WASHINGTON, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
---------------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: February 29, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________.
Commission File No. 0-29776
PLANET ENTERTAINMENT CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 33-0471728
(State or other jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
P.O. BOX 8580, RED BANK, NEW JERSEY 07701
(Address of principal executive offices)
(732) 936-9660
--------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes. [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of February 29, 2000: 12,327,495
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PLANET ENTERTAINMENT CORPORATION
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at February 29, 2000
(Unaudited) and August 31, 1999..............................3
Consolidated Statements of Operations
for the Three and Six Months Ended
February 29, 2000 and February, 28, 1999 (Unaudited).........5
Consolidated Statements of Cash Flows
for the Six Months Ended
February 29, 2000 and February 28, 1999 (Unaudited)..........6
Notes to Consolidated Financial Statements.........................8
Item 2. Management's Discussion and Analysis or Plan
of Operation................................................11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................17
SIGNATURES
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 1 OF 2
-------------------------------------------------- -----------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
FEBRUARY 29, AUGUST 31,
2000 1999
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 136,101 $ 620,975
Accounts receivable, net of allowance for doubtful accounts
of $542,140 and $617,143 for February 29, 2000 and
August 31, 1999, respectively 4,805,659 5,062,283
Accounts receivable, net - related party 180,615 180,615
Inventories 7,489,177 7,165,072
Marketable securities - available for sale 2,778,641 1,274,272
Prepaid expenses and other current assets 252,295 200,767
Note receivable - related party 100,000 100,000
Deferred income taxes 475,000 244,000
----------- -----------
TOTAL CURRENT ASSETS 16,217,488 14,847,984
----------- -----------
PROPERTY AND EQUIPMENT - NET 1,255,005 1,420,786
----------- -----------
OTHER ASSETS:
Record masters - net 6,440,957 6,566,037
Goodwill - net 4,422,124 4,541,899
Investment in joint ventures 9,000 9,000
Organization costs - net -- 27,500
Security deposits and other assets 188,515 124,513
----------- -----------
TOTAL OTHER ASSETS 11,060,596 11,268,949
----------- -----------
$28,533,089 $27,537,719
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 2 OF 2
-------------------------------------------------- -----------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
FEBRUARY 29, AUGUST 31,
2000 1999
------------ ------------
(UNAUDITED)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 7,289,632 $ 7,418,370
Accrued expenses and other current liabilities 121,831 342,103
Accrued interest expense - related parties 300,593 239,312
Deferred revenue 184,078 211,544
Due to stockholders 245,884 230,884
Note payable - related party 550,000 150,000
Current portion of long-term debt - related parties 594,000 719,000
Accrued officers' salaries 606,942 539,859
Income tax payable 238,001 -
Current portion of capital lease obligations 248,859 58,072
Current portion of notes payable - 19,456
------------ ------------
TOTAL CURRENT LIABILITIES 10,379,820 9,928,600
------------ ------------
LONG-TERM LIABILITIES:
Note payable - line of credit 5,800,550 5,435,035
Note payable - related party - net of current portion - 400,000
Long-term debt - net of current portion - related parties 250,000 500,000
Notes payable - net of current portion - 49,701
Capital lease obligations - net of current portion 409,261 9,050
Deferred income taxes 173,000 144,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 6,632,811 6,537,786
------------ ------------
TOTAL LIABILITIES 17,012,631 16,466,386
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, stated value $10,000 per share; 10,000,000
shares authorized; 455 and 465 shares issued and outstanding at
February 29, 2000 and August 31, 1999, respectively 4,550,000 4,650,000
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,327,495 and 12,147,803 shares issued and outstanding
at February 29, 2000 and August 31, 1999, respectively 12,328 12,148
Additional paid-in capital 11,624,188 11,513,499
Accumulated deficit (3,820,699) (4,878,586)
Other comprehensive income (loss) (845,359) (225,728)
------------ ------------
11,520,458 11,071,333
------------ ------------
$ 28,533,089 $ 27,537,719
============ ============
See accompanying notes to consolidated financial statements
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
Net Sales $ 7,740,744 $ 11,392,379 $ 18,069,354 $ 26,358,496
Royalties - 1,700 1,240 2,452
------------ ------------ ------------ ------------
Total Revenues 7,740,744 11,394,079 18,070,594 26,360,948
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 6,688,499 9,565,881 13,659,931 21,732,954
Selling, general and administrative 1,185,080 1,824,587 2,410,365 3,946,706
Depreciation and amortization 139,938 108,708 384,610 185,491
Interest expense 156,683 101,462 287,330 194,191
Interest expense, related party 30,807 20,435 61,281 56,060
Bad debt expense 29,669 217 39,555 217
------------ ------------ ------------ ------------
Total Costs and Expenses 8,230,676 11,621,290 16,843,072 26,115,619
