UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES AND EXCHANGE COMMISSION
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For transition period from _______________ to _______________
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Tucker Lane, Walnut California, California 91789
(Address of principal executive offices)
(909) 839-1989
(Issuer's telephone number, including area code)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [ ]
As of September 30, 2002, there were 477,160,096 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1: Condensed Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2002
[Unaudited] and March 31, 2002........................................ 3-4
Condensed Consolidated Statements of Operations for the three months
and six months ended September 30, 2002 and 2001 [Unaudited].......... 5
Condensed Consolidated Statements of Cash Flows for six months ended
September 30, 2002 and 2001 [Unaudited]............................... 6-7
Notes to Condensed Consolidated Financial Statements [Unaudited]...... 8-18
Item 2: Management's Discussion and Analysis or
Plan of Operations.............................................. 19-23
Item 3: Controls and Procedures......................................... 23
Part II. Other Information.............................................. 23
Item 1: Legal Proceedings............................................... 23
Item 2: Changes in Securities........................................... 24
Item 3: Defaults Upon Senior Securities................................. 25
Item 4: Submission of Matters to a Vote of Security Holders............. 25
Item 5: Other Information............................................... 25
Item 6: Exhibits and Reports on Form 8-K................................ 25
Signatures............................................................... 26
Certifications........................................................... 27
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
2002 2002
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 58,983 $ 15,642
Accounts receivable, net of allowance for
doubtful accounts of $125,834 (unaudited)
and $106,858 557,865 356,869
Inventory 722,108 964,988
Due from related parties 206,392 268,435
Prepaid expenses and other current assets 4,315 37,272
------------ -----------
Total current assets 1,549,663 1,643,206
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $1,143,070 (unaudited) and $1,098,195 256,073 296,077
FILM MASTERS AND ARTWORK, less accumulated
amortization of $3,977,722 (unaudited) and $3,956,767 308,687 271,151
INVESTMENT IN EQUITY SUBSIDIARY 60,158 60,158
OTHER ASSETS 28,966 33,703
------------ -----------
TOTAL ASSETS $ 2,203,547 $ 2,304,295
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30, March 31,
2002 2002
------------ -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bank overdraft $ - $ 9,823
Accounts payable and accrued expenses 2,048,348 1,479,323
Due to factor 131,431 159,747
Financing agreement payable - 103,777
Notes payable - current portion 37,800 37,800
Due to related parties - notes payable 465,818 666,858
Customer Deposits 121,413 243,624
------------ -----------
Total current liabilities 2,804,810 2,700,952
Notes payable, less current portion 47,250 66,150
------------ -----------
TOTAL LIABILITIES 2,852,060 2,767,102
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 5) - -
STOCKHOLDERS' DEFICIENCY
Convertible preferred stock, no par value; 4,999,863 and
5,000,000 shares authorized; 483,251 issued (of which
172,923 are held in treasury) 376,593 376,593
Treasury stock ( 48,803) ( 48,803)
Series A convertible preferred stock, $10,000 per share
stated value; 50 shares authorized; 40 issued and outstanding 471,400 471,400
Series B convertible preferred stock, $10,000 per share
stated value; 87 shares authorized; 84 issued and outstanding 1,116,837 1,146,837
Common stock, no par value; 600,000,000 shares authorized;
477,160,096 and 457,634,122 issued and outstanding 17,234,122 17,129,122
Accumulated deficit (19,798,662) (19,537,956)
------------ -----------
TOTAL STOCKHOLDERS' DEFICIENCY ( 648,513) ( 462,807)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 2,203,547 $ 2,304,295
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
SALES - net $ 847,684 $ 1,305,349 $ 1,697,214 $2,042,619
COST OF GOODS SOLD 593,202 794,987 1,170,200 1,261,524
----------- ----------- ----------- ----------
GROSS PROFIT 254,482 510,362 527,014 781,095
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 351,912 322,135 699,620 720,053
----------- ----------- ----------- ----------
PROFIT LOSS FROM OPERATIONS ( 97,430) 188,227 (172,606) 61,042
----------- ----------- ----------- ----------
OTHER INCOME (EXPENSE)
Interest expense ( 46,156) ( 88,420) ( 88,145) (177,132)
Other income (expense) ( 42) 5,953 45 11,865
----------- ----------- ----------- ----------
Total other income (expense ( 46,198) ( 82,467) ( 88,100) (165,267)
----------- ----------- ----------- ----------
PROFIT (LOSS) BEFORE PROVISION FOR
INCOME TAXES (143,628) 105,760 (260,706) (104,225)
PROVISION FOR INCOME TAXES - - - -
----------- ----------- ----------- ----------
NET LOSS $ (143,628) $ 105,760 $ (260,706) $ (104,225)
=========== =========== =========== ==========
NET LOSS PER SHARE -
basic and diluted $ ( 0.00) $ ( 0.00) $ ( 0.00) $ ( 0.00)
=========== =========== =========== ==========
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUTSTANDING -
basic and diluted 472,986,183 261,180,000 468,671,557 214,708,260
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
September 30,
