<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 31, 1997
PLATINUM ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-27852 36-3802328
(Commission File Number) (I.R.S. Employer
Identification No.)
2001 Butterfield Road
Downers Grove, Illinois 60515
(Address of principal executive offices, including zip code)
(630) 769-0033
(Registrant's telephone number, including area code)
<PAGE>
The Registrant, in order to provide the Financial Statements required to
be included in the Current Report on Form 8-K dated February 18, 1997, in
connection with the acquisition of certain assets and the assumption of
certain liabilities of Intersound, Inc., hereby amends the following item:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a) Financial Statements.
The following Financial Statements of Intersound, Inc. are included on
pages F-1 through F-12 of this Form 8-K/A:
Balance Sheets as of (Restated) April 30, 1995 and 1996, and (Unaudited)
December 31, 1996
2
<PAGE>
Statements of Income for the (Restated) Years Ended April 30, 1994,
1995 and 1996, and for the (Unaudited) Eight-Month Periods Ended
December 31, 1995 and 1996
Statements of Stockholders' Equity for the (Restated) Years Ended April
30, 1994, 1995 and 1996, and for the (Unaudited) Eight-Month Period
Ended December 31, 1996
Statements of Cash Flows for the (Restated) Years Ended April 30, 1994,
1995 and 1996, and for the (Unaudited) Eight-Month Periods Ended
December 31, 1995 and 1996
Notes to Financial Statements
b) Pro Forma Financial Information.
The following Pro Forma Financial Information is included on pages P-1
through P-6 of this Form 8-K/A:
Pro Forma Consolidated Statement of Operations for the Year Ended
May 31, 1996 (Unaudited)
Pro Forma Consolidated Statement of Operations for the Nine Months
Ended February 28, 1997 (Unaudited)
c) Exhibits.
4.1* Registration Rights Agreement, dated as of January 31, 1997,
between Registrant and Intersound, Inc.
4.2* Convertible Promissory Note, dated January 31, 1997, issued by
the Registrant in the principal amount of $3,125,000.
4.3* Convertible Promissory Note, dated January 31, 1997, issued by
the Registrant in the principal amount of $1,875,000.
4.4* Warrant to Purchase Shares of Common Stock of the Registrant,
dated January 31, 1997.
10.1* Asset Purchase Agreement between River North Studios, Inc. and
Intersound, Inc., dated November 13, 1996. Incorporated by
reference to the Registrant's Report on Form 10-Q filed with
the Commission on January 14, 1997. Registrant agrees to
furnish supplementally to the Commission, upon request, a copy
of any omitted schedule.
3
<PAGE>
10.2* First Amendment to Asset Purchase Agreement, dated January 31,
1997, between River North Studios, Inc. and Intersound, Inc.
10.3* Employment Agreement of Don Johnson, dated February 1, 1997.
10.4* Credit Agreement, dated as of January 31, 1997, among the
Registrant, Bank of Montreal and the Banks who are or may become
parties thereto. Registrant agrees to furnish supplementally to
the Commission, upon request, a copy of any omitted schedule.
10.5* Security Agreement, dated as of January 31, 1997, among the
Registrant, its subsidiaries and Bank of Montreal. Registrant
agrees to furnish supplementally to the Commission, upon request,
a copy of any omitted schedule.
10.6* Security Agreement re: Intellectual Property, dated as of
January 31, 1997, among the Registrant, its subsidiaries and Bank
of Montreal. Registrant agrees to furnish supplementally to the
Commission, upon request, a copy of any omitted schedule.
10.7* Pledge Agreement, dated as of January 31, 1997, issued by the
Registrant in the principal amount of $25,000,000.
10.8* Guaranty, dated as of January 31, 1997, among the Registrant and
Bank of Montreal.
10.9* Term Credit Note, dated January 31, 1997, made by Steven Devick.
10.10* Revolving Credit Note, dated January 31, 1997, issued by the
Registrant in the principal amount of $10,000,000.
- -----------------
*Previously filed
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Platinum
Entertainment, Inc. has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
PLATINUM ENTERTAINMENT, INC.
Dated: April 21, 1997 By:/s/ DOUGLAS C. LAUX
----------------------
Douglas C. Laux
Chief Financial Officer
(Principal Financial and Accounting Officer)
5
<PAGE>
Financial Statements
Intersound, Inc.
YEARS ENDED APRIL 30, 1994, 1995 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Intersound, Inc.