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (489,932) (227,211) 1,227,522 245,329
OTHER INCOME:
Interest and dividend income 3 10,683 355 35,497
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION BENEFIT
(BENEFIT) FOR INCOME TAXES (489,929) (216,528) 1,227,877 280,826
PROVISION ( BENEFIT) FOR INCOME TAXES (76,400) - 174,373 -
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (413,529) (216,528) 1,053,504 280,826
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS:
Income (Loss) from Discontinued
Operations (net of an income tax
benefit of $1,400 and $ 0 for the
three months ended February 2000
and 1999, respectively and a tax
benefit of $3,400 and $ 0 for the
six months ended February 2000
and 1999, respectively) (8,653) (46,962) (20,526) (75,233)
Gain on Disposal of Discontinued
Operations (net of income taxes
of $5,800 for the three and six
months ended February 2000) 35,777 - 35,777 -
------------ ------------ ------------ ------------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 27,124 (46,962) 15,251 $ (75,233)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (386,405) $ (263,490) $ 1,068,755 205,593
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
BASIC
Income (Loss) from Continuing Operations (.04) (.03) .07 .01
Income (Loss) from Discontinued Operations * * * (.01)
Gain on Disposal of Discontinued Operations * - * -
------------ ------------ ------------ ------------
$ (.04) $ (.03) $ .08 $ *
============ ============ ============ ============
DILUTED
Income (Loss) from Continuing Operations (.04) (.03) .06 .02
Income (Loss) from Discontinued Operations * * * (.01)
Gain on Disposal of Discontinued Operations * - * -
------------ ------------ ------------ ------------
$ (.04) $ (.03) $ .06 $ .01
============ ============ ============ ============
*LESS THEN $(.01) PER SHARE
See accompanying notes to consolidated financial statements
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,068,755 $ 205,593
Adjustments to reconcile net income to net cash used by
operating activities:
Bad debt expense 39,555 217
Depreciation and amortization 399,880 196,716
Marketable securities received for sale of non-exclusive
rights to masters (2,124,000) --
Gain on Disposal of Discontinued Operations, plus cash
included in sale (42,754) --
Deferred taxes (202,000) --
Changes in:
Accounts receivable 217,069 51,105
Accounts receivable, related party -- 33,198
Prepaid expenses and other current assets (51,528 (139,411)
Inventory (336,333) (855,052)
Accounts payable and accrued expenses (309,839) (1,965,314)
Income tax payable 238,001 --
Accrued interest expense, related party 61,281 47,950
Deferred revenue (27,465) 86,265
Due to customers -- 88,195
Accrued officers' salary 259,436 197,916
----------- -----------
Cash Flows (Used) by Operating Activities (809,942) (2,052,622)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of NEOS net of cash acquired -- (1,627,416)
Purchase of fixed assets (134,906) (288,626)
Refund of prior period fixed asset purchase 685,000 --
Repayments on note receivable -- 4,928
Deposit on leased equipment (67,382) 5,405
----------- -----------
Cash Flows Provided (Used) by Investing Activities 482,712 (1,905,709)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (repayments) from (to) stockholders 15,000 (70,000)
Advances (repayments) from (to) employees -- (75,000)
Proceeds (repayments) from (to) note payable (69,157) 73,089
Proceeds from issuance of preferred/common stock -- 17,627
Stock issuance costs -- (31,625)
Proceeds (repayments) from (to) note payable - line of credit 365,515 1,686,658
Repayment of long-term debt, related party (375,000) (250,000)
Addition to (payment of) capitalized lease obligations (94,002) (79,660)
----------- -----------
Cash Flows Provided (Used) by Financing Activities (157,644) 1,271,089
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (484,874) (2,687,242)
CASH AND CASH EQUIVALENTS, beginning of year/period 620,975 3,850,162
----------- -----------
CASH AND CASH EQUIVALENTS, end of year/period $ 136,101 $ 1,162,920
=========== ===========
CASH PAID FOR INTEREST EXPENSE $ 287,330 $ 194,015
=========== ===========
CASH PAID FOR INCOME TAXES $ 40,482 $ 259,609
=========== ===========
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capitalized lease obligations totaling $685,000 were incurred during the six
month period ending February 29, 2000 when the company entered into various
leases, primarily for warehousing equipment. This equipment had previously
been purchased for cash.
The holder of the preferred stock converted 10 shares (valued at $100,000)
plus unpaid dividends aggregating $10,869 into 179,692 shares of the
Company's common stock.
The Company transferred 100% of its interests in three subsidiaries to a
former officer and director in the month of February 2000 (see Note 5 of the
Notes to Consolidated Financial Statements).
See accompanying notes to consolidated financial statements
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions for Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the financial statements contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations, and cash flows of
the Company for the interim periods presented.
The results for the three and six months ended February 29, 2000 are not
necessarily indicative of the results of operations for the full year. These
financial statements and related footnotes should be read in conjunction with
the financial statements and footnotes thereto included in the Company's Form
10-KSB filed with the Securities and Exchange Commission.
