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, 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
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(Exact name of small business issuer as specified in its charter)
FLORIDA 33-0471728
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(State or other jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
2 BRIDGE AVE, BUILDING 6 LOWER LEVEL, RED BANK, NEW JERSEY 07748
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(Address of principal executive offices)
(732) 936-9660
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(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, 2000: 12,434,495
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
PLANET ENTERTAINMENT CORPORATION
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at November 30, 2000
(Unaudited) and August 31, 2000................ 1
Consolidated Statements of Operations
for the Three Months Ended November 30, 2000
and November, 30, 1999 (Unaudited)............. 3
Consolidated Statements of Cash Flows
for the Three Months Ended November 30, 2000
and November 30, 1999 (Unaudited).............. 4
Notes to Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis or Plan
of Operation................................... 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 13
SIGNATURES .............................................................. 14
EXHIBIT 11 Earnings per Share...................................... 15
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 1 OF 2
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 43,920 $ 64,901
Accounts receivable, net of allowance for doubtful accounts
of $374,660 and $354,660 at November 30, 2000
and August 31, 2000, respectively 5,478,022 3,471,713
Inventories 10,644,031 5,730,187
Marketable securities - available for sale 425,971 609,224
Prepaid expenses and other current assets 205,637 157,633
Note receivable - legal settlement 176,088 250,000
Note receivable - related party 67,500 70,000
Deferred income taxes 1,050,000 1,050,000
----------- -----------
TOTAL CURRENT ASSETS 18,091,169 11,403,658
----------- -----------
PROPERTY AND EQUIPMENT - NET 2,388,864 2,372,148
----------- -----------
OTHER ASSETS:
Record masters - net 6,440,957 6,440,957
Goodwill - net 4,335,976 4,364,692
Investment in joint ventures 9,000 9,000
Security deposits and other assets 111,904 145,291
----------- -----------
TOTAL OTHER ASSETS 10,897,837 10,959,940
----------- -----------
$31,377,870 $24,735,746
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES PAGE 2 OF 2
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
2000 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 11,350,116 $ 6,830,529
Accrued expenses and other current liabilities 128,704 123,561
Accrued interest expense - related parties 393,664 362,291
Deferred revenue 102,256 57,207
Due to stockholders 251,884 245,884
Note payable - related party 1,394,000 1,144,000
Accrued officers' salaries & interest 790,760 738,564
Current portion of capital lease obligations 290,892 292,735
Current portion of notes payable 31,669 33,586
------------ ------------
TOTAL CURRENT LIABILITIES 14,733,945 9,828,357
------------ ------------
LONG-TERM LIABILITIES:
Note payable - line of credit (Note 5) 7,980,999 5,297,988
Note payable - related party - net of current portion -- 250,000
Note payable - net of current portion 477,213 486,119
Capital lease obligations - net of current portion 335,119 407,730
Deferred income taxes 304,000 304,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 9,097,331 6,745,837
------------ ------------
TOTAL LIABILITIES 23,831,276 16,574,194
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, stated value $10,000 per share; 10,000,000
shares authorized; 455 shares issued and outstanding at
both November 30, 2000 and August 31, 2000 4,550,000 4,550,000
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,434,495 shares issued and outstanding at
both November 30, 2000 and August 31, 2000 12,435 12,435
Additional paid-in capital 11,690,656 11,690,656
Accumulated deficit (5,632,468) (5,200,763)
Other comprehensive income (loss) (3,074,029) (2,890,776)
------------ ------------
7,546,594 8,161,552
------------ ------------
$ 31,377,870 $ 24,735,746
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Net Sales $ 8,712,281 $ 10,328,610
Royalties -- 1,240
------------ ------------
Total Revenues 8,712,281 10,329,850
------------ ------------
COSTS AND EXPENSES:
Cost of sales 7,498,628 6,971,432
Selling, general and administrative 1,222,465 1,225,285
Depreciation and amortization 154,611 244,672
Interest expense 216,909 130,647
Interest expense, related party 31,373 30,474
Bad debt expense 20,000 9,886
------------ ------------