Financial Statements
Years ended April 30, 1994, 1995 and 1996
CONTENTS
Report of Independent Auditors.............................................F-2
Financial Statements
Balance Sheets as of (RESTATED) April 30, 1995 and 1996, and (UNAUDITED)
December 31, 1996..........................................................F-3
Statements of Income for the (RESTATED) Years Ended April 30, 1994,
1995 and 1996, and for the (UNAUDITED) Eight-Month Periods Ended
December 31, 1995 and 1996...............................................F-5
Statements of Stockholders' Equity for the (RESTATED) Years Ended
April 30, 1994, 1995 and 1996, and for the (UNAUDITED) Eight-Month
Period Ended December 31, 1996............................................F-6
Statements of Cash Flows for the (RESTATED) Years Ended April 30, 1994,
1995 and 1996, and for the (UNAUDITED) Eight-Month Periods Ended
December 31, 1995 and 1996................................................F-7
Notes to Financial Statements..............................................F-8
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Platinum Entertainment, Inc.
We have audited the balance sheets of Intersound, Inc. as of April 30, 1995 and
1996, and the related statements of income, stockholders' equity, and cash flows
for the years ended April 30, 1994, 1995 and 1996, all as restated to reflect
the adjustments described in Note 1. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intersound, Inc. at April 30,
1995 and 1996, and the results of their operations and their cash flows for the
years ended April 30, 1994, 1995 and 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
April 11, 1997
F-2
<PAGE>
Intersound, Inc.
Balance Sheets
<TABLE>
<CAPTION>
April 30 December 31
1995 1996 1996
-------------------------------------------
(RESTATED) (RESTATED) (UNAUDITED)
<S>
<C> <C> <C>
Assets
Current assets:
Cash $ 6,155 $ 16,304 $ 16,762
Accounts receivable, less allowances
of $1,563,850, $2,171,080, and
$2,800,671, respectively 5,746,957 6,704,840 8,616,891
Inventories 2,445,157 2,292,147 2,627,166
Artist advances 295,100 486,831 575,894
Other 127,631 99,606 165,752
-------------------------------------------
Total current assets 8,621,000 9,599,728 12,002,465
Artist advances, net of current amounts,
less allowances of $1,932,000,
$2,632,000, and $2,782,000,
respectively 42,900 126,706 481,400
Arts and masters, less accumulated
amortization of $1,946,932, $2,305,635,
and $2,583,448, respectively 916,119 1,190,124 1,113,930
Property and equipment, net 633,770 616,578 502,967
Deposits 637,097 856,554 1,062,126
------------------------------------------
Total assets $10,850,886 $12,389,690 $15,162,888
------------------------------------------
------------------------------------------
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
April 30 December 31
1995 1996 1996
------------------------------------------
(RESTATED) (RESTATED) (UNAUDITED)
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Revolving line of credit $ 452,346 $ 2,001,966 $ 2,092,213
Accounts payable 2,770,453 2,571,589 3,471,899
Royalties payable 2,285,356 2,524,936 2,979,844
Reserve for future returns 2,342,000 2,327,000 2,427,000
Other liabilities 470,733 312,560 525,740
------------------------------------------
Total current liabilities 8,320,888 9,738,051 11,496,696
Notes payable to stockholders 60,000 - -
Stockholders' equity:
Common stock, no par value; 10,000
shares authorized, 940 shares issued
and outstanding 290,000 290,000 290,000
Retained earnings 2,179,998 2,361,639 3,376,192
------------------------------------------
Total stockholders' equity 2,469,998 2,651,639 3,666,192
Total liabilities and stockholders' equity $10,850,886 $12,389,690 $15,162,888
------------------------------------------
------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
Intersound, Inc.
