  distribution
equally. The agreement will expire in October 1997.

In connection with the joint venture agreement,  the Company loaned $18,000 at a
6% interest rate to the related  party.  The loan  receivable was due in January
1997 and remains unpaid as of March 31, 1997.
This amount is included in other receivables on the balance sheet.

[6] Lease Commitments

[A] Operating Leases - The Company leases various office and storage facilities,
automobiles and equipment under operating leases expiring between 1996 and 2001.

The following  schedules  shows the  composition of total rental expense for all
operating  leases  except  those  with  terms of a month or less  that  were not
renewed:

                                                Years ended
                                                  March 31,
                                             1 9 9 7     1 9 9 6
                                             -------     -------

Minimum Rentals                           $  151,983  $  314,890
Less: Sublease Rentals                        15,000     143,087
                                          ----------  ----------

  Totals                                  $  136,983  $  171,803
  ------                                  ==========  ==========


                                      F-11

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------



[6] Lease Commitments [Continued]

The following is the approximate  aggregate  future minimum rentals for the next
five years for operating leases:

March 31,
  1998                                    $  155,438
  1999                                       155,673
  2000                                       128,664
  2001                                       119,231
  2002                                            --
                                          ----------

  Total Future Minimum Lease Payments     $  559,006

The operating leases also provide for cost escalation payments.

[B] On June 27, 1995, the Company entered into a lease for additional  warehouse
space for a  monthly  rental  of  $3,637,  for six  months,  which  the  Company
terminated in January of 1996.

[C] On January 3, 1996,  the  Company  entered  into a two year and three  month
sublease  agreement for  approximately  2,500 square feet with a  non-affiliated
duplicating  company  for  monthly  base rent of $1,500  to be  received  by the
Company. The lease was canceled in October 1996.

[D] The Company leases office space in Freehold,  New Jersey on a month-to-month
basis for $1,950 per month.

[7] Notes Payable

Notes payable consist of the following:
<TABLE>

                                                  M a r c h   31,  1 9 9 7
                                           -----------------------------------------
                           Interest
  Type of Loan             Expense      Amount     Current     Long-Term     Rate          Due Date
                           --------    -------     -------     ---------     ----          --------
<S>                       <C>        <C>         <C>           <C>         <C>          <C>

Note Payable (F)          $     --   $   75,000  $   75,000    $      --          9%    July 1997
Installment Loan (C)        11,593      137,720      48,407       89,313         10%    November 14, 1999
Notes Payable (D)              558        2,317       2,317           --                1997
Line of Credit (B)          67,999    1,918,135   1,918,135           --   Prime + 3    Revolving Line of Credit
Convertible Debenture (E )  24,702      967,988     967,988           --         10%    May 1997
                           --------  ----------   ---------    ---------
  Totals                   $104,852  $3,101,160  $3,011,847    $  89,313
                           ========  ==========   =========    =========
</TABLE>

[A] Former  Underwriter Loan - On July 15, 1992, the Company signed a promissory
note for $510,000 with a former Underwriter.  The interest rate for the note was
ten [10%] percent per annum. The former  Underwriter  received a total of 25,500
shares of common stock purchase  warrants  exercisable  at $15 per share,  for a
term of three [3] years in  consideration  for the entire amount.  On August 28,
1992,  the former  Underwriter  voluntarily  surrendered  to the  Company  these
warrants and the warrants were canceled.  The total indebtedness of $676,031 was
due April 1, 1995 and on June 15,  1995,  this  obligation  was  purchased by an
unaffiliated  company.  On June 2,  1995,  an  agreement  was  reached  to issue
2,538,446 shares of the Company's common stock in settlement of this obligation.
The conversion is effectuated at .26 per share of common stock. The market value
at the time of conversion was $.10 per share of common stock.


                                      F-12

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------



[7] Notes Payable [Continued]

[B]  Private  Investor  - Line of  Credit - On  August  30,  1996,  the  Company
established  a line of credit up to  $2,500,000.  Of this amount,  $2,000,000 is
backed by pledged  receivables  and  inventory and $500,000 is guaranteed by the
Company's  President.  Interest,  billed quarterly,  is at Chemical Banks' prime
rate  plus 3%.  The prime  rate at March  31,  1997 was  8.5%.  The  Company  is
technically  in default on this loan  because it did not meet certain net income
criteria.  Their  line of credit  continues  to be  reduced  by  $2,500  per day
commencing May of 1997.

