SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB


(Mark One)

|X|      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
         OF 1934

                    For the Fiscal Year Ended August 31, 1999



[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934

  For the Transition Period From _____________________ to ____________________

                         Commission File Number: 0-29776

                        PLANET ENTERTAINMENT CORPORATION
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                 (Name of Small Business Issuer in its Charter)

          Florida                                             33-0471728
-------------------------------                           ---------------------
(State of Other Jurisdiction of                           (I.R.S. Employer
Incorporation or Organization)                            Identification No.)


           222 Highway 35, P.O. Box 4085, Middletown, New Jersey 07748
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                    (Address of Principal Executive Offices)


         Issuer's Telephone Number, Including Area Code: (732) 530-8819
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          Securities Registered under Section 12(b) of the Exchange Act

     Title of Each Class               Name of Each Exchange on Which Registered
    ---------------------              -----------------------------------------
           None


         Securities Registered under Section 12(g) of the Exchange Act


                Shares of Common Stock, Par Value $.001 Per Share
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                                (Title of Class)


--------------------------------------------------------------------------------
                                (Title of Class)

Check whether the Issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

Yes [X]           No [ ]
<PAGE>

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.  [ ]

State issuer's revenues for its most recent fiscal year $43,790,554.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of  the  Registrant  at  November  30,  1999  was  approximately
$6,632,553  based upon the last sale price ($1.156 per share) as reported by the
NASD Bulletin Board on that date.

ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS

Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.

Yes [ ] No  [ ]

APPLICABLE ONLY TO CORPORATE REGISTRANTS

The number of shares outstanding of the issuer's classes of common equity, as of
November 30, 1999, was 12,147,803 shares of common stock.

Transitional Small Business Disclosure Format (check one):

Yes [ ] No  [X]

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<PAGE>

TABLE OF CONTENTS

PART I........................................................................4
ITEM 1:  BUSINESS.............................................................4
ITEM 2:  PROPERTIES..........................................................15
ITEM 3:  LEGAL PROCEEDINGS...................................................16
ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS..................17

PART II......................................................................17
ITEM 5:  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED MATTERS............17
ITEM 6:  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........19
ITEM 7:  FINANCIAL STATEMENTS................................................26
ITEM 8:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE............................26

PART III.....................................................................26
ITEM 9:  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................26
ITEM 10:  EXECUTIVE COMPENSATION.............................................29
ITEM 11:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....33
ITEM 12:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................35
ITEM 13:  EXHIBITS, LIST AND REPORTS ON FORM 8-K.............................36

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PART I

         THIS DOCUMENT INCLUDES  STATEMENTS THAT MAY CONSTITUTE  FORWARD-LOOKING
STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION  REFORM  ACT OF 1955.  THE  COMPANY  WOULD  LIKE TO  CAUTION  READERS
REGARDING CERTAIN FORWARD-LOOKING  STATEMENTS IN THIS DOCUMENT AND IN ALL OF ITS
COMMUNICATIONS TO SHAREHOLDERS AND OTHERS,  PRESS RELEASES,  SECURITIES FILINGS,
AND  ALL  OTHER  COMMUNICATIONS.  STATEMENTS  THAT  ARE  BASED  ON  MANAGEMENT'S
PROJECTIONS, ESTIMATES AND ASSUMPTIONS ARE FORWARD-LOOKING STATEMENTS. THE WORDS
"BELIEVE," "EXPECT,"  "ANTICIPATE,"  "INTEND," AND SIMILAR EXPRESSIONS GENERALLY
IDENTIFY FORWARD-LOOKING STATEMENTS.  WHILE THE COMPANY BELIEVES IN THE VERACITY
OF ALL STATEMENTS MADE HEREIN,  FORWARD-LOOKING STATEMENTS ARE NECESSARILY BASED
UPON A NUMBER OF ESTIMATES AND ASSUMPTIONS THAT, WHILE CONSIDERED  REASONABLE BY
THE  COMPANY,  ARE  INHERENTLY  SUBJECT TO  SIGNIFICANT  BUSINESS,  ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES AND KNOWN AND UNKNOWN RISKS. MANY OF
THE  UNCERTAINTIES  AND CONTINGENCIES CAN AFFECT EVENTS AND THE COMPANY'S ACTUAL
RESULTS  AND COULD  CAUSE ITS  ACTUAL  RESULTS TO DIFFER  MATERIALLY  FROM THOSE
EXPRESSED  IN ANY  FORWARD-LOOKING  STATEMENTS  MADE BY,  OR ON BEHALF  OF,  THE
COMPANY.  PLEASE  SEE THE  "RISK  FACTORS"  IN THE  COMPANY'S  FILINGS  WITH THE
SECURITIES  AND EXCHANGE  COMMISSION  FOR A  DESCRIPTION  OF SOME,  BUT NOT ALL,
RISKS, UNCERTAINTIES AND CONTINGENCIES.

ITEM 1: BUSINESS

         INTRODUCTION.

         Planet Entertainment Corporation was incorporated under the laws of the
State of  Delaware  in May 1996.  On  October 9,  1996,  all of the  outstanding
capital  stock of the Company was acquired in a reverse  merger  stock  exchange
transaction  by  Ampro  International  Golf  Tour,  Inc.  ("Ampro"),  a  Florida
corporation,  which,  as the surviving  corporation,  changed its name to Planet
Entertainment Corporation. During the past three (3) years, the Company has made
several  acquisitions,  as described  below in "Development of Business" in this
Item 1. In October 1998,  subsequent to its  acquisition  of Northeast One Stop,
Inc. ("NEOS"), the Company changed its fiscal year end to August 31.

         BUSINESS SUMMARY.

         The  Company is  currently  involved in various  areas of the  recorded
music  industry.  The  Company's  principal  business,   primarily  through  its
wholly-owned  subsidiary,  NEOS, is the wholesale  distribution  of pre-recorded
music in the form of  compact  diskettes  ("CDs"),  cassette  tapes,  and  other
entertainment  related  products such as video tapes,  Digital  Video  Diskettes
("DVDs") and, to a much lesser extent,  music or entertainment  related apparel,
such  as  t-shirts.   The  Company's   business   activities  also  include  the
acquisition,  licensing,  production, marketing and distribution of high quality
recorded  music.  Through NEOS, the Company  distributes  approximately  130,000
front end titles of  pre-recorded  music to independent  record stores,  college
bookstores and mass merchants. Generally, front end titles are popular, current,
pre-recorded  music  titles.  In addition,  through its  recording  studio,  the
Company produces such types of music as gospel, adult contemporary,  reggae, top
40, blues,  country,  rap,  rock,  instrumental,  rock & roll,  jazz,  pop rock,
classical,  easy listening,  big band,  rhythm & blues,  and various ethnic folk
music recordings.

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            The  Company  owns  certain  exclusive  and   non-exclusive   rights
associated with approximately 15,000 music master recordings from existing music
catalogues of recorded  music.  A "master  recording"  is the  original,  final,
then-recorded  version of a song  recorded in the studio.  Of such 15,000 master
recordings that the Company has the right to exploit,  the Company has exclusive
rights to approximately 5,000 or thirty-three (33%) percent, and the Company has
non-exclusive rights to the remaining  approximately 10,000 or sixty-seven (67%)
percent. The exclusive amounts are estimates based upon one officer and director
of  the  Company   having   indicated   that  he  recorded  such  masters,   and
representations  contained in the  contracts  for such  masters.  The  Company's
exclusive  rights to such  master  recordings  means  that only the  Company  is
entitled to exploit the particular  master  recording.  Non-exclusive  rights to
master recordings allow the Company as well as other persons who demonstrate the
right to exploit  such  master  recordings  to  exploit  the  particular  master
recordings.

            The Company also records new artists.  These master  recordings  are
typically  stored on Digital  Audio Tape ("DAT").  The Company,  at its 48-track
recording  studio and  mastering  facility  in  Chester,  Pennsylvania,  and its
24-track studio in Jackson, New Jersey, re-digitizes existing master recordings,
enhances these master  recordings by removing  certain impure sounds which exist
due to aging, and re-compiles  these recordings along with its recordings of new
artists  on "glass  master"  CDs for mass  production  and  distribution  to its
customers  through  traditional and  non-traditional  distribution  channels.  A
"glass master" CD is a CD created for a particular  artist's  recording which is
created and used as the master for mass duplication purposes.

            With respect to its collection of master  recordings,  the Company's
strategy has been to produce compilation CDs containing enhanced or re-digitized
master  recordings from its existing  library,  to market them directly  through
NEOS or  other  distributors,  to  contribute  these  compilation  CDs to  joint
ventures in which the Company is a party,  and to license these  compilation CDs
to third  parties for  marketing  and sale by  unaffiliated  distributors.  (See
"Development Of Business" below in this Item 1.)

             In  September  1998,  the  Company  acquired  all of the issued and
outstanding  capital  stock  of  NEOS,  which  is  principally  engaged  in  the
distribution of records and compact diskettes as a "one-stop" and "rack-jobber."
"One-stops" are centralized order fulfillment  centers for small to medium sized
retail stores,  typically record stores,  that obtain a wide-variety of recorded
music in various formats from several  independent  producers at a stated price,
or mark-up.  "Rack-jobbers"  typically  purchase and  distribute  recorded music
through racks and kiosks in retail  stores,  and  encompass a narrower  range of
selection,  typically from proprietary sources for a stated percentage of sales,
and often with the full right of return. The Company's strategy is to permit the
sale of its products and other "front line" titles over the  Company's  business
to  business  Internet  site  and to  serve as its own  fulfillment  center  and
distribute  compilation CDs created from its own music  catalogue  through NEOS.
Currently,  NEOS  purchases  the  pre-recorded  music from certain  major record
companies  (including,  but not  limited  to  SONY  Music  Entertainment,  Inc.,
Universal Music and Video Distribution,  Polygram Group Distribution,  EMI Music
Distribution,  Warner/Electra/Atlantic  Corporation and BMG  Distribution),  and
other  distributors  for sale at  approximately  eighty-two (82%) percent of its
resale  price  to  its  customers.  The  Company,  similar  to  other  wholesale

                                       5
<PAGE>

distributors of  pre-recorded  music,  does not have any written  contracts with
these  major  record  companies  and  as a  result  such  relationships  may  be
terminated at any time.  Although NEOS has been distributing  pre-recorded music
for such major record  companies  for a number of years,  no  assurances  can be
given that any such person would not terminate its  relationship  with NEOS. The
termination of one or more of such  relationships  could have a material adverse
effect on the Company.  The Company  expects to also supply  compilation  CDs to
NEOS from the  Company's  catalogue of existing  master  recordings,  at a lower
cost.