Statements of Income
<TABLE>
<CAPTION>
Eight months ended
Year ended April 30 December 31
---------------------------------------------------------------------
1994 1995 1996 1995 1996
---------------------------------------------------------------------
(RESTATED) (RESTATED) (RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Gross product sales $26,041,163 $31,437,500 $30,753,066 $21,486,539 $19,834,707
Less: Returns and allowances (4,999,722) (6,578,813) (7,211,880) (4,938,876) (4,604,408)
Less: Discounts (1,655,902) (2,446,925) (1,673,920) (1,242,783) (1,259,592)
---------------------------------------------------------------------
Net product sales 19,385,539 22,411,762 21,867,266 15,304,880 13,970,707
Cost of goods sold 9,582,589 9,941,096 9,029,692 6,360,074 5,389,378
---------------------------------------------------------------------
9,802,950 12,470,666 12,837,574 8,944,806 8,581,329
Licensing revenues 463,105 182,226 629,330 174,221 317,180
Cost of licensing revenues 185,242 72,890 251,732 69,688 126,872
---------------------------------------------------------------------
277,863 109,336 377,598 104,533 190,308
---------------------------------------------------------------------
Gross profit 10,080,813 12,580,002 13,215,172 9,049,339 8,771,637
Operating expenses 8,406,020 10,388,615 10,904,722 6,982,712 6,386,293
---------------------------------------------------------------------
Operating income 1,674,793 2,191,387 2,310,450 2,066,627 2,385,344
Interest expense 184,213 245,076 353,678 289,926 216,419
---------------------------------------------------------------------
Income before income taxes 1,490,580 1,946,311 1,956,772 1,776,701 2,168,925
Income tax expense 132,000 - - - -
---------------------------------------------------------------------
Net income $ 1,358,580 $ 1,946,311 $ 1,956,772 $ 1,776,701 $ 2,168,925
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
Intersound, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
----------------------------------------
<S> <C> <C> <C>
Balance at April 30, 1993 (AS PREVIOUSLY
REPORTED) $290,000 $4,077,358 $4,367,358
Prior period adjustments (NOTE 1) - (2,250,450) (2,250,450)
----------------------------------------
Balance at April 30, 1993 (RESTATED) 290,000 1,826,908 2,116,908
Net income for the year ended
April 30, 1994 (RESTATED) - 1,358,580 1,358,580
Distributions to stockholders - (1,414,535) (1,414,535)
----------------------------------------
Balance at April 30, 1994 (RESTATED) 290,000 1,770,953 2,060,953
Net income for the year ended
April 30, 1995 (RESTATED) - 1,946,311 1,946,311
Distributions to stockholders - (1,537,266) (1,537,266)
----------------------------------------
Balance at April 30, 1995 (RESTATED) 290,000 2,179,998 2,469,998
Net income for the year ended
April 30, 1996 (RESTATED) - 1,956,772 1,956,772
Distributions to stockholders - (1,775,131) (1,775,131)
----------------------------------------
Balance at April 30, 1996 (RESTATED) 290,000 2,361,639 2,651,639
Net income for the eight months ended
December 31, 1996 (UNAUDITED) - 2,168,925 2,168,925
Distributions to stockholders (UNAUDITED) - (1,154,372) (1,154,372)
----------------------------------------
Balance at December 31, 1996
(UNAUDITED) $290,000 $3,376,192 $3,666,192
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
Intersound, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Eight months ended
Year ended April 30 December 31
---------------------------------------------------------------
1994 1995 1996 1995 1996
---------------------------------------------------------------
(RESTATED) (RESTATED) (RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income $1,358,580 $1,946,311 $1,956,772 $1,776,701 $2,168,925
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Provision for doubtful
accounts 300,000 500,000 600,000 100,000 200,000
Charge for (recovery of)
future returns 785,000 1,200,000 (15,000) 300,000 100,000
Charge for unrecoupable
artist advances 700,233 750,000 700,000 325,000 150,000
Depreciation and
amortization 356,478 434,177 580,219 377,455 427,716
Changes in operating assets
and liabilities:
Accounts receivable (1,734,157) (415,756) (1,557,883) (2,330,639) (2,112,050)
Arts and masters (409,570) (466,856) (632,708) (413,004) (201,619)
Inventories (462,252) 77,566 153,010 (21,011) (335,019)
Artist advances (473,479) (676,287) (975,537) (278,261) (593,757)
Accounts payable 185,300 565,450 (198,864) 261,964 900,310
Accrued liabilities and
other (8,861) (27,547) (158,173) (167,271) 213,180
Royalties payable 260,210 159,209 239,581 94,595 454,909
Other (203,989) (343,748) (191,433) (384,623) (271,721)
---------------------------------------------------------------
Net cash provided by (used in)
operating activities 653,493 3,702,519 499,984 (359,094) 1,100,874
Investing activities:
Purchases of property and
equipment (294,020) (292,381) (204,324) (159,307) (36,291)
---------------------------------------------------------------
Net cash used in investing activities (294,020) (292,381) (204,324) (159,307) (36,291)
Financing activities:
Payment of note payable to
shareholders - - (60,000) (60,000) -
Net proceeds from (payment of)
revolving line of credit 1,053,709 (1,879,066) 1,549,620 1,819,211 90,247
Distributions to shareholders (1,414,535) (1,537,266) (1,775,131) (1,235,132) (1,154,372)
---------------------------------------------------------------
Net cash provided by (used in)
financing activities (360,826) (3,416,332) (285,511) 524,079 (1,064,125)
---------------------------------------------------------------
Net increase (decrease) in cash (1,353) (6,194) 10,149 5,678 458
Cash, beginning of period 13,702 12,349 6,155 6,155 16,304
---------------------------------------------------------------
Cash, end of period $ 12,349 $ 6,155 $ 16,304 $ 11,833 $ 16,762
---------------------------------------------------------------
---------------------------------------------------------------
Cash paid during the period for:
Interest $ 172,988 $ 246,254 $ 325,236 $ 257,452 $ 210,381
Income taxes 87,000 - - - -
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-7
<PAGE>
Intersound, Inc.