--------------------------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(260,706) $(104,225)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 65,830 76,338
Provision for doubtful accounts (4,369) 18,000
Inventory reserve (280,320) -
Changes in certain assets and liabilities
(Increase) decrease in:
Due from related party 62,643 ( 73,400)
Accounts receivable (196,627) (246,773)
Inventory 523,200 90,038
Prepaid expenses and other current assets 32,357 ( 21,143)
Other assets 4,737 29,782
Increase (decrease) in
Due to factor ( 28,316) -
Accounts payable and accrued expenses 571,702 249,636
Customer deposits (122,211) -
Other - ( 10,057)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 367,920 8,196
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ( 4,871) ( 4,445)
Purchase of film masters and artwork ( 58,491) (108,023)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ( 63,362) (112,468)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank overdraft - ( 14,753)
Net repayments of financing agreement (103,777) 77,402
Proceeds (payments) of notes payable ( 18,900) ( 40,330)
Proceeds (payments) of notes payable (related party) (201,040) 20,200
Proceeds from convertible debentures - ( 4,900)
Payments on capital leases - ( 16,569)
Proceeds from the exercise of options 62,500 135,000
---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (261,217) 156,050
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
6
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
For the Six Months Ended
September 30,
--------------------------
2002 2001
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 43,341 51,778
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 15,642 29,900
----------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 58,983 $ 81,678
=========== ==========
SUPPLEMENTAL INFORMATION
CASH PAID FOR:
Interest expense $ 54,399 $ 64,000
=========== ==========
Income taxes $ - $ -
=========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the six months ended September 30, 2002:
On May 6, 2002, one share of the Company's Series B Preferred Stock was
converted into 1,351,351 shares of the Company's common stock at the conversion
price of $0.0074.
On May 23, 2002, two shares of the Company's Series B Preferred Stock were
converted into 3,174,603 of the Company's common stock at the conversion price
of $0.0063.
On September 13, 2002, the Company issued 2,500,000 shares of its common stock
at an exercise price of $0.005 upon the exercise of options in settlement of
$12,500 in accounts payable.
The accompanying notes are an integral part of these consolidated financial
statements.
7
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of
Diamond Entertainment Corporation (the "Company"), organized under the laws
of the State of New Jersey on April 3, 1986 and its wholly owned
subsidiaries:
1) Jewel Products International, Inc. ("JPI") incorporated under the laws
of the state of California on November 25, 1991;
2) Grand Duplication ("Grand"), incorporated under the laws of the state
of California on August 13, 1996; and
3) Galaxy Net ("Galaxy"), incorporated under the laws of the state of
Delaware on July 15, 1998.
All intercompany transactions and balances have been eliminated in
consolidation.
Interim Financial Statements
---------------------------
The accompanying consolidated financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results of operations
for the periods presented. Interim results are not necessarily indicative
of the results to be expected for the full year ending March 31, 2003. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the annual report of the
Company on Form 10-KSB for the year ended March 31, 2002.
Nature of Business
------------------
The Company is in the business of distributing and selling videocassettes,
general merchandise, patented toys, furniture, and Cine-Chrome gift cards,
through normal distribution channels throughout the United States and
through a web site. As of March 31, 2002 and 2001, the Company's management
evaluated its operations by two separate product lines to assess
performance and the allocation of resources. These product lines have been
reflected as two reportable segments as follows:
1. VIDEO PROGRAMS AND OTHER LICENSED PRODUCTS
The Company distributes and sells videocassette and DVD titles,
including certain public domain programs and certain licensed
programs. The Company markets its video programs to national and
regional mass merchandisers, department stores, drug stores,
supermarkets and other similar retail outlets.
8
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Nature of Business, Continued
-----------------------------
2. GENERAL MERCHANDISE
The Company, through its wholly owned subsidiary, JPI, purchases and
distributes general merchandise products including toy products, train
cases, and other miscellaneous products to mass merchandisers in the United
States. The Company offers the toy products for limited sale periods and as
demand for products change, the Company switches to newer and more popular
products.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the periods presented. Actual
results could differ from those estimates.
Reclassification
----------------
As of September 30, 2002, certain prior year amounts have been reclassified
to conform with current presentation.
Revenue Recognition
-------------------
The Company records sales when products are shipped to customers and are
shown net of estimated returns and allowances. Customer deposits and
credits are deferred until such time products are shipped to customers.
