<PAGE>

                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                                      FORM 10-Q

                 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the quarterly period ended June 30, 1998

                                          OR

                (  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from  _______ to _______

                           Commission File Number 000-27852

                             PLATINUM ENTERTAINMENT, INC.
                (Exact name of registrant as specified in its charter)

                            Delaware                       36-3802328
               (State or other jurisdiction of         (I.R.S. Employer
               incorporation or organization)          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)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
                            ---               ---


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

       6,040,166  Common Stock, par value $.001 per share, at August 14, 1998

<PAGE>

                            PLATINUM ENTERTAINMENT, INC.
                                     FORM 10-Q
                    FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                     Page
                                                                                     ----

                            Part I - FINANCIAL INFORMATION
<S>                                                                                  <C>
Item 1.   Consolidated Balance Sheets June 30, 1998 (Unaudited) and
          December 31, 1997                                                            3

          Consolidated Statements of Operations for the three and six months
          ended June 30, 1998 and 1997 (Unaudited)                                     5

          Consolidated Statements of Cash Flows for the six months ended June
          30, 1998 and 1997 (Unaudited)                                                6

          Notes to Unaudited Consolidated Financial Statements                         7

Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                                        9


                            Part II - OTHER INFORMATION

Item 1.   Legal Proceedings                                                           16

Item 2.   Changes in Securities and Use of Proceeds                                   17

Item 6.   Exhibits and Reports on Form 8-K                                            17

Signatures                                                                            18

Exhibits
</TABLE>

                                          2
<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS.

PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                         JUNE 30     DECEMBER 31
                                                           1998          1997
                                                         (UNAUDITED)
<S>                                                      <C>         <C>
ASSETS
 Current assets:
   Cash                                                    $   277     $    11
   Accounts receivable, less allowances of
     $3,375 and $3,912, respectively                        15,667      15,147
   Artist advances                                           3,115       2,510
   Inventories, less allowances of $512
     and $590, respectively                                  5,722       4,997
   Due from related parties                                  1,350           -
   Other                                                     1,326         948
                                                          --------------------
 Total current assets                                       27,457      23,613

 Artist advances, net of current amounts, less
   allowances of $14,289 and $12,936, respectively             921           -
 Equipment and leasehold improvements, net                   1,623       1,079
 Music catalog, less accumulated amortization of
   $1,176 and $784, respectively                            18,428      18,820
 Music publishing rights, less accumulated amortization
   of $397 and $308, respectively                            3,580       3,519
 Goodwill, less accumulated amortization of $366
   and $244, respectively                                    5,732       5,854
 Equity investment in joint venture                          2,439       2,468
 Deferred financing fees, net                                  528         631
 Other                                                       1,898       1,473
                                                          --------------------
 Total assets                                              $62,606    $ 57,457
                                                          --------------------
                                                          --------------------
</TABLE>

                   See accompanying notes to financial statements.

                                          3
<PAGE>

PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                         JUNE 30     DECEMBER 31
                                                           1998          1997
                                                       (UNAUDITED)
<S>                                                    <C>           <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Revolving line of credit                             $28,907       $ 20,800
     Accounts payable                                       4,323          4,256
     Accrued liabilities and other                          2,262          3,423
     Reserve for future returns                             3,600          6,301
     Royalties payable                                      6,722          5,302
                                                          ----------------------
Total current liabilities                                  45,814         40,082

Convertible subordinated debentures                           -            5,000
                                                          ----------------------
Total liabilities                                          45,814         45,082

Stockholders' equity:
Preferred Stock:
  Preferred Stock ($.001 par value); 10,000,000 shares
    authorized, no shares issued and outstanding                -              -
  Series B Convertible Preferred Stock ($.001 par value);
    20,000 shares authorized, issued and outstanding            -              -
  Series C Convertible Preferred Stock ($.001 par value);
    2,500 shares authorized, issued and outstanding             -              -
Common Stock:
  Common Stock ($.001 par value); 40,000,000 shares
    authorized, 5,987,111 and 5,275,040 shares issued
    and outstanding, respectively                               6              5
Additional paid-in capital                                 65,860         58,216
Accumulated deficit                                       (49,074)       (45,846)
                                                          ----------------------
Stockholders' equity                                       16,792         12,375
                                                          ----------------------
Total liabilities and stockholders' equity               $ 62,606       $ 57,457
                                                          ----------------------
                                                          ----------------------
</TABLE>



                   See accompanying notes to financial statements.

                                          4
<PAGE>

PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                           QUARTER ENDED JUNE 30        SIX MONTHS ENDED JUNE 30
                                                           ---------------------        -----------------------
                                                            1998           1997           1998           1997
                                                                (UNAUDITED)                   (UNAUDITED)
<S>                                                       <C>            <C>            <C>            <C>
Gross product sales                                       $12,942        $14,947        $26,607        $27,974
Less: Returns and allowances                               (3,727)        (4,865)        (7,229)        (9,169)
Less: Discounts                                              (603)          (814)        (1,208)        (1,262)
                                                        ------------------------      ------------------------
Net product sales                                           8,612          9,268         18,170         17,543
Licensing, publishing and other revenues                      976            638          1,326            974
                                                        ------------------------      ------------------------
Net sales                                                   9,588          9,906         19,496         18,517
Cost of sales and services                                  5,436          5,235         10,963          9,162
                                                        ------------------------      ------------------------
Gross profit                                                4,152          4,671          8,533          9,355
Other operating expenses:
     Selling, general and administrative                    4,820          4,462          8,440          8,749
     Merger, restructuring and one-time costs                 -            1,336            -            2,259
     Depreciation and amortization                            410            487            906            927
                                                        ------------------------      ------------------------
                                                            5,230          6,285          9,346         11,935
                                                        ------------------------      ------------------------
Operating loss                                             (1,078)        (1,614)          (813)        (2,580)
Interest income                                                22             22             41             25
Interest expense                                             (695)        (1,136)        (1,263)        (1,735)
Other financing costs                                         275         (1,903)           205         (3,633)
Equity gain (loss)                                           (199)            50            (28)            49
                                                        ------------------------      ------------------------
Net loss                                                   (1,675)        (4,581)        (1,858)        (7,874)
Less: Preferred dividend requirement                         (695)           -           (1,370)           -
                                                        ------------------------      ------------------------
Loss applicable to common shares                          $(2,370)       $(4,581)     $  (3,228)     $  (7,874)
                                                        ------------------------      ------------------------
                                                        ------------------------      ------------------------
Basic and diluted loss per common share                    $(0.44)       $ (0.89)       $ (0.60)       $ (1.52)
Weighted average number of common shares outstanding    5,401,138      5,171,439      5,338,437      5,171,439
</TABLE>