Notes to Financial Statements (continued)
(Information with respect to the eight-month periods
ended December 31, 1995 and 1996 is unaudited)
1. Description of Business and Basis of Presentation
Intersound, Inc. (the Company), a Minnesota corporation, is engaged in the
recording, production, marketing, and distribution of recorded music and
video programs. The Company markets its products both domestically and
internationally through retailers, distributors, and licensees.
Effective January 1, 1997, the shareholders of the Company sold substantially
all of the Company's assets to Platinum Entertainment, Inc. (Platinum) for
consideration of $24,000,000 in cash, $5,000,000 in convertible promissory
notes, and the assumption of certain Company liabilities (Sale).
Restatement of Previously Issued Financial Statements
Subsequent to April 30, 1996, the Company determined its previously issued
financial statements as of April 30, 1995 and 1996, and for the years ended
April 30, 1994, 1995, and 1996, required restatement for the matters
discussed below. These financial statements had previously been audited by
auditors other than Ernst & Young whose report thereon was dated July 24,
1996. The previously issued financial statements had overstated artist
advances through the misapplication of FASB Statement No. 50 "Financial
Reporting in the Record and Music Industry" ("FAS 50"), had not recorded
accounts receivable and inventories at their net realizable values, had
understated royalties payable by improperly matching royalty expense with
product revenues including accounting for the effects of royalty audits by an
independent agency, and overstated net revenues by not properly reflecting
the effects of product returns. Accordingly, the accompanying financial
statements for the years ended April 30, 1994, 1995, and 1996, as well as
retained earnings at April 30, 1993, have been restated to reflect
adjustments for these matters. The impact on net income for each period is
as follows:
As Reported As Restated
Year ending April 30, 1994 $3,658,732 $1,358,580
Year ending April 30, 1995 4,608,040 1,946,311
Year ending April 30, 1996 2,343,298 1,956,772
F-8
<PAGE>
Intersound, Inc.
Notes to Financial Statements (continued)
(Information with respect to the eight-month periods
ended December 31, 1995 and 1996 is unaudited)
2. Summary of Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost or market determined on the first
in, first out (FIF0) method of accounting. Inventories consist primarily of
finished goods.
Artist Advances
In accordance with FAS 50, advances to artists and producers are capitalized as
an asset when the current popularity and past performance of the artist or
producer provides a sound basis for estimating the probable future recoupment of
such advances from earnings otherwise payable to the artist or producer. Any
portion of such advances not deemed to be recoupable from future royalties is
reserved at the balance sheet date. All other significant advances which do not
meet the above criteria are fully reserved when paid.
Arts and Masters
Costs of record masters borne by the Company are capitalized as an asset and
amortized over the estimated useful life of the recorded performance.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation.
Deprecation is computed using the straight-line method over the estimated useful
lives of the assets (five to seven years).
Advertising
All advertising and promotional costs are expensed when incurred.
Revenue Recognition
Net product sales represent revenues derived from sales of records, net of
actual returns and reserves for estimated future returns. Revenues derived from
the licensing of recording masters are recognized upon notification of retail
sales by the licensee.
F-9
<PAGE>
Intersound, Inc.
Notes to Financial Statements (continued)
(Information with respect to the eight-month periods
ended December 31, 1995 and 1996 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The stockholders of the Company have elected to be taxed as an S corporation
under the provisions of the Internal Revenue Code. Accordingly, the Company is
not generally subject to income taxes as the income of the Company is included
in the taxable income of its stockholders. Therefore, the financial statements
do not include a provision for corporate federal income taxes. In addition, the
Company was taxed as an S corporation for state income tax purposes subsequent
to fiscal 1995, and as such, no state income taxes have been provided in the
fiscal 1995 or 1996 financial statements.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist of trade accounts receivable and
trade accounts payable. The fair value of the Company's financial instruments
approximates the carrying value of the instruments.