Fair Value of Financial Instruments
-----------------------------------
For certain of the Company's financial instruments, including accounts
receivable, bank overdraft and accounts payable and accrued expenses, the
carrying amounts approximate fair value, due to their relatively short
maturities. The amounts owed for long-term debt also approximate fair value
because current interest rates and terms offered to the Company are at
current market rates.
Inventory
---------
Inventory is stated at the lower of cost or market utilizing the first-in,
first-out method. Inventory consists primarily of videocassettes, general
merchandise, patented toys, and Cine-Chrome gift cards.
9
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Bank Overdraft
--------------
The Company maintains overdraft positions at certain banks. Such overdraft
positions are included in current liabilities.
Stock-Based Compensation
------------------------
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees". Under APB 25, the Company does not recognize
compensation expense related to options issued under the Company's employee
stock option plans, unless the option is granted at a price below market
price on the date of grant.
In 1996, SFAS No. 123 "Accounting for Stock-Based Compensation", became
effective for the Company. SFAS No. 123, which prescribes the recognition
of compensation expense based on the fair value of options on the grant
date, allows companies to continue applying APB 25 if certain pro forma
disclosures are made assuming hypothetical fair value method, for which the
Company uses the Black-Scholes option-pricing model.
For non-employee stock based compensation, the Company recognizes an
expense in accordance with SFAS No. 123 and values the equity securities
based on the fair value of the security on the date of grant. For
stock-based awards, the value is based on the market value for the stock on
the date of grant and if the stock has restrictions as to transferability,
a discount is provided for lack of tradability. Stock option awards are
valued using the Black-Scholes option-pricing model.
Net Loss Per Share
------------------
SFAS No. 128, "Earnings Per Share," requires presentation of basic loss per
share ("Basic LPS") and diluted loss per share ("Diluted LPS"). The
computation of basic loss per share is computed by dividing loss available
to common stockholders by the weighted average number of outstanding common
shares during the period. Diluted loss per share gives effect to all
dilutive potential common shares outstanding during the period. The
computation of diluted LPS does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive effect
on losses. As of September 30, 2002, the weighted average common shares
outstanding would have been increased by 117,500,000 shares, respectively,
if the issued and exercisable stock options would have been dilutive.
10
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Disclosure
------------------
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," was issued, which changes the way public companies report
information about segments. SFAS No. 131, which is based on the selected
segment information, requires quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which
the entity holds assets and reports revenues.
Comprehensive Loss
------------------
Comprehensive loss consists of net loss only.
Recent Accounting Pronouncements
--------------------------------
The Company adopted FASB No. 141-"Business Combinations" and FASB No.
142-"Goodwill and Other Intangible Assets," effective April 1, 2002. There
were no effects on the Company's results of operations and financial
position as of June 30, 2002, as a result of the adoption of FASB No. 141
and No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligation." SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002, and will require companies to record a
liability for asset retirement obligations in the period in which they are
incurred, which typically could be upon completion or shortly thereafter.
The FASB decided to limit the scope to legal obligations and the liability
will be recorded at fair value. The effect of adoption of this standard on
the Company's results of operations and financial positions is being
evaluated.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. It provides a single
accounting model for long-lived assets to be disposed of and replaces SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of." There were no effects from the adoption of this
standard on the Company's results of operations and financial positions.
11
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (continued)
--------------------------------------------
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." This Statement rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment
of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements" and FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers". This Statement amends FASB
Statement No. 13, "Accounting for Leases", to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The Company does
not expect the adoption to have a material impact to the Company's
financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The Company does not expect the adoption to have a
material impact to the Company's financial position or results of
operations.
NOTE 2 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the
Company has incurred recurring losses from operations, negative cash flows
from operations, a working capital deficit and is delinquent in payment of
certain accounts payable.
These matters raise substantial doubt about the Company's ability to
continue as a going concern.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon continued operations of the
Company, which, in turn, is dependent upon the Company's ability to
continue to raise capital and generate positive cash flows from operations.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or amounts and classifications of liabilities that might be necessary
should the Company be unable to continue its existence.
12
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 2 - GOING CONCERN (Continued)
Management plans to take, or has taken, the following steps that it
believes will be sufficient to provide the Company with the ability to
continue in existence and mitigate the effects of the uncertainties.
The Company has implemented a plan to increase its overall market share of
core business and its general merchandise line products, and to expand into
the contract replication, duplication and packaging business. The Company
has implemented the following goals and strategies to achieve its plan:
-- Attain leadership in the market segment of high quality budget priced
distribution of videocassettes and DVD titles.
-- Expand our association with firms in China to source and handle QA
functions for its general merchandise line of products and market a
wide selection of high quality, low price general merchandise and
sundry items from China.