                   See accompanying notes to financial statements.

                                          5
<PAGE>

PLATINUM ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                           SIX MONTHS ENDED JUNE 30
                                                           ------------------------
                                                             1998           1997
                                                                 (UNAUDITED)
<S>                                                       <C>            <C>
OPERATING ACTIVITIES
Net loss                                                  $(1,858)       $(7,874)
Adjustments to reconcile net loss to net cash used in
   operating activities:
     Charge to provision for future returns                 1,586            100
     Charge to provision for doubtful accounts                -              250
     Charge to provision for unrecoupable artist balances   1,303          1,410
     Depreciation and amortization                            906            927
     Deferred financing cost amortization                     126            -
     Loan discount amortization                               -            1,240
     Equity (gain) loss from joint venture                     28            (49)
Changes in operating assets and liabilities:
     Accounts receivable                                     (520)          (981)
     Inventories                                             (725)          (647)
     Notes receivable                                         -              123
     Artist advances                                       (2,879)           193
     Accounts payable                                          67           (223)
     Accrued liabilities and other                         (1,161)            76
     Reserve for future returns                            (4,287)          (593)
     Royalties payable                                      1,420           (788)
     Other                                                   (889)           460
                                                          ----------------------
Net cash used in operating activities                      (6,883)        (6,376)

INVESTING ACTIVITIES
Cash in escrow                                                -           (1,750)
Cash paid for acquisition                                    (150)       (26,583)
Purchases of equipment and leasehold improvements            (733)          (142)
                                                          ----------------------
Net cash used in investing activities                        (883)       (28,475)

FINANCING ACTIVITIES
Net proceeds from revolving line of credit                  9,107         10,000
Payment of bank term loan                                  (1,000)           -
Proceeds from bank debt                                       -           25,000
Related party borrowings                                      -              300
Related party payments                                        -             (300)
Other                                                         (75)           -
                                                          ----------------------
Net cash provided by financing activities                   8,032         35,000
                                                          ----------------------
Net increase in cash                                          266            149
Cash, beginning of period                                      11             18
                                                          ----------------------
Cash, end of period                                       $   277        $   167
                                                          ----------------------
                                                          ----------------------
</TABLE>



                   See accompanying notes to financial statements.

                                          6
<PAGE>


PLATINUM ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


1.   BASIS OF PRESENTATION

     The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission ("Commission")
regulations.  In the opinion of management, the financial statements reflect all
adjustments (of a normal and recurring nature) which are necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods presented.  These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the seven months ended December 31, 1997 of Platinum Entertainment, Inc.
("Company") included in the Transition Report on Form 10-K/A filed with the
Commission on August 14, 1998.  The interim results presented are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.

2.   BASIC AND DILUTED LOSS PER COMMON SHARE

     Basic loss per common share is based upon the net loss applicable to common
shares after preferred dividend requirements and upon the weighted average of
common shares outstanding during the period.  Diluted loss per common share
adjusts for the effect of convertible securities, stock options and warrants
only in the periods presented in which such effect would have been dilutive.
Such effect was not dilutive in any of the periods presented herein.

3.   DEBT

     On December 12, 1997, the Company entered a Credit Agreement with Bank of
Montreal, under which Harris Trust and Savings Bank was appointed the exclusive
lender effective March 31, 1998. ("Original Credit Facility").  The Original
Credit Facility included a $20,000 three year term loan, due in quarterly
installments of $1,000 beginning June 1, 1998 and bearing interest at the bank's
base rate plus 1/2 of 1.0% per annum, plus a three year $10,000 available
revolving credit facility bearing interest at the bank's base rate plus 1.0% per
annum.  At June 30, 1998, the Company had drawn $9,907 against the available
line of credit.

     On July 31, 1998, the Company replaced the Original Credit Facility with a
$35,000 revolving line of credit from First Source Financial, Inc.  ("New Credit
Facility").  The New Credit Facility has a five year term, bears interest at the
bank's base rate plus 0.75% per annum and includes a LIBOR option of LIBOR +
2.75%.  Borrowings under the New Credit Facility are limited to the Borrowing
Base, as defined, which is based upon eligible accounts receivable, inventory
and music catalog.  The New Credit Facility contains certain financial
covenants, requires a lockbox arrangement and is secured by substantially all of
the Company's assets.  The effects of this refinancing have been reflected in
the balance sheet at June 30, 1998.