         CORPORATE STRATEGY.

         The Company's goal is to continue to grow its  entertainment  wholesale
division, Northeast One Stop, by leveraging the new fulfillment and distribution
systems  currently  in place and striving to provide  customers  with a superior
level of service. The Company believes it differentiates itself from competitors
by offering competitive pricing along with reliable and accurate fulfillment. We
plan to continue to expand our customer service and Internet capabilities,  make
further system  enhancements  and increase product  selection/depth  to become a
more valuable  supplier to  entertainment  retailers.  We intend to leverage our
investment in fulfillment and distribution  systems by seeking a larger facility
during  fiscal year 2000 to improve  our  productivity.  We will pursue  further
growth through internal growth and possible acquisitions.

         NXTREND TECHNOLOGY "NXTREND"

         During  1998,  NEOS  began  to  explore  a new  software  and  hardware
platform,  additional warehouse automation equipment, and an Internet technology
platform  that,  once  integrated  with our  software/hardware,  would allow the
Company to be more efficient, globally competitive and technologically advanced.
In early 1999 NEOS selected NxTrend Technology,  Inc. ("NxTrend") to develop and
install a custom hardware and distribution  software  solution.  Generally,  the
NxTrend  solution  allows  NEOS to  simplify  and  expedite  operations,  reduce
inventory, expand performance reporting, including product margin/cost analysis,
improve   customer   service  levels  and  integrate  the  Internet  into  daily
operations.  The  NxTrend  package  was  installed  at a cost  of  approximately
$600,000 and became operational in October 1999.

         PROPOSED WAREHOUSE EXPANSION/AUTOMATION.

         NEOS is presently negotiating a lease for the first quarter of calendar
year 2000, which will increase NEOS's corporate  headquarters/warehouse from the
current  41,000 square feet to  approximately  88,000  square feet.  There is no
assurance that the Company will obtain this space or other suitable space or the
terms of any such lease. If leased,  the larger warehouse space would also allow
us to further  increase our Stock Keeping Unit ("SKU") count from  approximately
140,000 to more than 200,000, which should make us more attractive to customers.
A new facility should also allow for additional  expansion in future years. NEOS
continues to make  significant  investments in additional  automation  equipment
that  would  be  moved  to a new  facility.  To  date,  the  Company  has  spent
approximately  $250,000 on expanding the carousel  system and related  software.
The Company  believes this equipment will allow it to increase  volume and carry
additional  SKUs.  The Company  also has ordered new  sortation  equipment  from
Dorner Manufacturing  Corporation ("Dorner") that will sort, scan, and label 200
pieces per minute. The sortation equipment should allow

                                       6
<PAGE>

for greater dollar volume with less payroll per unit shipped,  while at the same
time allowing us to maintain our current low error rate status.

         INTERNET FULFILLMENT.

         With the  growth of the  Internet,  warehousing  and  fulfillment  have
become major issues to all  E-commerce  companies  including  those  traditional
brick and mortar  retailers that now, in an effort to expand their own potential
sales base, are adopting what is becoming known as a "click and brick" strategy.
NEOS expanded its current systems to more  adequately  service and grow with our
music   retailers.   We  configured  and  upgraded   hardware,   software,   and
sorting/shipping equipment in such a way to be able to utilize our facilities to
provide  third party  warehousing,  fulfillment  and  distribution  services for
Internet retailers covering a diverse array of products.

         During 1999 NEOS began  servicing  several  Internet  retailers such as
Amazon.com,  EveryCD.com,  Tower mailorder, Internet Shopping Network (ISN), and
CDUniverse.com.  During fiscal year 2000 we hope to fulfill  customer orders for
additional  Internet  retailers by shipping  product  directly to the individual
customer.  These  retailers  tend to sell mostly  very deep  catalog and require
conformance   to  their  own  specific   EDI   (electronic   data   interchange)
requirements.  We believe our new software platform and our deeper catalog allow
us to pursue  customers  that we were  unable to pursue in the past.  We plan to
focus a substantial  portion of our resources on this business  segment over the
next 12 months.

         WEBSITES.

         The Company  has two  distinct  websites.  Planet's  wholesale  site is
devoted to NEOS's current customers (www.neoneb2b.com).  The website is meant as
an  order  entry  tool  for  wholesale   business   customers   and   affiliated
Internet-based  customers,  thus the reference "b2b" (business to business). The
Corporate   site    (www.planetentertainment.com),    which   will   undergo   a
reconstruction  during the first half of calendar year 2000, will be designed to
focus on the music  catalog and  compilation  albums as well as provide  general
corporate information regarding Planet Entertainment Corp. (PNEC).

         To date,  the Company has spent  approximately  $200,000 in  connection
with developing its websites.  Such costs include  payments to its developer and
other  technical  support  providers.  Although no assurances can be given,  the
Company  expects its business to business  Website to be online during  December
1999 and fully  integrated  with the  Company's new  hardware/software  platform
during the first quarter of calendar year 2000. The  redesigned  PNEC website is
expected to be fully integrated during the first half of calendar year 2000.

         Neos Business to Business Website. At the heart of the NEOS b2b website
is a MUZE database,  a searchable database that uses a Verity Information Server
- a powerful  search engine tool that quickly  returns  information on a massive
catalog of Pop,  Rock,  Jazz,  Country and all other  genres of music.  The MUZE
database  contains  many tables  consisting  of hundreds of  thousands of artist
names and album  titles as well as  millions  of song  titles.  There are also a
number of music related video titles,

                                       7
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which will be available via the music  searches,  as well as MUZE album art. The
database will search by Title,  Artist, Song Listing,  Catalog number, Genre and
Label.  The MUZE database is widely  recognized as the premier  source of online
music  information.  The  website  also  includes  a full  line of DVD and music
videos.

         The NEOS business to business  website is designed with the customer in
mind.  Flexible  "fuzzy logic"  searches allow users to input  partial,  or even
incorrect  information  and  still  get  their  desired  result.  Album  artwork
accompanies  search  results  to let the user know for sure that they have found
the right title.  Price  information and purchase options are listed with search
results,  making  ordering  product  simple and quick.  A search engine based on
NEOS's own accessory database features the same functionality as the main search
engine allowing customers to search for accessories (headphones, recordable CDs,
blank video/audio tapes, and others) by manufacturer, product category, or item.

         Planet's Corporate Website. As mentioned above, the Company's corporate
website will be  reconstructed  during the first half of calendar year 2000. The
Company expects the website to feature the following capabilities;  however, the
website has yet to be redesigned and there is no assurance as to the features of
the website  until  completion.  The website is expected to:  include a complete
listing of the Company's music catalog; search the Company's 15,000+ database of
songs (for custom  licensing,  premium  incentive and special  product  business
customers);  be organized according to musical genre; feature  approximately 100
PNEC  compilation  albums and photographs of the album cover,  sound bites and a
written  review of the CD; be  linked  to the NEOS b2b site and  numerous  other
music and Internet  retailers;  offer weekly music and video  specials to retail
consumers,  websites,  wholesalers and  distributors;  feature a "shopping cart"
that will process all major credit card transactions,  with product  fulfillment
handled by NEOS;  contain  financial  information,  press  releases and investor
information  on PNEC; and feature PNEC Records,  Renaissance  Records and Planet
Nashville's   proprietary  lines  of  100,  128,  and  14  compilation   albums,
respectively.  During  calendar  year 2000,  these  companies  hope to introduce
approximately  100 new albums for  traditional  and Internet  retailing.  PNEC's
website will be designed to provide an additional outlet for independent  labels
and artists  that are  currently  without  representation  and that have a CD or
cassette tape for sale.

         EXPAND EXISTING ACCOUNT BASE.

         NEOS's  catalog  previously was not deep enough to supply all the needs
of retailers.  We believe our greater  catalog depth of 140,000 SKUs now enables
us to be the primary supplier for a much greater  percentage of our account base
which we believe results in more sales to those customers.  We intend to attempt
to continue to grow market share, both through deeper  penetration with existing
customers and by entering new markets. We believe our investment in our systems,
including  NxTrend and carousel  automation,  as well as the years we have spent
developing and refining them provide us a competitive advantage.  Because we are
currently a full-service  provider, we have been able to attract many new retail
customers who were previously  unavailable to us. With our new software platform
and EDI and ASN (advanced shipping notice) capability we believe we will be able
to solicit large specialty music retailers as well as mass merchants.

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<PAGE>

         NEW CUSTOMERS.

         As a full line entertainment  retailer,  with new systems in place, the
Company  intends to  concentrate  on specific  target  groups of  potential  new
customers including large mass merchants, and export customers. Due to the rapid
growth of the DVD market as a format for movies and music  videos,  the  Company
carries many DVD products. In addition to music and video retailers, the Company
may market  music and video  products  to a variety of stores,  including  those
offering book and gift items. Additionally,  NEOS has plans during the year 2000
to open two additional satellite sales offices.

         CHAIN BUSINESS.

         In our current  facilities,  with our current  depth of catalog and our
new computer  system,  we have the ability to offer EDI or ASN to customers.  We
believe   this  is   particularly   important   for  large  mass   merchant  and
multiple-outlet   customers.   Long-term  relationships  already  exist  between
executives of the Company and those at a number of nationwide music retailers.

         EXPORT.

         We  believe  there  exists  a  significant  opportunity  in  exporting,
particularly in deep catalogue, DVD, and accessory items. It is our intention to
become  involved in this aspect of the industry.  The sales office  scheduled to
open soon in Florida will focus on developing this business. Our intention is to
limit this business to no more than 20% of our overall volume.

         EXPLOIT THE SALES POTENTIAL OF DVD.

         In early 1999,  NEOS  expanded our SKU base to include  DVD.  While our
sales of this product line are not yet fully  maximized,  industry  publications
are reporting hardware sales for this format that are substantially  higher than
projected and it is expected that sales to consumers will follow. We expect 2000
to be a breakthrough  year for DVD sales and believe that we will participate in
that growth.