[C]  Installment  Loan - In March  1993 a loan was  renegotiated  for the sum of
$292,058  with  principal  payments of $5,000 per month with an interest rate of
10% per annum due November 14, 1999.

[D] Note  Payable  for  Equipment - On May 8, 1995,  the Company  closed a sales
agreement with a Mexican Company, for $750,000 by allowing credit to the Company
for  duplication  services  and  received  $750,000 of  duplication  services in
exchange for equipment having a book value of  approximately  $630,000 [See Note
5E]. The Company has classified the obligation options as notes payable.

[E]  Convertible  Promissory  Notes  Payable - During the quarter ended June 30,
1996,  the Company  issued  convertible  promissory  notes with 10% interest per
annum and a 7%  commission.  The principle  amount is convertible in whole or in
part into shares of the common stock of the Company at a conversion  price equal
to 65% of the average  closing bid price for the common  stock for five  trading
days immediately prior to the conversion. In no event shall the conversion price
be less than $.20 per share or more than $.75 per share. In conjunction with the
debentures, the Company granted 1,000,000 warrants exercisable at $.25 per share
to two consultants. Warrants for 46,000 shares were exercised for $11,500 during
the year ended March 31, 1997. The Company  recorded a financing cost of $25,000
for the fair value of the warrants  granted.  As of March 31, 1997,  convertible
promissory  notes of  $290,000  were  converted  into  1,450,000  shares  of the
Company's  common stock by several off shore  companies  under  Regulation S and
$967,988 of convertible  promissory  notes payable are outstanding and as of May
1997 are in default by the Company. Interest expense of $24,702 was recorded for
the year ended March 31, 1997.  The fair value of the  warrants  was  determined
based upon the fair value of services received by the Company in May and June of
1996 [See Note 19B].

[F] Note Payable - The Company  arranged  financing  totaling $75,000 payable in
four installments of principle plus interest from June to July of 1997. Interest
is calculated at an annual rate of 9% on actual days outstanding.

Following are maturities of debt for each of the next five years:

Current                 $3,011,847
1999                        53,475
2000                        35,838
Thereafter                      --
                        ----------

  Total                 $3,101,160


                                      F-13

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------



[8] Capital Leases

The Company is the lessee of equipment  under capital leases expiring in various
years through 2000. The assets and liabilities under capital leases are recorded
at the lower of the  present  value of the  minimum  lease  payments or the fair
value of the assets.  The assets are depreciated over the lower of their related
lease terms or their estimated  productive  lives.  Depreciation of assets under
capital leases is included in depreciation expense for 1996 and 1995.

Following  is a summary of property  held under  capital  leases as of March 31,
1997:

Furniture, Fixtures and Equipment   $   60,150
Less:  Accumulated Depreciation         32,385

  Totals                            $   27,765
  ------                            ==========

Minimum  future lease payments under capital leases as of March 31,1997 for each
of the next five years and in the aggregate are:

Year Ending March 31,

1998                                            $   15,624
1999                                                 4,679
2000                                                 4,169
2001                                                 3,474
2002                                                 3,044
                                                ----------

Total Minimum Lease Payments                        32,115
Less:  Amount Representing Interest                  2,990

  Present Value of Net Minimum Lease Payments   $   29,125
  -------------------------------------------   ==========

[9] Income Taxes

The Company has net operating loss  carryforwards  of  approximately  $7,613,000
which  expire  through the year 2011.  As a result of these  carryforwards,  the
Company has a deferred  tax asset of  approximately  $2,641,800,  which has been
offset by a valuation  allowance of $2,641,800  resulting in a deferred asset of
$-0-. Future tax benefits related to this loss have not been recognized  because
its realization is not assured.  No current or deferred  federal or state income
taxes have been provided for.