-- Re-establish sales to club type stores with our new general
merchandise line of products.
-- Utilize our relationship with mass merchandisers to introduce and
market its general merchandise line of products.
-- Continue to seek out additional financing sources to support the
expected growth in our general merchandise line of products.
-- Avoid direct competition with larger competitors who sell in the same
product categories as the Company, by offering higher quality budgeted
price products.
-- Continue to acquire new videocassette and DVD titles for distribution.
-- Internet e-Commerce and keep our pricing competitive.
The Company believes it has adequate cash resources to sustain its
operations through the third quarter of fiscal 2003, when it expects to
generate a positive cash flow. The Company is continuing to negotiate with
several reliable investors to provide the Company with debt and equity
financing for working capital purposes. The principal objective of the
Company is to implement the above strategies during fiscal 2003. Although
the Company believes that the outlook is favorable, there can be no
assurance that market conditions will continue in a direction favorable to
the Company.
13
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 3 - INVENTORY
Inventory consisted of the following as of:
September 30,
2002
-------------
Raw materials $ 456,448
Finished goods 845,351
-------------
1,301,799
Less: valuation allowance (579,691)
-------------
Inventory, net $ 722,108
==============
Allowance
---------
An allowance has been established for inventory totaling $579,691. This
reserve is primarily for the anticipated reductions in selling prices
(which are lower than the carrying value) for inventory which has been:
(a) restricted to specified distribution territories as a result of
legal settlements; and
(b) inventory, which has passed its peak selling season.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company has related party transactions with several officers, directors
and other related parties. The following summarizes related party
transactions.
Due from related parties:
September 30,
2002
------------
a) Loan due from - Officer $ 158,275
b) Golden Gulf 14,367
c) GJ Products 33,750
------------
$ 206,392
============
Due to related parties - notes payable:
September 30,
2002
------------
a) Note payable - ATRE $ 365,818
b) Convertible note payable - Jeffrey Schillen 100,000
------------
$ 465,818
============
14
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 5 - COMMITMENTS AND CONTIGENCIES
Royalty Commitments
-------------------
The Company has entered into various royalty agreements for licensing of
titles with terms of one to seven years. Certain agreements include minimum
guaranteed payments. For the three months ended September 30, 2002 and
2001, royalty expense was $27,748 and $4,841, respectively, pursuant to
these agreements. For the six months ended September 30, 2002 and 2001,
royalty expense was $39,618 and $11,012 respectively, pursuant to these
agreements.
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.
Consulting Agreements
---------------------
On October 18, 2001, the Company entered into two consulting agreements
that will terminate on October 17, 2002, whereby the consultants will
provide consulting services for the Company concerning various management,
marketing, consulting, strategic planning, and financial matters in
connection with the operation of the businesses of the Company. The
consultants received options to purchase a total of 30,800,000 of the
Company's common stock exercisable at $0.005 per share in exchange for
services to be rendered and the options shall expire on October 17, 2002.
(See Note 6 for the exercise of these options).
On July 24, 2001, the Company entered into three consulting agreements that
terminated on July 23, 2002, whereby the consultants provided consulting
service for the company concerning management, marketing, consulting,
strategic planning, corporate organization and financial matters in
connection with the operation of the businesses of the Company, expansion
of services, acquisitions and business opportunities. The consultants
received options to purchase a total of 27,000,000 of the Company's common
stock exercisable at $0.005 per share in exchange for services to be
rendered and the options shall expire on July 23, 2002. (See Note 6 for the
exercise of these options).
15
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 5 - COMMITMENTS AND CONTIGENCIES (Continued)
Litigation
----------
In June of 2001, the Company was named as a defendant by one of our
suppliers who filed bankruptcy under Chapter 7. The bankruptcy court
brought legal action against the Company to recover $100,000 the Company
borrowed from the supplier in April of 1999, plus applicable interest. In
accordance with the loan, the Company made four separate payments to the
supplier during April and May 1999 totaling $101,166 in principal and
interest. As of December 31, 2001, the Company reflected one check in the
amount of $25,116 still outstanding. On March 6, 2001, the Company entered
into a stipulation for settlement and dismissal whereby it agreed to pay
$2,500 within ten (10) days after entry of an order approving the
settlement. The stipulation for settlement and dismissal was approved by
the court and a settlement payment of $2,500 was made on May 8, 2002 and on
May 15, 2002, the adversary action was dismissed.