4.   CONVERTIBLE SUBORDINATED DEBENTURES

     On June 8, 1998, the Convertible Subordinated Debentures, $3,125 and
$1,875, totaling $5,000, issued by the Company to JCSHO, Inc. in connection with
the Company's acquisition of certain assets and the assumption of certain
liabilities of Intersound, Inc. during January 1997 ("Intersound" or "Intersound
Acquisition"), were converted to shares of Common Stock of the Company at a
conversion price of $9.80 per share.  At the time of issuance, the Debenture in
the amount of $1,875 was placed in escrow pursuant to the terms of an Indemnity
Escrow Agreement dated January 31, 1997.  The 191,326 shares of Common Stock
resulting from the conversion of the Debenture in the amount of $1,875 remain in
escrow.  The 318,877 shares of


                                          7
<PAGE>

PLATINUM ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


Common Stock resulting from the conversion of the Debenture in the amount of
$3,125 are subject to a motion by the Company in pending litigation between the
Company and JCSHO, Inc.  See "Part II - Other Information - Item 1. - Legal
Proceedings."

5.   PREFERRED DIVIDEND REQUIREMENT

     On February 28, 1998, the Series B Convertible Preferred Stock accrued a
dividend of $600 and the Series C Convertible Preferred Stock accrued a dividend
of $75.  On May 31, 1998, the Series B Convertible Preferred Stock accrued a
dividend of $618 and the Series C Convertible Preferred Stock accrued a dividend
of $77.  The dividends reflect a compounding per annum rate of 12.0% of the
initial costs of the Stocks.

6.   COMMON STOCK

     On June 29, 1998, the Company issued 100,000 shares of its Common Stock 
to Geoffrey Holmes, an employee of the Company, and 100,000 shares of its 
Common Stock to Maroley Media Group LLC at a price of $6.75 per share, which 
price was equal to the closing price of the Common Stock as reported by the 
Nasdaq National Market on the date of sale.  An aggregate of $1,350 was 
received as consideration for such issuance by the Company during July 1998.  
Maroley Media Group LLC is a managing member of MAC Music LLC, a beneficial 
holder of the Company's Series B Convertible Preferred Stock and warrants to 
purchase shares of the Company's Common Stock.

7.   K-TEL SETTLEMENT

     On June 30, 1998, the Company and K-tel International, Inc. ("K-tel")
executed a Settlement Agreement, whereby the parties mutually agreed to settle
their claims to $1,750 deposited in escrow by the Company pursuant to a purchase
and sale agreement signed by the Company and K-tel during March 1997 (the "K-tel
Agreement"), and terminated by the Company in September 1997.  Pursuant to the
Settlement Agreement, each party shall receive 50% of the escrowed amount.  The
Company fully reserved the $1,750 in escrow prior to December 31, 1997.
Accordingly, the Company's selling, general and administrative expenses for the
three and six months ended June 30, 1998 are net of an $875 gain from this
settlement.


                                          8
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

     The information in this section should be read together with the
consolidated financial statements and notes thereto that are included elsewhere
in this filing.

OVERVIEW

     The Company is a full-service music company that produces, licenses,
acquires, markets and distributes high quality recorded music for a variety of
musical genres.  The Company currently produces music in the gospel,
classical/themed, adult contemporary, country, blues and urban/dance genres,
primarily under its CGI Records, Intersound Classical, River North Records,
Intersound Country, House of Blues and Intersound Urban labels.  The Company's
products include new releases, typically by artists established in a particular
genre, as well as compilations and repackagings of previously recorded music
that enable the Company to exploit its catalog of master recordings.

     The Company currently distributes its products domestically through a
multi-channel system comprised of (i)  Intersound Distribution, the Company's
proprietary distribution system, (ii)  PolyGram Group Distribution, Inc.
("PGD"), the Company's third-party distributor, and (iii)  Platinum Christian
Distribution to the Christian retail market.  The Company is increasing the
volume of products distributed through Intersound Distribution compared to PGD;
this results in reduced costs to the Company, per record sold, due to the lack
of a third-party distribution fee. While the Company has historically
distributed records for a limited number of outside labels such as TYSCOT
RECORDS and RUF RECORDS, the Company's strategy is to increase the volume of
outside labels it distributes and use the increased distribution income to
offset the anticipated increased costs of enhancing its Intersound Distribution
system.  The Company announced its exclusive North American distribution
agreement with ICHIBAN RECORDS during the second quarter, and further intends to
pursue additional distribution deals in the near future.

     During the current quarter, the Company announced its partnership with
PLATINUM TECHNOLOGY, INC. to develop and operate an innovative Web-based
entertainment emporium that will allow consumers to digitally download titles
from the Company's extensive music catalog to personal computers, enabling them
to create customized CDs in their own homes.  In addition, the new service will
provide standard mail order delivery of over 250,000 commercially available
titles and customized CDs compiled from any of the Company's own titles.  See
"Significant Matters."

     The Company records revenues for music products when such products are
shipped to retailers.  In accordance with industry practice, the Company's music
products are sold on a returnable basis.  The Company's allowance for future
returns is based upon its historical returns, SOUNDSCAN data and the return rate
of the Company's third-party distributor.  It is the Company's policy to
inventory all returned product and resell such product at market value.

     A significant recurring funding requirement of the Company is for artist
and repertoire ("A&R") expenses, which include recording costs and advances to
artists.  The Company makes substantial payments each period for recording costs
and advances in order to maintain and enhance its artist roster.  These costs
are recouped from the artists' royalties, to the extent possible, from future
album sales.  Artist advances are capitalized as an asset when the current
popularity and past performance of the artist provides a sound basis for
estimating the probable future recoupment of such advances from earnings
otherwise payable to the artist.


                                          9
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth, as a percentage of gross revenues, certain
items which are included in the Company's statements of operations for the
fiscal periods reflected below.  Operating results for any period are not
necessarily indicative of results for any future periods.