         ACQUISITION OF MASTER RECORDINGS; SALES OF MASTER RECORDINGS

         In July  1996,  as a result of the  Company's  acquisition  of  Maestro
Holding Corporation  ("Maestro"),  the Company acquired certain exclusive rights
associated with the exploitation of approximately  5,000 master recordings,  and
in November 1996, through its agreements with J. Jake, Inc. ("J. Jake") and Gulf
Coast Music,  LLC ("Gulf Coast"),  the Company  acquired  certain  exclusive and
non-exclusive  rights  associated with the exploitation of approximately  10,000
additional  master  recordings.  The Company has not  recorded  the 5,000 master
recordings  purchased from Maestro on its books because  predecessor costs could
not be  determined  but has recorded on its financial  statements  its rights to
10,000 additional master recordings  purchased from J. Jake, Inc. and Gulf Coast
as having a value of approximately  $6,625,000 (less accumulated amortization of
$58,963).

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<PAGE>

         As of November 26, 1999,  the Company has sold copies of  non-exclusive
master recordings in two separate transactions.  In one transaction, the Company
sold a copy of 2,500 master  recordings and in another  transaction  the Company
sold a copy of 5,000 of its master  recordings.  All copies of master recordings
are sold  without  third  party  rights.  In such sales,  the  Company  receives
restricted shares of common stock from the purchasers.

            The  Company's  current  inventory of master  recordings  includes a
broad range of musical genres including adult contemporary,  classical,  gospel,
blues,  rap,  reggae,  jazz,  instrumental,  easy  listening,  big band,  swing,
Christmas,  country,  pop,  rock and roll,  and rhythm and blues,  and a partial
listing of artists  included in the  Company's  non-exclusive  master  catalogue
include Louis Armstrong,  Tony Bennett,  George Benson, Glen Campbell,  Nat King
Cole,  Bing  Crosby,  Sammy  Davis,  Jr.,  Fats  Domino,  Duke  Ellington,  Ella
Fitzgerald,  Marvin Gaye, George Gershwin, Dizzy Gillespie, Bill Haley's Comets,
Billie Holliday,  John Lee Hooker,  Lena Horne, The Ink Spots,  Jackson Five, Al
Jolson, Quincy Jones, Frankie Lane, Glenn Miller, Willie Nelson, Charlie Parker,
Dolly Parton, Neil Sedaka, Pete Seeger,  Sisters Sledge,  Steely Dan, Ike & Tina
Turner, The Tokens, The Crystals, The Tramps and Randy & the Rainbows.

         Documents  supporting the chain of title to each master recording owned
by or  licensed  to the  Company  on an  exclusive  or  non-exclusive  basis are
maintained  by the  Company.  Possession  of the master  recordings  permits the
Company to reproduce  and  distribute  them under the  Company's  own label,  or
sub-license these rights to others in exchange for royalties.  No assurances can
be given that the Company's right to use any and or all of its master recordings
will not be subject to dispute,  which may result in the delay or the  inability
to use or exploit any  particular  master  recording or require that the Company
pay royalties which may not be available or affordable by the Company.  However,
the Company as of the date hereof has not created any reserve, should any master
recording  purchased by the Company be  determined to be the property of others,
principally  because the Company has made only  limited  product  sales of these
recordings.  The  Company,  however,  has  determined  that at  such  time as it
generates  $100,000 of net  product  sales from its master  recordings,  it will
create a reserve and place into escrow an amount  equal to five (5%)  percent of
net product sales resulting from its master recordings. The Company intends on a
periodic  basis to review  whether such five (5%) percent  reserve is sufficient
and may based upon such periodic reviews increase or decrease such amount. As of
November  1999,  the Company had neither  generated a minimum of $100,000 of net
product sales from its master recordings nor placed any funds into escrow.

            PRODUCTION.

            The Company owns and operates a twenty-four track studio in Jackson,
New Jersey and a full  service  forty-eight  track  digital  studio in  Chester,
Pennsylvania.  The  Company  currently  has a number of artists  under  contract
including  Nino Rossano (an Italian opera and classical  singer),  the Crystals,
the Tramps, the Tokens, and Dakota McLeod. The continued representation of these
artists and the  production  of their  compositions  are  subject to  popularity
trends, and the continued appeal of these artists and these compositions.

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<PAGE>

            COMPOSITIONS AND ENHANCEMENTS.

            In addition to the 130,000 front end titles  distributed by its NEOS
subsidiary,  the Company markets either from its existing  catalog of recordings
or repackages compilations of previously recorded music by utilizing its library
of  master  recordings.   Through  the  Company's  studios  in  New  Jersey  and
Pennsylvania,  the Company  composes  musical CDs  containing  the  original and
re-recorded  music of various artists  arranged  according to musical genre, and
designed to be mass marketed by the Company through its  distribution  channels.
The Company employs experienced engineers and owns certain multi-media equipment
that  permits the Company to transform  and edit its  previously  published  and
unpublished  master  recordings  from their  original  state to a higher quality
state using  certain  sound  purification  techniques  and by  converting  older
recordings produced under the analogue format into a digital format.

            By  combining  these  compositions  with visual  graphics  and video
clips,  the  Company can produce an  entirely  new product by  re-mastering  the
Company's recordings in compositions  expected to appeal to the public's tastes.
Moreover, by combining these compositions,  with outstanding visual effects, the
Company has the  technology  to produce video  enhanced  Compact  Diskettes.  In
connection with the transformation, editing, re-composition, and republishing of
the Company's master recordings, the Company produces its own art work, posters,
CD inserts,  informational  materials and  brochures.  The Company's  associated
labels  include  PNEC Records and several  affiliated  labels  including  Planet
Records,  Planet  Nashville  ("Backtracks"),  Higher Grounds  Records and Planet
Africa.

            MANUFACTURING.

            The Company  manufactures  "glass masters" and prototype CDs for use
as samples,  together  with all  artwork  and CD inserts,  but it employs and is
dependent upon others to press and mass produce the Company's  compact  diskette
recordings for resale.  Currently,  the Company's  products are mass produced or
pressed by Denon  Interactive  Media,  a division of Nippon  Columbia,  Ltd. and
other CD pressing facilities.

            DISTRIBUTION.

            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

                                       11

<PAGE>

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

                                       12
<PAGE>

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

                                       13
<PAGE>

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.

                                       14
<PAGE>

         Effective in September  1998,  the Company  purchased all of the issued
and  outstanding  capital  stock  of NEOS  from  the  stockholder  of  NEOS,  in
consideration for $2,250,000 in cash, a non-interest  bearing Promissory Note in
the amount of  $750,000  (all of which was paid),  options to  purchase  250,000
shares of the Company's  Common Stock valued at $814,000,  and options issued to
two  stockholders  of the Company to  purchase a total of 250,000  shares of the
Company's Common Stock valued at $1,147,750.

         COMPETITION.

         In all lines of its  business  the Company  faces  intense  competition
ranging from small regional  businesses to large  international  companies.  The
Company's ability to succeed in the future and to meet future competition in the
pursuit of satisfying the public's  tastes will depend on its ability to attract
talented  new  artists or persons or  companies  who control  existing  valuable
libraries  of master  recordings  as well as the appeal of  compositions  in its
existing  library.  There can be no  assurance  that the Company will be able to
compete  successfully  against current and future competitors.  New technologies
and the expansion of existing  technologies  may also  increase the  competitive
pressures on the Company.

         The  creation  and   distribution  of  music   compositions  is  highly
competitive  and the Company  has a  substantial  number of direct  competitors,
including large  companies with  substantially  greater  financial and marketing
resources.  Although the Company believes that its enhanced compositions are new
and  unique,  no  assurance  can be given that  competitors  possessing  greater
financial resources and established  distribution facilities will not be able to
develop  products  which  directly  compete with the  Company's  products and at
substantially lower prices than those available from the Company.

         The "one  stop"  record  distribution  business  is also  highly  price
sensitive with a limited number of larger companies such as Valley Media,  Inc.,
AEC One-Stop  Group and  Universal,  accounting  for a large  percentage  of the
industry's annual sales. These companies are significantly  larger, have greater
financial  resources  and have larger  technical  and  creative  staffs than the
Company.

         EMPLOYEES

         As of November 30, 1999,  the Company and its  subsidiaries,  including
NEOS, had a total of  approximately  120  employees,  all of whom were full-time
employees. The Company has no collective bargaining agreement with its employees
and no union  represents  them. There have been no interruptions or curtailments
of operations due to labor disputes and the Company believes that relations with
its employees are good.

ITEM 2: PROPERTIES

            The  Company's  principal  office,  located  at 222  Route 35 South,
Middletown,  New Jersey  07748,  is leased  from the  brother-in-law  of Wallace
Giakas, an officer, director, and one of the Company's principal shareholders in
consideration for the sum of $1,000 per month for a term of three (3) years. The
Company also rents a 1,500 square foot facility in Jackson,  New Jersey, for the
sum of one dollar per month for a term of five (5) years from Joseph Venneri, an
officer,  director,  and principal shareholder of the Company, where the Company
operates a full  service,  24-track  recording  studio.  (See Item 12.  "Certain

                                       15
<PAGE>

Relationships and Related  Transactions").  No assurances can be made that these
shareholders or their relatives may not in the future demand increased rent from
the  Company  in  consideration  for the use of  these  properties,  or that the
Company will not relocate its operations at substantial cost to the Company,  if
necessary,  which may  adversely  affect the Company's  financial  condition and
results of operations.

            Currently,  the  Company  is also  party to a five  (5)  year  lease
agreement relating to approximately a 13,400 sq. ft. facility located on 15 East
8th Street, Chester, Pennsylvania from Albert N. Albertini, Albert V. Albertini,
Christopher  M.  Albertini,  and Al Alberts On Stage,  Ltd.  These  premises are
leased  for a term of five (5) years  from March 1, 1997  through  February  28,
2002,  and which may be renewed at the election of the Company for an additional
five (5) years.  Rent  during the initial  term is equal to debt  service on the
mortgage  and the real estate  taxes  imposed on the  premises of  approximately
$24,000 per year.  At the end of the first  term,  the Company has the option to
acquire  the  premises  for $10,  with the  assumption  of  certain  liabilities
principally  consisting of an outstanding  mortgage in the approximate amount of
$125,748.  These studios are utilized by the Company to produce enhanced musical
compositions  and new master  recordings  to be  distributed  by the Company and
others.

         Through  its  NEOS  subsidiary,  the  Company  is a party to a one year
lease, relating to approximately 1,000 sq. ft. in Philadelphia,  Pennsylvania at
the rate of $655 per month,  is a party to a one-year  lease  expiring  November
1999 in Reisterstown,  Maryland relating to approximately 850 square feet at the
rate of $600 per month and is party to a five (5) year lease in Latham, New York
relating to approximately  41,000 sq. ft. at the rate of $15,000 per month. With
the exception of the Latham facility,  these leases are with unrelated  parties.
The Latham  facility is owned by a corporation  owned and controlled by Louis J.
DelSignore,  an officer and director of the Company, and former sole stockholder
of NEOS. (SEE Item 12. "Certain Relationships and Related Transactions.")

