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: November 30, 1999
[ ] 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
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(Exact name of small business issuer as specified in its charter)
FLORIDA 33-0471728
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
222 HIGHWAY 35, P.O. BOX 4085, MIDDLETOWN, NEW JERSEY 07748
(Address of principal executive offices)
(732) 530-8819
------------------------------------------------
(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 November 30, 1999: 12,147,803
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 November 30, 1999
(Unaudited) and August 31, 1999..............................F-1
Consolidated Statements of Operations
for the Three Months Ended
November 30, 1999 and 1998 (Unaudited).......................F-3
Consolidated Statements of Cash Flows
for the Three Months Ended
November 30, 1999 and 1998 (Unaudited).......................F-4
Notes to Consolidated Financial Statements.....................F-6
Item 2. Management's Discussion and Analysis or Plan
of Operation.................................................F-8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................13
SIGNATURES
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 1 OF 2
CONSOLIDATED BALANCE SHEETS
ASSETS
NOVEMBER 30, AUGUST 31,
1999 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 162,826 $ 620,975
Accounts receivable, net of allowance for doubtful accounts
of $627,102 and $617,143 for November 30, 1999 and
August 31, 1999, respectively 5,504,346 5,062,283
Accounts receivable, net - related party 180,615 180,615
Inventories 9,572,312 7,165,072
Marketable securities - available for sale 2,624,243 1,274,272
Prepaid expenses and other current assets 127,962 200,767
Note receivable - related party 100,000 100,000
Deferred income taxes 485,000 244,000
----------- -----------
TOTAL CURRENT ASSETS 18,757,304 14,847,984
----------- -----------
PROPERTY AND EQUIPMENT - NET 1,479,871 1,420,786
----------- -----------
OTHER ASSETS:
Record masters - net 6,440,957 6,566,037
Goodwill - net 4,511,059 4,541,899
Investment in joint ventures 9,000 9,000
Organization costs - net 23,750 27,500
Security deposits and other assets 164,672 124,513
----------- -----------
TOTAL OTHER ASSETS 11,149,438 11,268,949
----------- -----------
$31,386,613 $27,537,719
=========== ===========
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See accompanying notes to consolidated financial statements.
F-1
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 2 OF 2
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30, AUGUST 31,
1999 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,893,833 $ 7,418,370
Accrued expenses and other current liabilities 386,185 342,103
Accrued interest expense - related parties 269,786 239,312
Deferred revenue 256,579 211,544
Due to stockholders 240,884 230,884
Note payable - related party 550,000 150,000
Current portion of long-term debt - related parties 594,000 719,000
Accrued officers' salaries 670,827 539,859
Income tax payable 328,901 --
Current portion of capital lease obligations 127,857 58,072
Current portion of notes payable 19,827 19,456
------------ ------------
TOTAL CURRENT LIABILITIES 13,338,679 9,928,600
------------ ------------
LONG-TERM LIABILITIES:
Note payable - line of credit 5,643,808 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 44,603 49,701
Capital lease obligations - net of current portion 194,059 9,050
Deferred income taxes 163,000 144,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 6,295,470 6,537,786
------------ ------------
TOTAL LIABILITIES 19,634,149 16,466,386
------------ ------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, stated value $10,000
per share;10,000,000 shares authorized; 465 shares
issued and outstanding at November 30, 1999
and August 31, 1999 4,650,000 4,650,000
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,147,803 shares issued and outstanding
at November 30, 1999 and August 31, 1999 12,148 12,148
Additional paid-in capital 11,513,499 11,513,499
Accumulated deficit (3,423,426) (4,878,586)
Other comprehensive income (loss) (999,757) (225,728)
------------ ------------
11,752,464 11,071,333
------------ ------------
$ 31,386,613 $ 27,537,719
============ ============
See accompanying notes to consolidated financial statements.