<TABLE>
<CAPTION>

                                             THREE MONTHS ENDED                                  SIX MONTHS ENDED
                                                 JUNE 30                                              JUNE 30 
                                      -------------------------------------            -------------------------------------
                                             1998               1997                            1998                1997
                                                          (IN THOUSANDS , EXCEPT FOR PERCENTAGE AMOUNTS)
<S>                                   <C>        <C>      <C>        <C>               <C>         <C>      <C>        <C>
Total gross revenues                  $13,918    100.0%   $15,585    100.0%             $27,933    100.0%   $28,948    100.0%

Less: Returns and allowances           (3,727)   -26.8%    (4,865)   -31.2%              (7,229)   -25.9%    (9,169)   -31.7%
Less: Discounts                          (603)    -4.3%      (814)    -5.2%              (1,208)    -4.3%    (1,262)    -4.4%
                                      -------              ------                       -------              ------

Total net revenues                      9,588     68.9%     9,906     63.6%              19,496     69.8%    18,517     63.9%

Cost of sales and services              5,436     39.1%     5,235     33.6%              10,963     39.2%     9,162     31.6%
                                      -------              ------                       -------              ------

Gross profit                            4,152     29.8%     4,671     30.0%               8,533     30.6%     9,355     32.3%

Other operating expenses:
Selling general and
 administrative                         4,820     34.6%     4,462     28.6%               8,440     30.2%     8,749     30.2%
Merger, restructuring and
 one-time costs                             -         -     1,336      8.6%                   -         -     2,259      7.8%
Depreciation and amortization             410      2.9%       487      3.1%                 906      3.2%       927      3.2%
                                      -------              ------                       -------              ------
                                        5,230     37.5%     6,285     40.3%               9,346     33.4%    11,935     41.2%
                                      -------              ------                       -------              ------
Operating loss                         (1,078)    -7.7%    (1,614)   -10.3%                (813)    -2.8%    (2,580)    -8.9%
Interest income                            22      0.2%        22      0.1%                  41      0.1%        25      0.1%
Interest expense                         (695)    -5.0%    (1,136)    -7.3%              (1,263)    -4.5%    (1,735)    -6.0%
Other financing costs                     275      2.0%    (1,903)   -12.2%                 205      0.7%    (3,633)   -12.6%
Equity gain (loss)                       (199)    -1.4%        50      0.3%                 (28)    -0.1%        49      0.2%
                                      -------              ------                       -------              ------
Net loss                               (1,675)   -11.9%    (4,581)   -29.4%              (1,858)    -6.6%    (7,874)   -27.2%
Less: Preferred dividend
  requirement                            (695)    -5.0%         -         -              (1,370)    -4.9%         -         -
                                      -------              ------                       -------              ------
Less applicable to common shares      ($2,370)   -16.9%   ($4,581)   -29.4%             $(3,228)   -11.5%   $(7,874)   -27.2%
                                      -------              ------                       -------              ------
                                      -------              ------                       -------              ------
</TABLE>



GROSS REVENUES

     Gross revenues decreased $1,667,000 or 10.7% to $13,918,000 for the 
current second quarter compared to the prior year second quarter, and 
decreased $1,015,000 or 3.5% to $27,933,000 for the six months ended June 30, 
1998 compared to the comparable period of the prior fiscal year. The Company 
experienced increases in product sales through Intersound Distribution, as 
well as revenue increases in its licensing and publishing activities.  
However, the Company experienced a decrease in product sales through its 
third-party distributor, PGD, and the Company's direct to consumer sales, 
causing the overall current period decreases.  The Company significantly 
reduced its direct to consumer sales activities of which approximately 
$3,000,000 in gross revenues were recognized during the first half of last 
year.  The Company experienced declines in PGD sales of approximately 
$2,400,000 and $1,300,000 for the three and six month periods ended June 30, 
1998 compared to the prior year comparable periods.  This decline was 
primarily the result of two significant releases through this distribution 
channel in the prior year second quarter, Peter Cetera's A COLLECTION and the 
Blues Brothers' LIVE FROM THE CHICAGO HOUSE OF BLUES.  There were no releases 
of similar significance in the current period through PGD.  Notable releases 
during the current periods were BOOTY MIX 3 (Intersound Urban compilation), 
Kansas' ALWAYS NEVER THE SAME (River North), Phoebe Snow's I CAN'T COMPLAIN 
(House of Blues), Vickie Winan's LIVE IN DETROIT (CGI Records) and The 
Bellamy Brothers' REGGAE COWBOYS (Intersound Country).

                                          10
<PAGE>

RETURNS AND ALLOWANCES

     Returns and allowances decreased $1,138,000 or 23.4% to $3,727,000 for the
current second quarter compared to the second quarter of the prior year, and
decreased $1,940,000 or 21.2% to $7,229,000 for the six months ended June 30,
1998 compared to the comparable period of the prior fiscal year.  Returns and
allowances as a percentage of gross product sales, less discounts, decreased to
30.2% for the current second quarter from 34.4% for the second quarter of the
prior year, and decreased to 28.5% for the six months ended June 30, 1998 from
34.3% for the comparable period of the prior fiscal year.  The decrease relates
to unusually high returns experienced by the Company during the prior periods
due to terminated relationships with certain customers who consistently failed
to pay on a timely basis.

DISCOUNTS

     Discounts decreased  $211,000 or 25.9% to $603,000 for the current second
quarter compared to the second quarter of the prior year, and remained
relatively unchanged at $1,208,000 for the six months ended June 30, 1998
compared to $1,262,000 for the comparable period of the prior fiscal year.
Discounts as a percentage of gross product sales remained relatively consistent
at 4.7% for the current second quarter from 5.4% for the comparable period of
the prior fiscal year, and were unchanged at 4.5% for the six months ended June
30, 1998 and the comparable period of the prior fiscal year.

