<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark one)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934
     For the fiscal year ended  June 30, 2002
                               --------------

                                       OR

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

     For the transition period from ___________________ to _________________

                         Commission File No.  2-78335-NY
                                             ------------

                            DIVA ENTERTAINMENT, INC.
                            ------------------------
                 (Name of small business issuer in its charter)

           Delaware                                                 33-0601498
--------------------------------------------------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

6100 Wilshire Boulevard, Suite 710, Los Angeles, California              90048
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

Issuer's telephone number: (323) 692-1730
                           --------------

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

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

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

                                  YES   X     NO ____
                                      ------

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

State the issuer's revenues for its most recent fiscal year:  $2,013,855.

The aggregate market value of the voting and non-voting equity held by
non-affiliates is not determinable since the Company's common stock is not
traded.

State the number of shares outstanding of the issuer's classes of common equity,
as of the latest practicable date: 5,498,800 shares of Common Stock, $0.001 par
value per share, as of June 30, 2002.

Transitional Small Business Disclosure Format (check one): YES ______  NO  X
                                                                          ---

<PAGE>

                                     PART I

Item 1. Description of Business

Introduction

         Diva Entertainment, Inc., a Delaware corporation (the "Company"), was
incorporated in December 1992 in the State of Delaware under the name Quasar
Projects Company. The Company was formed for the purpose of merging with or
acquiring an operating company with operating history and assets. The primary
activity was seeking companies with which to merge or to acquire. From its
inception through April 28, 1999, the Company generated nominal revenues and,
prior to April 28, 1999, the Company did not actively engage in business for at
least one fiscal year.

         Since April 28, 1999, the Company has been engaged in the business of
owning, operating and managing talent management companies through its
subsidiary Diva Entertainment, Inc., a Florida corporation ("Diva-Florida"), and
its subsidiaries - Prima Eastwest Model Management, Inc., a California
corporation ("Prima"), and Que Management Inc., a New York corporation ("Que").

The Business

         The Company is in the business of representing talent including
professional fashion models, commercial actors and theatrical actors. The talent
management business, including model management, is based upon obtaining talent
and matching talent to clientele. Traditional modeling clientele include print
and television advertising, and runway. Both male and female fashion models have
a limited career span. Most professional models are aged between 18 and 25
years, although there is a limited market for child and mature models. As a
result, the talent management business is characterized by continuous talent
turnover, the need to discover new talent and the need to anticipate and adapt
to changing consumer tastes.

         Talent management fees are based on a percentage of the model's fee,
plus additional fees paid by the clientele. The Company's over 500 clients
include magazine publishing houses, designers, national retailers and catalogs
including Elle Magazine, Talbot's, Nordstroms, Banana Republic and Macy's.

         The Company also provides hair, makeup and styling services for models,
actors, actresses and celebrities. These services not only add value to the
Company's existing clients but also provide the Company with entry into the
celebrity/entertainment field.

Marketing

         The traditional markets for Prima and Que are in the field of print.
This includes not only magazines such as Vanity Fair, Glamour, GQ, Mirabella,
Cosmopolitan, Allure and Vogue; but also advertising agencies, catalogues; movie
production companies such as Universal, Paramount and Warner Brothers; and
general industry such as Calvin Klein, Levi's, ABC Television, and the Gianni
Versace organization.

         Prima and Que advertise in trade journals used extensively by
professionals seeking print modeling services. Furthermore, industry magazines
and television have viewed Prima

                                       1

<PAGE>

and Que as being high-profile, fast-growing boutique agencies. Prima and Que's
models have been widely seen on magazine covers. This creates a flow of new
clients and new models. Prima and Que also rely on their reputations to attract
clients and model talent.

Competition

         Prima and Que both compete with the major world-wide model agencies,
several of which are headquartered in New York. Each of Prima and Que also
competes with many smaller regional firms. Management believes that because each
of Prima and Que frequently works with a network of independent agencies when
placing its models in other markets and conversely helps place other agencies'
models in the New York and Los Angeles markets, Prima and Que can compete with
the major agencies on a world-wide basis.

         While the New York market with the larger firms tends to attract the
super models with its major European markets and larger fee income, Los Angeles
on the other hand attracts models who are also seeking an entry into the
entertainment industry. The entertainment industry dominates the Los Angeles
market and Prima is thus able to provide agency services for models to both
print and entertainment industry work.

         Working as a team and having the expertise of the other in its
particular region, Que and Prima are each able to operate more effectively and
efficiently by coordinating many of the jobs between the two companies. This
enhances their ability to compete with the major world-wide model agencies.
Notwithstanding this, there can be no assurance that the Company can compete
effectively in the future.

Customer and Talent Base

         Prima has been in business for over ten years. Over that period, it has
maintained a wide base of both customers and models. The client base is very
diverse, ranging from department stores to record companies and movie production
firms and is not linked solely to the geographic Los Angeles market. Que,
although opened more recently on January 5, 1998, also has a similarly diverse
client base.

         Any talent management company must expand by increasing the talent that
it has as part of its portfolio. Que and Prima have had and continue to have a
foundation of existing talent, both male and female. The talent base is very
diverse including models with different ethnic backgrounds and looks.
Furthermore, Que and Prima operate a year-round scouting program with individual
scouts traveling around the United States, Europe (both central and eastern) and
South America in search of new talent.

         The wide base in both customers and talent enables Prima and Que to
meet the demands of its industry. This wide base in customers and talent will
also enable Diva to expand its operations.

Employees

         At June 30, 2002, the Company had 18 employees. None of the employees
is subject to any collective bargaining agreement. Prima and Que consider their
relationships with their employees to be good.

                                       2

<PAGE>

Seasonality

         The Company's business is not affected by seasonality to any
significant degree.

Item 2.    Description of Property

         The Company's current address is 180 Varick Street, 13/th/ Floor, New
York, New York 10014. Que leases 3,650 square feet of office space at 180 Varick
Street, 13/th/ Floor, New York, New York 10014, pursuant to a lease that expires
on December 31, 2002. The rent for this space is approximately $6,333.33 per
month for the calendar year 2002. The Company is currently in the process of
negotiating an extension to the lease for an additional five years.

         Prima leases offices at 6100 Wilshire Boulevard, Suite 710, Los
Angeles, California 90048, consisting of 2,476 square feet. Prima leases the
offices pursuant to a lease that expires on December 31, 2003 at a rent of
$4,580.60 per month.

