(COMTEX) Management's Discussions: 10KSB, PLANET ENTERTAINMENT CORP 2
Management's Discussions: 10KSB, PLANET ENTERTAINMENT CORP 2 of 2
At present, all of the Company's products are sold through
distributors. The Company's strategy is to produce digitally enhanced
and re-arranged master recordings, from its existing catalogue, and
from its catalogue of new artists, and to enter into joint ventures
with other parties under which such other parties would license, mass
produce and market these products through traditional retail
distribution channels, in exchange for royalties. To date, the Company
has entered into one license agreement (the "NCL License Agreement"),
with Nippon Columbia Co. Ltd. ("NCL"), pursuant to which the Company
granted the exclusive rights to NCL and Denon Corporation, USA, a
wholly-owned subsidiary of NCL, to press, duplicate, distribute, sell
and market music CDs and video rights in various regions of Asia. In
addition, the Company is actively engaged in negotiations with other
persons for similar license arrangements. No assurances can be given,
however, that the NCL License Agreement will produce any material
revenues to the Company, or that the Company in the future will be able
to enter into any other similar arrangements. In May 1998 the Company
entered into a joint venture agreement with New Millennium
Communications concerning the licensing and distribution of the
Company's products in Europe and in February 1999 the Company entered
into a joint venture
with Shandel Music Company, a South African limited liability
company concerning the distribution of products in Africa, Australia,
New Zealand and Israel. No assurances can be given that any revenues or
income will be generated as a result of such arrangements.
The Company intends to continue to develop the distribution of its
products through traditional and non-traditional distribution channels
including promotional and premium licensing, specialty marketing, and
through the use of the Internet. As previously discussed in "Corporate
Strategy," the websites of the Company and NEOS should be operational
by the first half of calendar year 2000 and December 1999,
respectively.
In September 1998, the Company acquired all of the issued and
outstanding capital stock of NEOS. NEOS was formed in 1983 by Louis J.
DelSignore, who, prior to the Company's acquisition of NEOS in
September 1998, was its sole shareholder. NEOS is principally engaged
in the wholesale distribution of pre-recorded music which NEOS
purchases from certain major record companies and other distributors.
Approximately $28,346,000 (67%) percent of NEOS's net sales are derived
from its "one-stop" division, and approximately $13,873,000 (33%)
percent of its net sales are derived from its "rack-job" division.
However, NEOS lost its primary rack-job division customer, Meijer,
which stopped ordering products from the Company in January 1999.
Although the Company believes the loss of Meijer as a customer may have
a material adverse effect on the Company's future results of
operations, the Company believes that increased sales from its one-stop
division may partially offset the loss of Meijer as a customer. There
can be no assurance that the Company will be able to either replace or
offset sales losses from Meijer. Through its "one-stop" division, NEOS
offers and sells approximately 130,000 front end titles or SKUs of
popular recorded music to approximately 1,000 customers, many of which
are independent music stores or retailers. Through its "rack-job"
division, Summit Entertainment, NEOS offers for sale approximately 130,
000 front end titles of popular recorded music through racks or kiosks
located in certain mass merchandise retailers and fifty college
campuses nationwide.
DEVELOPMENT OF BUSINESS.
In July 1996 the Company acquired from Maestro title to 5,000
master recordings, publishing rights to over 300 songs, and all
equipment and fixtures contained in a twenty-four track studio located
in Jackson, New Jersey.
In September 1996, the Company entered into a production and
distribution agreement with Multi-Media Industries Corporation
("MMIC"), under the label Century Records, concerning the production
and distribution of enhanced multi-media CDs, playable on computers
with compact diskette drives. In accordance with the terms of the
agreement, since September 1996 the Company has produced ten
compilation CDs, including six visually enhanced CDs, and through Koch
International Corporation, the Company has shipped approximately 35,000
units. One of the Company's executive officers and directors, Joseph
Venneri, is a shareholder of MMIC and, Richard Bluestine, the Company's
Chief Financial Officer and a former director of the Company, is a
shareholder of MMIC and, from June 1995 through May 1997, was an
officer and director of MMIC. In 1997, the
Company recorded approximately $204,362 in revenues from MMIC, of
which amount $180,615 remains uncollected as of August 1999. (See "Item
12. Certain Relationships and Related Transactions.")
On October 9, 1996, all the outstanding capital stock of the Company
was acquired by Ampro. In connection with this transaction, each share
of Planet common stock issued and outstanding was exchanged for one
share of Ampro, with Ampro as the surviving corporation, which changed
its name to Planet Entertainment Corporation.