COST OF SALES AND SERVICES

     Cost of sales and services remained relatively consistent at $5,436,000 for
the current second quarter compared to $5,235,000 for the second quarter of the
prior year, and increased $1,801,000 or 19.7% to $10,963,000 for the six months
ended June 30, 1998 compared to the comparable period of the prior fiscal year.
Cost of sales and services as a percentage of gross revenues increased to 39.1%
for the current second quarter from 33.6% for the second quarter of the prior
year, and increased to 39.2% for the six months ended June 30, 1998 from 31.6%
for the comparable period of the prior fiscal year.  The increase relates
primarily to A&R costs associated with current and future releases, by such
artists as Dionne Warwick, Taylor Dayne and The Beach Boys, for which it is the
Company's policy to write-off all or a portion of such costs as incurred.
Excluding these costs, the Company's cost of product sales remained consistent.

GROSS PROFIT

     Gross profit decreased $519,000 or 11.1% to $4,152,000 for the current
second quarter compared to the second quarter of the prior year, and decreased
$822,000 or 8.8% to $8,533,000 for the six months ended June 30, 1998 compared
to the comparable period of the prior fiscal year.  As a percentage of gross
revenues, gross profit remained relatively flat at 29.8% for the current second
quarter compared to 30.0% for the second quarter of the prior year, and
decreased to 30.6% for the six months ended June 30, 1998 from 32.3% for the
comparable period of the prior fiscal year.  The decrease relates primarily to
the project costs as discussed above.

SELLING, GENERAL AND ADMINISTRATIVE

     Selling, general and administrative expenses increased $358,000 or 8.0% to
$4,820,000 for the current second quarter compared to the second quarter of the
prior year, and decreased $309,000 or 3.5% to $8,440,000 for the six months
ended June 30, 1998 compared to the comparable period of the prior fiscal year.
Selling, general and administrative expenses as a percentage of gross revenues
increased to 34.6% for the current second quarter from 28.6 % for the second
quarter of the prior year, and remained unchanged at 30.2% for the six months
ended June 30, 1998 and for the comparable period of the prior fiscal year.  The
percentage increase in the second quarter relates primarily to a decreased
revenue base.  The Company settled several lawsuits during the current quarter,
including its claim to certain amounts held in escrow pursuant to the K-tel
Agreement, for which a $311,000 net gain was recognized by the Company.


                                          11
<PAGE>

MERGER, RESTRUCTURING AND ONE-TIME COSTS

     During the three and six months ended June 30, 1997, the Company incurred
significant costs to merge and restructure its business through various
acquisitions.  Reference is made to prior filings the Company has made with the
Securities and Exchange Commission (the "Commission").

OPERATING LOSS

     As a result of the factors described above, an operating loss of $1,078,000
was experienced in the current second quarter compared to an operating loss of
$1,614,000 in the second quarter of the prior year, and an operating loss of
$813,000 was experienced during the six months ended June 30, 1998 compared to
an operating loss of $2,580,000 for the comparable period of the prior fiscal
year.

INCOME TAXES

     No tax expense or benefit has been recorded through June 30, 1998 due to
the Company's net operating loss carryforward and related valuation allowance,
as required under generally accepted accounting principles.  Pursuant to Section
382 of the Internal Revenue Code of 1986, as amended, the Company's net
operating loss carryforward of approximately $33,158,000 at December 31, 1997,
expiring in years 2007 through 2012, is subject to annual limitations due to a
change in ownership as a result of the initial public offering of the Company's
common stock in March 1996.  Accordingly, approximately $12,349,000 of the net
operating loss carryforward is subject to an annual limitation of approximately
$2,200,000.

INTEREST EXPENSE

     Interest expense for the current second quarter totaled $695,000 compared
to $1,136,000 for the second quarter of the prior year, and totaled $1,263,000
for the six months ended June 30, 1998 compared to $1,735,000 for the comparable
period of the prior fiscal year.  See "Liquidity" and "Capital Resources" below
for details of the Company's current debt structures.

OTHER FINANCING COSTS

     Other financing costs of ($275,000) were incurred during the current second
quarter compared to $1,903,000 during the second quarter of the prior year, and
other financing costs of ($205,000) were incurred during six months ended June
30, 1998 compared to $3,633,000 for the comparable period of the prior fiscal
year.  The current period amounts relate to the release of previously incurred
banking fees, netted with current amortization of deferred financing costs.  The
prior period amounts relate to the short-term financing of the Intersound
Acquisition and the related extension fees incurred until the Company refinanced
its debt structure in conjunction with the Preferred Stock with Warrants
Issuance.  See "Capital Resources" below for details of the Company's current
debt structures.

PREFERRED DIVIDEND REQUIREMENT

     On February 28, 1998, the Series B Convertible Preferred Stock accrued a
dividend of $600,000 and the Series C Convertible Preferred Stock accrued a
dividend of $75,000.  On May 31, 1998, the Series B Convertible Preferred Stock
accrued a dividend of $618,000 and the Series C Convertible Preferred Stock
accrued a dividend of $77,000.  The dividends reflect a compounding per annum
rate of 12.0% of the initial costs of the Stocks.  The related equity securities
were not outstanding during the prior year periods.

LOSS APPLICABLE TO COMMON SHARES

     The loss applicable to common shares for the current second quarter totaled
$2,370,000 compared to a loss applicable to common shares of $4,581,000 for the
second quarter of the prior year, and totaled $3,228,000 for the six months
ended June 30, 1998 compared to a loss applicable to common shares of $7,874,000
for the comparable period of the prior fiscal year.  The decreased loss
applicable to common


                                          12
<PAGE>

shares relates primarily to non-recurring financing, merger, restructuring and
one-time costs related to the Intersound Acquisition and incurred in 1997.