On November 4, 2002, the Company received notification of a lawsuit filed
against the Company in the Superior Court of New Jersey to recover $62,524
including reimbursement of expenses incurred by a law firm that was engaged
by the Company in connection with a merger that the Company completed in
April 1997. Previously, on November 12, 1999, the Company entered into a
settlement agreement with the plaintiff to settle the outstanding balance
of $92,524 for $60,000 payable in three installment payments of $20,000. In
1999 and 2000, we made payments totaling $30,000. As of the period ending
September 30, 2002, the balance recorded on the Company books as a
liability owed to the plaintiff totaled $62,524. The Company has asked its
attorney to negotiate a new settlement agreement with the plaintiff to
settle the current outstanding balance owed.
NOTE 6 - STOCKHOLDERS' DEFICIENCY
Common Stock
------------
As of September 30, 2002, the aggregate number of shares of common stock
that the Company has authority to issue is 600,000,000 shares with no par
value. As of September 30, 2002 and March 31, 2002, 477,160,096 and
457,634,142 shares were issued and outstanding.
For the six months ended September 30, 2002, the Company had the following
significant issuance of its common stock:
On May 5, 2002, the Company issued 7,500,000 shares of common stock
from the exercise of 7,500,000 options at an exercise price of $0.005.
Net proceeds amounted to $37,500.
On May 6, 2002, one share of the Company's Series B Preferred Stock
was converted into 1,351,351 shares of the Company's common stock at
the conversion price of $0.0074.
16
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 6 - STOCKHOLDERS' DEFICIENCY (Continued)
Common Stock
------------
On May 23, 2002, two shares of the Company's Series B Preferred Stock were
converted into 3,174,603 of the Company's common stock at the conversion
price of $0.0063.
On July 18, 2002, the Company issued 3,000,000 shares of common stock from
the exercise of 3,000,000 options at an exercise price of $0.005. Net
proceeds amounted to $15,000.
On September 13, 2002, the Company issued 4,500,000 shares of common stock
from the exercise of 4,500,000 options at an exercise price of $0.005. The
Company received $10,000 in cash for the exercise of 2,000,000 of these
options and the Company issued 2,500,000 shares of its common stock upon
the exercise of the remaining options in settlement of $12,500 in accounts
payable.
NOTE 7 - SEGMENT INFORMATION
The following financial information is reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources. During three months period ended September 30, 2002 and 2001,
and the six months period ended September 30, 2002 and 2001, the company
operated in two principal industries:
a) Video programs and other licensed products
b) General merchandise
17
DIAMOND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 7 - SEGMENT INFORMATION, Continued
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues:
Video programs and other
licensed products $ 798,983 $ 1,305,142 $ 1,643,563 $ 2,033,762
Merchandise 48,701 207 53,651 8,857
----------- ----------- ----------- -----------
$ 847,684 $ 1,305,349 $ 1,697,214 $ 2,042,619
=========== =========== =========== ===========
Cost Of Goods Sold:
Video programs and other
licensed products $ 582,336 $ 764,340 $ 1,127,221 $ 1,199,817
Merchandise 10,866 30,647 42,979 61,707
----------- ----------- ----------- -----------
$ 593,202 $ 794,987 $ 1,170,200 $ 1,261,524
=========== =========== =========== ===========
Loss before taxes:
Video programs and other
licensed products $ (155,762) $ 140,207 $ (240,101) $ ( 5,496)
Merchandise 12,134 ( 34,447) ( 20,605) ( 98,729)
----------- ----------- ----------- -----------
$ (143,628) $ 105,760 $ (260,706) $ (104,225)
=========== =========== =========== ===========
Depreciation and amortization:
Video programs and other
licensed products $ 32,922 38,136 $ 65,830 $ 76,264
Merchandise - - - 74
----------- ----------- ----------- -----------
$ 32,922 $ 38,136 $ 65,830 $ 76,338
=========== =========== =========== ===========
Segment assets:
Video programs and other
licensed products $ 3,695,946 $ 3,943,959 $ 3,695,946 $ 3,943,959
Merchandise (1,492,399) (1,464,593) (1,492,399) (1,464,593)
----------- ----------- ----------- -----------
$ 2,203,547 $ 2,479,366 $ 2,203,547 $ 2,479,366
=========== =========== =========== ===========
Expenditure for segment assets:
Video programs and
other licensed products $ 22,518 $ 54,984 $ 63,362 $ 112,468
Merchandise - - - -
----------- ----------- ----------- -----------
$ 22,518 $ 54,984 $ 63,362 $ 112,468
=========== =========== =========== ===========
18
Item 2: Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related footnotes for the year
ended March 31, 2002 included in its Annual Report on Form 10KSB and its Form
10QSB for the three months period ended June 30, 2002. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
SIX MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE SIX MONTHS ENDED SEPTEMBER
30, 2001:
Results of Operations
- ---------------------
The Company's net loss for the six months ended September 30, 2002 was
approximately $260,000 as compared to a net loss of approximately $104,000 for
the same period last year. The primary reason for the net loss at September 30,
2002, was the Company's operating loss of approximately $173,000 and interest
expense of approximately $88,000.