NOTE 2 - SEGMENT INFORMATION
The Company operated in five business segments until February 2000 when three of
the Companies subsidiaries were sold to a former officer and director of the
company (see Note 5 of the Notes to Consolidated Financial Statements). The
three subsidiaries comprised the music studio operations (i.e. Maestro and Al
Alberts on Stage) and the record label productions segments (i.e. Higher Ground
Records). The three remaining segments are; music record masters production,
rack distribution sales, and one-stop distribution sales. All operations and
revenues are conducted and earned in the United States. The following table
presents sales and other financial information by business segment for the
continuing operations:
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<CAPTION>
NET OPERATING DEPRECIATION TOTAL CAPITAL
REVENUES EARNINGS(LOSS) & AMORTIZATION ASSETS EXPENDITURES
------------ -------------- -------------- ----------- -------------
Three months ended February
29, 2000;
<S> <C> <C> <C> <C> <C>
Rack distribution sales $ 211,125 $ (81,478) $ 2,402 $ 556,319 $ -
One-Stop distribution sales 7,501,673 (133,438) 137,536 17,967,635 -
Music record master production 27,946 (275,016) -- 10,009,135 -
------------ --------- ----------- ----------- --------
$ 7,740,744 $(489,932) $ 139,938 $28,533,089 $ -
============ ========= =========== =========== ========
Three months ended February
28, 1999;
Rack distribution sales 4,270,310 (351,029) 57,740 9,636,320 72,901
One-Stop distribution sales 7,122,070 503,440 50,968 8,208,717 62,101
Music record master production 1,699 (379,622) -- 7,817,443 -
------------ --------- ----------- ----------- --------
$ 11,394,079 $(227,211) $ 108,708 $25,662,480 $135,002
============ ========= =========== =========== ========
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
NOTE 2 - SEGMENT INFORMATION (CONTINUED)
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<CAPTION>
NET OPERATING DEPRECIATION TOTAL CAPITAL
REVENUES EARNINGS(LOSS) & AMORTIZATION ASSETS EXPENDITURES
----------- -------------- -------------- ---------- -------------
Six months ended February 29,
2000;
<S> <C> <C> <C> <C> <C>
Rack distribution sales $ 501,265 $ (151,823) $ 7,186 $ 556,319 $ --
One-Stop distribution sales 15,416,143 (12,843) 252,344 17,967,635 134,906
Music record master production 2,153,186 1,392,188 125,080 10,009,135 --
----------- ----------- ----------- ----------- --------
$18,070,594 $ 1,227,522 $ 384,610 $28,533,089 $134,906
=========== =========== =========== =========== ========
Six months ended February 28,
1999;
Rack distribution sales 12,364,938 182,149 98,241 9,636,320 125,693
One-Stop distribution sales 13,993,558 933,693 87,250 8,208,717 162,933
Music record master production 2,452 (870,513) -- 7,817,443 --
----------- ----------- ----------- ----------- --------
$26,360,948 $ 245,329 $ 185,491 $25,662,480 $288,626
=========== =========== =========== =========== ========
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NOTE 3 - LOSS OF MAJOR CUSTOMER
The Company lost a major customer which accounted for approximately 22% of the
net sales of its NEOS subsidiary during its fiscal year ended August 31, 1999.
The customer informed the Company in January 1999 that it would no longer
purchase any of the Company's products. Sales to the customer were from the
Company's rack-job division and constituted approximately 68% of the net sales
of the rack division for the fiscal year ended August 31, 1999. The Company
anticipates that accounts receivable from this customer are collectible and that
returns from sales to this customer will not be material.
NOTE 4 - LEGAL ACTION INITIATED
In January 2000, the Company initiated a lawsuit against Maxnet, Inc. ("Maxnet")
in Monmouth County Superior Court in New Jersey. In this lawsuit, the Company is
demanding that Maxnet perform under a July 1999 agreement that called for the
sale of 2,500 musical masters to Maxnet in consideration for the sum of
$1,500,000 to be paid by the issuance of restricted shares in Maxnet stock, plus
$100,000 in master duplication costs.
The Company believes the legal action will result in the successful completion
of performance of the Maxnet Agreement.
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
NOTE 5 - DISCONTINUED OPERATIONS
During the second quarter of fiscal 2000, the Company transferred 100% of its
interests in three subsidiaries-Maestro Holding Corporation (Maestro), Al
Alberts on Stage, Ltd. (Studio), and Higher Ground Records (Higher Ground) to a
former officer and director in lieu of accrued salaries in the amount of $
192,353 at February 29, 2000. As a result of this transaction, the employment
agreement with this individual was terminated and outstanding warrants to
purchase 1,000,000 shares of the Company's common stock were cancelled.