Total Costs and Expenses 9,143,986 8,612,396
------------ ------------
(LOSS) INCOME FROM OPERATIONS (431,705) 1,717,454
OTHER INCOME:
Interest and dividend income -- 352
------------ ------------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (431,705) 1,717,806
PROVISION FOR INCOME TAXES -- 250,473
------------ ------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (431,705) 1,467,333
------------ ------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations (net of an
Income tax benefit of $ 0 and $ 1,700 for the
three months ended November 2000 and 1999,
respectively) -- (12,173)
------------ ------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS -- (12,173)
------------ ------------
NET (LOSS) INCOME $ (431,705) $ 1,455,160
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
BASIC
(Loss) Income from Continuing Operations $ (.04) $ .11
(Loss) from Discontinued Operations -- *
------------ ------------
BASIC (LOSS) INCOME PER SHARE $ (.04) $ .11
============ ============
DILUTED
(Loss) Income from Continuing Operations $ (.04) $ .09
(Loss) from Discontinued Operations -- *
------------ ------------
DILUTED (LOSS) INCOME PER SHARE $ (.04) $ .09
============ ============
</TABLE>
*LESS THEN $(.01) PER SHARE
See accompanying notes to consolidated financial statements
3
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (PAGE 1 OF 2)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss) income $ (431,705) $ 1,455,160
Adjustments to reconcile net (loss) income to net
cash used by operating activities:
Bad debt expense 20,000 9,886
Depreciation and amortization 154,611 252,307
Marketable securities received for sale of non-
exclusive rights to masters -- (2,124,000)
Deferred taxes -- (222,000)
Changes in:
Accounts receivable (2,046,309) (451,949)
Prepaid expenses and other current assets (48,004) 72,805
Inventory (4,893,844) (2,407,240)
Accounts payable and accrued expenses 4,524,730 2,519,546
Income tax payable -- 328,901
Accrued interest expense, related party 31,373 30,474
Deferred revenue 45,049 45,035
Accrued officers' salaries 52,196 130,968
----------- -----------
Cash Flows (Used) by Operating Activities (2,591,903) (360,107)
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of fixed assets (140,111) (150,473)
Refund of prior period fixed asset purchase -- 285,000
Repayments on note receivable 76,412 --
Deposit on leased equipment 30,887 (41,409)
----------- -----------
Cash Flows (Used) Provided by Investing Activities (32,812) 93,118
----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Advances (repayments) from (to) stockholders 6,000 (375,000)
Repayments of note payable (10,823) (4,727)
Proceeds from note payable, related party -- 10,000
Proceeds from note payable - line of credit 2,683,011 208,773
Repayment of capitalized lease obligations (74,454) (30,206)
----------- -----------
Cash Flows Provided (Used) by Financing Activities 2,603,734 (191,160)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (20,981) (458,149)
CASH AND CASH EQUIVALENTS, beginning of year/period 64,901 620,975
----------- -----------
CASH AND CASH EQUIVALENTS, end of year/period $ 43,920 $ 162,826
=========== ===========
CASH PAID FOR INTEREST EXPENSE $ 216,909 $ 130,647
=========== ===========
CASH PAID FOR INCOME TAXES $ 1,330 $ 40,482
=========== ===========
</TABLE>
4
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (PAGE 2 OF 2)
(UNAUDITED)
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
5
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 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 (see Note
4). The three subsidiaries comprised the music studio operations (i.e. Maestro
Holding Corporation and Al Alberts on Stage, Ltd) and the record label
productions segment (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:
<TABLE>
<CAPTION>
NET OPERATING DEPRECIATION TOTAL CAPITAL
REVENUES EARNINGS (LOSS) & AMORTIZATION ASSETS EXPENDITURES
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Three months ended
November 30, 2000;
Rack distribution sales $ 5,238 $ (102) $ -- $ -- $ --
One-Stop distribution sales 8,704,043 (253,064) 154,611 23,916,380 140,111
Music record master production 3,000 (178,539) -- 7,461,490 --
------------ ------------ ------------ ------------ ------------
$ 8,712,281 $ (431,705) $ 154,611 $ 31,377,870 $ 140,111
============ ============ ============ ============ ============
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 --
------------ ------------ ------------ ------------ ------------
$ 10,329,850 $ 1,717,454 $ 244,672 $ 31,164,269 $ 150,473
============ ============ ============ ============ ============
</TABLE>
6
<PAGE>
PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 3 - 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.