The Company's operating loss for the six months ended September 30, 2002 was
approximately $173,000 as compared to an operating profit of approximately
$61,000 for the same period last year. The decrease in the Company's operating
profit of approximately $234,000 when compared to an operating profit of
approximately $61,000 for the same period a year earlier arose primarily from
decreased operating expenses of approximately $20,000 offset by a decrease in
gross profit of approximately $254,000.
The Company's sales for the six months ended September 30, 2002 and 2001,
were approximately $1,697,000 and $2,043,000 respectively. The Company's sales
decreased, by approximately $346,000 from the same period a year earlier with
decreases in DVD product sales of approximately $73,000 and videocassette
product of approximately $386,000, offset by increases in general merchandise
products of approximately $113,000. The lower DVD product sales when compared to
the same period a year earlier was primarily attributable to unit sales price
erosion. The decrease in videocassettes sales was primarily the result of
decreased orders placed by our customers and selling our older videocassette
inventory at reduced prices. The higher sales in our general merchandise product
line were primarily caused by the increased sales of our old toy inventory at
liquidation prices and the sale of approximately $46,000 of our new train case
product. We expect our sales to increase in fiscal year ending March 31, 2003
resulting from sales of new DVD products and from the expansion in our general
merchandise product line. Sales of the Company's products are generally seasonal
resulting in increased sales starting in the third quarter of the fiscal year.
Cost of sales for the six months ended September 30, 2002 and 2001 were
approximately $1,170,000 and $1,262,000 or 69% and 62% of sales, respectively.
The decrease in cost of goods of approximately $92,000 was primarily the result
of lower sales volume realized from our DVD and videocassette products. The
decrease in the cost of sales as a percentage to sales of approximately 7% when
compared to the same period a year earlier, was primarily the result of unit
sales price erosion of our DVD product and videocassette, coupled with the
liquidation of our remaining toy product inventory at below our costs.
19
Gross profit for the six months ended September 30, 2002 and 2001 was
approximately $527,000 and $781,000, or 31% and 38% of sales, respectively. The
lower gross margin of approximately $254,000 was primarily the result of
decreased sales volume. The reduction of the gross profit percentage when
compared to sales of 7%, was primarily the result of sales price erosion of our
DVD product and videocassettes and lower margins realized from liquidating our
toy product inventory below our costs.
Selling, General and Administrative expenses for the six months ended September
30, 2002 and 2001 were approximately $700,000 and $720,000, respectively. The
decrease of approximately $20,000 was the result of decreases in general
administrative expenses of approximately $37,000 offset by increases in selling
expense of approximately $17,000.
General Administrative expenses for the six months ended September 30, 2002 and
2001 were approximately $440,000 and $477,000, respectively. The decrease in
general administrative expenses of approximately $37,000 was primarily the
result of lower salaries, legal expenses, and accounting expenses, offset by
higher consulting expense, non-cash consulting expenses and dividend expense
related to our Series A and B preferred stock.
Selling expenses for the six months ended September 30, 2002 and 2001
were approximately $260,000 and $243,000, respectively. The increase in selling
expenses of approximately $17,000 was attributable mainly to higher expense
levels in salaries and royalties expense, offset by lower outgoing freight
expense.
Interest expense for the six months ended September 30, 2002 and 2001 was
approximately $88,000 and $177,000 respectively. The decrease in interest
expense of approximately $89,000 was the result of lower levels of borrowings.
As of September 30, 2002, the outstanding debt of the Company was approximately
$682,000 of which, approximately $635,000 is classified as current.
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 2001:
Results of Operations
- ---------------------
The Company's net loss for the three months ended September 30, 2002 was
approximately $144,000 as compared to a net profit of approximately $106,000 for
the same period last year. The primary reason for the net loss at September 30,
2002, was the Company's operating loss of approximately $98,000 and interest
expense of approximately $46,000.
The Company's operating loss for the three months ended September 30, 2002 was
approximately $98,000 as compared to an operating profit of approximately
$188,000 for the same period last year. The decrease in the Company's operating
profit of approximately $286,000 when compared to an operating profit for the
same period a year earlier of $188,000 arose primarily from a decreased in gross
profit of approximately $256,000 and an increase operating expenses of
approximately $30,000.
20
The Company's sales for the three months ended September 30, 2002 and 2001, were
approximately $848,000 and $1,305,000 respectively. The Company's sales
decreased by approximately $457,000 from the same period a year earlier with
decreased DVD product sales of approximately $33,000 and videocassette product
of approximately $501,000, offset by increases in general merchandise products
of approximately $77,000. The lower DVD product sales when compared to the same
period a year earlier was primarily attributable to unit sales price erosion.