3. Revolving Line of Credit
At December 31, 1996, the Company had a revolving line of credit with a bank for
$4,500,000, bearing interest at prime plus 0.75%. Amounts available under this
facility were approximately $2,408,000 and $2,498,000 at December 31, 1996 and
April 30, 1996, respectively. The line of credit is guaranteed by the Company's
majority stockholder and is collateralized by substantially all of the Company's
assets. Concurrent with the Sale, this line of credit was paid in full.
F-10
<PAGE>
Intersound, Inc.
Notes to Financial Statements (continued)
(Information with respect to the eight-month periods
ended December 31, 1995 and 1996 is unaudited)
4. Property and Equipment
Property and equipment consists of the following:
April 30 December 31
1995 1996 1996
------------------------------------------
Office furniture and equipment $ 795,630 $ 933,348 $ 949,343
Audio equipment 188,735 249,537 266,906
Warehouse equipment 132,463 132,039 133,484
Leasehold improvements 137,875 139,547 141,029
------------------------------------------
1,254,703 1,454,471 1,490,762
Less: Accumulated depreciation 620,933 837,893 987,795
------------------------------------------
$ 633,770 $ 616,578 $ 502,967
------------------------------------------
------------------------------------------
5. Advertising
Advertising expenses are as follows:
Year ended April 30, 1994 $1,416,614
Year ended April 30, 1995 1,894,623
Year ended April 30, 1996 2,147,598
Eight months ended December 31, 1995 1,560,561
Eight months ended December 31, 1996 1,453,700
6. Notes Payable to Stockholders
The Company had unsecured demand notes due to stockholders of $60,000 at April
30, 1995. These notes payable bore interest at 2% to 2.5% above the bank's
prime rate (11% to 11.5% at April 30, 1995). During 1996, these notes were paid
in full by the Company.
7. Commitments
Future minimum rental payments, excluding adjustments for real estate tax
increases, due under noncancelable operating leases having an initial term of
more than one year as of December 31, 1996, are as follows:
1997 $345,025
1998 12,668
1999 3,180
F-11
<PAGE>
Intersound, Inc.
Notes to Financial Statements (continued)
(Information with respect to the eight-month periods
ended December 31, 1995 and 1996 is unaudited)
7. Commitments (continued)
Rent expense under operating leases totaled approximately $279,000, $360,000,
$386,000, $292,000, and $283,000 in years ended April 30, 1994, 1995, and 1996,
and the eight months ended December 31, 1995 and 1996, respectively.
8. Stockholders' Agreement
The Company and its stockholders have entered into an agreement that provides,
among other items, that in the event any stockholder tenders any shares for
sale, the Company and its remaining stockholders will have certain preemptive
rights to purchase such stock.
Also, the Company may be required to purchase shares upon the death of a
stockholder. The agreement also specifies the terms of payment for shares sold
under the provisions of the agreement.
9. Significant Customers
The Company had three customers comprising 28%, 26%, 28%, 27%, and 30% of net
sales for the years ended April 30, 1994, 1995, and 1996, and the eight-months
ended December 31, 1995 and 1996, respectively.
The following number of significant customers represented the following
percentages of net accounts receivable:
April 30, 1995 1 11%
April 30, 1996 1 10%
December 31, 1996 2 27%
10. Litigation
The Company is a party in various lawsuits which have arisen in the normal
course of business. In the opinion of management, based on advice of counsel,
the ultimate outcome of these lawsuits will not have a material impact on the
Company's financial statements.
F-12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements of the
Company present the Unaudited Pro Forma Consolidated Statements of Operations
for the fiscal year ended May 31, 1996 and the nine months ended February 28,
1997. The Unaudited Pro Forma Consolidated Statements of Operations for the
fiscal year ended May 31, 1996 and the nine months ended February 28, 1997 (i)
give pro forma effect to the acquisition of Intersound, Inc. ("Intersound" or
the "Acquisition") as if such transaction had occurred on June 1, 1995; (ii)
reflect the debt borrowed to finance the Acquisition; (iii) reflect an
adjustment to conform the artist project activity of Intersound to the revenue
recognition policy of the Company and (iv) reflect an adjustment to eliminate
the transactions between the two companies. In addition, the Unaudited Pro
Forma Consolidated Statements of Operations for the fiscal year ended May 31,
1996 reflect the elimination of interest expense incurred by the Company on its
outstanding debt and the elimination of preferred dividends accrued on the
Series A-1 Non-Convertible Preferred Stock during that period (of which both the
outstanding debt and Series A-1 Non-Convertible Preferred Stock were retired
with the net proceeds from the initial public offering of the Company's Common
Stock on March 12, 1996) as if such retirements had occurred on June 1, 1995.