NOTE 4 - 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.
Prior period financial statements were restated as a result of this transaction.
NOTE 5 - LINE OF CREDIT
Northeast One Stop, Inc. (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. NEOS was in
technical default of the adjusted net worth covenant at both November 30, 2000
and August 31, 2000 under the existing agreement. CFC agreed to waive the August
violation and reset the covenant levels in an amendment dated December 14, 2000.
Under the proposed amendment, the Company would no longer be in violation of any
covenant. The Company is currently negotiating the terms of this amendment and
the only open item is with respect to advances based on eligible inventory
levels. Specifically, the working capital and adjusted net worth computations
for NEOS as of November 30, 2000 were $6,003,777 and ($ 209,057), respectively.
As of November 30, 2000, NEOS had an aggregate of $7,980,999 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.
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. 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 4). 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 six offices. Planet has its corporate headquarters in
Red Bank, New Jersey. NEOS relocated its administrative headquarters and
warehouse to Menands, New York in June 2000 and has four sales offices located
in Philadelphia, Pennsylvania, Coral Springs, Florida, Danbury, Connecticut 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
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.
During the quarter ended November 30, 1999, the Company sold a copy of
a portion of it's non-exclusive master recording catalog. 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,
2000 AS COMPARED TO THE THREE MONTH PERIOD ENDED NOVEMBER 30, 1999
NET REVENUES. For the three months ended November 30, 2000 net revenues
were approximately $8,712,000 as compared to approximately $10,330,000 for the
three month period ended November 30, 1999, which represented a decrease in net
revenues of $1,618,000 or 15.7%. Net revenues from the One Stop Business for the
three months ended November 30, 2000 versus the comparable period in the prior
year, respectively, were approximately $8,704,000 as compared to approximately
$7,914,000, an increase of 10%. This increase was primarily due to new
customers. Net revenues from the Rack Business for the three months ended
November 30, 2000 were approximately $ 5,000 as compared to approximately $
290,000 in the prior year, a decrease of 98%. This decrease was primarily due to
a significantly scaled-down Rack operation. Net revenues from Planet operations
for the three months ended November 30, 2000 versus the comparable period in the
prior year, respectively, were approximately $ 3,000 as compared to
approximately $2,125,000, a decrease of 99%. This decrease was primarily due to
the prior year period including 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 4) for the three
months ended November 30, 1999 were insignificant (approximately $18,000).
COST OF SALES. For the three months ended November 30, 2000, cost of
sales was approximately $7,499,000 or 86.1% of net revenues as compared to the
three months ended November 30, 1999 cost of sales of approximately $6,971,000
or 67.5% of net revenues. This increase as a percentage of revenues is primarily
due to the prior year inclusion of minimal cost of goods related to the sale of
masters discussed above.
9
<PAGE>
OPERATING EXPENSES. For the three months ended November 30, 2000,
selling, general and administrative expenses ("SG&A") were approximately
$1,222,000 or 14.0% of net revenues versus SG&A for the comparable period in the
prior year of approximately $1,225,000 or 11.9% of net revenues. This increase
as a percentage of revenues resulted primarily from the inclusion in the prior
year period of the incremental revenue from the sale of masters discussed above.