RECENTLY ISSUED ACCOUNTING STANDARDS

     Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, establishes standards for reporting and display of
comprehensive income (i.e., foreign currency translation gains/losses and
unrealized gains/losses on securities) and its components in a full set of
general-purpose financial statements.  This Statement requires that an
enterprise (a)  classify items of other comprehensive income by their nature in
a financial statement and (b)  display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.  This
Statement is effective for the Company's fiscal year ending December 31, 1998.
The impact of SFAS 130 will not be material to the Company's financial
disclosures.

     SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders.  Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This Statement
is effective for the Company's fiscal year ending December 31, 1998.  The
Company is currently analyzing the impact of SFAS No. 131 on its financial
disclosures.

SIGNIFICANT MATTERS

     On April 29, 1998, the Company announced its partnership with PLATINUM
TECHNOLOGY, INC. (NASDAQ:  PLAT), to develop and operate an innovative Web-based
entertainment emporium that will allow consumers to digitally download titles
from the Company's extensive music catalog to personal computers, enabling them
to create customized CDs in their own homes.  In addition, the new service will
provide standard mail order delivery of over 250,000 commercially available
titles and customized CDs compiled from any of the Company's own titles.
PLATINUM TECHNOLOGY, INC. will provide significant consulting services including
e-commerce, Web host infrastructure, system management, and design services
along with currently available digital compression, encryption and delivery
techniques needed to support the in-home service.  Certain shareholders,
directors and officers of PLATINUM TECHNOLOGY, INC. are members of the Company's
Board of Directors.

SEASONALITY

     The Company's results of operations are subject to seasonal variations.  In
accordance with industry practice, the Company records revenues for music
product when such products are shipped to retailers.  The Company has
historically experienced a decline in revenues and operating income during
December, January and February due to the fact that retailers purchase products
from the Company prior to December 1 in anticipation of holiday sales.  As a
result, sales are traditionally lower during December and the post holiday
period.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in operating activities was $6,883,000 for the six months
ended June 30, 1998.  This amount includes artist advances of $2,879,000 on
current and future release by such artists as Taylor Dayne, Dionne Warwick, The
Beach Boys and The Band, as well as advances to third-party distributed labels
including Ichiban Records.

     Net cash used in investing activities was $883,000 for the six months ended
June 30, 1998 and comprised a $150,000 music catalog purchase and $733,000 in
capital expenditures, primarily computer hardware and software purchases to
enhance the Company's information systems.


                                          13
<PAGE>

     The operating and investing activities for the six months ended June 30,
1998 were financed primarily by borrowings from the Company's revolving line of
credit.  The quarterly payment of $1,000,000 due under the Original Credit
Facility was also financed by borrowings under the revolving line of credit.
See "Capital Resources" below for additional details of the Company's available
borrowings.

     A significant recurring funding requirement of the Company is for A&R
expenses, which include recording costs and advances to artists.  The Company
makes substantial payments each period for recording costs and advances in order
to maintain and enhance its artist roster.  These costs are recouped from the
artists' royalties, to the extent possible, from future album sales.  Artist
advances are capitalized when the current popularity and past performance of the
artist provides a sound basis for estimating the probable future recoupment of
such advances from earnings otherwise payable to the artist.  Royalties are not
paid to an artist until all advances made to the artist have been recouped by
the Company.  The Company establishes and maintains reserves relative to royalty
payments for a period of approximately 18 to 24 months to allow for product
returns activity as royalties are not owed on returned product.

     On December 12, 1997, the Company entered its Original Credit Facility.
The Original Credit Facility included a $20,000,000 three year term loan, due in
quarterly installments of $1,000,000 beginning June 1, 1998 and bearing interest
at the bank's base rate plus 1/2 of 1.0% per annum, plus a three year
$10,000,000 available revolving credit facility bearing interest at the bank's
base rate plus 1.0% per annum.  At June 30, 1998, the Company had drawn
$9,907,000 against the available line of credit.

     On July 31, 1998, the Company replaced the Original Credit Facility with
the New Credit Facility.  The New Credit Facility has a $35,000,000 available
line of credit.  The New Credit Facility has a five year term, bears interest at
the bank's base rate plus 0.75% per annum and includes a LIBOR option of LIBOR +
2.75%.  Borrowings under the New Credit Facility are limited to the Borrowing
Base, as defined, which is based upon eligible accounts receivable, inventory
and music catalog.  The New Credit Facility contains certain financial
covenants, requires a lockbox arrangement and is secured by substantially all of
the Company's assets.

     On June 8, 1998, the Convertible Subordinated Debentures, $3,125,000 and
$1,875,000, totaling $5,000,000, issued by the Company to JCSHO, Inc. in
connection with the Company's acquisition of certain assets and the assumption
of certain liabilities of Intersound, Inc. during January 1997 ("Intersound" or
"Intersound Acquisition"), were converted to shares of Common Stock of the
Company at a conversion price of $9.80 per share.  At the time of issuance, the
Debenture in the amount of $1,875,000 was placed in escrow pursuant to the terms
of an Indemnity Escrow Agreement dated January 31, 1997.  The 191,326 shares of
Common Stock resulting from the conversion of the Debenture in the amount of
$1,875,000 remain in escrow.  The 318,877 shares of Common Stock resulting from
the conversion of the Debenture in the amount of $3,125,000 are subject to a
motion by the Company in pending litigation between the Company and JCSHO, Inc.
See "Part II - Other Information - Item 1. - Legal Proceedings."

     On February 28, 1998, the Series B Convertible Preferred Stock accrued a
dividend of $600,000 and the Series C Convertible Preferred Stock accrued a
dividend of $75,000.  On May 31, 1998, the Series B Convertible Preferred Stock
accrued a dividend of $618,000 and the Series C Convertible Preferred Stock
accrued a dividend of $77,000.  The dividends reflect a compounding per annum
rate of 12.0% of the initial costs of the Stocks.