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F-2
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1999 1998
------------- -------------
REVENUES:
Net sales $10,328,610 $14,978,644
Royalties 1,240 753
Studio rental 17,602 2,959
----------- -----------
TOTAL REVENUES 10,347,452 14,982,356
----------- -----------
COSTS AND EXPENSES:
Cost of sales 6,972,940 12,188,019
Selling, general and administrative costs 1,247,617 2,137,554
Depreciation and amortization 252,307 84,160
Interest expense 130,647 92,729
Interest expense, related party 30,474 35,625
Bad debt expense 9,886 --
----------- -----------
TOTAL COSTS AND EXPENSES 8,643,871 14,538,087
----------- -----------
INCOME FROM OPERATIONS 1,703,581 444,269
OTHER INCOME:
Interest and dividend income 352 24,814
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,703,933 469,083
Provision for income taxes 248,773 --
----------- -----------
NET INCOME $ 1,455,160 $ 469,083
=========== ===========
INCOME PER SHARE-BASIC $ .11 $ .03
=========== ===========
INCOME PER SHARE-DILUTED $ .09 $ .03
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 1 OF 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,455,160 $ 469,083
Adjustments to reconcile net income to net cash used by
operating activities:
Bad debt expense 9,886 --
Depreciation and amortization 252,307 84,160
Marketable securities received for sale of non-exclusive
rights to masters (2,124,000) --
Deferred taxes (222,000) --
Changes in:
Accounts receivable (451,949) (3,791,828)
Accounts receivable, related party -- 13,355
Prepaid expenses and other current assets 72,805 (109,857)
Inventory (2,407,240) (4,934,596)
Accounts payable and accrued expenses 2,519,546 7,805,857
Income tax payable 328,901 --
Accrued interest expense, related party 30,474 27,886
Deferred revenue 45,035 136,224
Due to customers -- (92,924)
Accrued officers' salary 130,968 93,750
----------- -----------
Cash Flows Provided (Used) by Operating Activities (360,107) (298,890)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of NEOS net of cash acquired -- (1,627,416)
Purchase of fixed assets (150,473) (153,624)
Refund of prior period fixed asset purchase 285,000 --
Repayments on note receivable -- 2,440
Deposit on leased equipment (41,409) 3,640
----------- -----------
Cash Flows Provided (Used) by Investing Activities 93,118 (1,774,960)
----------- -----------
See accompanying notes to consolidated financial statements.
F-4
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 2 OF 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (repayments) from (to) stockholders (375,000) (40,000)
Proceeds (repayments) from (to) note payable (4,727) 42,449
Proceeds from note payable, related party 10,000 --
Proceeds from issuance of preferred/common stock -- 17,627
Stock issuance costs -- (31,625)
Proceeds (repayments) from (to) note payable - line of credit 208,773 (45,897)
Repayment of long-term debt, related party -- (250,000)
Addition to (payment of) capitalized lease obligations (30,206) (64,917)
----------- -----------
Cash Flows Provided (Used) by Financing Activities (191,160) (372,363)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (458,149) (2,446,213)
CASH AND CASH EQUIVALENTS, beginning of year/period 620,975 3,850,162
----------- -----------
CASH AND CASH EQUIVALENTS, end of year/period $ 162,826 $ 1,403,949
=========== ===========
CASH PAID FOR INTEREST EXPENSE $ 130,647 $ 125,471
=========== ===========
CASH PAID FOR INCOME TAXES $ 40,482 $ 134,029
=========== ===========
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SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capitalized lease obligations totaling $285,000 were incurred during the three
month period ending November 30, 1999 when the company entered into a lease
primarily for warehousing equipment. This equipment had previously been
purchased for cash.
See accompanying notes to consolidated financial statements.
F-5
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(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 months ended November 30, 1999 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 operates in five business segments; music record masters production,
music studio operations, record label 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:
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<CAPTION>
NET OPERATING DEPRECIATION TOTAL CAPITAL
REVENUES EARNINGS(LOSS) & AMORTIZATION ASSETS EXPENDITURES
------------ -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Three months ended
November 30, 1999;
Rack distribution sales $ 290,140 $ (70,345) $ 4,784 $ 851,272 $ --
One-Stop distribution sales 7,914,470 120,595 114,808 20,430,531 150,473
Music record master
production 2,125,240 1,667,204 125,080 9,882,466 --
Music studio operations 17,602 (13,873) 7,635 210,116 --
Record label productions -- -- -- 12,228 --
------------ ------------ ------------ ------------ ------------
$ 10,347,452 $ 1,703,581 $ 252,307 $ 31,386,613 $ 150,473
============ ============ ============ ============ ============
Three months ended
November 30, 1998;
Rack distribution sales $ 8,094,628 $ 533,178 $ 40,501 $ 13,848,459 $ 52,792
One-Stop distribution sales 6,871,488 430,253 36,282 11,796,836 100,832
Music record master
production 753 (490,891) -- 7,901,545 --
Music studio operations 2,959 (22,650) 7,377 421,131 --
Record label productions 12,528 (5,621) -- 78,747 --
------------ ------------ ------------ ------------ ------------
$ 14,982,356 $ 444,269 $ 84,160 $ 34,046,718 $ 153,624
============ ============ ============ ============ ============
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F-6
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
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.