         NEW FACILITY.  As the Company integrates the NxTrend system,  sortation
equipment  and  Business  to  Business  website,  NEOS will  require  additional
warehouse space to handle the potential  increase in fulfillment  business.  The
Company is currently  attempting  to secure an 84,000 square foot  facility.  No
assurance  can be given  when,  or if, the  Company  will  acquire or lease such
property, or the terms of any such transaction.

ITEM 3: LEGAL PROCEEDINGS

         There are currently no threatened or pending material legal proceedings
against the Company.  From time to time, the Company has received notices from a
limited number of third parties claiming an ownership interest in certain master
recordings   published  by  the  Company  and  sold  through  its  distributors,
demanding,  among other things,  that the Company immediately cease distributing
these master recordings,  or in the alternative,  demanding that the Company pay
them  royalties.  The Company has  responded by providing  these  entities  with
information  regarding the Company's chain of title to these recordings,  and in
two instances the Company has  suspended  the future  release of the  recordings
until the matters are resolved.  There can be no assurances that either of these
matters will be resolved to the Company's satisfaction or that additional claims

                                       16
<PAGE>

will not be brought against the Company in the future by other third parties, or
that any such claims will not be  successful.  If such a claim were  successful,
the Company's business could be materially adversely affected.

         In July 1999,  the Company  initiated a lawsuit  against a former major
customer,  Meijer,  Inc.  ("Meijer"),  and Summit United  Service,  LLC ("Summit
United"). In this lawsuit, the Company alleges that Meijer and Summit United are
liable to the Company for certain  display rack  fixtures  that were supplied to
Meijer in order to merchandise  and sell music and music related  products.  The
net  book  value of the  display  rack  fixtures  at  issue  in the  lawsuit  is
approximately  $200,000. In addition, the Company is suing for reasonable rental
value of the  display  rack  fixtures,  advertising  credits  in the  amount  of
$67,379,  a new store  allowance  credit in the amount of $171,041  and improper
deductions for return product in the amount of $300,644.  As of August 31, 1999,
no  counterclaim  or other claims have been asserted or  threatened  against the
Company  arising  out  of  these  transactions.  Management  of the  Company  is
vigorously prosecuting this lawsuit which is in the discovery process.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

         During the fourth quarter of the fiscal year covered by this Report, no
matters were submitted to a vote of securityholders.


PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED MATTERS

(a)      Market Information

         The  Company's  Common  Stock  is  currently  traded  on  the  National
Association of Securities  Dealers,  Inc. Automated  Quotation System's Bulletin
Board  (OTC:BB)  under the symbol "PNEC." There is only a limited public trading
market for the Common  Stock.  There can be no assurance  that an active  public
market will develop or, if developed,  be maintained for the Common  Stock.  The
high and low prices for the Company's  Common Stock during the calendar  quarter
preceding the dates below,  and the closing bid price on each such date,  are as
follows:

                                       17
<PAGE>

                                  High            Low              Close
                                  ----            ---              -----
    1997
    ----
    December 31, 1997             $6.00           $2.75            $2.87

    1998
    ----
    March 31, 1998                $4.87           $1.87            $3.00

    June 30, 1998                $11.43           $2.75            $6.00

    September 30, 1998            $5.50           $5.25            $5.43

    December 31, 1998             $4.75           $4.62            $4.62

    1999
    ----
    March 31, 1999                $7.32           $3.68            $4.00

    June 30, 1999                 $3.93           $3.78            $3.93

    September 30, 1999            $2.56           $2.44            $2.44


-------------------
* Source:  National Association of Securities Dealers,  Inc. Automated Quotation
System ("NASDAQ"),  OTC Bulletin Board. Such over-the-counter  market quotations
reflect interdealer prices, without retail mark-up,  mark-down or commission and
may not necessarily represent actual transactions.

         The Company  believes that the OTC: BB is the principal  market for its
Common Stock.

(b)      Holders.  The Common  Stock was held by  approximately  254  holders of
record as of November 30, 1999.  The Company  believes that it has a substantial
number of beneficial holders of its Common Stock.

(c)      Dividends.  The Company has not paid dividends to date on its shares of
Common  Stock.  The  payment of  dividends,  if any, in the future is within the
discretion of the Board of Directors.  The payment of dividends,  if any, in the
future  will  depend  upon the  Company's  earnings,  capital  requirements  and
financial conditions and other relevant factors.

         The Company's  Board of Directors does not presently  intend to declare
any  dividends  in the  foreseeable  future  but  instead  intends to retain all
earnings, if any, for use in the Company's business operations.

                                       18
<PAGE>


ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         THIS DOCUMENT INCLUDES  STATEMENTS THAT MAY CONSTITUTE  FORWARD-LOOKING
STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION  REFORM  ACT OF 1955.  THE  COMPANY  WOULD  LIKE TO  CAUTION  READERS
REGARDING CERTAIN FORWARD-LOOKING  STATEMENTS IN THIS DOCUMENT AND IN ALL OF ITS
COMMUNICATIONS TO SHAREHOLDERS AND OTHERS,  PRESS RELEASES,  SECURITIES FILINGS,
AND  ALL  OTHER  COMMUNICATIONS.  STATEMENTS  THAT  ARE  BASED  ON  MANAGEMENT'S
PROJECTIONS, ESTIMATES AND ASSUMPTIONS ARE FORWARD-LOOKING STATEMENTS. THE WORDS
"BELIEVE," "EXPECT,"  "ANTICIPATE,"  "INTEND," AND SIMILAR EXPRESSIONS GENERALLY
IDENTIFY FORWARD-LOOKING STATEMENTS.  WHILE THE COMPANY BELIEVES IN THE VERACITY
OF ALL STATEMENTS MADE HEREIN,  FORWARD-LOOKING STATEMENTS ARE NECESSARILY BASED
UPON A NUMBER OF ESTIMATES AND ASSUMPTIONS THAT, WHILE CONSIDERED  REASONABLE BY
THE  COMPANY,  ARE  INHERENTLY  SUBJECT TO  SIGNIFICANT  BUSINESS,  ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES AND KNOWN AND UNKNOWN RISKS. MANY OF
THE  UNCERTAINTIES  AND CONTINGENCIES CAN AFFECT EVENTS AND THE COMPANY'S ACTUAL
RESULTS  AND COULD  CAUSE ITS  ACTUAL  RESULTS TO DIFFER  MATERIALLY  FROM THOSE
EXPRESSED  IN ANY  FORWARD-LOOKING  STATEMENTS  MADE BY,  OR ON BEHALF  OF,  THE
COMPANY.  PLEASE  SEE THE  "RISK  FACTORS"  IN THE  COMPANY'S  FILINGS  WITH THE
SECURITIES  AND EXCHANGE  COMMISSION  FOR A  DESCRIPTION  OF SOME,  BUT NOT ALL,
RISKS, UNCERTAINTIES AND CONTINGENCIES.

         THE FOLLOWING  DISCUSSION  AND ANALYSIS  SHOULD BE READ IN  CONJUNCTION
WITH THE  FINANCIAL  STATEMENTS  AND RELATED  NOTES  THERETO  WHICH ARE INCLUDED
ELSEWHERE HEREIN.

GENERAL

         The Company was incorporated under the laws of the State of Delaware in
May 1996 to raise  capital and  acquire,  own,  integrate  and operate  seasoned
privately-held  companies  in the music  business.  In July  1996,  the  Company
acquired  from  Messrs.  Arnone,  Giakas  and  Venneri,  the  three  controlling
shareholders,  directors and officers of the Company, for shares of Common Stock
in the  Company,  all of the issued and  outstanding  common  stock of  Maestro.
Maestro owned exclusive rights to  approximately  5,000 master  recordings,  and
subsequently acquired exclusive and non-exclusive rights to an additional 10,000
master records.

         As indicated  elsewhere herein,  effective as of September 1, 1998, the
Company  acquired NEOS.  For the years ended August 31, 1999 and 1998,  NEOS had
net revenues of $42,219,378  and  $34,793,341  respectively,  which  constituted
approximately  96%  (on  an  actual  basis)  and  99%  (on a pro  forma  basis),
respectively,  of the  Company's  net  revenues for such  periods.  Prior to the
September 1, 1998 NEOS acquisition, the Company had limited revenues and income.
As a result, the results of operations of the Company commencing as of September
1, 1998 reflect in large part the operations of NEOS. In addition, all financial
data  of  the  Company  prior  to  September  1,  1998  is  to  a  large  extent
non-material,   other  than   certain   losses   resulting   from   general  and
administrative  expenses  incurred in connection  with entering into the various
production and distribution  agreements,  as well as professional  fees incurred
related to the  registration  of the  Company's  Common Stock.  Accordingly,  to
assist the reader in a clearer  understanding  of this Report,  the Company will
compare its results for the twelve month  period  ended  August 31, 1999,  which
reflects the  Company's  consolidated  results of  operations,  to its pro forma
results of operations  for the  comparable  period in the Company's  fiscal year
1998 which  ended  August 29,  1998  ("Fiscal  1998"),  which  assumes  the NEOS
Acquisition occurred effective as of September 1, 1997.

                                       19
<PAGE>

         The Company has five offices.  Planet has its corporate headquarters in
Middletown,  New  Jersey  and a  recording  studio  in  Chester,  PA.  NEOS  has
administrative  headquarters  and warehouse in Latham,  New York,  and two sales
offices  located in  Philadelphia,  Pennsylvania  and  Baltimore,  Maryland.  In
addition, a Florida office is scheduled to open soon. NEOS's primary business is
selling  pre-recorded music, videos and accessories to retailers  throughout the
United  States.  NEOS  acquires most of its products from the major music labels
and the balance from small private labels.

         NEOS's  operations  can be grouped into two  distinct  segments - "rack
jobbing" and its One Stop division.  In "rack  jobbing," the vendor assumes full
responsibility  for  the  customer's  display,   stocking  the  display  at  the
customer's location and making the day-to-day decisions as to which inventory to
deliver,  return and  present in the  displays.  A rack  jobber owns the display
material or fixtures and is  responsible  for the proper  presentation  of goods
within  the  display.  Prior  to 1995,  NEOS was  principally  a  wholesaler  of
pre-recorded  music and  entertainment  products  through its One Stop  division
("One Stop Business"). The One Stop Business primarily operates as a centralized
order fulfillment center for the small to medium sized retail stores,  typically
record stores, that obtain a variety of recorded music and video. This aspect of
the business  supplies  merchandise based on the orders placed by its customers.
The customers in this segment of the business are  responsible for the selection
of titles and the decisions regarding the return of merchandise.