     On June 29, 1998, the Company issued 100,000 shares of its Common Stock 
to Geoffrey Holmes, an employee of the Company, and 100,000 shares of its 
Common Stock to Maroley Media Group LLC at a price of $6.75 per share, which 
price was equal to the closing price of the Common Stock as reported by the 
Nasdaq National Market on the date of sale.  An aggregate of $1,350,000 was 
received as consideration for such issuance by the Company during July 1998. 
Maroley Media Group LLC is a managing member of MAC Music LLC, a beneficial 
holder of the Company's Series B Convertible Preferred Stock and warrants to 
purchase shares of the Company's Common Stock.

                                          14
<PAGE>


     On February 25, 1998, the Company issued a Warrant to purchase 50,000 
shares of Common Stock to Geoffrey Homes, an employee of the Company, c/o GHW 
& Associates, LLC (the "GHW Warrant") at an exercise price of $6.25 per 
share, which price was equal to the closing price of the Common Stock as 
reported by the Nasdaq National Market on the date of issuance.  The Company 
also issued a Warrant to purchase 50,000 shares of Common Stock to Andrew B. 
Lipsher, an employee of the Company, (the "Lipsher Warrant") at an exercise 
price of $6.25 per share, which price was equal to the closing price of the 
Common Stock as reported by the Nasdaq National Market on the date of 
issuance.  The GHW Warrant and the Lipsher Warrant expire on February 25, 
2008.  On April 2, 1998, the Company issued a Warrant to purchase 50,000 
shares of Common Stock to Mr. Holmes, c/o GHW & Associates, LLC (the "GHW 
Warrant II") at an exercise price of $9.00 per share, which price was in 
excess of the closing price of the Common Stock as reported by the Nasdaq 
National Market on the date of issuance.

     The Company is upgrading its current computer systems prior to the end 
of fiscal 1998.  Management estimates additional costs subsequent to June 30, 
1998 to complete this upgrade to be $550,000.  As part of such upgrade, the 
Company has engaged Platinum TECHNOLOGY, INC., of which certain shareholders, 
directors and officers are members of the Company's Board of Directors, as 
consultants.  For the six months ended June 30, 1998, the Company has 
incurred $191,000 in connection with such services.

     During July 1998, the Company purchased exclusive North American rights 
to selected sound recordings for their full length of copyright, equaling 120 
albums of material of the Royal Philharmonic Orchestra, pursuant to which the 
Company is committed to pay $2,475,000 in quarterly installments through June 
30, 2000.  The Company also issued 53,055 shares of its Common Stock during 
July 1998 in connection with this purchase.

     Stockholders' equity at June 30, 1998 totaled $16,792,000 compared to
$12,376,000 at December 31, 1997.  This net increase of $4,416,000 or 35.7% is
due to the conversion of $5,000,000 of subordinated debt and the sale of common
stock to certain related parties for proceeds of $1,350,000, offset by the
Company's current period net loss.

    The Company's near and long-term capital requirements will depend on
numerous factors, including the rate at which the Company grows and acquires new
artists and products.  The Company has various on-going needs for capital,
including working capital for operations, artist advances and project
development costs and capital expenditures to maintain and expand its
operations.  In addition, as part of its strategy, the Company evaluates
potential acquisitions of music catalogs, publishing rights and labels.  The
Company may in the future consummate acquisitions which may require the Company
to make additional capital expenditures, and such expenditures may be
significant.  Future acquisitions, as well as other on-going capital needs, may
be funded with institutional financing, seller financing and/or additional
equity or debt offerings.  The Company currently does not have any material
commitments for capital expenditures for the next twelve months.

INFLATION

     The impact of inflation on the Company's operating results has been
moderate in recent periods, reflecting generally lower rates of inflation in the
economy.  While inflation has not had a material impact on operating results,
there is no assurance that the Company's business will not be affected by
inflation in the future.

SAFE HARBOR PROVISION

     This filing contains certain forward-looking statements (within the meaning
of the Private Securities Litigation Reform Act of 1995) that involve
substantial risks and uncertainties.  When used in this filing, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements.  A number of important factors could cause the
Company's actual results, performance or achievements for fiscal 1998 and beyond
to differ materially from those expressed in such forward-looking statements.
Reference is made to the Company's prior filings with the Securities and
Exchange Commission, in particular the "Risk Factors" section of the Company's
Prospectus dated March 12, 1996, for a discussion of certain of such factors.
These factors include, without limitation, commercial success of the Company's
repertoire,


                                          15
<PAGE>

charges and costs related to acquisitions, relationships with artists and
producers, attraction and retention of key personnel, general economic and
business conditions and enhanced competition and new competitors in the recorded
music industry.

YEAR 2000 TECHNOLOGY PREPAREDNESS

     The Company is currently working to resolve the potential impact of the 
year 2000 on the processing of time-sensitive information by its computerized 
information systems.  Year 2000 issues may arise if computer programs have 
been written using two digits (rather than four) to define the applicable 
year.  In such cases, programs that have time-sensitive logic may recognize a 
date using "00" as the year 1900 rather than the year 2000, which could 
result in miscalculations or system failures.  Management is in the process 
of completing a review of signficant software and equipment used in the 
Company's operations and, to the extent practicable, in the operations of its 
key business partners, in order to determine if any year 2000 risks exist 
that may be material to the Company as a whole.  This process includes an 
assessment of year 2000 risks and the identification of practical remediation 
measures that could be taken on a timely basis to alter, validate or replace 
time-sensitive software and equipment.  Management has already begun 
implementing certain of these measures and intends to complete its 
remediation efforts prior to any anticipated material impact on its 
computerized information systems. Upon completion of the computer systems 
upgrade described above under "Liquidity and Capital Resources," the Company 
believes that its internal computerized information systems will be year 2000 
compliant. The Company has not yet determined whether all other devices used 
in its operations, including those with imbedded date function microchips, 
are year 2000 compliant.  Costs of addressing potential problems which would 
not be incurred but for year 2000 issues have not been material to date and, 
based on preliminary information, are not currently expected to have a 
material adverse impact of the Company's financial position, results of 
operations or cash flows in future periods.  However, if the Company or its 
significant customers or vendors are unable to resolve such processing issues 
in a timely manner, it could result in a material adverse effect.  
Accordingly, management plans to devote the resources it concludes are 
appropriate to resolve all signficant internal year 2000 issues in a timely 
manner and to develop contingency plans to deal with any adverse effects 
arising from the noncompliance of significant customers or vendors.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