Item 3.    Legal Proceedings

         The Company is a defendant in the matter of Laszlo Hajdu-Nemath vs.
Peter Zachariou Beauty Scene Corp., Diva Entertainment, Inc. and ASD Group,
Inc., Case No. 01-600815, in the Supreme Court of the State of New York, County
of New York. In this action, the Plaintiff seeks damages for, among other
things, the alleged breach of a consulting agreement between the Plaintiff and
Peter Zachariou pursuant to which the Plaintiff was to provide consulting
services to, among others, the Company. The Company has served a Motion to
Dismiss the Complaint based upon documentary evidence and for failure to state a
cause of action and will continue to vigorously defend this matter. At this
stage of the litigation, management cannot estimate the range of the potential
loss in the event the Company is unsuccessful in the defense of this action.

         The Company is also a defendant in the matter of Amanda Masters, et al
v. Wilhelmina Model Agency, et al, Case No. 02-CV-4911 (HB), in the United
States District Court, Southern District of New York. The Plaintiffs seek to
maintain this as a Class Action under Rule 23 of the Federal Rules of Civil
Procedure. The Plaintiffs allege a per se restraint of trade or commerce in
violation of the Sherman Antitrust Act, forefeiture and disgorgement of all fees
paid to Que received as a result of its alleged wrongful conduct, punitive and
exemplary damages and accounting of all costs and expenses, pre-judgment and
post-judgment interest, reasonable attorneys fees and costs and such other
relief as the Court deems appropriate. Que was served with a Summons and Amended
Complaint and intends to vigorously defend this action. At this stage of the
litigation, the Company cannot estimate the range of the potential loss, if any,
in the event Que is unsuccessful in the defense of this Action.

Item 4.    Submission of Matters to a Vote of Security Holders

         None.

                                       3

<PAGE>

                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters

         As of this date, the Company's common stock is not trading or listed on
any exchange. Management intends to list the Company's common stock on the OTC
Bulletin Board. However, no assurance can be made that this will be done or, if
done, that the Company will be successful with its application to have the
Company's common stock traded or listed on an exchange.

         As of June 30, 2002, the Company had 284 holders of record of its
Common Stock.

         The Company has not declared any cash dividends with respect to its
Common Stock during the prior two years and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. However, holders of the
Company's Series A and Series B Preferred Stock are entitled to receive
cumulative preferential dividends which may be paid in cash or shares of the
Company's Common Stock. As described in the Company's financial statements, if
and when the Company's Series A and Series B Preferred Stock are converted into
Common Stock, there will be reflected a certain amount as deemed preferred
dividends on the Company's statement of operations.

Item 6.    Management's Discussion and Analysis

         Except for the historical information contained herein, the matters
discussed in this item are forward looking statements involving risks and
uncertainties that may cause actual results to materially differ. Those risks
and uncertainties include but are not limited to economic, competitive, industry
and market factors affecting the Company's operations, markets, products, prices
and other factors discussed in the Company's filings with the SEC.

Results of Operations for Fiscal Years ended June 30, 2001 and June 30, 2002

         The Company incurred a loss from operations of $365,000 for the year
ended June 30, 2002 ("Fiscal 2002") compared with a loss from operations of
$124,000 for the year ended June 30, 2001 ("Fiscal 2001"). Although the Company
experienced a difficult year, a large part of the increased loss was due to
litigation expenses ($204,000 for the year ended June 30, 2002 compared with
$79,000 for the year ended June 30, 2001). The Company's revenues decreased
slightly and were $2,014,000 in Fiscal 2002 as compared to $2,032,000 in Fiscal
2001. Selling, general and administrative expenses increased to $2,263,000 in
Fiscal 2002 as compared to $1,999,000 in Fiscal 2001. Despite the higher
operating loss in Fiscal 2002 compared with Fiscal 2001, the Company's net loss
attributable to common stockholders is $282,000 lower in Fiscal 2002 ($462,000)
compared with Fiscal 2001 ($744,000). The reasons for this were threefold. The
Company wrote off the balance of the goodwill in Fiscal 2001 ($463,000) that was
not repeated in Fiscal 2002. There was a significantly lower interest charge in
Fiscal 2002 ($19,000) compared with Fiscal 2001 ($36,000). During Fiscal 2002,
part of the settlement of a litigation matter allowed the waiving of all past
and future dividends for some of the Company's Series A Preferred Stock which
are issued and outstanding ($28,618.77).

         Prima experienced a difficult Fiscal 2002 with the events of September
11, 2001 just as the Company was beginning to recover from the loss of its
entire Profile division and its two most senior managers in the Print division
for men in Fiscal 2001. As a result, in Fiscal 2002, Prima sales only increased
to $482,000 compared to $446,000 for Fiscal 2001. In Fiscal 2002, Prima selling,
general and administrative expenses increased to $623,000 compared to $606,000
for Fiscal 2001. Due to the write off of the balance of the goodwill at the end
of Fiscal 2001 ($463,000), Prima incurred no amortization of goodwill in Fiscal
2002. Thus, the operating loss

                                       4

<PAGE>

decreased to $183,000 in Fiscal 2002 from a loss of $245,000 in Fiscal 2001.

         Que also experienced a difficult Fiscal 2002 with the events of
September 11, 2001 particularly as it operates in New York. However, by the end
of Fiscal 2002, the sales of Que had recovered to levels of Fiscal 2001 although
obviously there was no growth due to the very large loss of business immediately
after September 11, 2001. In Fiscal 2002 sales only decreased to $1,531,000
compared to $1,586,000 in Fiscal 2001. The selling, general and administrative
expenses did increase, rising to $1,432,000 in Fiscal 2002 from $1,306,000 in
Fiscal 2001. Thus, the operating profit in Fiscal 2001 of $208,000 decreased to
an operating profit of $26,000 in Fiscal 2002. Management continues to expect
improvement in sales during the forthcoming years, although there can be no
assurance that this will happen.

Trends and Uncertainties

         Prima and Que each continue to seek to expand and increase their
customer bases and operating revenues. In doing so it is probable that the
Company's administrative expenses and overhead are likely to increase in future
periods. The continuation of obtaining additional types of business and markets
is uncertain and the continued success of any of the Company's new marketing
strategies for generating revenue is uncertain.

         The events of September 11, 2001 at the World Trade Center had and
continue to have a detrimental impact on the operations of both Prima and Que
in Fiscal 2002. The extent and duration of this impact is not yet known although
the operations are showing signs of recovering to levels prior to those events.

Liquidity and Capital Resources

         On June 30, 2002, the Company had a working capital deficit of
$1,209,000 as compared to a working capital deficit of $787,000 on June 30,
2001. The increase in working capital deficit is primarily due to the increased
accounts payable to talent and reduced accounts receivable (partly caused by an
increase in the allowance for doubtful accounts of $145,000). The Company
requires capital resources as the operating companies must pay their modeling
talent soon after services are rendered. While the accounts receivable for these
operating companies are generally due in 30 days, they are usually collected
within 60 to 120 days.