         According to the Record  Industry  Association  of America's  Recording
Industry Releases 1998  Manufacturers'  Shipment and Value Report, CD album unit
shipments  rose  12.5%  from  753.1  million  in 1997 to 847.0  million in 1998.
Cassette  unit  shipments  continued to drop from 172.6 million in 1997 to 158.5
million in 1998 (down 8.2%). These trends have held consistent in the statistics
available  for the first six months of calendar  year 1999.  DVD saw the largest
growth percentage from approximately  154,000 units in the six months ended June
30, 1998 to approximately 800,000 units in the six months ended June 30, 1999, a
520% increase.  CD albums accounted for 83% of total value and 75% of total unit
shipments in 1998. For NEOS, in the eight months ended August 31, 1999, CD album
sales rose to approximately 84% of net sales while cassettes  declined to 14% of
net sales.

         NEOS  recognizes  sales for its One Stop Business and Rack Job Business
at the time of shipment of products to its  customers.  All of the NEOS products
are sold with a limited right of return by the customer. Generally, in the music
distribution industry, wholesalers, such as NEOS, have a limited right of return
to the manufacturers.  Accordingly, NEOS does not accrue returns and allowances.
NEOS,  however,  reduces net  revenues by  calculating  actual  returns.  NEOS's
business,  similar to other businesses in the music  distribution  industry,  is
highly seasonal where a high  proportion of sales occur in the Christmas  season
but a high amount of returns occur in the months of January through March.

         As of November 26, 1999,  the Company has sold copies of  non-exclusive
master recordings in two separate transactions.  In one transaction, the Company
sold a copy of 2,500 master  recordings and in another  transaction  the Company
sold a copy of 5,000 of its master  recordings.  All copies of master recordings
are sold  without  third  party  rights.  In such sales,  the  Company  receives
restricted shares of common stock from the purchasers.

                                       20
<PAGE>

CAPITAL INVESTMENT STRATEGY

         During fiscal 1999, NEOS expended  $995,149 on capital assets.  The two
major  investments  were  the  NxTrend  system  and new  carousel  software  and
hardware.

         As mentioned in the "Corporate Strategy" section of this Item 1, during
October 1999 NEOS successfully  converted from their previous  software/hardware
package  to  a  state-of-the-art   custom  hardware  and  distribution  software
solution.  Also,  we  have  recently  upgraded  our  automated  state-of-the-art
integrated  carousel  and pick to light  system  which  allows  more  rapid  and
virtually  error free  fulfillment  to the customer base.  Our  warehousing  and
computer  systems (the result of many years of ongoing research and development)
have positioned us to capitalize on the many new growth  opportunities  that are
beginning to present themselves.

RECENT DEVELOPMENTS

         In January  1999,  Meijer  informed the Company that it would no longer
purchase the Company's  products.  Meijer accounted for approximately 40% of the
net  revenues  of NEOS  during  its  fiscal  year  ended  August  29,  1998  and
approximately  22% of the net  revenues of NEOS for the fiscal year ended August
28,  1999.  Meijer is a  department  store  chain with  approximately  118 store
locations,  of which NEOS serviced 46  locations.  Sales to Meijer were from the
Rack Business.  The Company anticipates that its accounts receivable from Meijer
are  collectible.  Although  the Company  believes the loss of Meijer may have a
material  adverse  effect on the Company's  future  results of  operations,  the
Company  believes that increased  sales from its One Stop Business may partially
offset  the  loss  of  Meijer  as  a  customer.  Additionally,  the  Company  is
aggressively  seeking to increase its sales by  soliciting  prospective  new One
Stop Business and Rack Business  customers,  seeking to generate increased sales
from  existing  customers  (including  increases  in  the  number  of  locations
serviced),  and promoting its Internet  customer  service  capabilities to third
party companies.  No assurances can be given,  however, that the Company will be
able to replace or offset sales losses from Meijer. The inability of the Company
to replace or offset such lost sales will have a material  adverse effect on the
Company's future results of operations.

RESULTS OF  OPERATIONS  FOR THE  COMPANY'S  TWELVE MONTH PERIOD ENDED AUGUST 31,
1999 AS COMPARED TO THE PRO FORMA  RESULTS OF  OPERATIONS OF THE COMPANY FOR THE
TWELVE MONTH PERIOD ENDED AUGUST 29, 1998

         NET REVENUES.  For the twelve months ended August 31, 1999 net revenues
were  approximately  $43,791,000  as  compared  to pro  forma  net  revenues  of
approximately  $35,152,000 for fiscal 1998, which represented an increase in net
revenues of  $8,639,000  or 25%. Net revenues from the One Stop Business for the
twelve  months ended August 28, 1999 versus the prior year,  respectively,  were
approximately $28,346,000 as compared to approximately $20,434,000,  an increase
of 39%. This increase was due to an expanded customer base and greater SKU depth
as well as general improvement in music industry revenues. Net revenues from the

                                       21
<PAGE>

Rack  Business for the twelve  months  ended August 28, 1999 were  approximately
$13,873,000  as  compared to  approximately  $14,359,000  in the prior  year,  a
decrease  of 3%.  This  decrease  was  primarily  due to the loss of the  Meijer
account.  In the twelve months ended August 31, 1999,  Meijer  accounted for net
revenues of approximately  $9,460,000 or 22% of net revenues for the Company. As
discussed  elsewhere in this Report,  Meijer stopped ordering  products from the
Company in January  1999.  Net revenues  from Planet  Operations  for the twelve
months  ended  August  31,  1999  versus  the  prior  year,  respectively,  were
approximately  $1,571,000 as compared to approximately  $359,000, an increase of
338%.  This increase was primarily due to the $1,500,000  sale of limited rights
to certain masters.

         COST OF SALES.  For the twelve  months ended  August 31, 1999,  cost of
sales was  approximately  $35,737,000  or 82% of net revenues as compared to pro
forma cost of sales for fiscal 1998 of  approximately  $29,171,000 or 83% of net
revenues.  This  decrease as a percentage  of revenues is  primarily  due to the
incremental revenue from the sale of masters discussed above.

         OPERATING  EXPENSES.  For the twelve  months  ended  August  31,  1999,
selling,   general  and  administrative  expenses  ("SG&A")  were  approximately
$6,770,000  or 16% of net revenues  compared to pro forma SG&A of  approximately
$5,220,000 or 15% of net revenues in fiscal 1998. Such increase in SG&A resulted
from the higher level of NEOS's payroll ($940,000) in fiscal 1999 resulting from
additional  locations  being  serviced,   and  the  increased  professional  and
consulting  fees  ($515,000)  primarily  related to the NEOS  Acquisition and in
connection with the filing of the Company's registration statement on Form 10-SB
and its  registration  on Form SB-2 of shares of  Common  Stock  underlying  the
Company's 7% Series A  Convertible  Preferred  Stock,  stated value  $10,000 per
share (the "Preferred  Stock"), of which 500 shares were sold to one investor in
May 1998.

         INTEREST EXPENSE. For the twelve months ended August 31, 1999, interest
expense  was  approximately  $534,000 or 1.2% of net  revenues  versus pro forma
interest  expense of  approximately  $585,000 or 1.7% of net  revenues in fiscal
1998. This decrease was primarily caused by less accrued  interest  ($41,000) on
outstanding notes to related parties.

         NET INCOME  (LOSS).  For the twelve  months ended August 31, 1999,  net
income was approximately  $278,000 or 0.6% of net revenues, as compared to a net
loss of  approximately  ($234,000)  or (0.7%) of net  revenues for the pro forma
results for the fiscal year ended August 29, 1998.  Pre-tax net income from NEOS
for the twelve months ended August 28, 1999 versus the prior year, respectively,
was approximately $564,000 as compared to approximately  $751,000, a decrease of
25%. This decrease was primarily due to the loss of the Meijer account.  Pre-tax
net loss from Planet and its subsidiaries  other than NEOS for the twelve months
ended August 31, 1999 was approximately  ($320,000) as compared to approximately
($985,000)  in the prior year, a 68%  improvement.  The current year net loss is
primarily due to the costs of the NEOS  Acquisition and expenses  related to the
registration of the Common Stock  underlying the Preferred  Stock.  The loss was
partially  offset  by the  incremental  revenue  from the sale of  non-exclusive
rights to the masters discussed above.


                                       22
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The  Company's  primary cash  requirements  are for payments for NEOS's
products and operating expenses, as well as various notes,  including to related
parties. Prior to the NEOS Acquisition, the Company's primary source of cash was
loans from its  principal  shareholders,  Messrs.  Arnone and Giakas,  and other
related  parties,  as well as  proceeds  from the sale of the  Preferred  Stock.
NEOS's sources of cash include normal  operations and its revolving  credit line
with Congress Financial Corporation ("CFC").

         Cash and cash  equivalents  as of  August  31,  1999 were  $620,975  as
compared to the pre-NEOS Acquisition August 29, 1998 cash balance of $3,850,162,
or a reduction of  $3,229,187.  This  reduction was the result of the paydown of
accounts  payable  ($368,401),   the  costs  and  purchase  price  of  the  NEOS
Acquisition  ($1,627,416),  the purchase of equipment ($995,149) and payments on
related party debt ($500,000).

         Net cash flow used by operating  activities for the twelve month period
ended  August 31, 1999 was  $831,003.  The primary  uses of cash were to paydown
accounts payable  ($368,401) and increase the inventory  ($316,505) as well as a
drop in deferred revenue ($151,356).  Inflows in accounts receivable  ($223,477)
were  offset by  non-cash  items  (i.e.,  marketable  securities,  depreciation,
accrued expenses, etc).

         As  of  August  31,  1999,   outstanding  accounts  receivable  totaled
$5,242,898.  This amount is net of an allowance  for bad debts of  $617,143.  By
comparison,  the pro forma consolidated accounts receivable balance as of August
31,  1998  was  $5,856,805,  net  of an  allowance  of  $182,488.  The  accounts
receivable  balance  at  August  31,  1999  includes  $368,138  due from a major
customer,  Meijer,  which has stopped purchasing from the Company. A lawsuit has
been  initiated  against  this  customer  (see  Note 20 of  Notes  to  Financial
Statements - Litigation).  However,  the Company  believes that this  receivable
balance is collectible and,  furthermore,  that the bad debt allowance discussed
above will be sufficient to satisfy any amounts that are not paid.