     On June 30, 1998, the Company and K-tel International, Inc. ("K-tel")
executed a Settlement Agreement, whereby the parties mutually agreed to settle
their claims to $1,750,000 deposited in escrow by the Company pursuant to a
purchase and sale agreement signed by the Company and K-tel during March 1997
(the "K-tel Agreement"), and terminated by the Company in September 1997.
Pursuant to the Settlement Agreement, each party shall receive 50% of the
escrowed amount.  The Company fully reserved the $1,750,000 in escrow prior to
December 31, 1997.  Accordingly, the Company's selling, general and
administrative expenses for the three and six months ended June 30, 1998 are net
of an $875,000 gain from this settlement.

     On November 13, 1997, JCSHO, Inc., a Minnesota corporation, formerly known
as Intersound, Inc. ("JCSHO"), filed a complaint against the Company in the
District Court of Minnesota, Fourth Division.  JCSHO alleges breach of contract
by the Company with regard to the convertible subordinated debentures in the
aggregate principal amount of $5,000,000 (the "Convertible Subordinated
Debentures") made payable to JCSHO in connection with the Intersound
Acquisition.  JCSHO alleges that the Company is in default on its obligations
under the Convertible Subordinated Debentures due to failure to make certain
payments under the Convertible Subordinated Debentures at a defined default
interest rate.  JCSHO is seeking damages in the amount of $5,000,000 and costs,
disbursements and attorney's fees.  The Company believes that JCSHO's
allegations are without merit and intends to vigorously defend this litigation.
On April 3, 1998, the Company filed a complaint against JCSHO in the United
States District Court for the Northern District of Illinois, alleging that JCSHO
(i)  breached the warranties, representations and indemnification provisions of
the purchase agreement pursuant to which the Company acquired the assets of
JCSHO and (ii)  recklessly or intentionally misstated its financial statements
and provided such statements to the Company.  The Company sought a turnover of
all amounts held in escrow in the form of the convertible subordinated
debentures, additional damages, a set-off of interest paid under the convertible
subordinated debentures, costs and disbursements.  The Company has since
asserted such claims as a counterclaim in the action now pending in Minnesota,
where the litigation will continue.


                                          16
<PAGE>

     The Company is not a party to any other material litigation.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

     On June 29, 1998, the Company issued 100,000 shares of its Common Stock 
to Geoffrey Holmes, an employee of the Company, and 100,000 shares of its 
Common Stock to Maroley Media Group LLC, at a price of $6.75 per share, which 
price was equal to the closing price of the Common Stock as reported by the 
Nasdaq National Market on the date of sale.  An aggregate of $1,350,000 was 
received as consideration for such issuance by the Company during July 1998.  
Maroley Media Group LLC is a managing member of MAC Music LLC, a beneficial 
holder of the Company's Series B Convertible Preferred Stock and warrants to 
purchase shares of the Company's Common Stock. These sales were exempt from 
registration pursuant to Section 4(2) of the Securities Act of 1933 as 
transactions not involving a public offering.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

A.  Exhibits.

      4.1   Warrant to Purchase 50,000 Shares of Common Stock of the Registrant
            issued to GHW & Associates, L.P., dated April 2, 1998.
     10.1   Credit Agreement, dated July 31, 1998, by and among the Registrant,
            First Source Financial LLP ("First Source"), as Agent and Lender,
            and the Lenders named therein, as Lenders (the "Lenders"), and
            exhibits and schedules thereto.
     10.2   Revolving Note, dated July 31, 1998, issued by the Registrant in
            favor of First Source, in the principal amount of $35,000,000.
     10.3   Security Agreement, dated July 31, 1998, among the Registrant,
            First Source and the Lenders, and schedules thereto.
     10.4   Intellectual Property Security Agreement, dated July 31, 1998,
            among the Registrant, Lexicon Music, Inc. ("Lexicon"), PEG
            Publishing, Inc. ("PEG"), Just Mike Music, Inc. ("Just Mike") and
            Royce Publishing, Inc. ("Royce") (Lexicon, PEG, Just Mike and Royce
            are hereinafter referred to as the "Subsidiaries"), First Source
            and the Lenders, and schedules thereto.
     10.5   Guaranty, dated July 31, 1998, among the Subsidiaries, First Source
            and the Lenders, and schedules thereto.
     10.6   Stock Pledge Agreement, dated July 31, 1998, among the Registrant,
            First Source and the Lenders, and exhibits thereto.
     27.    Financial Data Schedule.




                                          17
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Platinum
Entertainment, Inc. has duly caused this filing to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 14th day of August, 1998.

                                        PLATINUM ENTERTAINMENT, INC.



                                        By:  /s/ STEVEN DEVICK
                                             --------------------------------
                                             Steven Devick
                                             Chairman of the Board, President
                                             and Chief Executive Officer


                                        By:  /s/ DOUGLAS C. LAUX
                                             --------------------------------
                                             Douglas C. Laux
                                             Chief Financial Officer
                                             (Principal Financial and Accounting
                                             Officer)


                                          18