The Unaudited Pro Forma Consolidated Balance Sheet at February 28, 1997 is
herein incorporated by reference to the Company's Report on Form 10-Q filed
with the Securities and Exchange Commission (the "SEC"), on April 14, 1997 as
the Company's actual consolidated balance sheet at February 28, 1997 reflects
the Acquisition.
The unaudited pro forma consolidated financial statements presented herein
are based on the assumptions and adjustments described in the accompanying
notes. The Unaudited Pro Forma Consolidated Statements of Operations do not
purport to represent what the Company's results of operations would have been if
the events described above had occurred as of the dates indicated or what such
results will be for any future periods. The Unaudited Pro Forma Consolidated
Financial Statements are based upon assumptions and adjustments that the Company
believes are reasonable. The Unaudited Pro Forma Consolidated Financial
Statements and the accompanying notes should be read in conjunction with (i) the
historical financial statements of the Company, including the notes thereto,
which are included in its Annual Report on Form 10-K filed with the SEC on
August 28, 1996 and its Report on Form 10-Q filed with the SEC on April 14, 1997
and (ii) the historical financial statements of Intersound, including the notes
thereto, which are included elsewhere in this Form 8-K/A.
P-1
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended May 31, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Offering As Adjusted
Platinum Pro Forma Platinum Pro Forma Platinum
Entertainment Intersound(a) Adjustments(1) Entertainment Adjustments(i) Entertainment
------------- ------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gross product sales $ 17,610 $ 30,753 $ 711 (c) $ 49,074 $ - $ 49,074
Less: Returns and allowances (4,732) (7,212) - (11,944) - (11,944)
Less: Discounts - (1,674) (711) (c) (2,385) - (2,385)
-------------------------------------------- ----------------------------------------------
Net product sales 12,878 21,867 - 34,745 - 34,745
Cost of product sales 8,107 9,029 - 17,136 - 17,136
-------------------------------------------- ----------------------------------------------
4,771 12,838 - 17,609 - 17,609
Gross artist project revenues 5,367 - 1,530 (d) 6,897 - 6,897
Less: Allowance for unrecoupable
artist advances (2,506) - (700) (d) (3,206) - (3,206)
-------------------------------------------- ----------------------------------------------
Net artist project revenues 2,861 - 830 3,691 - 3,691
Licensing, publishing and other
revenues 1,799 629 293 2,721 - 2,721
-------------------------------------------- ----------------------------------------------
Net artist project and other
revenues 4,660 629 1,123 6,412 - 6,412
Cost of artist project and other
revenues 5,195 252 1,668 (d) 7,115 - 7,115
-------------------------------------------- ----------------------------------------------
(535) 377 (545) (703) - (703)
Gross profit 4,236 13,215 (545) 16,906 - 16,906
Other operating expenses:
Selling, general and administrative
expenses 8,017 10,324 (698) (d) 17,643 - 17,643
Depreciation and amortization 156 580 1,035 (e) 1,771 - 1,771
-------------------------------------------- ----------------------------------------------
8,173 10,904 337 19,414 - 19,414
-------------------------------------------- ----------------------------------------------
Operating income (loss) (3,937) 2,311 (882) (2,508) - (2,508)
Interest income 106 - - 106 - 106
Interest expense (570) (354) (3,646) (f) (4,570) 570 (4,000)
Financing costs - - (3,190) (g) (3,190) - (3,190)
-------------------------------------------- ----------------------------------------------
Income (loss) from continuing
operations before taxes (4,401) 1,957 (7,718) (10,162) 570 (9,592)
Income tax (expense) benefit - - - - - -
-------------------------------------------- ----------------------------------------------
Net income (loss) from continuing
operations (4,401) $ 1,957 (7,718) $ (10,162) 570 (9,592)
----------- ------------
----------- ------------
Discontinued operations:
Loss from operations - - - -
Estimated loss on disposal (226) 226 (h) - -
-------------- -------------- ------------------------------
Loss from discontinued operations (226) 226 - -
-------------- -------------- ------------------------------
Net loss (4,627) (7,492) 570 (9,592)
Less: Cumulative preferred
dividends (602) - 602 602
-------------- -------------- ------------------------------
Income (loss) from continuing
operations applicable to common
shares $ (5,229) $ (7,492) $ 1,172 $ (8,990)
-------------- -------------- ------------------------------
-------------- -------------- ------------------------------
Net loss per common share:
Continuing operations $ (1.71) $ (3.07)
Discontinued operations (0.08) -
-------------- -------------
$ (1.79) $ (3.07)
-------------- -------------
-------------- -------------
Weighted average number of common
shares outstanding (j) 2,925,987 2,925,987
</TABLE>
P-2
<PAGE>
(a) The statement of operations data for Intersound for the fiscal year ended
May 31, 1996 represents the results of operations from May 1, 1995 to April
30, 1996. The Acquisition has been accounted for as a purchase; the
Company's purchase price allocation is preliminary pending the valuation of
certain intangible assets. See financial statements of Intersound
elsewhere in this report.