         The Company expects that the working capital cash requirements over the
next 12 months will be generated from operations. The Company has no commitments
for additional funding and no assurance can be given that it will obtain
additional funding.

Item 7.    Financial Statements

         The Financial Statements are attached to this Report.

Item 8.    Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure

         Effective July 31, 2000, the Company changed its independent auditor
from Marcum & Kliegman, LLP to Grant Thornton LLP. The Company's financial
statements prepared by Marcum & Kliegman for either of the past two years
contained no adverse opinion or disclaimer of opinion, and were not qualified as
to uncertainty, scope or accounting principle. The decision to change the
accountants was recommended by the Company's Board of Directors. There

                                       5

<PAGE>

were no disagreements with Marcum & Kliegman on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to Marcum & Kliegman's satisfaction, would have
caused Marcum & Kliegman to make reference to the subject matter of the
disagreement in connection with Marcum & Kliegman's report.

         Effective January 28, 2002, the Company changed its independent auditor
from Grant Thornton LLP to Paritz & Company, P.A. The Company's financial
statements prepared by Grant Thornton for the last year contained no adverse
opinion or disclaimer of opinion, and were not qualified as to uncertainty,
scope or accounting principle. The decision to change the accountants was
recommended by the Company's Board of Directors and was the driven by the
Board's desire to decrease the Company's expenses. There were no disagreements
with Grant Thornton on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to Grant Thornton's satisfaction, would have caused Grant Thornton to
make reference to the subject matter of the disagreement in connection with
Grant Thornton's report.

                                    PART III

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

         The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company.

Name                 Age      Position
----                 ---      --------

Peter Zachariou      42       President, Chairman of the Board and Treasurer

David Lean           57       Principal Accounting Officer, Acting Secretary
                                and Director

         Directors are elected at the annual meeting of stockholders and hold
office until the following annual meeting and until their successors are elected
and qualified. All Executive Officers serve at the discretion of the Board of
Directors.

         Peter Zachariou has been President and Chairman of the Board of Diva
since April 1999. In addition, since June 1998, Mr. Zachariou has been President
and a Director of ASD Group, Inc., a public company which filed for protection
from its creditors under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court. Since October 2001, Mr. Zachariou has also been
a manager and member of Technology Outsource Solutions LLC, a New York limited
liability company which purchased the assets of ASD and provides contract
manufacturing and engineering services to original equipment manufacturers. From
June 1995 through January 2000, Mr. Zachariou held various positions with J R
Consulting, Inc. ("JRCI"), a public company now known as Providential Holdings,
Inc. For at least the preceding five years, Mr. Zachariou has been a private
investor.

         David Lean has been the Principal Accounting Officer, Acting Secretary
and a Director of the Company since April 1999. From August 1995 through January
2000 Mr. Lean also held various positions with JRCI. For at least the preceding
five years, Mr. Lean has also been a managing Director of a United Kingdom
subsidiary of a Canadian mining company. Mr. Lean is also a director of a
publicly listed mining company in the UK.

                                       6

<PAGE>

         The Company's securities are not registered under Section 12(g) of the
Exchange Act. Accordingly, the Directors and Executive Officers of the Company
are not required to file reports under Section 16(a) of that Act.

Item 10.   Executive Compensation

         No Director or Executive Officer of the Company received any cash
compensation during the fiscal year ended June 30, 2002. Peter Zachariou and
David Lean spend part time on the business of the Company.

         All members of the Company's Board of Directors, whether officers of
the Company or not, may receive an amount yet to be determined annually for
their participation in meetings of the Board and will be required to attend a
minimum of four meetings per fiscal year. The Company reimburses all expenses
for meeting attendance or out of pocket expenses connected directly with their
Board participation.

Item 11.   Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 30, 2002, by each
Director, Executive Officer and any person known to the Company to own
beneficially more than 5% of the Company's Common Stock and by all Directors and
Executive Officers of the Company as a group.

Name and Address                   Shares of Common Stock        Percent
of Beneficial Owner                Beneficially Owned            Owned (1)
-------------------                ------------------            ---------

Havilland Limited/(1)/                 4,225,000                   76.8%
180 Varick Street, 13th Floor
New York, New York 10014

Peter Zachariou/(1)(2)/                4,225,000                   76.8%
180 Varick Street, 13th Floor
New York, New York 10014

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

         (1) Does not include the shares of common stock issuable upon
             conversion of the Series B Redeemable Convertible Preferred Stock
             or the effect of the Option Agreement between Havilland Limited and
             Diva Entertainment, Inc. See "Certain Transactions".

         (2) Represents the shares held by Havilland Ltd. for which Peter
             Zachariou is deemed to the beneficial owner.

                                       7

<PAGE>

Item 12.   Certain Relationships and Related Transactions

         Peter Zachariou, Chairman of the Board, President and Treasurer of the
Company, and Havilland Limited, principal stockholder, have from time to time
made cash advances to the Company. The advances are secured by liens on all of
the Company's assets and evidenced by a series of promissory notes which are
payable on July 3, 2003. The advances by Peter Zachariou accrue interest at the
rate of 8% per annum. The outstanding amounts of such advances as at June 30,
2002 were $383,000 and $95,000, respectively.

         On June 30, 2001, Havilland Limited entered into an agreement with
JRCI, now known as Providential Holdings, Inc., whereby the 4,225,000 shares of
common stock, 3,000 shares of Series B Redeemable Convertible Preferred Stock
and the rights, title and interest in the Option Agreement (see Note H to the
Financial Statements) owned by JRCI were exchanged for (i) the assignment to and
assumption by Havilland of (A) the amounts due by JRCI to officers of the
Company and (B) the amounts due to JRCI from the Company amounting to $94,843
and (ii) the return of 135,000 shares of common stock of JRCI owned by
Havilland.

Item 13.   Exhibits and Reports on Form 8-K

(a)      Exhibits

         2.1   Agreement and Plan of Reorganization, dated December 30, 1999
               between Registrant, Diva Entertainment, Inc., Diva Acquisition
               Corp. and J R Consulting, Inc. (1)
         3.1   Certificate of Incorporation. (2)
         3.2   By-laws. (2)
         3.3   Amendment to Certificate of Incorporation changing name to Diva
               Entertainment, Inc. (1)
         3.4   Certificate of Designation - Series A Convertible Preferred
               Stock. (3)
         3.5   Certificate of Designation - Series B Redeemable Convertible
               Preferred Stock. (3)
         3.6   Certificate of Designation - Series C Convertible Preferred
               Stock. (3)
         21.1  List of subsidiaries. (3)
         99.1  Certification pursuant to Section 906 of Sarbanes-Oxley Act of
               2002.