As of March 31, 1997,  the  approximate  amount of the net operating loss income
tax carryforwards and their expiration dates are as follows:

 Expiration
in Years ending                 Net Operating Loss
  March 31,                        Carryforwards

   2007                             $1,317,000
   2008                              2,693,000
   2009                              2,015,000
   2010                                288,000
   2011                              1,300,000
                                    ----------

     Total                          $7,613,000


                                      F-14

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------


[10] Capital Stock

[A] In May of 1995, three debt obligations  totaling  $1,131,434 were assumed by
the Company's Chief Executive  Officer.  This officer issued promissory notes to
the three entities. On July 19, 1995, the Chief Executive Officer of the Company
converted the three debt obligations  totaling  $1,131,434 into 8,212,785 shares
of the Company's  common stock.  The conversion was effectuated at a 38% premium
rate of .138  per  share  of  common  stock.  The  market  value  at the time of
conversion was .10 per share of common stock.

[B] Stock  Subscription  Receivable - On April 23, 1996,  the Board of Directors
agreed to  cancel  the  existing  $86,636  stock  subscription  receivable  from
officers of the Company. The Company accepted services performed by the officers
of the  Company in lieu of cash in  collection  of the stock  subscription  and,
therefore, recorded the $86,636 as compensation expense.

[C]  Authorized  Shares - The Board of  Directors  agreed  on April 23,  1996 to
increase  its  authorized  shares to  100,000,000  shares  of  common  stock and
5,000,000 shares of preferred  stock,  which was approved at the August 23, 1996
annual shareholders meeting.

[D]  Preferred  Stock - The  preferred  stock has no (i) dividend  rights,  (ii)
sinking  fund  provisions,  (iii)  rights  of  redemption,  (iv)  classification
provisions for voting,  (vi) preemptive rights,  (vi) liability to further calls
or to assessments by the Company, or (vii) any provision  discriminating against
any existing or prospective holder. Holders of shares of preferred stock are not
entitled to any dividend  preference.  In the event of  liquidation,  holders of
shares of preferred  stock shall be entitled to a preference  of $.01 per share,
and any other remaining  proceeds of liquidation shall be distributed shares and
shares  alike to  holders of all  capital  stock.  The  issued  and  outstanding
preferred stock are restricted and have not been registered.

[11] Earnings Per Share

Earnings  per share is based on the  weighted  average  number of common  shares
outstanding  for the years  ended March 31, 1997 and 1996 as restated to include
the number of shares  issued in the  business  combination  with TAV  reflecting
conversion for a preferred share of stock into 1.95 shares of common stock.  The
effect of warrants has not been included as its effect would be anti-dilutive.

[12] Major Supplier

For the year ended March 31, 1996,  the Company had purchases  from one supplier
that amounted to approximately  $2,178,000 or 48% of net purchases. For the year
ended March 31,  1997,  the  Company had  purchases  from three  suppliers  that
amounted to approximately $2,940,211 or 83% of net purchases.

Loss of these suppliers  would not  significantly  adversely  affect the company
because sufficient replacement vendors exist in the open market.

[13] Stock Options and Warrants

During 1997,  the Company  issued  3,000,000  stock options to  nonemployees  at
exercise  prices below market prices at the date of grant,  ranging from $.10 to
$.25,  and having a weighted  average  exercise price of $.20. Of these options,
1,000,000  options have a 2 year vesting period and 2,000,000  options vested at
date of grant.  The total cost of issuing  these stock  options to  nonemployees
during 1997 was  approximately  $100,000.  The entire amount is being  amortized
over the  aforementioned  respective  vesting  periods,  resulting  in a $85,142
charge to operations for the year ended December 31, 1997. The weighted  average
fair value of stock options  granted to consultants  during 1997 is estimated at
$.04 using the fair value of services at date of grant.




                                      F-15

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------



[13] Stock Options and Warrants [Continued]

[A] 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. No stock options have been issued.

[B] In June 1996,  the Company  issued  1,000,000  common  stock  warrants at an
exercise price of $.25 per share as part of a consulting agreement entered into,
which term ends June 1998. As of March 31, 1997,  625,000 of those  warrants are
vested.  Deferred  compensation  resulting from this transaction was recorded at
the fair market value of the services rendered [See Note 5I].

[C] In April 1996, in connection  with the convertible  debentures,  the Company
entered  into  two  separate  consulting  agreements.  As per the  terms of both
contracts,  the Company issued 1,000,000 common stock warrants [500,000 warrants
per contract] at an exercise price of $.25 per share [See Note 7E].