         At August 31, 1999, inventory was $7,165,072 versus a pro forma balance
as of August 31, 1998 of  $6,848,567.  The  Company  believes  this  increase is
normal due to increased  sales  volume.  NEOS  accounts  for its  inventory on a
first-in-first-out basis.

         At August 31, 1999, the Company's  accounts payable and accrued expense
balance  was  $7,760,473  versus the pro forma  balance as of August 31, 1998 of
$8,509,717, primarily due to the timing of vendor payments.

         NEOS has a revolving credit agreement (the "CFC Credit Agreement") with
CFC. The maximum line of credit  available  under the CFC Credit  Agreement  was
recently  increased to $8,500,000 with a separate  $1,500,000 line for equipment
purchases.  Advances  under the CFC  Credit  Agreement  are made on the basis of
eligible  accounts  receivable  and inventory as defined in the  agreement.  CFC
requires NEOS to maintain  working capital of no less than $2,500,000  excluding
its borrowings  from CFC. In addition,  NEOS must maintain an adjusted net worth
of no less than  $600,000.  The adjustment to the net worth  calculation  allows

                                       23
<PAGE>

NEOS to add the balance of any subordinated  debt due to the former  shareholder
of NEOS to the net worth calculation to meet the required level. Working capital
and adjusted  net worth as of August 28, 1999 were  $5,181,296  and  $1,222,990,
respectively.  As of  August  28,  1999,  NEOS had an  aggregate  of  $5,435,035
outstanding  under the CFC Credit  Agreement.  NEOS pays  interest to CFC at the
rate of  prime  plus  1.0%  on all  outstanding  amounts  under  the CFC  Credit
Agreement. All obligations of NEOS under the CFC Credit Agreement are guaranteed
by the Company.

         Net cash flow used by investing  activities for the twelve month period
ended August 31, 1999 was  $2,795,803.  The primary cash outflow for the Company
was the cash needed for the NEOS  Acquisition.  Although the cash outlay for the
purchase was $2,250,000 with the balance in stock options and notes payable, the
amount of cash on hand at NEOS as of the purchase  date  approximated  $523,000,
and $100,000 had already been paid out to escrow in a prior fiscal quarter. This
resulted in a net cash outlay in the current period of approximately $1,627,000.
In addition, fixed assets (including new telephone and computer systems at NEOS)
totaling $995,149 were acquired during the period.

         Net cash flow from  financing  activities  for the twelve  month period
ended August 31, 1999 was $397,619.  The primary source of cash was the CFC line
of credit  ($1,264,639).  Cash  outlays  included  the  repayment of advances to
employees and  stockholders of $145,000,  principal  payments of $500,000 on the
Gulf Coast Note (the remaining principal and interest balance on this note as of
August  31,  1999  was  $679,094  to be paid in two  equal  annual  payments  of
$380,000),  payments on capital lease obligations ($166,959) and preferred stock
issuance costs of $130,294.

         As of August 31,  1999,  the Company had  outstanding  an  aggregate of
$2,863,212  in notes  (including  accrued  interest  of  $239,312),  and accrued
salaries.  Such amounts consist of a note to the former  stockholder of NEOS for
$375,000 due in September  1999 (paid  September 1, 1999),  $679,094 on the Gulf
Coast Note,  a $344,000  principal  amount 9% demand note to the former owner of
NEOS issued prior to the NEOS Acquisition, a $230,884 principal amount 9% demand
note due to  privately  held  corporations  owned by  Messrs.  Giakas and Arnone
representing  working capital advances made by such entities to the Company, two
notes due to a private lender the first a $150,000  principal  amount 10% demand
note and the second a $400,000 principal amount 9% note due September 1, 2000, a
$15,000  principal amount 9% demand note to Whelan,  Inc., also a privately held
corporation owned by Messrs.  Arnone and Giakas,  accrued officers'  salaries of
$539,859  and $69,157 in notes due to finance  various  assets  purchased by the
Company.

         NEOS has several capital leases in the aggregate amount of $67,122 that
are secured by the related equipment and fixtures.

         The Company  believes that its current cash,  cash from  operations and
loans under the CFC Credit  Agreement  will be  sufficient to fund the Company's
working capital  requirements for the foreseeable  future.  No assurances can be
given, however, that due to any number of events and/or circumstances including,

                                       24
<PAGE>


but not  limited  to, a downturn in the  pre-recorded  music  industry or in the
economy in  general,  the  Company  will not need  additional  working  capital.
Furthermore,  no assurances can be given that the Company will be able to obtain
such additional working capital when and if needed or on terms acceptable to the
Company.

YEAR 2000 ISSUES

         Many existing  computer programs use only two digits to identify a year
in the date  field,  with the result  that data  referring  to the year 2000 and
subsequent  years may be  misinterpreted  by these  programs.  If present in the
computer  applications of the Company,  or its suppliers and customers,  and not
corrected,  this problem  could cause  computer  applications  to fail or create
erroneous  results.  This could  cause a  disruption  in  operations  and have a
short-term  adverse effect on the Company's  business and results of operations.
Using internal staff and outside consultants, the Company is actively addressing
this situation and  anticipates  that it will not experience a material  adverse
impact to its operations,  liquidity or financial  condition  related to systems
under its control.  Specifically,  the Company converted its mainframe inventory
and financial  accounting computer software to Nxtrend's "Trend" system software
package, replaced the majority of its computer hardware, and installed a new LAN
network.  These system upgrades and  conversions  were made primarily to improve
productivity,  efficiency,  and  competitiveness,  but  they  have an  ancillary
benefit of achieving Year 2000 compliance.  The aggregate cost of these upgrades
and  conversions is  approximately  $650,000,  the majority of which has already
been expended  (primarily in the third fiscal  quarter of 1999).  The Company is
not able to separately quantify expenditures for Year 2000 compliance.

         The  Company  is taking the  necessary  steps to  provide  itself  with
reasonable  assurance  that its  service  providers,  suppliers,  customers  and
financial institutions are Year 2000 compliant. The Company estimates that it is
approximately  90% complete in its  verification  of  compliance by such service
providers,  suppliers,  customers, and financial institutions.  In addition, the
Company is  developing  contingency  plans to identify  and  mitigate  potential
problems and disruptions to the Company's  operations arising from the Year 2000
issue.

         The Company  expects to complete  its Year 2000  compliance  efforts by
December 15, 1999. While the Company  believes that its own internal  assessment
and planning efforts with respect to its external service providers,  suppliers,
customers  and  financial  institutions  are and will be adequate to address its
Year 2000  concerns,  there  can be no  assurance  that  these  efforts  will be
successful  or  will  not  have a  material  adverse  effect  on  the  Company's
operations.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998,  the FASB issued SFAS No. 133,  ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING Activities.  This Statement  establishes  accounting and
reporting  standards  for  derivative  instruments  and hedging  activities.  It
requires the  recognition of all  derivatives as either assets or liabilities in
the statement of financial  position and measurement of those instrument at fair
value. The accounting for changes in the fair value of a derivative is dependent
upon the intended use of the  derivative.  SFAS No. 133 will be effective in the
Company's  first  quarter  of  the  fiscal  year  ending  August  31,  2001  and
retroactive application is not permitted.  Management does not believe that this
Statement will have a significant impact on the Company.

                                       25
<PAGE>

         In April 1998, the American Institute of Certified Public  Accountants'
("AICPA")  Accounting Standards Executive Committee Issued Statement of Position
No. 98-5 ("SOP 98-5"),  REPORTING ON THE COSTS OF START-UP ACTIVITIES.  SOP 98-5
requires that costs of start-up  activities,  including  organization  costs, be
expensed as incurred.  SOP 98-5 will be effective in the Company's first quarter
of the fiscal year ending August 31, 2000. Management does not believe that this
Statement will have a significant impact on the Company.

ITEM 7: FINANCIAL STATEMENTS

         See the Financial Statements annexed to this Report.

ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE
         None

PART III


ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

         The directors  and executive  officers of the Company and their ages as
of this date are set forth below.  None of the directors and executive  officers
are related to one another.

         Name               Age        Position(s) Held
         ----               ---        ----------------

 Wallace M. Giakas          44         Chairman of the Board, Secretary

 John S. Arnone             42         President, Chief Executive Officer,
                                       Director

 Joseph Venneri             63         Executive Vice President, Director

 Richard Bluestine          57         Executive Vice President, Chief
                                       Financial Officer, and Chairman of Audit
                                       Committee

 Louis J. DelSignore        61         Director, Planet Entertainment
                                       Corporation, Chairman, Northeast One
                                       Stop, Inc.

 Ronald J. Nicks            46         Director, Planet Entertainment
                                       Corporation, President, Chief Executive
                                       Officer, Northeast One Stop, Inc.

 Robert G. Thomas           56         Director

 Donald F. Maggi            40         Director

                                       26
<PAGE>

         The By-laws of the Company  currently  provide for a minimum of two (2)
directors.   All  directors  hold  office  until  the  next  annual  meeting  of
stockholders  and until their  successors  have been duly elected and qualified.
The Company's  officers are  appointed by the Board of Directors.  A copy of the
Company's Bylaws is available upon request.

         WALLACE M.  GIAKAS has been the  Chairman  of the Board of the  Company
since October 1996 and Secretary  since June 1997.  From October 1992 until June
1995, Mr. Giakas was president of Chapman,  Spira & Carson,  Inc., an investment
and merchant banking firm located in New York, New York. From April 1994 through
March 1996,  Mr.  Giakas,  served as  executive  vice  president of Emerald City
Capital  Corp.,  and from June 1995 through the present,  Mr.  Giakas  serves as
president of Hamilton  Wallace  Group,  Inc., a private  investment  and venture
capital firm located in Middletown,  New Jersey.  Mr. Giakas devotes most of his
professional time to the business of the Company.