F-7
<PAGE>
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 Corporation. In July 1996, the Company acquired
from Messrs. Arnone, Giakas and Venneri, the three 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, and 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 six offices. Planet has its corporate headquarters in
Middletown, New Jersey and a recording studio in Chester, PA. NEOS has
administrative headquarters and 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 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
F-8
<PAGE>
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 November 30, 1999, 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 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 THREE MONTH PERIOD ENDED NOVEMBER 30,
1999 AS COMPARED TO THE THREE MONTH PERIOD ENDED NOVEMBER 30, 1998
NET REVENUES. For the three months ended November 30, 1999 net revenues
were approximately $10,347,000 as compared to approximately $14,982,000 for the
three month period ended November 30, 1998 , which represented a decrease in net
revenues of $4,635,000 or 31%. Net revenues from the One Stop Business for the
three months ended November 30, 1999 versus the comparable period in the prior
year, respectively, were approximately $7,914,000 as compared to approximately
$6,871,000, an increase of 15%. 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 November 30, 1999
were approximately $ 290,000 as compared to approximately $8,095,000 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 three month period
ended November 30, 1998, Meijer accounted for net revenues of approximately
$6,584,000 or 44% 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 November 30, 1999
versus the comparable period in the prior year, respectively, were approximately
$2,143,000 as compared to approximately $ 16,000, an increase of approximately $
2,127,000. This increase was primarily due to a $2,124,000 sale of limited
rights to certain masters.
COST OF SALES. For the three months ended November 30, 1999, cost of
sales was approximately $6,973,000 or 67% of net revenues as compared to the
three months ended November 30, 1998 cost of sales of approximately $12,188,000
or 81% of net revenues. This decrease as a percentage of revenues is primarily
due to the incremental revenue from the sale of masters discussed above.
F-9
<PAGE>
OPERATING EXPENSES. For the three months ended November 30, 1999,
selling, general and administrative expenses ("SG&A") were approximately
$1,248,000 or 12% of net revenues versus SG&A for the comparable period in the
prior year of approximately $2,138,000 or 14% of net revenues. This decrease in
SG&A resulted from reductions in NEOS payroll ($443,000) as well as other
operating expenses, due to lower rack volumes as well as reductions in
professional and consulting fees ($134,000). The prior year quarter included
high professional fees ($251,000) due to the NEOS Acquisition (which closed in
September 1998) and related public filings and stock registration.
INTEREST EXPENSE. For the three months ended November 30, 1999,
interest expense was approximately $161,000 or 1.6% of net revenues versus the
comparable period in the prior year of approximately $128,000 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. For the three months ended November 30, 1999, net income
was approximately $1,455,000 or 14.1% of net revenues, as compared to net income
of approximately $ 469,000 or 3.1% of net revenues for the three months ended
November 30, 1998. Pre-tax net income from NEOS for the three months ended
November 30, 1999 was approximately $ 58,000 as compared to approximately
$964,000 for the comparable period in the prior year, a decrease of 94%. 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
three months ended November 30, 1999 was approximately $1,646,000 as compared to
a pre-tax net loss of approximately ($495,000) in the comparable period in the
prior year, a $2,141,000 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.
F-10
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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 November 30, 1999 were $162,826 as
compared to the August 31, 1999 cash balance of $620,975, or a reduction of
$458,149. This reduction was the result of the seasonal increases in accounts
receivable and inventory, purchases of and deposits on equipment and payments to
stockholders. These outflows were partially offset by increases in accounts
payable and accrued expenses, a refund of a prior period asset purchase
($285,000 converted to a lease) and a net drawdown on our line-of-credit.