These transactions resulted in an after tax gain of $35,777 which is reflected
in the Statement of Operations for the six months ended February 29, 2000. Prior
period financial statements were restated as a result of this transaction.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS DOCUMENT INCLUDES STATEMENTS THAT MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1955. THE COMPANY WOULD LIKE TO CAUTION READERS
REGARDING CERTAIN FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT AND IN ALL OF ITS
COMMUNICATIONS TO SHAREHOLDERS AND OTHERS, PRESS RELEASES, SECURITIES FILINGS,
AND ALL OTHER COMMUNICATIONS. STATEMENTS THAT ARE BASED ON MANAGEMENT'S
PROJECTIONS, ESTIMATES AND ASSUMPTIONS ARE FORWARD-LOOKING STATEMENTS. THE WORDS
"BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," AND SIMILAR EXPRESSIONS GENERALLY
IDENTIFY FORWARD-LOOKING STATEMENTS. WHILE THE COMPANY BELIEVES IN THE VERACITY
OF ALL STATEMENTS MADE HEREIN, FORWARD-LOOKING STATEMENTS ARE NECESSARILY BASED
UPON A NUMBER OF ESTIMATES AND ASSUMPTIONS THAT, WHILE CONSIDERED REASONABLE BY
THE COMPANY, ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES AND KNOWN AND UNKNOWN RISKS. MANY OF
THE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT EVENTS AND THE COMPANY'S ACTUAL
RESULTS AND COULD CAUSE ITS ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON BEHALF OF, THE
COMPANY. PLEASE SEE THE "RISK FACTORS" IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR A DESCRIPTION OF SOME, BUT NOT ALL,
RISKS, UNCERTAINTIES AND CONTINGENCIES.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO WHICH ARE INCLUDED ELSEWHERE
HEREIN.
GENERAL
The Company was incorporated under the laws of the State of Delaware in
May 1996 to raise capital and acquire, own, integrate and operate seasoned
privately-held companies in the music business. In October 1996, the Company was
acquired in a reverse merger stock exchange transaction by Ampro Golf Tour,
Inc., a Florida corporation, which as the surviving corporation, changed its
name to Planet Entertainment. In July 1996, the Company acquired from Messrs.
Arnone, Giakas and Venneri, the three original controlling shareholders,
directors and officers of the Company, for shares of Common Stock in the
Company, all of the issued and outstanding common stock of Maestro Holding
Corporation (Maestro). Maestro owned exclusive rights to approximately 5,000
master recordings. Maestro was sold in February 2000 to Mr. Venneri, one of the
original controlling shareholders and a former director and officer of the
Company (see Note 5 of the Notes to Consolidated Financial Statements). However,
the Company still retains all rights to exploit the 5,000 masters in all formats
and territories. The Company subsequently acquired exclusive and non-exclusive
rights to an additional 10,000 master records. Effective as of September 1,
1998, the Company acquired NEOS.
The Company has five offices. Planet has its corporate headquarters in Red
Bank, New Jersey. NEOS has administrative headquarters and a warehouse in
Latham, New York, and three sales offices located in Philadelphia, Pennsylvania,
Coral Springs, Florida and Baltimore, Maryland. NEOS's primary business is
selling pre-recorded music, videos and accessories to retailers throughout the
United States. NEOS acquires most of its products from the major music labels
and the balance from small private labels.
NEOS's operations can be grouped into two distinct segments - "rack
jobbing" and its One Stop division. In "rack jobbing," the vendor assumes full
responsibility for the customer's display, stocking the display at the
customer's location and making the day-to-day decisions as to which inventory to
deliver, return and present in the displays. A rack jobber owns the display
material or fixtures and is responsible for the proper presentation of goods
within the display. Prior to 1995, NEOS was principally a wholesaler of
pre-recorded music and entertainment products through its One Stop division
("One Stop Business"). The One Stop Business primarily
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operates as a centralized order fulfillment center for the small to medium sized
retail stores, typically record stores, that obtain a variety of recorded music
and videos. This aspect of the business supplies merchandise based on the orders
placed by its customers. The customers in this segment of the business are
responsible for the selection of titles and the decisions regarding the return
of merchandise.
NEOS recognizes sales for its One Stop Business and Rack Job Business at
the time of shipment of products to its customers. All of the NEOS products are
sold with a limited right of return by the customer. Generally, in the music
distribution industry, wholesalers, such as NEOS, have a limited right of return
to the manufacturers. Accordingly, NEOS does not accrue returns and allowances.
NEOS, however, reduces net revenues by calculating actual returns. NEOS's
business, similar to other businesses in the music distribution industry, is
highly seasonal where a high proportion of sales occur in the Christmas season
but a high amount of returns occur in the months of January through March.
As of February 29, 2000, the Company has sold copies of non-exclusive
master recordings in two separate transactions. In one transaction, the Company
sold a copy of 2,500 master recordings (see Note 4 of "Notes to Consolidated
Financial Statements") and in another transaction the Company sold a copy of
5,000 of its master recordings. All copies of master recordings are sold without
third party rights. In such sales, the Company received restricted shares of
common stock from the purchasers.