The decrease in videocassettes sales was primarily the result of decreased
orders placed by our customers and selling our older videocassette inventory at
reduced prices. The higher sales in our general merchandise product line were
primarily caused by increased sales of our old toy inventory at liquidation
prices and the sale of approximately $46,000 of our new train case product.
Cost of sales for the three months ended September 30, 2002 and 2001 were
approximately $593,000 and $795,000 or 70% and 61% of sales, respectively. The
decrease in cost of goods of approximately $202,000 was mainly the result of
lower sales volume realized from our DVD and videocassette products. The
increase in the cost of sales as a percentage to sales of approximately 9% when
compared to the same period a year earlier, was primarily the result of unit
sales price erosion of our DVD product and videocassette products, coupled with
the liquidation of our toy product inventory at below our costs.
Gross profit for the three months ended September 30, 2002 and 2001 was
approximately $255,000 and $510,000, or 30% and 39% of sales, respectively. The
lower gross margin of approximately $255,000 was primarily the result of
decreased sales volume. The reduction of the gross profit percentage when
compared to sales of 9%, was primarily the result of sales price erosion of our
DVD product and videocassette, together with the liquidation of our toy product
inventory at prices below our cost.
Selling, general and administrative expenses for the three months ended
September 30, 2002 and 2001 were approximately $352,000 and $322,000,
respectively. The increase of approximately $30,000 was the result of increases
in general administrative expenses of approximately $48,000 offset by decreases
in selling expense of approximately $18,000.
General administrative expenses for the three months ended September 30, 2002
and 2001 were approximately $220,000 and $172,000, respectively. The increase in
general administrative expenses of approximately $48,000 was primarily the
result of higher levels of consulting expense and dividend expense related to
our Series A and B preferred stock partially offset by lower salaries and legal
expenses.
Selling expenses for the three months ended September 30, 2002 and 2001 were
approximately $132,000 and $150,000, respectively. The decrease in selling
expenses of approximately $18,000 was attributable mainly to lower expense
levels in outgoing freight costs, partially offset by higher salaries and
royalty expenses.
Interest expense for the three months ended September 30, 2002 and 2001 was
approximately $46,000 and $88,000 respectively. The decrease in interest expense
of approximately $42,000 was primarily the result of lower levels of borrowings.
21
The Company's auditors issued a going concern report for the year ended March
31, 2002. There can be no assurance that management's plans to reduce operating
losses will continue or the Company's efforts to obtain additional financing
will be successful.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2002 the Company had assets of $2,203,547 compared to
$2,304,295 on March 31, 2002. The Company had a total stockholder's deficiency
of $648,513 on September 30, 2002, compared to a deficiency of $462,807 on March
31, 2002, an increase of $185,706. The increase in stockholder's deficiency was
the result of recording the net loss of $260,706 for the six months ended
September 30, 2002, offset by the sale of the Company's common stock upon
exercise of stock options for $75,000.
As of September 30, 2002 the Company's working capital deficit increased by
approximately $197,000 from a working capital deficit of approximately
$1,058,000 at March 31, 2002, to a working capital deficit of approximately,
$1,255,000 at September 30, 2002. The increase in the working capital deficit
was the attributable primarily to increases in accounts payable and accrued
expenses of approximately $569,000 and a decrease in inventory of approximately
$243,000 offset by increases in accounts receivable of approximately $201,000
and decreases in financing agreement payable, notes payable, customer deposits
and other miscellaneous areas totaling approximately $414,000.
Operations
- ----------
Cash flows provided by operating activities was approximately $368,000 during
the six months period ended September 30, 2002 compared to cash flows provided
by operating activities of approximately $8,000 during the six months period
ended September 30, 2001. Cash provided by operating activities was primarily
attributable to decreases in inventory, accounts payable and the Company's net
loss offset by decreases in inventory reserve, accounts receivable and customer
deposits.
The Company has also been experiencing difficulties in paying its vendors on a
timely basis. These factors create uncertainty as to whether the Company can
continue as a going concern.
Investing
- ----------
For the six months ended September 30, 2002 and 2001, investments in masters and
artwork were approximately $58,000 and $108,000, respectively. Management
continues to seek to acquire new titles to enhance its product lines.
22
Financing
- -----------
Cash flows used for financing activities was approximately $261,000 during the
six months period ended September 30, 2002 compared to cash flows provided by
financing activities of approximately $156,000 during the six months period
ended September 30, 2001.
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.