INTEREST EXPENSE. For the three months ended November 30, 2000,
interest expense was approximately $248,000 or 2.8% of net revenues versus the
comparable period in the prior year of approximately $161,000 or 1.6% 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 November 30, 2000, the
net loss was approximately $ (432,000) or (5.0%) of net revenues, as compared to
net income of approximately $1,455,000 or 14.1% of net revenues for the three
months ended November 30, 1999. Loss from operations for NEOS for the three
months ended November 30, 2000 was approximately ($190,000) as compared to
income from operations of approximately $ 58,000 for the comparable period in
the prior year. This decrease was primarily due to higher occupancy costs
($133,000) resulting from the relocation as well as increased interest costs
($66,000). The loss from operations for Planet other than NEOS for the three
months ended November 30, 2000 was approximately ($242,000) as compared to an
income from operations of approximately $1,659,000 in the comparable period in
the prior year. This decrease is primarily due to the prior year revenue from
the sale of masters 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 4 of the Notes to the Consolidated Financial Statements)
for the three months ended November 30, 1999 was insignificant (approximately
$12,000).
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, 2000 were $43,920 as
compared to the August 31, 2000 cash balance of $64,901, or a reduction of
$20,981. This reduction was primarily the result of purchases of fixed assets as
well as increases in inventory and accounts receivable balances. These outflows
were partially offset by an increase in accounts payable, payments received on
notes and a net drawdown on our line-of-credit.
Net cash flow used by operating activities for the three month period
ended November 30, 2000 was $2,591,903. The primary uses of cash were the
increases in inventory ($4,893,844) as well as accounts receivable ($2,046,309).
These uses of cash were partially offset by the increase in accounts payable
($4,524,730) as well as other non-cash items (i.e. depreciation, accrued
interest, deferred revenue, accrued salaries, etc).
10
<PAGE>
As of November 30, 2000, outstanding accounts receivable totaled
$5,478,022. This amount is net of an allowance for bad debts of $374,660. By
comparison, the consolidated accounts receivable balance as of August 31, 2000
was $3,471,713, net of an allowance of $354,660. The increase in accounts
receivable is due to the normal seasonal increase in volume.
At November 30, 2000, inventory was $10,644,031 versus a balance as of
August 31, 2000 of $5,730,187. NEOS accounts for its inventory on a
first-in-first-out basis. This is a normal, seasonal increase in inventory
levels.
At November 30, 2000, the Company's accounts payable and accrued
expense balance was $11,478,820 versus the balance as of August 31, 2000 of
$6,954,090, primarily due to the seasonal increase in purchases.
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. NEOS was in technical default
of the adjusted net worth covenant at both November 30, 2000 and August 31, 2000
under the existing agreement. CFC agreed to waive the August violation and reset
the covenant levels in an amendment dated December 14, 2000. Under the proposed
amendment, the Company would no longer be in violation of any covenant. The
Company is currently negotiating the terms of this amendment and the only open
item is with respect to advances based on eligible inventory levels.
Specifically, the working capital and adjusted net worth computations for NEOS
as of November 30, 2000 were $6,003,777 and ($ 209,057), respectively. As of
November 30, 2000, NEOS had an aggregate of $7,980,999 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 used by investing activities for the three month period
ended November 30, 2000 was $32,812. Cash outflows for fixed asset purchases
($140,111) were partially offset by inflows from notes receivable ($76,412) and
a reduction in deposits on leased equipment ($30,887).
Net cash flow from financing activities for the three month period
ended November 30, 2000 was $2,603,734. The primary source of cash was the CFC
line of credit ($2,683,011). This inflow was partially offset by payments on
lease and note obligations ($85,277).
As of November 30, 2000, the Company had outstanding an aggregate of
$3,354,190 in notes (including accrued interest of $393,664), and accrued
salaries. Such amounts consist of:
(a) $500,000 on the Gulf Coast Music, LLC (Gulf Coast) Note,
(b) $344,000 principal amount 9% demand note to the former owner of
NEOS issued prior to the NEOS Acquisition,
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(c) $230,884 principal amount 9% demand note due to a privately held
corporation owned by Messrs. Giakas and Arnone representing
working capital advances made by such entities to the Company,
(d) $10,000 principal amount 10% demand note also due to Messrs.