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

(1)      Incorporated by reference to the exhibit of same number filed with the
         Company's Form 8-K dated April 28, 2000 and filed August 9, 2000.
(2)      Incorporated by reference to the exhibit of same number filed with the
         Company's Registration Statement on Form 10-SB, File No. 0-23506.
(3)      Incorporated by reference to the exhibit of the same number filed with
         the Company's Form 10-KSB for the year ended June 30, 2001 filed July
         3, 2001.

(b) Form 8-K

         None.

                                       8

<PAGE>

                                   SIGNATURES
                                   ----------

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

                                        DIVA ENTERTAINMENT INC.


Date:  September 30, 2002               By: /s/ Peter C. Zachariou
                                           -------------------------------------
                                              Peter C. Zachariou, President


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

SIGNATURE                     TITLE                      DATE

/s/ Peter C. Zachariou
-------------------------
PETER C. ZACHARIOU            President/Principal        September 30, 2002
                              Executive and Director


/s/ David Lean
-------------------------
DAVID LEAN                    Principal Accounting       September 30, 2002
                              Officer and Director


    Supplemental Information to be Furnished with Reports Filed Pursuant to
          Section 15(d) of the Exchange Act by Non-Reporting Issuers.

         No annual report or proxy material has been sent to security holders
nor are such materials anticipated to be sent, with the exception of this Annual
Report on Form 10-KSB.

                                       9

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
Independent Auditors' Report                                          F-2

Financial Statements

      Consolidated Balance Sheet                                      F-3

      Consolidated Statements of Operations                           F-5

      Consolidated Statement of Stockholders' Deficiency              F-6

      Consolidated Statements of Cash Flows                           F-7

      Notes to Consolidated Financial Statements                      F-8 - F-20
</TABLE>

                                      F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


Stockholders
Diva Entertainment, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Diva
Entertainment, Inc. and Subsidiaries (the "Company") as of June 30, 2002, and
the related consolidated statements of operations, stockholders' deficiency and
cash flows for the years ended June 30, 2002 and 2001. These consolidated
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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business; however, currently such
realization of assets and liquidation of liabilities are subject to significant
uncertainties.

As shown in the accompanying financial statements, as of June 30, 2002, the
Company's current liabilities exceeded its current assets by $1,209,293 and its
total liabilities exceeded its total assets by $1,433,128. These factors, among
others, indicate that the Company may be unable to continue existence. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.

The appropriateness of the Company to continue using the aforementioned basis of
accounting is dependent upon, among other things, the ability to: (1) obtain
profitability and positive cash flow from ongoing operations and (2) maintain
and increase existing credit facilities or raise additional capital.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Diva
Entertainment, Inc. and Subsidiaries as of June 30, 2002 and 2001, and the
results of their operations and their cash flows for the years ended June 30,
2002 in conformity with generally accepted accounting principles in the United
State of America.


PARITZ & COMPANY, P.A.
Hackensack, New Jersey
August 23, 2002

                                      F-2

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2002

                                     ASSETS

CURRENT ASSETS

    Cash                                                      $   14,152
    Accounts receivable - net of allowance for doubtful
        accounts of $ 250,000                                    456,433
    Prepaid expenses and other current assets                     78,472
                                                              ----------

                  Total current assets                           549,057

PROPERTY AND EQUIPMENT, net of accumulated
    depreciation and amortization                                 60,334

OTHER ASSETS

    Security deposits                                             43,638
                                                              ----------

                  Total other assets                              43,638
                                                              ----------

                  Total assets                                $  653,029
                                                              ==========


The accompanying notes are an integral part of this statement.

                                      F-3

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                                  JUNE 30, 2002


                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES
    Cash overdraft                                                  $   106,425
    Accounts payable - talents                                          752,494
    Accounts payable - other                                             72,059
    Dividends payable                                                   381,865
    Accrued expenses and other current liabilities                      350,664
    Due to parent                                                        94,843
                                                                    -----------

                  Total current liabilities                           1,758,350


OTHER LIABILITIES
    Due to officer                                                      327,807
                                                                    -----------

                  Total liabilities                                   2,086,157


COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' DEFICIENCY
    Series A convertible preferred stock, $.001 par value;
        575 shares issued and outstanding                             1,010,000
    Series B redeemable convertible preferred stock, $.001 par
        value; 3,000 shares issued and outstanding                    3,000,000
    Series C convertible preferred stock, $1,000 par value; 100
        shares issued and outstanding                                   100,000
    Common stock, $.001 par value;
        5,498,800 shares issued and
        outstanding                                                       5,498
    Additional paid-in capital                                           50,425
    Accumulated deficit                                              (5,599,051)
                                                                    -----------

                  Total stockholders' deficiency                     (1,433,128)

                  Total liabilities and stockholders' deficiency    $   653,029
                                                                    ===========


The accompanying notes are an integral part of this statement.

                                      F-4

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 Year ended      Year ended
                                                                June 30, 2002  June 30, 2001
                                                                -------------  -------------
<S>                                                              <C>             <C>
Revenue
    Management fees, net                                         $ 2,013,855     $2,031,917
                                                                 -----------     ----------
Operating expenses
    Selling, general and administrative expenses                   2,262,724      1,999,323
    Depreciation and amortization                                    115,900        156,299
                                                                 -----------     ----------

         Total operating expenses                                  2,378,624      2,155,622
                                                                 -----------     ----------

         Loss from operations                                       (364,769)      (123,705)
                                                                 -----------     ----------
Other (expense)
    Write off of goodwill                                                 --       (463,073)
    Interest expense                                                 (19,222)       (36,220)
                                                                 -----------     ----------


         Total other (expense)                                       (19,222)      (499,293)
                                                                 -----------     ----------

         Net (loss)                                              $  (383,991)    $ (622,998)
         Preferred stock dividends                                   (78,181)      (120,750)
                                                                 -----------     ----------

         (Loss) attributable to common stockholders              $  (462,172)    $ (743,748)
                                                                 ===========     ==========


Basic and diluted (loss) per share                               $      (.08)    $     (.14)
                                                                 ===========     ==========

Weighted-average common stock outstanding                          5,498,800      5,498,800
                                                                 ===========     ==========
</TABLE>


The accompanying notes are an integral part of these statements.