Forward Looking Statements
- --------------------------
Forward looking statements are within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Stockholders are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
ability of us to implement our new plan to attain our primary goals as discussed
above under "Operations". Although we believe the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements contained in the report will prove to be
accurate.
CRITICAL ACCOUNTING POLICY AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, accrued expenses, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of the Company's financial
statements include estimates as to the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources,
primarily allowance for doubtful accounts receivables, accruals for other costs,
and the classification of net operating loss and tax credit carryforwards
between current and long-term assets. These accounting policies are described at
relevant sections in this discussion and analysis and in the notes to the
consolidated financial statements included in our Annual Report on Form 10-KSB
for the fiscal year ended March 31, 2002.
23
Item 3: Controls and Procedures
Our Co-Chief Executive Officer and Chief Financial Officer (the "Certifying
Officers") are responsible for establishing and maintaining disclosure controls
and procedures for the Company.
The Certifying Officers have designed such disclosure controls and procedures to
ensure that material information is made known to them, particularly during the
period in which this report was prepared.
The Certifying Officers have evaluated the effectiveness of the Company's
disclosure controls and procedures within 90 days of the date of this report and
believe that the Company's disclosure controls and procedures are effective
based on the required evaluation. There have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In June of 2001, we were named as a defendant by one of our suppliers who filed
bankruptcy under Chapter 7. The bankruptcy court brought legal action against us
to recover $100,000 we borrowed from the supplier in April of 1999, plus
applicable interest. In accordance with the loan, we made four separate payments
to the supplier during April and May 1999 totaling $101,166 in principal and
interest. As of December 31, 2001, we reflected one check in the amount of
$25,116 still outstanding. On March 6, 2001, we entered into a stipulation for
settlement and dismissal whereby we agreed to pay $2,500 within ten (10) days
after entry of an order approving the settlement. The stipulation for settlement
and dismissal was approved by the court and a settlement payment of $2,500 was
made on May 8, 2002 and on May 15, 2002, the adversary action was dismissed.
On November 4, 2002, we received notification of a lawsuit filed against us in
the Superior Court of New Jersey to recover $62,524 including reimbursement of
expenses incurred by a law firm that was engaged by us in connection with a
merger that we completed in April 1997. Previously, on November 12, 1999, we
entered into a settlement agreement with the plaintiff to settle the then
outstanding balance of $92,524 for $60,000 payable in three installment payments
of $20,000. In 1999 and 2000, we made payments totaling $30,000. As of the
period ended September 30, 2002, the balance recorded on our books as a
liability owed to the plaintiff totals $62,524. We have asked our attorney to
negotiate a new settlement agreement with the plaintiff to settle the current
outstanding balance owed.
Item 2. Changes in Securities.
None.
24
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On August 8, 2002, the Registrant, terminated its client-auditor relationship
with the Registrant's independent public accountants, Merdinger, Fruchter, Rosen
& Corso, P.C.(MFRC). On August 8, 2002, the Registrant's Board of Director's
approved the engagement of Stonefield Josephson, Inc. to serve as the Company's
independent public accountants and to be the principal accountants to conduct
the audit of the Company's financial statements for the fiscal year ending March
31, 2003, replacing the firm of Merdinger, Fruchter, Rosen & Corso, P.C. who had
been engaged to audit the Company's financial statements for the fiscal years
ended March 31, 1999, 2000, 2001, and 2002. MFRC's report on the Registrant's
financial statements during the two most recent fiscal years contained no
adverse or disclaimer of opinion, however it did contain a going concern
explanatory paragraph. Management of the Company knows of no past disagreements
with the former accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope, or procedure, which
disagreements, if not resolved to the satisfaction of MFRC, would have caused it
to make a reference to the subject matter of the disagreement in connection with
its reports.
Item 6. Exhibits and Reports on Form 8-K.
None
(b) Reports on Form 8-K
None.
25
SIGNATURES
In accordance with Section 13 or 15(A) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
DIAMOND ENTERTAINMENT CORPORATION
Dated: November 19, 2002 By: /s/ Jeffrey I. Schillen
----------------------------------------
Jeffrey I. Schillen
Executive Vice President and Co-Chief
Executive Officer
Dated: November 19, 2002 By: /s/ Fred U. Odaka
---------------------------------------
Fred U. Odaka
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
26
CERTIFICATIONS
I, Jeffery I. Schillen, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Diamond Entertainment
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
By: /s/ Jeffrey I. Schillen
----------------------------
Jeffrey I. Schillen
Title: Executive Vice President and
Co-Chief Executive Officer
27
CERTIFICATIONS
I, Fred U. Odaka, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Diamond Entertainment
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
By: /s/ Fred U. Odaka
------------------
Fred U. Odaka
Title: Chief Financial Officer
(Chief Accounting Officer)
28