(b) The pro forma adjustments include the activities of Red Rewmar Music, Inc.,
Rappel Music, Inc. and Spec Twelve Music, Inc. (collectively, the
"Publishing Companies") for the year ended June 30, 1996 that were
acquired simultaneously with the Acquisition and not reflected in the
Intersound amounts above. Such adjustments increased licensing, publishing
and other revenues, cost of artist project and other revenues, and selling,
general and administrative expenses by $293,000, $138,000 and $2,000,
respectively.
(c) The gross product sales of the Company have been reclassified from the
Audited Consolidated Financial Statements of the Company for the fiscal
year ended May 31, 1996 to reflect sales discounts offered.
(d) The adjustments to gross artist project revenues, allowance for
unrecoupable artist advances, cost of artist project and other revenues,
and selling, general and administrative expenses reflects artist project
activity from May 1, 1995 to April 30, 1996 as if Intersound had conformed
to the accounting policies of the Company during such period. The Company
recognizes revenues and the related costs derived from the production and
promotion of artist records at the time incurred, net of reserves for
estimated unrecoupable costs.
(e) The adjustment to depreciation and amortization consists of (1) an
increase in amortization of excess cost over net assets acquired of
Intersound over a 25-year period, as if Intersound was acquired on June 1,
1995 ($955,000) and (2) an increase in amortization of music publishing
rights acquired from Intersound over a 25-year period, as if the music
publishing rights were acquired on June 1, 1995 ($80,000).
(f) The adjustment to interest expense reflects additional interest expense
that would have been incurredhad the consideration in the form of debt
related to the Acquisition been incurred on June 1, 1995 ($4,000,000).
The interest expense related to additional debt incurred by the Company
in connection with the Acquisition is based on bank borrowings of
$30,000,000 with an assumed interest rate of 12.00% per annum and
convertible debentures of $5,000,000 with an assumed interest rate of
8.00%. In addition, the interest expense actually incurred by Intersound
($345,000) has been eliminated as the related debt was paid in full upon
the closing of the Acquisition.
(g) The adjustment to financing costs reflect (1) the straight-line
amortization, over a 90-day period, of financing costs related to bank
borrowings used in consideration for the Acquisition ($1,950,000) and (2)
the straight-line amortization, over a 90-day period, of the debt discount
related to warrants of common stock issued at time of financing (258,571.95
warrants for $0.01 per share, closing market price on day of closing of the
Acquisition = $8.00/share, assumes a 40% discount due to restricted nature
of stock for $1,240,000), as if such financing had occurred on June 1,
1995.
(h) The adjustment to estimated loss on disposal assumes the Company's
discontinued operations were fully disposed as of June 1, 1995.
P-3
<PAGE>
(i) The adjustment to interest expense reflects the elimination of interest
expense incurred by the Company on its then outstanding debt, which was
retired with the net proceeds from an initial public offering of the
Company's common stock on March 12, 1996, as if such retirement had
occurred on June 1, 1995 (the "Public Offering"). The adjustment to
cumulative preferred dividends reflects the elimination of preferred
dividends on the Series A-1 Non-Convertible Preferred Stock that was
retired with the net proceeds from the public offering.
(j) The weighted average number of common shares outstanding includes common
and common equivalent shares issued during the 12-month period prior to the
Public Offering as if they were outstanding for the fiscal year ended May
31, 1996 using the treasury stock method and the public offering price of
$13 per share. In addition, all convertible preferred stock and
convertible Class A common stock and Class B common stock are treated as if
converted into common shares at the date of issuance.