         JOHN S. ARNONE is President,  Chief Executive Officer and a Director of
the  Company,  which  positions  he has held since June 1998.  From October 1996
through June 1998,  Mr.  Arnone  served as a Director  and the  Secretary of the
Company.  From July 1992  through  August,  1993,  Mr.  Arnone was  president of
Lancaster Leeds & Co., a private investment and merchant banking firm located in
New York,  New York.  From August,  1993 through  April,  1994, Mr. Arnone was a
managing  director of Chapman,  Spira & Carson,  Inc., a private  investment and
merchant  banking  firm located in New York,  New York.  From April 1994 through
March,  1996,  Mr.  Arnone was president of J.W.  Cabott & Co.,  Inc., a private
investment  firm, and from April 1994 through March 1996, Mr. Arnone also served
as president of Emerald City Capital  Corp.,  a private  investment  firm.  From
March 1996  through  January  1998,  Mr.  Arnone  served as  President of Whelan
Securities,  Inc., an NASD registered  general  securities broker dealer.  Since
January 1998 and continuing through the present,  Mr. Arnone devotes most of his
professional time to the business of the Company.

         JOSEPH  VENNERI is  Executive  Vice  President  and a  Director  of the
Company.  Prior to June 1998,  Mr.  Venneri was  President  and Chief  Executive
Officer of the  Company.  Mr.  Venneri  has been  self-employed  as a  recording
engineer and  producer  operating  from the  recording  studio  purchased by the
Company in Jackson,  New Jersey since 1994. Mr. Venneri has 38 years  experience
in the entertainment industry, beginning as an artist and has been the President
and owner of several recording studios and was an original member of The Tokens.
Mr. Venneri also has  experience in production,  where he produced more than 100
gold records over the last 25 years.  Mr.  Venneri has worked for EMI, RCA, MGM,
Atlantic Records, Warner Brothers Records, Mercury Records,  Plantation Records,
and Sun Records.  He is highly regarded by producers,  engineers and restoration
experts in the music industry,  and has recorded and  re-recorded  such stars as
Bob Marley, Sammy Davis, Jr., Jethro Tull, The Grateful Dead, REM, Cher, Michael
Bolton, Kenny Rogers, Willie Nelson,  Luciano Pavarotti,  and hundreds more. Mr.
Venneri devotes his full professional time to the business of the Company.

         RICHARD C.  BLUESTINE,  C.P.A.  is Executive  Vice-President  and Chief
Financial Officer of the Company. Mr. Bluestine is a Certified Public Accountant
with  experience in the record and film industry.  Mr.  Bluestine is currently a
partner at the accounting firm of Brinster & Bergman, L.L.P., and has been since
January 1990. In addition,  during that same time,  Mr.  Bluestine has been Vice

                                       27
<PAGE>

President of SBR Industries, Inc., a manufacturer and distributor in the apparel
industry.  From June  1995  through  May 1997,  Mr.  Bluestine  was an  officer,
director, and stockholder of Multi-Media  Industries Corporation ("MMIC").  (See
Item 12. "Certain  Relationships and Related  Transactions").  From 1971 through
1990, Mr. Bluestine  served as a Certified Public  Accountant with various firms
including KMG Main Hurdman.  He has served as a pension trustee for the New York
City  Fire  Department,  as a member of the  Mayor's  Investment  Fiscal  Policy
Committee for the City of New York. He received his  accounting  degree from New
York  University  and has served on various  AICPA and NYSSCPA  committees.  Mr.
Bluestine  devotes part of his professional time to the business of the Company.
Because Mr.  Bluestine  has  indicated  that he is not  available on a full time
basis,  the Company has not offered Mr.  Bluestine an employment  contract.  The
Company may seek to hire a new chief financial officer if it believes it needs a
full time individual in that capacity. The Company believes, if necessary,  that
it could readily hire a new chief financial officer.

         LOUIS J.  DELSIGNORE  is a Director of the Company and  Chairman of the
Company's subsidiary, Northeast One Stop, Inc. From 1983 through September 1998,
Mr.  DelSignore  served as  president  of NEOS and  currently is employed by the
Company to assist in running NEOS.  From August 1973 through  January 1983,  Mr.
DelSignore  was vice president of finance and a member of the Board of Directors
of Trans World Music Corporation.  Mr. DelSignore has substantial  experience in
the wholesale  distribution  of recorded music and other  entertainment  related
products.  Mr.  DelSignore  has a  Bachelor  of  Science  degree  from the State
University of New York at Albany.

         RONALD J. NICKS is a Director of the Company and is President and Chief
Executive  Officer  of the  Company's  subsidiary,  NEOS.  Mr.  Nicks  has  been
affiliated  with NEOS since November 1997 and has served as its President  since
October 1998.  From July 1996 through  September 1998, Mr. Nicks was Senior Vice
President of Alliance Entertainment Corporation  ("Alliance"),  and from January
1994 through July 1996 was Chief Executive Officer of Alliance's One Stop Group.
From  November  1990 through  January  1994,  Mr. Nicks was Vice  President  and
General Manager of CD One Stop, where he oversaw all operations  including sales
and purchasing. From November 1988 through November 1990, Mr. Nicks was director
of purchasing for CD One Stop, and from October 1974 through  November 1988, was
associated with Western Merchandisers, Inc. Mr. Nicks has significant experience
in the  wholesale  distribution  of recorded  music.  Mr. Nicks devotes his full
professional time to the business of the Company.

         ROBERT G. THOMAS has been a Director of the Company since June 1999. He
has been General Counsel and Compliance  Officer at the  Norinchukin  Bank since
March 1999 and he also has operated his own private  practice of law since 1992.
Prior  thereto,  Mr. Thomas was a co-owner,  counsel,  and financial  officer of
Whelan  Management Corp.  (April 1993 to April 1997) and Whelan  Securities Inc.
(April  1993 to  July  1996),  an  investment  advisory  firm  and a  securities
broker-dealer,  respectively. From January 1992 to September 1993, he was a Vice
President and Portfolio  Manager of New Amsterdam  Partners,  L.P., a registered
investment  adviser.  Mr. Thomas was engaged in the private practice of law from
1976 to 1991.  He has been a member  of the  Board of  Directors  and  Executive
Committee and Chairman of the Audit Committee of Tokyo Trust Company of New York

                                       28
<PAGE>

since 1986 and has been a director of the Norinchukin Foundation since 1993. Mr.
Thomas  earned a B.A.  degree from  Washington & Lee  University  in 1965 and an
LL.B. degree from Columbia University School of Law in 1965.

         DONALD F. MAGGI has been a Director of the Company  since June 1999. He
has  been   President  and  owner  of   Intertainment,   Inc.,  an   interactive
entertainment  service  company,  since 1998. Prior thereto Mr. Maggi was a Vice
President of Left Bank Management (1995 to 1997), in charge of all New Media for
recording artists,  and McGhee Entertainment (1993 to 1995), engaged in personal
artist  management.  He also has been a Director of NorthEast  for Promotion and
Marketing  of  Interscope  Records  (1991 to 1992),  Director of  Promotion  and
Marketing of Geffen Records (1987 to 1991), Marketing Manager for New England of
Atlantic   Records  (1986  to  1987),   and  Director  of  Special  Projects  of
Monarch/Metropolitan Entertainment (1981 to 1986). Mr. Maggi attended Seton Hall
University from 1978 to 1981.

         Based on its  non-receipt of any copies of Forms 3, 4, and 5 during the
fiscal  year ended  August 31,  1999,  the Company  believes  that no person who
during such fiscal year was a director,  officer,  or  beneficial  owner of more
than 10  percent  of its  Common  Stock  filed any  reports on Forms 3, 4, and 5
during the fiscal year ended August 31, 1999. To the Company's  knowledge,  none
of such  persons  has filed Form 3 and,  owing to the  absence of any filings of
Forms 4 and 5, the  Company is not aware of any  transactions  that  should have
been reported.

ITEM 10: EXECUTIVE COMPENSATION

         The following table sets forth the cash and accrued  compensation,  and
warrants issued by the Company to each executive  officer of the Company for the
year ended  December 31, 1997,  for the eight months ended August 31, 1998,  and
for the year ended August 31, 1999.
<TABLE>
<CAPTION>

Name of                  Principal                                   Other           Long Term       Total
Individual               Position           Year        Salary       Compensation    Compensation    Compensation
----------               --------           ----        ------       ------------    ------------   ------------
<S>                      <C>                <C>         <C>          <C>                  <C>        <C>
John S. Arnone           President, Chief   1997        $ 31,250     $3,359,493          -0-         $3,390,743
                         Executive
                         Officer, Director
                                            1998        $ 20,833     $ -0-               -0-         $   20,833
                                            1999        $125,000     $  573,875(1)       -0-         $  698,875

Wallace M. Giakas        Chairman of the    1997        $ 31,250     $3,359,493          -0-         $3,390,743
                         Board, Secretary
                                            1998        $ 20,833     $ -0-               -0-         $   20,833
                                            1999        $125,000     $  573,875(1)       -0-         $  698,875

Joseph Venneri           Executive Vice     1997        $ 36,200     $3,359,493          -0-         $3,395,693
                         President,
                         Director
                                            1998        $ 20,833       -0-               -0-         $   20,833
                                            1999        $125,000       -0-               -0-         $  125,000
</TABLE>

                                       29
<PAGE>
<TABLE>
<CAPTION>

Name of                  Principal                                   Other           Long Term       Total
Individual               Position           Year        Salary       Compensation    Compensation    Compensation
----------               --------           ----        ------       ------------    ------------   ------------
<S>                      <C>                <C>         <C>          <C>                  <C>        <C>
Richard Bluestine        Executive Vice     1997        $ 18,750     $537,519            -0-         $ 556,269
                         President,
                         Chief Financial
                         Officer, Chair-
                         man of Audit
                         Committee
                                            1998        $ 12,500        -0-              -0-         $  12,500
                                            1999        $ 41,667     $  -0-              -0-         $  41,667

Louis J. DelSignore      Director           1998        $ N/A          N/A               N/A         $  N/A
                                            1999        $145,000     $ -0-(2)            -0-         $ 145,000(3)

Ron Nicks                Director           1998        $ N/A          N/A               N/A         $ N/A
                                            1999        $125,000     $ 25,000(3)         -0-         $ 150,000(4)
</TABLE>

-----------------
(1) Includes  options to purchase  125,000 shares of the Company's  Common Stock
exercisable  at $5.25 per  share  over a period  of five (5)  years  granted  to
Messrs.  Arnone and Giakas as compensation in connection with the acquisition of
Northeast One Stop,  Inc. At the time these  options were granted,  the price of
the Company's Common Stock was $5.25 per share.

(2) Does not include options to purchase  250,000 shares of the Company's Common
Stock  exercisable at the lesser of $5.25 per share or the closing bid price for
the Company's Common Stock at the time of Closing over a period of two (2) years
as granted to Mr. DelSignore in connection with the acquisition of Northeast One
Stop,  Inc. At the time these options were  granted,  the price of the Company's
Common Stock was $5.25 per share.