                                      F-5

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY


<TABLE>
<CAPTION>
                            Series A          Series B          Series C
                         Preferred Stock   Preferred Stock   Preferred Stock
                        ----------------- ----------------- -----------------    Common Stock  Additional                  Total
                                                                                                Paid-in   Accumulated  Stockholders'
                        Shares   Amount   Shares   Amount   Shares   Amount    Shares   Amount  Capital     Deficit     Deficiency
<S>                      <C>    <C>        <C>    <C>        <C>   <C>        <C>        <C>    <C>        <C>          <C>
Balance - June 30, 2000  575.0  1,150,000  3,000  3,000,000  100   $  100,000 5,498,800  5,498  50,425     (4,393,131)     (87,208)
                        ------ ---------- ------ ---------- ----   ---------- --------- ------ -------    -----------  -----------
Redeemed                  62.5    125,000     --         --   --           --        --     --      --             --     (125,000)
Accrued Dividends on
Preferred Stock                                                                                              (120,750)    (120,750)
Net income July 1, 2000
to June 30, 2001                                                                                             (622,998)    (622,998)


Balance - June 30, 2001  512.5  1,025,000  3,000  3,000,000  100   $  100,000 5,498,800  5,498  50,425     (5,136,879)    (955,956)
                        ------ ---------- ------ ---------- ----   ---------- --------- ------ -------    -----------  -----------
Redeemed                   7.5     15,000     --         --   --           --        --     --      --             --       15,000)

Accrued dividends on
Preferred Stock             --         --     --         --   --           --        --     --      --        (78,181)     (78,181)
Net loss July 1, 2001
through June 30, 2002       --         --     --         --   --           --        --     --      --       (383,991)    (383,991)
                        ------ ---------- ------ ---------- ----   ---------- --------- ------ -------    -----------  -----------


Balance - June 30, 2002  505.0 $1,010,000  3,000 $3,000,000  100   $  100,000 5,498,800 $5,498 $50,425    $(5,599,051) $(1,433,128)
                        ====== ========== ====== ========== ====   ========== ========= ====== =======    ===========  ===========
</TABLE>


The accompanying notes are an integral part of this statement.

                                      F-6

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Year ended     Year ended
                                                                     June 30, 2002  June 30, 2001
                                                                     -------------  -------------
<S>                                                                    <C>           <C>
Cash flows from operating activities
    Net loss                                                           $ (383,991)   $ (622,998)
                                                                       ----------    ----------
Adjustments to reconcile net (loss) to net cash
    provided by (used in) operating activities
      Depreciation and amortization                                       115,900       156,300
      Write off of goodwill                                                    --       463,073
      Loss on disposal of equipment                                         3,452            --
      (Increase) decrease in assets
         Accounts receivable                                              217,796       340,495
         Prepaid expenses and other current assets                        (32,309)      (17,528)
         Security deposits                                                 (2,300)       (2,045)
      Increase (decrease) in liabilities
         Accounts payable - talent                                        272,862       (96,095)
         Accounts payable - other                                         (49,645)     (133,203)
         Accrued expenses and other current liabilities                   (50,733)      211,818
                                                                       ----------    ----------

              Total adjustments                                           475,023       922,815
                                                                       ----------    ----------

              Net cash provided by operating activities                    91,032       299,817
                                                                       ----------    ----------

Cash flows from investing activities
    Purchases of property and equipment                                    (7,489)       (1,000)
    Advances to employees                                                   1,191        15,545
                                                                       ----------    ----------
              Net cash provided by (used in) investing activities          (6,298)       14,545
                                                                       ----------    ----------

Cash flows from financing activities
    Cash overdraft                                                         (3,115)     (132,872)
    Repayment of officers' loans, net                                     (54,967)      (79,165)
    Advances from related parties, net                                      2,500            --
    Redemption of private placement offering, net                         (15,000)     (125,000)
                                                                       ----------    ----------
              Net cash (used in) financing activities                     (70,582)     (337,037)
                                                                       ----------    ----------

              Net increase (decrease) in cash                              14,152       (22,675)

Cash at beginning of period                                                    --        22,675
                                                                       ----------    ----------

Cash at end of period                                                  $   14,152    $       --
                                                                       ==========    ==========

Supplemental disclosures of cash flow information:
    Cash paid during the period for
       interest                                                        $   19,222    $   36,220
                                                                       ==========    ==========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-7

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 2002 and 2001

NOTE A - COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         1.   Company Background - Organization and Nature of Business and
Liquidity

         Diva Entertainment, Inc. (formerly known as Quasar Projects Company)
("Diva-Delaware" or the "Company"), which is primarily a holding company, was
incorporated in the State of Delaware in December 1992.

         Prima was incorporated in the State of California on January 29, 1996
and Que was incorporated in the State of New York on December 29, 1997. Prima
and Que are in the business of providing management services to models and
talents in the entertainment industry, primarily in California and New York.

         Successful operations are subject to certain risks and uncertainties
including, among others, all the problems, expenses, delays and other risks
inherent in developing and expanding the Company's client base, actual and
potential competition by entities with greater financial resources, experience
and market presence than the Company. Further risks and uncertainties relate to
the ability of the Company to generate sufficient revenue and obtain financing
and additional equity.

         The Company continues to sustain substantial losses from operations,
which has adversely affected the Company's liquidity. The Company has obtained
significant advances from an officer and a stockholder (Note E) and proceeds
from the issuance of Series C Preferred Stock (see Note H) to assist in the
payment of trade payables. The Company also plans to continue to expand its
customer base and to reduce operating expenses. Although there can be no
assurance that these measures will be successful, the Company believes that
future operations and support from the officer will provide sufficient liquidity
to fund current operations.

                                      F-8

<PAGE>



                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

         2.   Principles of Consolidation

         The consolidated financial statements include the accounts of
Diva-Delaware, Diva-Florida and Diva-Florida's wholly-owned subsidiaries, Prima
and Que, collectively referred to as the "Company". All significant intercompany
transactions have been eliminated in consolidation.

                                      F-9

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

         3.   Revenue Recognition

         The Company recognizes management revenue upon completion of the
service by the model and talents.

         4.   Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line and accelerated methods, in amounts sufficient to
relate the cost of the depreciable assets to operations over their estimated
service lives, which range from 5 to 7 years. The cost of leasehold improvements
is amortized over the life of the lease or the estimated useful life of the
improvements, whichever is less.

         5.   Use of Estimates in the Financial Statements

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

         The Company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those conditions could affect the Company's
estimate.

         6.   Fair Value of Financial Instruments

         The carrying amounts of cash, accounts receivable, accounts payable and
current debt and due to officer amounts approximate fair value, principally
because of the short-term maturity of these items. Due to officers included in
other liabilities is a stated amount based on the face amount borrowed from the
officer; it is not practical to estimate its fair market value because the
amount is due with a related party and to determine its fair value would require
incurring excessive costs.