Pursuant to a September 1996 agreement and subsequent amendments, the
Company acquired unencumbered title to 10,000 master recordings from
Music Marketeers and J. Jake in exchange for 1,500,000 shares of the
Company's common stock and the assumption of three promissory notes
totaling $1,250,000 payable over five (5) years (the "Promissory
Notes"). In 1997, Music Marketeers' rights and obligations under this
agreement with the Company were assigned to Gulf Coast. It was
subsequently agreed that J. Jake and Gulf Coast would return to the
Company an aggregate of 1,400,000 shares of the Company's Common Stock
and forgive the outstanding principal on the $1,250,000 Promissory
Notes together with accrued interest in exchange for approximately $175,
000 in cash and short term notes totaling approximately $2,850,000 (the
"Gulf Coast Note"). The Company failed to pay the remaining balance on
the Gulf Coast Note ($2,550,000) by December 15, 1998 and, according to
the terms of the agreement, the Company lost its right to acquire 694,
000 of the 1,400,000 shares, and is bound by the original terms of the
Promissory Notes under which there remains outstanding $500,000 in
principal, with interest and principal due and payable over the next
two (2) years. Pursuant to an agreement dated August 26, 1999 between
the Company and Gulf Coast, the Company will remove the restrictive
legend on the 694,000 shares and the net proceeds to Gulf Coast from
sale of such shares of stock will reduce the remaining balance on the
Promissory Notes. In addition, if the sum of any payments made by the
Company on the Promissory Notes plus the net proceeds from the sale of
such shares aggregates $1,800,000 on or before June 1, 2000, then the
Promissory Notes will be deemed paid in full and any remaining shares
held by Gulf Coast will be returned to the Company.
In March 1997, the Company acquired all the issued and outstanding
capital stock of Al Alberts On Stage, Ltd. in exchange for 100,000
shares of the Company's common stock valued at $214,000, under the
"purchase" method of accounting. The assets of Al Alberts On Stage,
Ltd. consisted primarily of furniture, fixtures and equipment contained
in a forty-eight track studio located in Chester, Pennsylvania. The
Company also entered into a lease with the former shareholders of Al
Alberts On Stage, Ltd. to lease a 13,400 square foot building together
with improvements in Chester, Pennsylvania where the Company's studio
is located.
On April 22, 1997, the Company entered into a non-exclusive licensing
agreement with Sun Entertainment Corporation of Nashville, Tennessee
pursuant to which the Company obtained non-exclusive rights to 7,500
master recordings, including "Whole Lotta Shakin Going On" by Jerry Lee
Lewis, "I Walk The Line" by Johnny Cash, "Blue Suede Shoes" by Carl
Perkins, "Chapel of Love" by the Dixie Cups, "The Boy From New York
City" by the Ad Libs, and "Harper Valley PTA" by Jeannie C. Riley, in
consideration for advance payments against future royalties that will
accrue on all tapes and CDs that are sold by the Company. It is unknown
to the Company if any other entity or entities have been
granted non-exclusive rights to these recordings, and upon what
terms, if any, such non-exclusive rights might be available. To date,
the Company has not attempted to exploit these master recordings, has
not received any royalties, has not recognized any revenue as a result
of this agreement, and is unable to predict if and when the Company
will earn revenue as a result of this agreement.
In July 1997, the Company entered into a joint venture agreement with
MMIC regarding the production of 20 compilation CDs per year by the
Company. According to the terms of the agreement, all net income from
the production, development and distribution of the releases are to be
divided equally on a 50%-50% basis between the Company and MMIC. No
revenues have been earned under this agreement. One of the Company's
executive officers and directors, Joseph Venneri, is a shareholder of
MMIC, and Richard Bluestine, the Company's Chief Financial Officer and
the former Chief Financial Officer and a director of MMIC, is a
shareholder of MMIC and, from June 1995 through May 1997, was an
officer and director of MMIC.
In May 1998, the Company authorized and issued 500 shares of 7%
Series A Convertible Preferred Stock (the "Preferred Stock") to JNC
Opportunity Fund Ltd. ("JNC") at a stated value of $10,000 per share
for a total of $5,000,000. Each share of the Preferred Stock initially
was convertible into the Company's Common Stock at the lesser of (a)
$8.885 per share (the "Initial Conversion Price"), or (b) seventy-eight
(78%) percent (the "Discount Rate") multiplied by the average of the
five lowest per share market prices of the Company's common stock
during ten trading days immediately preceding the notice of conversion.
Because the Company did not satisfy certain express obligations to JNC
set forth in the Company's Amended and Restated Articles of
Incorporation governing the Preferred Stock (the "Terms"), the Discount
Rate was reduced from its initial rate to fifty-eight (58%) percent. In
connection with this transaction, the Company agreed to indemnify JNC
against certain liabilities and damages, and issued warrants (the
"Warrants") to purchase 75,000 shares of the Company's Common Stock to
JNC at a price of $9.625 per share exercisable over a term of five (5)
years, and the Company also issued warrants to purchase 150,000 shares
of the Company's Common Stock to CDC Consulting, Inc. ("CDC"). As a
result of this transaction, the Company received net proceeds of
approximately $4,475,000. JNC received certain registration rights with
respect to the Common Stock underlying its Preferred Stock and Warrants
and CDC received certain registration rights with respect to the Common
Stock underlying its Warrants. The Company filed a registration
statement on Form SB-2 covering an aggregate of 2,750,000 shares of
Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants. To date JNC has converted 35 shares of
Preferred Stock into 171,748 shares of Common Stock, resulting in JNC
owning as of the date hereof 465 shares of Preferred Stock.
Pursuant to the Terms, JNC is prohibited from converting the
Preferred Stock (or receiving shares of Common Stock as payment of
dividends thereunder), to the extent that such conversion would result
in JNC owning more than 4.999% of the outstanding Common Stock of the
Company following such conversion. Such restriction is waivable by JNC
upon not less than seventy-five (75) days' notice to the Company.
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