[D]  Options  Granted - On April 23,  1996,  the  Company  engaged  an entity to
arrange  either debt or equity  financing  for the Company and agreed to grant a
total of 1,000,000 options  exercisable  within three years of grant at $.10 per
share.  The Company recorded a financing cost of $25,000 in June of 1996 for the
fair value of the options granted.  The fair value of the options was determined
based upon the fair value of services received by the Company in May and June of
1996.  These  options  were  exercised  in June of 1996 for a total of 1,000,000
shares of common stock as a result of consulting  services  performed in 1996 by
the consultant.

[14] Litigation

The  Company  has been named as  defendant  and  co-defendant  in various  legal
actions filed against the Company in the normal course of business.  The Company
believes that it has adequate  legal  defenses and intends to vigorously  defend
itself in these actions. The Company believes after consulting with counsel that
an adverse  decision in any one lawsuit would not have a material adverse impact
on the  Company,  however,  the  aggregate  affect of an adverse  decision  in a
majority of the lawsuits outstanding could have a material adverse impact on the
Company.

[15] Going Concern

The Company's  financial  statements  are prepared in conformity  with generally
accepted accounting principles, which contemplates the realization of assets and
settlements of liabilities in the normal course of business and  continuation of
the Company as a going  concern.  The Company  has  incurred  net losses for the
years ended March 31, 1997 and 1996 of $1,303,546 and $286,003, respectively and
has a working capital  deficit at March 31, 1997 of $2,722,958.  The Company has
also been experiencing  difficulties in paying its vendors on a timely basis and
is in default on the  convertible  debentures  and a production  agreement  [See
Notes 5E and 7B].  These  factors  create  uncertainty  whether  the Company can
continue as a going concern.  The Company's plans to mitigate the effects of the
uncertainties are (i) to continue to sell parcels of property owned by ATRE [50%
owned by the Co.] located in Vancouver, WA, (ii) to further upgrade and increase
its products lines and thus reach a consistently  higher gross profit margin mix
and realize  profitability through a potential merger with another entity, (iii)
to seek  another  asset  base  lending  line of credit and (iv) to  continue  to
negotiate with several  reliable  investors to provide the Company with debt and
equity financing for working capital purposes.




                                      F-16

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------


[15] Going Concern [Continued]

Management believes that these plans can be effectively  implemented in the next
twelve months.  The Company will continue to seek additional  interim  financing
from private  sources to  supplement  its cash needs for the next twelve  months
during the implementation of these plans to achieve profitability. The Company's
ability to continue as a going  concern is dependent on the  implementation  and
success of these plans. The financial  statements do not include any adjustments
in the event the Company is unable to continue as a going concern.  There can be
no  assurance  that  management's  plans to  reduce  operating  losses or obtain
additional  financing  to fund  operations  will be  successful.  The  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of  recorded  assets,  or  the  amounts  and  classification  of
liabilities  that might be necessary in the event the Company cannot continue in
existence.

[16] Major Customers

For the years ended  March 31,  1997 and 1996,  the Company had net sales to one
customer that amounted to  approximately  $1,154,000 or 17.9% and  $3,121,000 or
34% of net sales, respectively.

[17] New Authoritative Pronouncements

The Financial Accounting Standards Board ["FASB"] has issued Statement of 
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and 
Servicing of Financial Assets and Extinguishment of Liabilities."  SFAS 
No. 125 is effective for transfers and servicing of financial assets and 
extinguishment of liabilities occurring after December 31, 1996.  Earlier 
application is not allowed.  The provisions of SFAS No. 125 must be applied 
prospectively; retroactive application is prohibited. Adoption on 
January 1, 1997 is not expected to have a material impact on the Company.  The 
FASB deferred some provisions of SFAS No. 125, which are not expected to be 
relevant to the Company.