Net cash flow used by operating activities for the three month period
ended November 30, 1999 was $360,107. The primary uses of cash were the seasonal
build in accounts receivable ($451,949) and inventory ($2,407,240) as well as
the increase in marketable securities ($2,124,000). These uses of cash were
partially offset by the seasonal increase in accounts payable ($2,519,546) as
well as other non-cash items (i.e. net income, depreciation, income tax payable,
accrued expenses, etc).
As of November 30, 1999, outstanding accounts receivable totaled
$5,684,961. This amount is net of an allowance for bad debts of $627,102. 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 November 30, 1999 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 November 30, 1999, inventory was $9,572,312 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 November 30, 1999, the Company's accounts payable and accrued
expense balance was $10,280,018 versus the balance as of August 31, 1999 of
$7,760,473, primarily due to the seasonal increase in purchasing activity.
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 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 November 30, 1999 were $5,562,044 and $1,282,190, respectively.
F-11
<PAGE>
As of November 30, 1999, NEOS had an aggregate of $5,643,808 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 three month period
ended November 30, 1999 was $93,118. A cash inflow from leasing assets that were
purchased with cash in a prior period ($285,000) was partially offset by
outflows that were fixed asset-related including both equipment purchases
($150,473) and deposits on leased equipment ($41,409).
Net cash flow to financing activities for the three month period ended
November 30, 1999 was $191,160. Cash outlays consisted primarily of the second
$375,000 note payment to the former sole shareholder of NEOS due as part of that
subsidiarys purchase agreement. The primary source of cash was the CFC line of
credit ($208,773).
As of November 30, 1999, the Company had outstanding an aggregate of
$2,654,927 in notes (including accrued interest of $269,786), and accrued
salaries. Such amounts consist of: $691,282 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 and a $10,000 principal amount 10% demand note, both 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, accrued officers' salaries of $670,827 and $64,430
in notes due to finance various assets purchased by the Company.
NEOS has several capital leases in the aggregate amount of $321,916
that are secured by the related equipment and fixtures.
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.
F-12
<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 three month period ended November 30, 1999, the Company did
not file any reports on Form 8-K.
13
<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 January 14, 2000
14
<TABLE>
<CAPTION>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
EXHIBIT 11
EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended Three Months Ended
November 30, 1999 November 30, 1998
------------------ ------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ 1,455,160 $ 469,083
Less preferred stock dividends 81,375 87,500
----------- -----------
Net income attributable to
common stockholders $ 1,373,785 $ 381,583
----------- -----------
Weighted average shares outstanding 12,147,803 11,976,055
----------- -----------
Basic earnings per share $ 0.11 .03
----------- -----------
DILUTED EARNINGS PER SHARE:
Net income attributable to
common stockholders $ 1,373,785 $ 381,583
Add back preferred stock dividends 81,375 87,500
----------- -----------
Adjusted net income $ 1,455,160 $ 469,083
----------- -----------
Weighted average and Dilution shares:
Weighted Avg. shares outstanding 12,147,803 11,976,055
Conversion of Warrants 256,789 1,919,264
Conversion of preferred stock 3,682,871 --
----------- -----------
16,087,463 13,895,319
----------- -----------
Diluted earnings per share $ 0.09 $ 0.03
----------- -----------
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the three month period ended November 30,
1999 and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0001038284
<NAME> PLANET ENTERTAINMENT CORP.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1
<CASH> 162,826
<SECURITIES> 2,624,243
<RECEIVABLES> 6,312,063
<ALLOWANCES> 627,102
<INVENTORY> 9,572,312
<CURRENT-ASSETS> 18,757,304
<PP&E> 3,475,551
<DEPRECIATION> 1,995,680
<TOTAL-ASSETS> 31,386,613
<CURRENT-LIABILITIES> 13,338,679
<BONDS> 6,295,470
12,148
4,650,000
<COMMON> 0
<OTHER-SE> 7,090,316
<TOTAL-LIABILITY-AND-EQUITY> 31,386,613
<SALES> 10,328,610
<TOTAL-REVENUES> 10,347,452
<CGS> 6,972,940
<TOTAL-COSTS> 6,972,940
<OTHER-EXPENSES> 1,499,924
<LOSS-PROVISION> 9,886
<INTEREST-EXPENSE> 161,121
<INCOME-PRETAX> 1,703,933
<INCOME-TAX> 248,773
<INCOME-CONTINUING> 1,455,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,455,160
<EPS-BASIC> .11
<EPS-DILUTED> .09
</TABLE>