         7.   Intangible Assets

         Intangible assets are recorded and amortized over fifteen years using
the straight-line method. At each balance sheet date, the Company evaluates the
recoverability of goodwill based on expectations of nondiscounted cash flows. If
the sum of the nondiscounted cash flows is less than the carrying amount of all
assets, including intangible assets, the Company recognizes an impairment loss.
For the year ended June 30, 2002, the Company has not recorded an impairment
loss.

                                      F-10

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

         8.   Stock-Based Compensation

         The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which permits the Company to account for stock option grants in
accordance with APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued
to Employees." Under APB No. 25, compensation expense is recorded when the
exercise price of the Company's employee stock option is less than the market
price of the underlying stock at the date of grant. At June 30, 2002, there are
no options issued and outstanding to employees.

         9.   Comprehensive Income

         The Company records comprehensive income in accordance with Statement
of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 requires unrealised gains and losses in
investments available for sale to be included in other comprehensive income. The
components of comprehensive income and the effect on earnings for the year ended
June 30, 2002 is detailed in the Company's accompanying consolidated statement
of stockholders' equity. The assets relating to the balance in other
comprehensive income were sold during the year ended June 30, 2002.

         10.  Earnings Per Share

         Basic earnings per share amounts have been computed using the
weighted-average number of common and common equivalent shares outstanding
during each year. Diluted earnings per share amounts have been computed using
the weighted-average number of common and common equivalent shares and the
dilutive potential common outstanding during each year. For the year ended June
30, 2002, convertible preferred stock has been excluded from the calculation of
diluted income (loss) per share as its effect would have been antidilutive. For
the year ended June 30, 2002, convertible preferred stock has been excluded from
the calculation of diluted income per share since the number of common shares
the preferred stock is convertible into is not known, because the conversion is
dependent on the market value of the common stock. At June 30, 2002, there is no
determinable market value of the common stock, since it is not currently trading
on any stock exchange.

                                      F-11

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

         A reconciliation between basic and diluted earnings per share is as
follows:

<TABLE>
<CAPTION>
                                                                 Year ended June 30,
                                                              -------------------------
                                                                 2002           2001
                                                              ----------     ----------
<S>                                                          <C>            <C>
        Basic earnings per share

        Income (loss) applicable to common stockholders      $  (462,172)   $  (743,748)
        Basic common shares                                    5,498,800      5,498,800
        Basic earnings (loss) per share                            $(.08)         $(.14)

        Diluted earnings per share

        Income (loss) applicable to common stockholders      $  (462,172)   $  (743,748)
        Basic common shares                                    5,498,800      5,498,800
        Plus impact of convertible preferred stock                    --             --
        Diluted common shares                                  5,498,800      5,498,800
        Diluted earnings per share                           $     (.08)    $     (.14)
</TABLE>

NOTE B - PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

                                                                     Amount
                                                                     ------

                Office equipment and fixtures                       $221,554
                Leasehold improvements                              $263,394
                                                                    --------


                Less accumulated depreciation and amortization      $424,614
                                                                    --------

                Property and equipment, net                         $ 60,334
                                                                    ========

                                      F-12

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

         Depreciation and amortization expense for the years ended June 30, 2002
and 2001 was $115,900 and $156,299, respectively.

                                      F-13

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

NOTE C - GOODWILL

         In prior years, Prima has recorded goodwill resulting from a business
combination, which is being amortized on the straight-line method over fifteen
years. However, at the end of the previous fiscal year, the Company recorded an
impairment loss to the goodwill writing off the remaining balance in that
account.

NOTE D - RELATED PARTY TRANSACTIONS

         Due to Officer

         The amounts due to an officer of the Company amounted to $382,774 at
June 30, 2002 represent advances made by the officer. The advances are secured
by a lien on all the assets of the Company and are evidenced by a series of
promissory notes which bear interest at the rate of 8% per annum. The loans are
due on July 3, 2003.

         Due to Parent

         The amount due to parent of $94,842 at June 30, 2002 represents net
advances made to the Company. The advances are secured by a lien on all the
assets of the Company and are evidenced by a series of promissory notes. The
loans are due on July 3, 2003.

NOTE E - INCOME TAXES

         In Fiscal 2002, no Federal, state and local tax expense was recorded as
a result of the net operating loss ("NOL") carryforwards. In Fiscal 2002, no
Federal, state or local income tax expense was recorded due to the net loss
incurred. Differences between the income tax expense (benefit) computed at the
Federal statutory rate (34%) and reported income taxes (benefit) for 2002 and
2001 are primarily attributable to the valuation allowance of the NOL
carryforwards.

         The following is a reconciliation of the statutory Federal income tax
rate to the effective rate reported in the financial statements:

                                                           Year ended June 30,
                                                         -----------------------
                                                            2002         2001
                                                          -------      --------

  Provision (benefit) for Federal income taxes at the
           statutory rate                                $(154,000)   $(252,000)
  State and city income taxes, net of Federal income
           tax benefit                                     (34,000)     (67,000)
  Valuation allowance for deferred taxes                   188,000      319,000
                                                         ---------    ---------
  Utilization of NOL carryforwards                               0            0
                                                         ---------    ---------
           Actual provision (benefit) for income taxes   $       0    $       0
                                                         =========    =========

                                      F-14

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

         Deferred income taxes reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws, and relate primarily to the NOL carry
forward and the allowance for doubtful accounts and sales allowances. The
Company has established a full valuation allowance against the deferred tax
assets due to the uncertainty of the Company's ability to generate sufficient
future taxable income to ensure the realization of the tax benefits related
primarily to the NOL carryforwards.

         The following is a summary of the items giving rise to deferred tax
assets at June 30, 2002

           Current
              Allowance for doubtful accounts and sales
                  Allowances                                    $   250,000
           Long-term
              Net operating loss carry forward                    5,000,000
                                                                -----------

           Total deferred tax assets                              5,250,000

           Less valuation allowance                               5,250,000
                                                                -----------

           Net deferred tax asset                               $         0
                                                                ===========

The Company has estimated NOL carryforwards of approximately $5,000,000
available for Federal, state and local income tax purposes expiring in various
years through June 2017. The Company's ability to utilize these NOL
carryforwards to offset future taxable income is significantly limited due to
changes in control as defined in Section 382 of the Internal Revenue Code.

NOTE F - COMMITMENTS AND CONTINGENCIES

         1.   Leasing Arrangements

         The Company leases its New York office and Los Angeles office through
five-year noncancellable lease agreements expiring in December 2002 and December
2003, respectively.