P-4
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended February 28, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Platinum Pro Forma
Entertainment Intersound(a) Adjustments(b) Pro Forma
------------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Gross product sales $ 22,422 $ 18,361 $ (425) (c) $ 40,358
Less: Returns and allowances (4,080) (4,246) - (8,326)
Less: Discounts (1,727) (1,196) - (2,923)
------------------------------------------------ ----------
Net product sales 16,615 12,919 (425) 29,109
Cost of product sales 9,272 5,019 (227) (c) 14,064
------------------------------------------------ ----------
7,343 7,900 (198) 15,045
Gross artist project revenues 2,678 - 959 (d) 3,637
Less: Allowance for unrecoupable
artist advances (465) - (150) (d) (615)
------------------------------------------------ ----------
Net artist project revenues 2,213 - 809 3,022
Licensing, publishing and other revenues 754 277 11 (c) 1,042
------------------------------------------------ ----------
Net artist project and other revenues 2,967 277 820 4,064
Cost of artist project and other revenues 2,585 111 1,000 (d) 3,696
------------------------------------------------ ----------
382 166 (180) 368
Gross profit 7,725 8,066 (378) 15,413
Other operating expenses:
Selling, general and administrative expenses 8,160 5,388 (148) (d) 13,400
Merger and restructuring costs 612 - (612) (e) -
Depreciation and amortization 481 371 776 (f) 1,628
------------------------------------------------ ----------
9,253 5,759 16 15,028
------------------------------------------------ ----------
Operating income (loss) (1,528) 2,307 (394) 385
Interest income 138 - - 138
Interest expense (308) (194) (2,498) (g) (3,000)
Financing costs (865) - 865 (h) -
Equity loss (1) - - (1)
------------------------------------------------ ----------
Income (loss) from continuing
operations before taxes (2,564) 2,113 (2,027) (2,478)
Income tax (expense) benefit - - - -
------------------------------------------------ ----------
Net income (loss) $ (2,564) $ 2,113 $ (2,027) $ (2,478)
------------------------------------------------ ----------
------------------------------------------------ ----------
Net loss per common share from
continuing operations $ (0.50) $ (0.48)
-------------- ----------
-------------- ----------
Weighted average number of common
shares outstanding 5,125,124 5,125,124
</TABLE>
P-5
<PAGE>
(a) The statement of operations data for Intersound for the nine months ended
February 28, 1997 represents the results of operations from June 1, 1996 to
December 31, 1996. The operations of Intersound for the months of January
and February 1997 are reflected in the operations of the Company. The
Acquisition has been accounted for as a purchase; the Company's purchase
price allocation is preliminary pending the valuation of certain intangible
assets. See financial statements of Intersound elsewhere in this report.
(b) The pro forma adjustments include the activities of the Publishing
Companies for the six month period ended December 31, 1996 that were
acquired simultaneously with the Acquisition and not reflected in the
Intersound amounts above. Such adjustments increased licensing, publishing
and other revenues, cost of artist project and other revenues, and selling,
general and administrative expenses by $61,000, $41,000 and $2,000,
respectively.
(c) To eliminate transactions between the Company and Intersound during the
nine months ended February 28, 1997 completed prior to the Acquisition.
(d) The adjustments to gross artist project revenues, allowance for
unrecoupable artist advances, cost of artist project and other revenues,
and selling, general and administrative expenses reflects artist project
activity from June 1, 1996 to December 31, 1996 as if Intersound had
conformed to the accounting policies of the Company during such period.
The Company recognizes revenues and the related costs derived from the
production and promotion of artist records at the time incurred, net of
reserves for estimated unrecoupable costs.
(e) Merger and restructuring costs represent nonrecurring charges resulting
directly from the Acquisition and have been removed for purposes of
determining pro forma net loss from continuing operations.
(f) The adjustment to depreciation and amortization consists of (1) an
increase in amortization of excess cost over net assets acquired of
Intersound over a 25-year period, as if Intersound was acquired on June 1,
1995 ($716,250) and (2) an increase in amortization of music publishing
rights acquired from Intersound over a 25-year period, as if the music
publishing rights were acquired on June 1, 1995 ($60,000).
(g) The adjustment to interest expense reflects additional interest expense
that would have been incurred had the consideration in the form of debt
related to the Acquisition been incurred on June 1, 1995 ($3,000,000). The
interest expense related to additional debt incurred by the Company in
connection with the Acquisition is based on bank borrowings of $30,000,000
with an assumed interest rate of 12.00% per annum and convertible
debentures of $5,000,000 with an assumed interest rate of 8.00%. In
addition, the interest expense actually incurred by the Company and
Intersound ($502,000) has been eliminated as the related debt was paid in
full upon the closing of the Acquisition.
(h) The adjustment to eliminate financing costs reflects the impact as if the
purchase and related financing of Intersound had occurred on June 1, 1995
and such costs were fully realized prior to the above period.
P-6