Giakas and Arnone,
(e) $ 5,000 principal amount 10% demand note also due to Messrs.
Giakas and Arnone,
(f) $ 6,000 principal amount 10% demand note due to Mr. Arnone,
(g) 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,
(h) $15,000 principal amount 9% demand note to Whelan, Inc., a
privately held corporation owned by Messrs. Arnone and Giakas,
(i) Accrued officers' salaries of $790,760,
(j) $508,882 principal amount 9.5% leasehold improvement note due to
the landlord of the new Menands location.
NEOS has several capital leases in the aggregate amount of $626,011
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 shares of the
Company's common stock at $2.00/share. These three subsidiaries were either
inactive or not profitable at the time of the sale and had minimal assets.
Therefore, the effect on cash is insignificant.
The Company believes that its current cash, cash from operations and
loans under the CFC Credit Agreement will be sufficient to fund the Company's
working capital requirements for the foreseeable future. No assurances can be
given, however, that due to any number of events and/or circumstances including,
but not limited to, a downturn in the pre-recorded music industry or in the
economy in general, that the Company will not need additional working capital.
Furthermore, no assurances can be given that the Company will be able to obtain
such additional working capital when and if needed or on terms acceptable to the
Company.
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<PAGE>
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings (Loss) Per Share
(b) Reports on Form 8-K
During the three month period ended November 30, 2000, the Company did
not file any reports on Form 8-K.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PLANET ENTERTAINMENT CORPORATION
(Registrant)
By /s/ JOHN ARNONE
-----------------------------------
John Arnone
President and Chief Executive Officer
By /s/ SCOTT STEWART
-----------------------------------
Scott Stewart
Chief Financial Officer
Date: As of January 16, 2001
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PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
EXHIBIT 11
EARNINGS PER SHARE
(UNAUDITED)
FOR THE THREE MONTHS ENDED
----------------------------
NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------
BASIC EARNINGS PER SHARE:
(Loss) Income from Continuing Operations$ (431,705) $ 1,467,333
Less Preferred Stock Dividends (79,625) (81,375)
------------ ------------
(Loss) Income from Continuing Operations
Available to Common Stockholders (511,330) 1,385,958
(Loss) from Discontinued Operations,
net of income taxes -- (12,173)
------------ ------------
Net (Loss) Income Available to
Common Stockholders $ (511,330) $ 1,373,785
------------ ------------
Weighted Average Shares Outstanding 12,434,495 12,147,803
------------ ------------
Per Share Detail:
(Loss)Income: Continuing Operations $ (.04) $ .11
(Loss): Discontinued Operations -- *
------------ ------------
BASIC EPS-Total $ (.04) $ .11
------------ ------------
DILUTED EARNINGS PER SHARE:
(Loss) Income from Continuing Operations
Available to Common Shareholders $ (511,330) $ 1,385,958
Add Back Preferred Stock Dividends 79,625 81,375
------------ ------------
Adjusted (Loss) Income: Continuing
Operations (431,705) 1,467,333
(Loss) from Discontinued Operations -- (12,173)
------------ ------------
Net (Loss) Income Available to
Common Stockholders $ (431,705) $ 1,455,160
------------ ------------
Weighted Average and Dilution Shares:
Weighted Average Shares Outstanding 12,434,495 12,147,803
Conversion of Warrants -- 256,789
Conversion of Preferred Stock -- 3,682,871
------------ ------------
12,434,495 16,087,463
------------ ------------
Per Share Detail:
(Loss) Income: Continuing Operations $ (.04) $ .09
(Loss): Discontinued Operations -- *
------------ ------------
DILUTED EPS-Total $ (.04) $ .09
------------ ------------
*LESS THEN $.01 PER SHARE
15