RESULTS OF OPERATIONS FOR THE COMPANY'S SIX MONTH PERIOD ENDED
FEBRUARY 29, 2000 AS COMPARED TO THE SIX MONTH PERIOD ENDED FEBRUARY 28,
1999
NET REVENUES. For the six months ended February 29, 2000 net revenues were
approximately $18,071,000 as compared to approximately $26,361,000 for the six
month period ended February 28, 1999, which represented a decrease in net
revenues of $8,290,000 or 31%. Net revenues from the One Stop Business for the
six months ended February 29, 2000 versus the comparable period in the prior
year, respectively, were approximately $15,416,000 as compared to approximately
$13,994,000, an increase of 10%. This increase was due to new customers and
increased volume with existing customers facilitated by greater inventory depth.
Net revenues from the Rack Business for the six months ended February 29, 2000
were approximately $ 501,000 as compared to approximately $12,365,000 in the
prior year, a decrease of 96%. This decrease was primarily due to the loss of a
major rack customer-the Meijer account. In the prior year six month period ended
February 28, 1999, Meijer accounted for net revenues of approximately $9,682,000
or 37% of net revenues for the Company (see also Note 3 of the notes to the
consolidated financial statements). As discussed elsewhere in this Report,
Meijer stopped ordering products from the Company in January 1999. Net revenues
from Planet operations for the six months ended February 29, 2000 versus the
comparable period in the prior year, respectively, were approximately $2,153,000
as compared to approximately $ 2,000, an increase of approximately $ 2,151,000.
This increase was primarily due to a $2,124,000 sale of limited rights to
certain masters. The net revenues from the three subsidiaries that were sold to
a former director and officer of the Company in February 2000 (see Note 5 of the
Notes to the Consolidated Financial Statements) for the six months ended
February 29, 2000 were insignificant (approximately $26,000).
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<PAGE>
COST OF SALES. For the six months ended February 29, 2000, cost of sales
was approximately $13,660,000 or 75.6% of net revenues as compared to the six
months ended February 28, 1999 cost of sales of approximately $21,733,000 or
82.4% of net revenues. This decrease as a percentage of revenues is primarily
due to the incremental revenue from the sale of masters discussed above.
OPERATING EXPENSES. For the six months ended February 29, 2000, selling,
general and administrative expenses ("SG&A") were approximately $2,410,000 or
13.3% of net revenues versus SG&A for the comparable period in the prior year of
approximately $3,947,000 or 15.0% of net revenues. This decrease in SG&A
resulted from reductions in NEOS payroll ($850,000) as well as other operating
expenses, due to lower rack volumes as well as reductions in professional and
consulting fees ($199,000). The prior year period included high professional
fees ($374,000) due to the NEOS Acquisition and related public filings and stock
registration.
INTEREST EXPENSE. For the six months ended February 29, 2000, interest
expense was approximately $349,000 or 1.9% of net revenues versus the comparable
period in the prior year of approximately $250,000 or 0.9% of net revenues. This
increase was primarily caused by a higher average line-of-credit balance than
the prior year.
NET INCOME (LOSS). For the six months ended February 29, 2000, net income
was approximately $ 1,069,000 or 5.9% of net revenues, as compared to net income
of approximately $ 206,000 or 0.8% of net revenues for the six months ended
February 28, 1999. The pre-tax net (loss) from NEOS for the six months ended
February 29, 2000 was approximately ($ 91,000) as compared to a pre-tax net
income of approximately $1,123,000 for the comparable period in the prior year.
This decrease was primarily due to the loss of the Meijer account as described
above. Pre-tax net income from Planet and its subsidiaries other than NEOS for
the six months ended February 29, 2000 was approximately $1,319,000 as compared
to a pre-tax net loss of approximately ($842,000) in the comparable period in
the prior year, a $2,161,000 improvement. This improvement is primarily due to
the revenue from the sale of limited rights to certain masters as well as lower
professional fees as discussed above. The after-tax net loss from the three
subsidiaries that were sold to a former director and officer of the Company in
February 2000 (see Note 5 of the Notes to the Consolidated Financial Statements)
for the six months ended February 29, 2000 was insignificant (approximately
$21,000). However, the one-time after-tax gain from the sale of these
subsidiaries for the six months ended February 29, 2000 was approximately $
36,000.
RESULTS OF OPERATIONS FOR THE COMPANY'S THREE MONTH PERIOD ENDED
FEBRUARY 29, 2000 AS COMPARED TO THE THREE MONTH PERIOD ENDED FEBRUARY 28,
1999
NET REVENUES. For the three months ended February 29, 2000 net revenues were
approximately $7,741,000 as compared to approximately $11,394,000 for the three
month period ended February 28, 1999, which represented a decrease in net
revenues of $3,653,000 or 32%. Net revenues from the One Stop Business for the
three months ended February 29, 2000 versus the comparable period in the prior
year, respectively, were approximately $7,502,000 as compared to approximately
$7,122,000, an increase of 5.3%. This increase was due to new customers and
increased volume with existing customers facilitated by greater inventory depth.