                                      F-15

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

         Future minimum rental commitments under the above noncancellable
operating leases as of June 30, 2002 are as follows:

                      Year ending June 30,              Amount
                      --------------------              ------

                      2003                              $92,967
                      2004                              $27,484
                      2005                              $     0

         Rent expense for the years ended June 30, 2002 and 2001 was $144,250.57
and $141,225 respectively.

         2.   Contingency

         In December 1997, Prima entered into an Agreement with an unrelated
third party to sell certain assets and liabilities. Pursuant to this agreement,
Prima assigned the studio lease to the buyer. The future commitments under the
lease at June 30, 2002 of approximately $700,000 are payable by the third party
through October 2007. Prima is contingently liable for these commitments in case
the buyer is in default of such payments.

         3.   Litigation Settlement

         The Company was a defendant in a lawsuit entitled Barry Seidman,
Richard S. Beatty, Brad Blumenthal, Alex Halpern, Steven Louth, Dale Steen,
Frederick A. Lenz and Jesse Reggio v. Diva Entertainment, Inc. and Peter
Zachariou, Case No. GIC 767838, in the Superior Court of California, County of
San Diego. The Plaintiffs were stockholders of the Company who alleged
securities fraud in connection with the sale by the Company of certain shares of
Series A Preferred Stock. This lawsuit was settled on June 18, 2002. Pursuant to
the settlement, the Company agreed to forgive $70,000 in amounts due to the
Company from the Plaintiff shareholders as well as pay an additional $30,000 in
cash.

         In connection with this litigation matter, the Company asserted a claim
against Broad and Cassel, the law firm which represented the Company in the
original transaction. In settlement of this claim, Broad and Cassel paid the
Company $50,000 and agreed to forgive the indebtedness owed by the Company to
Broad and Cassel. A mutual general release was exchanged.

         On or about July 1, 2002, a Complaint was filed in the matter of Keith
Mazer and Jehu Hand vs. Diva Entertainment, Inc., a Florida corporation, J.R.
Consulting, Inc., a Nevada corporation; and Peter Zachariou, an individual, Case
No. B6276807, in the Superior Court of California for the County of Orange or
Los Angeles. In their Complaint, Plaintiffs have alleged violations of
California corporate securities law, breach of contract and breach of fiduciary
duty as controlling stockholders, officers and/or directors and violation of
business and profession code This Complaint was not properly served upon the
Company. Moreover, it is management's understanding that the Complaint was not
filed properly. Notwithstanding the foregoing, management believes that the
claims alleged in this Complaint are entirely without merit. However, in order
to avoid the cost of litigation, management recently settled this matter

                                      F-16

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

and has received a Settlement Agreement and Mutual General Release from the
Plaintiffs in connection with this settlement. The Company is not required to
pay any amounts pursuant to the Settlement Agreement.

NOTE G - PREFERRED STOCK

         The Company has authorized 1,000,000 shares of $0.001 par value
preferred stock. At June 30, 2002, 512.5, 3,000 and 100 shares of Series A, B
and C preferred stock are issued and outstanding, respectively.

         1.   Series A Convertible Preferred Stock

         In May 1998, Diva-Florida commenced a private placement offering of its
common stock, wherein it proposed to sell up to 500,000 shares of common stock
at a price of $2.00 per share. As of June 30, 1998, 221,000 shares of common
stock were sold for $442,000. These shares were subscribed and not yet formally
issued at April 28, 1999. In connection with the Acquisition (see Note A), the
subscribers of the 200,000 Diva-Florida shares converted their subscribed shares
to 200 shares of Diva-Delaware's Series A Convertible Preferred Stock (the
"Series A Preferred"). Diva-Florida returned $42,000 to the subscriber who held
21,000 subscribed shares of Diva-Florida's common stock. In connection with the
conversion, Diva-Delaware authorized the designation of 1,721 shares of the
Series A Preferred.

         Diva-Delaware immediately commenced a private placement offering of its
Series A Preferred after the Acquisition (see Note A), wherein it proposed to
sell up to 750 shares of Series A Preferred at a price of $2,000 per share. At
June 30, 2001, 375 shares of the Series A Preferred were sold for $750,000,
which was received in cash. This, combined with the 200 shares of Series A
Convertible Preferred Stock previously issued, resulted in there being 575
shares of Series A Preferred issued and outstanding. However, in Fiscal 2001,
their Company redeemed 62.5 shares of Series A Preferred from two of its
stockholders. The shares were redeemed for $125,000, the price paid for such
shares. In addition, in Fiscal 2002, the Company redeemed 7.5 shares of Series A
Preferred from two of its stockholders. The shares were redeemed for $15,000,
the price paid for such shares. As a result, as at June 30, 2002, the Company
had 505 shares of Series A Preferred issued and outstanding.

         The Series A Preferred holders are entitled to receive cumulative
preferential dividends at $60 per share per annum, payable annually on each
anniversary date of issuance. At the option of Diva-Delaware, such dividend may
be paid in cash or in shares of Diva-Delaware's common stock valued at the
Conversion Rate, as defined. As of June 30, 2002, total cumulative dividends
amounted to $66,988. In addition, the Series A Preferred shall not

                                      F-17

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

be redeemed without the consent of the holders of the preferred shares. In the
event of any liquidation, dissolution or winding up of the Company, the Series A
Preferred holders shall be entitled to receive, before any common stockholder,
an amount equal to $2,000 per share. In the event there are insufficient funds
to pay the series to holders, the holders shall share rateably with all other
preferred stockholders. Each share of Series A Preferred shall be converted, at
the option of the holders, at any time, and shall be mandatorily converted on
the first anniversary of its date of issuance into a number of shares of the
Company's common stock at a conversion rate equal to $2,000 divided by 65% at
the average market price of the common stock for the five trading days
immediately prior to the conversion date. At June 30, 2002, no shares of Series
A Preferred stock have been converted into common stock of the Company, since
there is no current market for the shares as they are not yet traded on any of
the exchanges. Until there is a market for the shares of common stock and the
shares of preferred stock become exercisable upon their terms, the shares of
preferred stock cannot be converted. Because the conversion price will be less
than the fair market value of the common stock, the preferred stock is deemed to
have an embedded beneficial conversion feature. This feature allows holders of
the preferred stock to acquire shares of the Company's common stock at a
purchase price below its deemed fair value. If and when the Company's common
stock becomes marketable, $619,231 will be reflected as deemed preferred
dividends on the statement of operations.

         In Fiscal 2002, the Company redeemed 62.5 shares of Series A Preferred
from two of its stockholders. The shares were redeemed for $125,000, the price
paid for such shares.