The  FASB  issued  SFAS No.  128,  "Earnings  Per  Share,"  and  SFAS  No.  129,
"Disclosure of Information  about Capital  Structure" in February 1997. SFAS No.
128  simplifies  the  earnings  per  share  ["EPS"]  calculations   required  by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the  presentation  of primary EPS with a presentation of basic EPS.
SFAS No. 128  requires  dual  presentation  of basic and diluted EPS by entities
with complex capital structures.  Basic EPS includes no dilution and is computed
by dividing  income  available to common  stockholders  by the  weighted-average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution of securities that could share in the earnings of an entity,
similar  to the  fully  diluted  EPS of APB  Opinion  No.  15.  SFAS No.  128 is
effective for financial  statements issued for periods ending after December 15,
1997,  including  interim periods;  earlier  application is not permitted.  When
adopted,  SFAS No. 128 will require  restatement  of all  prior-period  EPS data
presented;  however,  the Company has not sufficiently  analyzed SFAS No. 128 to
determine  what effect SFAS No. 128 will have on its  historically  reported EPS
amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.






                                      F-17

<PAGE>



DIAMOND ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------



[18] Financial Instruments

The following  table  summarizes the carrying amount and estimated fair value of
the  company's  significant  financial  instruments  all of  which  are held for
nontrading purposes:

                                           March 31, 1997
                                        Carrying   Estimated
                                         Amount   Fair Value

Other Receivable                       $  80,788  $   80,788
Long-Term Debt                         $ 103,668  $  103,668

In assessing  the fair value of other  receivables,  it was  estimated  that the
carrying amount  approximated fair value because of their short maturities.  The
fair  value of  long-term  debt is based on current  rates at which the  Company
could borrow funds with similar remaining maturities.

[19] Subsequent Events [Unaudited]

[A] Plan of Merger - In May of 1997,  the Company  entered into an agreement and
plan of merger  between  BDC  Acquisition,  Inc.,  a newly  formed  wholly-owned
subsidiary of the Company,  and Beyond Design Corporation ["BDC"]. The Company's
subsidiary has acquired all of the issued and  outstanding  stock of BDC for the
issuance of an aggregate of 2,200,000  shares of the Company's  common stock and
the assumption of certain outstanding obligations of BDC.

[B]  Convertible  Debentures  -The Company is pursuing the extension of interest
and principal  payments on the $967,000 in  convertible  debentures  that are in
default as of May 1997 and  consideration  by the  debenture  holders to convert
their debt to an equity position. No agreement has been reached.

[C] ATRE Real Estate  Transactions - In July of 1997,  ATRE is negotiating  with
three  different  non-affiliated  entities  for the  sale of  three  parcels  of
property.  The Company  believes  that  contracts  will be  finalized  for these
properties  and be signed by the end of August and closed  with net  proceeds of
approximately $900,000 by May of 1998 and an additional $1,000,000 by July 2000.

[D]  Settlement  on  Licensing  Agreement - On July 25, 1996 the Company and Fun
Time, Inc. entered into a distribution agreement with Centre Entertainment, Inc.
relating  to a program  entitled "A Norman  Rockwell  Christmas  Story."  Centre
Entertainment,  Inc. claimed that the Company was in breach of the agreement and
on May 12, 1997 the parties participated in a non-binding  mediation relating to
the contractual  dispute.  As a result of the mediation,  the parties executed a
Memorandum  of  Understanding,   pursuant  to  which  the  parties  settled  the
contractual  dispute.  In June of 1997,  licenses for Norman Rockwell  Christmas
Story and celebration of Christmas were terminated.  As a result all masters and
inventory for these titles were returned to the licensor in June of 1997.



                    .  .  .  .  .  .  .  .  .  .  .  .  .  .


                                      F-18

<PAGE>


                                    SIGNATURE

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

Dated:  Cerritos, California
        August 12, 1997
                                    DIAMOND ENTERTAINMENT CORP.


                                    By:/s/ James. K.T. Lu
                                       James K.T. Lu
                                       Chairman of the Board,
                                       Chief Executive Officer;
                                       President; Secretary and
                                       Director

  Pursuant to the requirements of the Securities Act of 1933, this  Registration
Statement has been signed below by the following  persons in the  capacities and
on the dates indicated.

Signature                     Title                         Date


/s/ James K.T. LU             Chairman of the Board         August 12, 1997
-------------------------
James K.T. Lu                 Chief Executive
                              Officer; President;
                              Secretary and Director


/s/ Jeffery I. Schillen       Executive Vice                August 12, 1997
----------------------------
Jeffrey I. Schillen           President Sales and
                              Marketing and Director

/s/ Murray T. Scott
----------------------------
Murray T. Scott               Director                      August 12, 1997


                                      F-19

<PAGE>