Net revenues from the Rack Business for the three months ended February 29, 2000
were approximately $ 211,000 as compared to approximately $4,270,000 in the
prior year, a decrease of 95%. This decrease was primarily due to the loss of a
major rack customer-the Meijer account.
-13-
<PAGE>
In the prior year three month period ended February 28, 1999, Meijer accounted
for net revenues of approximately $3,098,000 or 27% of net revenues for the
Company (see also Note 3 of the notes to the consolidated financial statements).
As discussed elsewhere in this Report, Meijer stopped ordering products from the
Company in January 1999. Net revenues from Planet operations for the three
months ended February 29, 2000 versus the comparable period in the prior year,
respectively, were approximately $ 28,000 as compared to approximately $ 2,000,
an increase of approximately $ 26,000. The net revenues from the three
subsidiaries that were sold to a former director and officer of the Company in
February 2000 (see Note 5 of the Notes to the Consolidated Financial Statements)
for the three months ended February 29, 2000 were insignificant (approximately $
8,000).
COST OF SALES. For the three months ended February 29, 2000, cost of sales
was approximately $6,688,000 or 86.4% of net revenues as compared to the three
months ended February 28, 1999 cost of sales of approximately $9,566,000 or
84.0% of net revenues. This increase as a percentage of revenues is primarily
due to the change in the proportional relationship of One Stop business to total
volume. One Stop revenue traditionally carries a higher cost of sales than Rack
revenue. For the three months ended February 29, 2000, One Stop revenue
comprised 97% of total net revenue versus 63% in the comparable period of the
prior year.
OPERATING EXPENSES. For the three months ended February 29, 2000, selling,
general and administrative expenses ("SG&A") were approximately $1,185,000 or
15.3% of net revenues versus SG&A for the comparable period in the prior year of
approximately $1,825,000 or 16.0% of net revenues. This decrease in SG&A
resulted from reductions in NEOS payroll ($407,000) as well as other operating
expenses, due to lower rack volumes as well as reductions in professional and
consulting fees ($ 65,000). The prior year period included high professional
fees ($123,000) due to the NEOS Acquisition and related public filings and stock
registration.
INTEREST EXPENSE. For the three months ended February 29, 2000, interest
expense was approximately $187,000 or 2.4% of net revenues versus the comparable
period in the prior year of approximately $122,000 or 1.1% of net revenues. This
increase was primarily caused by a higher average line-of-credit balance than
the prior year.
NET INCOME (LOSS). For the three months ended February 29, 2000, the net
loss was approximately ($ 386,000) or (5.0%) of net revenues, as compared to a
net loss of approximately ($ 263,000) or (2.3%) of net revenues for the three
months ended February 28, 1999. Pre-tax net (loss) from NEOS for the three
months ended February 29, 2000 was approximately ($149,000) as compared to a
pre-tax net income of approximately $159,000 for the comparable period in the
prior year. This decrease was primarily due to the loss of the Meijer account as
described above. Also, this fiscal quarter includes the seasonal trend of
post-holiday returns. The pre-tax net loss from Planet and its subsidiaries
other than NEOS for the three months ended February 29, 2000 was approximately
($341,000) as compared to a pre-tax net loss of approximately ($376,000) in the
comparable period in the prior year, a $ 35,000 improvement. The after-tax net
loss from the three subsidiaries that were sold to a former director and officer
of the Company in February 2000 (see Note 5 of the Notes to the Consolidated
Financial Statements) for the three months ended February 29, 2000 was
insignificant (approximately $9,000). However, the one-time after-tax gain from
the sale of these subsidiaries for the three months ended February 29, 2000 was
approximately $ 36,000.
-14-
<PAGE>
Liquidity and Capital Resources
The Company's primary cash requirements are for payments for NEOS's
products and operating expenses, as well as various notes, including to related
parties. NEOS's sources of cash include normal operations and its revolving
credit line with Congress Financial Corporation ("CFC").
Cash and cash equivalents as of February 29, 2000 were $136,101 as
compared to the August 31, 1999 cash balance of $620,975, or a reduction of
$484,874. This reduction was the result of the seasonal increase in inventory as
well as the paydown of accounts payable, purchases of and deposits on equipment
and payments on long-term debt. These outflows were partially offset by
collections of accounts receivable, an increase in accrued salaries, two refunds
of prior period asset purchases (a total of $685,000 converted to leases) and a
net drawdown on our line-of-credit.
Net cash flow used by operating activities for the six month period ended
February 29, 2000 was $809,942. The primary uses of cash were the seasonal
paydown of accounts payable ($309,839) and the inventory build ($336,333) as
well as the increase in marketable securities ($2,124,000). These uses of cash
were partially offset by the seasonal collection of accounts receivable
($217,069) as well as other non-cash items (i.e. net income, depreciation,
income tax payable, accrued salaries, etc).