         2.   Series B Redeemable Convertible Preferred Stock

         In connection with the Acquisition (see Note A), JRCI converted
$3,000,000 of debt, owed to it by Diva-Florida and Subsidiaries, into 3,000
shares of Series B Redeemable Convertible Preferred Stock (the "Series B
Preferred") of Diva-Delaware. In connection with the conversion, Diva-Delaware
authorized the designation of 3,000 shares of Series B Preferred.

         The Series B Preferred holders are entitled to receive cumulative
preferential dividends at $30 per share per annum, payable annually on each
anniversary date of issuance. At the option of the Diva-Delaware, such dividend
may be paid in cash or in shares of Diva-Delaware's common stock valued at the
Conversion Rate, as defined. As of June 30, 2002, total cumulative dividends
amounted to $314,877. In addition, the Series B Preferred may be redeemed, in
whole or in part, at the option of the Company at a redemption price of $1,000
per share plus any dividends accrued and unpaid. In the event of any
liquidation, dissolution or winding up of the Company, the Series B Preferred
holders shall be entitled to receive an amount equal to $1,000 per share. In the
event there are insufficient funds to pay the

                                      F-18

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

preferred stock holder, the holder shall share rateably with all other preferred
stockholders. Each share of Series B Preferred stock shall be convertible at the
option of the holder, at any time after issuance, and shall be mandatorily
converted at the tenth anniversary of its date of issuance into a number of
shares of the Company's common stock at a conversion rate equal to $1,000
divided by 65% of the average market price of the common stock for the five days
immediately prior to the conversion date. At June 30, 2002, no shares of Series
B preferred stock have been converted into common stock of the Company since
there is no market price for the shares of common stock, as they are not yet
traded on any of the exchanges. Until there is a market for the common stock and
the shares of preferred stock become exercisable upon their terms, the shares of
preferred stock cannot be converted. Because the conversion price will be less
than the fair market value of the common stock, the preferred stock is deemed to
have an embedded beneficial conversion feature. This feature allows holders of
the preferred stock to acquire shares of the Company's common stock at a
purchase price below its deemed fair value. If and when the Company's common
stock becomes marketable, $1,615,385 will be reflected as deemed preferred
dividends on the statement of operations.

          Series C Redeemable Convertible Preferred Stock

         In February 2000, the Company issued 100 shares of Series C Preferred
Stock at a price of $1,000 per share. The Series C Preferred holder is entitled
to receive 6% per annum upon declaration of dividends by the Company's Board of
Directors. At June 30, 2002, there have been no dividends declared. At the
option of the Company, such dividend when and if one is declared may be paid in
cash or in shares of The Company's common stock valued at the Conversion Rate,
as defined. In addition, the Series C Preferred Stock may be redeemed in whole
or in part at the option of the Company. Each share is redeemable at 125% of its
stated value, plus any amount equal to any dividends accrued but unpaid thereon.
In the event of any liquidation, dissolution or winding up of the Company, the
Series C Preferred holders shall be entitled to receive, before any common
stockholder, an amount equal to $1,000 per share plus any declared and unpaid
dividends. In the event, there are insufficient funds to pay the series to
holders, the holder shall share rateably with all other preferred stockholders.
Each share of Series C Preferred shall be converted, at the option of the
holders, at any time, and shall be mandatoraly converted on the first
anniversary of the date of the issuance into a number of shares of the Company's
common stock at a conversion rate equal to $1,000 divided by 65% at the average
market price of the common stock for the five trading days immediately prior to
the conversion date. At June 30, 2002, no shares of Series C preferred stock
have been converted into common stock of the Company since there is no market
price for the shares of common stock, as they are not yet traded on any of the
exchanges. Until there is a market for the shares of common stock and the shares
of preferred stock become exercisable on their terms, the shares of preferred
stock cannot be converted. Because the conversion price will be less than the
fair market value of the common stock, the

                                      F-19

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

preferred stock is deemed to have an embedded beneficial conversion feature.
This feature allows holders of the preferred stock to acquire shares of the
Company's common stock at a purchase price below its deemed fair value. If and
when the Company's common stock becomes marketable, $55,846 will be reflected as
deemed preferred dividends on the statement of operations.

         4.   Option Agreement

         JRCI and Diva-Delaware also entered into an Option Agreement giving
JRCI the option to purchase additional shares of Diva-Delaware's common stock at
its par value of $.001 per share in order for JRCI to maintain JRCI's ownership
of the outstanding shares of Diva-Delaware's common stock at no less than 65%.
The option expires when all of the shares of Diva-Delaware's Series A Preferred
have been converted into shares of Diva-Delaware's common stock. The rights
under this Agreement were assigned to Havilland.

                                      F-20

<PAGE>

                    Diva Entertainment, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2002 and 2001 (continued)

NOTE H - SEGMENT INFORMATION

         The Company operated in two geographic segments: New York ("NY") and
California ("CA") (see Note A). The accounting policies used to develop segment
information correspond to those described in the summary of significant
accounting policies (see Note A). Although both segments operate in similar
manners, the NY segment has outperformed LA because the NY segment has a
significantly higher number of female models than male models whereas in the CA
segment, there are more male models used. Male models generate lower revenues
per engagement than female models. In addition, the NY models rates are
significantly higher than those in CA. In addition, the Company does not
allocate certain corporate expenses, such as administrative salaries,
professional fees and occupancy costs, to its segments. Segment profit (loss) is
based on profit from operations before provision for income taxes. Sales and
transfers between segments are accounted for at cost. The reportable segments
are distinct business units operating in different geographic areas. They are
separately managed, with separate marketing systems.

         Reportable Segment Information

                                     NY         CA       Corporation     Total
                                     --         --       -----------     -----

2002
----
Revenue                          $1,531,467  $ 482,388          --   $2,013,855
Interest expense                      9,602      9,619          --       19,222
Depreciation and amortization        73,900     42,000          --      115,900
Segment profit (loss)                25,834   (182,690)   (207,914)    (364,770)
Segment  assets                     771,467    191,962    (305,400)     658,029
Expenditure for segment assets        5,489      2,000          --        7,489

2001
----
Revenue                          $1,585,789  $ 446,128   $      --   $2,031,917
Interest expense                     36,220         --          --       36,220
Depreciation and amortization        71,700     84,600          --      156,300
Segment profit (loss)               101,942   (707,741)    (17,199)     (71,374)
Segment assets                      803,005    217,246     (85,133)     935,118
Expenditure for segment assets        1,000         --          --        1,000

                                      F-21

<PAGE>

                                 Exhibit Index

Exhibit Number    Exhibit Description

99.1              Certification pursuant to Section 906 of Sarbanes - Oxley Act
                  of 2002