As of February 29, 2000, outstanding accounts receivable totaled
$4,986,274. This amount is net of an allowance for bad debts of $542,140. By
comparison, the consolidated accounts receivable balance as of August 31, 1999
was $5,242,898, net of an allowance of $617,143. The accounts receivable balance
at February 29, 2000 includes $368,138 due from a major customer, Meijer, which
has stopped purchasing from the Company. A lawsuit has been initiated against
this customer. However, the Company believes that this receivable balance is
collectible and, furthermore, that the bad debt allowance discussed above will
be sufficient to satisfy any amounts that are not paid.
At February 29, 2000, inventory was $7,489,177 versus a balance as of
August 31, 1999 of $7,165,072. This increase is normal due to the seasonal
increase in sales volume. NEOS accounts for its inventory on a
first-in-first-out basis.
At February 29, 2000, the Company's accounts payable and accrued expense
balance was $7,411,463 versus the balance as of August 31, 1999 of $7,760,473,
primarily due to the paydown of vendor invoices.
NEOS has a revolving credit agreement (the "CFC Credit Agreement") with
CFC. The maximum line of credit available under the CFC Credit Agreement is
$8,500,000 with a separate $1,500,000 line for equipment purchases. Advances
under the CFC Credit Agreement are made on the basis of eligible accounts
receivable and inventory as defined in the agreement. CFC requires NEOS to
maintain working capital of no less than $2,500,000 excluding its borrowings
from CFC. In addition, NEOS must maintain an adjusted net worth of no less than
$600,000. The adjustment to the net worth calculation allows NEOS to add the
balance of any subordinated debt
-15-
<PAGE>
due to the former shareholder of NEOS to the net worth calculation to meet the
required level. Working capital and adjusted net worth as of February 29, 2000
were $5,652,967 and $1,034,394, respectively. As of February 29, 2000, NEOS had
an aggregate of $5,800,550 outstanding under the CFC Credit Agreement. NEOS pays
interest to CFC at the rate of prime plus 1.0% on all outstanding amounts under
the CFC Credit Agreement. All obligations of NEOS under the CFC Credit Agreement
are guaranteed by the Company.
Net cash flow from investing activities for the six month period ended
February 29, 2000 was $482,712. Cash inflows from leasing assets that were
purchased with cash in a prior period ($685,000) were partially offset by
outflows that were fixed asset-related including both equipment purchases
($134,906) and deposits on leased equipment ($67,382).
Net cash flow to financing activities for the six month period ended
February 29, 2000 was $157,644. Cash outlays consisted primarily of the second
$375,000 note payment to the former sole shareholder of NEOS due as part of that
subsidiaries purchase agreement. The primary source of cash was the CFC line of
credit ($365,515).
As of February 29, 2000, the Company had outstanding an aggregate of
$2,562,419 in notes (including accrued interest of $300,593), and accrued
salaries. Such amounts consist of: $703,471 on the Gulf Coast Music, LLC (Gulf
Coast) Note, a $344,000 principal amount 9% demand note to the former owner of
NEOS issued prior to the NEOS Acquisition, a $230,884 principal amount 9% demand
note, $10,000 principal amount 10% demand note, and $ 5,000 principal amount 10%
demand note, all due to privately held corporations owned by Messrs. Giakas and
Arnone representing working capital advances made by such entities to the
Company, two notes due to a private lender - the first a $150,000 principal
amount 10% demand note and the second a $400,000 principal amount 9% note due
September 1, 2000, a $15,000 principal amount 9% demand note to Whelan, Inc.,
also a privately held corporation owned by Messrs. Arnone and Giakas and accrued
officers' salaries of $606,942.
NEOS has several capital leases in the aggregate amount of $658,120 that
are secured by the related equipment and fixtures.
In February 2000, the Company sold all of its interests in three subsidiaries
(Maestro, the Studio, and Higher Ground) to a former officer and director. In
exchange, the buyer agreed to give up any and all claims to existing accrued
salaries (approximately $193,000 at February 29, 2000) and his employment
agreement as well as warrants to purchase 1,000,000 of the Company's common
stock at $2.00/share. This transaction resulted in a net gain of approximately
$41,000 on the disposal of the net assets of these companies. These three
subsidiaries were either inactive or not profitable at the time of the sale and
had minimal assets. Therefore, the effect on cash is insignificant.
The Company believes that its current cash, cash from operations and loans
under the CFC Credit Agreement will be sufficient to fund the Company's working
capital requirements for the foreseeable future. No assurances can be given,
however, that due to any number of events and/or circumstances including, but
not limited to, a downturn in the pre-recorded music industry or in the economy
in general, the Company will not need additional working capital. Furthermore,
no assurances can be given that the Company will be able to obtain such
additional working capital when and if needed or on terms acceptable to the
Company.
-16-
<PAGE>
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings (Loss) Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
During the six month period ended February 29, 2000, the Company did not
file any reports on Form 8-K.
-17-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PLANET ENTERTAINMENT CORPORATION
(Registrant)
BY /s/ JOHN ARNONE
--------------------------------------------
John Arnone
President and Chief Executive Officer
BY /s/ RICHARD BLUESTINE
--------------------------------------------
Richard Bluestine
Chief Financial Officer
Date: As of April 14, 2000
-18-
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
-------------------------------------------------
EXHIBIT 11
----------
EARNINGS PER SHARE
------------------
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
------------ ------------ -------------- ------------
BASIC EARNINGS PER SHARE:
<S> <C> <C> <C> <C>
Income (Loss) from Continuing Operations $ (413,529) $ (216,528) $ 1,053,504 $ 280,826
Less Preferred Stock Dividends (80,510) (87,500) (160,135) (175,000)
------------ ------------ -------------- ------------
Income (Loss) from Continuing Operations
Available to Common Stockholders (494,039) (304,028) 893,369 105,826
Income (Loss) from Discontinued Operations,
net of income taxes (8,653) (46,962) (20,526) (75,233)
Gain on Disposal of
Discontinued Operations,
net of income taxes 35,777 - 35,777 -
------------ ------------ -------------- ------------
Net Income (Loss) Available to
Common Stockholders $ (466,915) $ (350,990) $ 908,620 $ 30,593
------------ ------------ -------------- ------------
Weighted Average Shares Outstanding 12,307,749 11,976,055 12,227,339 11,976,055
Per Share Detail:
Income (Loss): Continuing Operations (.04) (.03) .07 .01
Income (Loss): Discontinued Operations * * * (.01)
Gain (Loss) on Disposal of
Discontinued Operations * - * -
------------ ------------ -------------- ------------
BASIC EPS-Total $ (.04) $ (.03) $ .08 $ *
------------ ------------ -------------- ------------
DILUTED EARNINGS PER SHARE:
Income (Loss) from Continuing Operations
Available to Common Shareholders $ (494,039) $ (304,028) $ 893,369 105,826
Add Back Preferred Stock Dividends 80,510 87,500 160,135 175,000
------------ ------------ -------------- ------------
Adjusted Income (Loss):Continuing Operations (413,529) (216,528) 1,053,504 280,826
Income (Loss) from Discontinued Operations (8,653) (46,962) (20,526) (75,233)
Gain (Loss) on Disposal of
Discontinued Operations 35,777 - 35,777 -
------------ ------------ -------------- ------------
Net Income (Loss) Available to
Common Stockholders $ (386,405) (263,490) 1,068,755 205,593
------------ ------------ -------------- ------------
Weighted Average and Dilution Shares:
Weighted Average Shares Outstanding 12,307,749 11,976,055 12,227,339 11,976,055
Conversion of Warrants - - N/A 1,934,897
Exercise of Options - - 1,853 N/A
Conversion of Preferred Stock - - 5,577,552 -
------------ ------------ -------------- ------------
12,307,749 11,976,055 17,806,744 13,910,952
------------ ------------ -------------- ------------
Per Share Detail:
Income (Loss): Continuing Operations (.04) (.03) .06 .02
Income (Loss): Discontinued Operations * * * (.01)
Gain (Loss) on Disposal of
Discontinued Operations * - * -
------------ ------------ -------------- ------------
DILUTED EPS-Total $ (.04) $ (.03) $ .06 $ .01
------------ ------------ -------------- ------------
</TABLE>
*LESS THEN $.01 PER SHARE
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the six month period ended February 29,
2000 and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0001038284
<NAME> Planet Entertainment
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-1-1999
<PERIOD-END> FEB-29-2000
<CASH> 136,101
<SECURITIES> 2,778,641
<RECEIVABLES> 5,528,414
<ALLOWANCES> 542,140
<INVENTORY> 7,489,177
<CURRENT-ASSETS> 16,217,488
<PP&E> 3,245,353
<DEPRECIATION> 1,990,348
<TOTAL-ASSETS> 28,533,089
<CURRENT-LIABILITIES> 10,379,820
<BONDS> 6,632,811
12,328
4,550,000
<COMMON> 0
<OTHER-SE> 6,958,130
<TOTAL-LIABILITY-AND-EQUITY> 28,533,089
<SALES> 18,069,354
<TOTAL-REVENUES> 18,070,594
<CGS> 13,659,931
<TOTAL-COSTS> 13,659,931
<OTHER-EXPENSES> 2,794,975
<LOSS-PROVISION> 39,555
<INTEREST-EXPENSE> 348,611
<INCOME-PRETAX> 1,227,877
<INCOME-TAX> 174,373
<INCOME-CONTINUING> 1,053,504
<DISCONTINUED> 15,251
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,068,755
<EPS-BASIC> .08
<EPS-DILUTED> .06
</TABLE>