(3) Does not include options to purchase  150,000 shares of the Company's Common
Stock  exercisable  at $5.25  per share  over a period  of three (3) years  from
September 17, 1998 granted to Mr. Nicks,  of which 75,000 vested upon  execution
of their  executive  compensation  agreements  with the Company on September 17,
1998, with the remaining options to vest over the term of the agreement.  At the
time these  options were granted,  the price of the  Company's  Common Stock was
$5.25 per share.

         EMPLOYMENT AGREEMENTS.

         Of the  compensation  set forth above,  only a portion was paid in cash
and the balance was accrued by the Company.  As of August 31, 1999,  the Company
had accrued officers' salaries in the aggregate amount of $539,859.

         On January 29,  1997,  the Board of Directors  approved the  employment
agreements,  effective January 1, 1997, for Wallace Giakas, Joseph Venneri, John
Arnone  and  Richard  Bluestine.  However,  on March 24,  1998,  the  individual
officers and  directors of the Company  agreed to waive,  except with respect to
the accrued  amounts  shown above,  all other  amounts due or owing  pursuant to
these  employment  agreements  effective  March 31, 1998.  The Board did however

                                       30
<PAGE>

retain certain  incentive based  compensation  for the Board of Directors of the
Company  in the  form of  warrants  which  are  convertible  into 10  shares  of
Company's  Common  Stock at the price of $2.00 per share over a term of ten (10)
years.

         On August 14, 1998 the Company  entered  into an  employment  agreement
with Mr. Giakas.  This agreement is for the term of ten (10) years, and provides
for  compensation  in the amount of  $125,000  (for the first  year with  annual
increases of at least 10%) to Mr. Giakas  together with annual  incentive  based
bonuses in the form of 2.5% of all  pre-tax  profits  recorded by the Company in
accordance  with Generally  Accepted  Accounting  Principles  ("GAAP"),  and the
greater of two (2%) percent of the value of any acquisition made by the Company,
as computed by the purchase price plus the value of any additional consideration
paid by the Company in connection with any such acquisition, or two (2%) percent
of the revenue  reported by any such acquisition in the preceding fiscal year by
the acquiree.  In the case that any portion of such consideration  shall consist
of publicly held securities,  the market price of these securities shall be used
to determine  value,  and the value  related to any option,  warrant or right to
purchase  these  securities  shall be  determined  by  Black-Scholes  Model.  In
addition,  Mr. Giakas is entitled to 2.5% of any capital raised for the Company.
At the option of Mr. Giakas,  any  compensation  due under this provision may be
converted  into the  Company's  Common Stock at a conversion  price equal to the
average  closing bid price for the  Company's  Common Stock 30 days prior to any
such  acquisition  or capital  funding.  In connection  with the  acquisition of
Northeast One Stop, Inc., Mr. Giakas has waived all incentive based compensation
due under the terms of his  agreement and to accept  options to acquire  125,000
shares of the  Company's  Common  Stock at a price of $5.25  exercisable  over a
period of five (5) years from the date of Closing.  This agreement also provides
that in the event of a change in control of the Company,  Mr.  Giakas may resign
and all amounts due and owing for the term of his agreement shall become due and
payable.

         On August 14, 1998 the Company  entered  into an  employment  agreement
with Mr. Arnone.  This agreement is for the term of ten (10) years, and provides
for  compensation  in the amount of  $125,000  (for the first  year with  annual
increases of at least 10%) to Mr. Arnone  together with annual  incentive  based
bonuses in the form of 2.5% of all  pre-tax  profits  recorded by the Company in
accordance  with GAAP,  and the greater of two (2%)  percent of the value of any
acquisition  made by the  Company,  as computed by the  purchase  price plus the
value of any additional consideration paid by the Company in connection with any
such  acquisition,  or two (2%)  percent  of the  revenue  reported  by any such
acquisition in the preceding  fiscal year by the acquiree.  In the case that any
portion of such  consideration  shall consist of publicly held  securities,  the
market price of these securities shall be used to determine value, and the value
related to any option,  warrant or right to purchase these  securities  shall be
determined by the  Black-Scholes  Model. In addition,  Mr. Arnone is entitled to
2.5% of any capital  raised for the Company.  At the option of Mr.  Arnone,  any
compensation due under this provision may be converted into the Company's Common
Stock at a  conversion  price  equal to the  average  closing  bid price for the
Company's Common Stock thirty (30) days prior to any such acquisition or capital
funding.  In connection  with the  acquisition of Northeast One Stop,  Inc., Mr.
Arnone has waived all incentive  based  compensation  due under the terms of his
agreement  and to accept  options to  acquire  125,000  shares of the  Company's
Common  Stock at a price of $5.25  exercisable  over a period  of five (5) years

                                       31
<PAGE>

from the date of Closing.  This  agreement  also provides that in the event of a
change in control of the Company,  Mr. Arnone may resign and all amounts due and
owing for the term of his agreement shall become due and payable.

         On August 14, 1998 the Company  entered  into an  employment  agreement
with Mr. Venneri. This agreement is for the term of ten (10) years, and provides
for  annual  compensation  in the  amount of  $125,000  (for the first year with
annual  increases of at least 10%) to Mr. Venneri together with annual incentive
based bonuses in the form of 2.5% of all pre-tax profits recorded by the Company
in accordance with GAAP from the Company's Entertainment Division.

         In  connection  with the Company's  acquisition  of Northeast One Stop,
Inc., the Company secured the continued  employment of Louis J. DelSignore,  the
former sole  shareholder  of Northeast One Stop,  Inc.,  for a one (1) year term
ended August 31, 1999 at the rate of $145,000.  Mr.  DelSignore's  agreement has
been  extended for a six month  period at an  annualized  salary of $52,000.  In
addition,  the Company  has secured an  employment  and  executive  compensation
agreement  with Mr.  Nicks for a term of three (3) years at the rate of $125,000
per year and options to acquire 150,000 shares of the Company's  Common Stock at
a price of $5.25 per share.  These options would vest over a period of three (3)
years with 75,000 options  vesting on September 21, 1998, and with the remaining
75,000  options  to vest in equal  installments  of  25,000,  each  year for the
remaining three (3) years.

COMPENSATION OF DIRECTORS

         The Company's directors do not receive  compensation for their services
as directors; however, directors are compensated for their attendance at regular
and special  meetings of the Board and for  attendance at meetings of committees
of the  Board in the  amount  of $500  for  each  such  meeting.  Directors  are
reimbursed for their reasonable  out-of-pocket  expenses  incurred in connection
with their duties to the Company.

LIMITATION ON LIABILITY OF DIRECTORS

         Effective  July 1999,  the Company has obtained  directors and officers
insurance  in  the  amount  of  $1,000,000  per  occurrence.   The  Articles  of
Incorporation  and the Bylaws provide that the Company shall  indemnify and hold
harmless each officer and director of the Company (and each officer and director
of another  entity  serving at the request of the Company) who is a party to, or
is threatened  to be made a party to, any  threatened,  pending or  contemplated
action,  suit,  or  proceeding,  whether  civil,  criminal,  administrative,  or
investigative,  against expenses (including attorney's fees),  judgment,  fines,
and amounts paid in settlement,  actually and reasonably  incurred in connection
with such action,  suit or  proceeding.  They  further  provide that the Company
shall indemnify each such officer and director in any derivative action, suit or
proceeding,  if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company or its shareholders;

                                       32
<PAGE>

except that no indemnification shall be made with respect to any such derivative
action,  suit or proceeding as to which he shall have been adjudged to be liable
for gross  negligence  or  misconduct  in the  performance  of his duties to the
Company  (unless  and only to the extent  that the court in which such action or
suit  was  brought  shall  determine,   upon  application,   that,  despite  the
adjudication or liability,  but in view of all of the circumstances of the case,
he is fairly and  reasonably  entitled to indemnity for such expenses which such
court shall deem  proper).  The  Articles of  Incorporation  and the Bylaws also
provide that costs in defending any action, suit or proceeding referred to above
may be paid by the  Company in advance of the final  disposition  thereof  under
certain  circumstances.  The Company has been advised that it is the position of
the  Commission  that,  insofar  as the  foregoing  provision  may be invoked to
disclaim  liability for damages arising under the Securities Act, that provision
is against  public  policy as expressed in the  Securities  Act and is therefore
unenforceable.

STOCK OPTION PLAN

         On  October  1, 1996,  the  Company  adopted a plan known as the Planet
Entertainment Corporation Stock Plan (the "Plan") pursuant to which the Board of
Directors  shall  issue  awards,  options  and  grants.  Pursuant  to the  Plan,
1,000,000  shares of the Company's  common stock have been reserved for issuance
as awards. As of August 31, 1999 no awards, options, or grants have been issued.

OTHER COMPENSATION

         The Company provides basic health, major medical and life insurance for
its  employees,  including  its  executive  offices.  In May 1999,  the  Company
established  a 401(k)  profit  sharing  plan  ("401(k)  Plan")  which covers all
eligible  employees.  Under the terms of the 401(k) Plan, all employees who have
attained  the age of 21 years and have  completed  1,000  hours of  service  are
eligible  to  contribute  to the Plan at the next entry  date.  The 401(k)  Plan
provides  for a  matching  contribution  of 50% of the first 4% of the  employee
contribution.  The Company's matching contribution for the year ended August 31,
1999 was  $12,011.  No other  retirement,  pension or similar  program  has been
adopted by the Company.  These and other  benefits may be adopted by the Company
for its employees or the employees of its subsidiaries in the future.

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth,  as of November 30, 1999,  information
regarding  ownership of the Company's  Common Stock, by each person known by the
Company  to be the  beneficial  owner of more  than  five  (5%)  percent  of the
Company's  outstanding  Common  Stock,  by each  director,  by  certain  related
shareholders,  and by all  executive  officers and directors of the Company as a
group.  All persons named below have sole voting and investment power over their
shares except as otherwise noted.

Name of Beneficial Owner              Number of                    Percent of
or Identity of Group (1)              Shares Owned                 of Class (2)
------------------------              ------------                 ------------
Wallace M. Giakas                     3,892,000   (1)(2)(3)*             29.3%
4 Tall Oaks Court
Farmingdale, N.J. 07727

                                       33
<PAGE>
Name of Beneficial Owner              Number of                    Percent of
or Identity of Group (1)              Shares Owned                 of Class (2)
------------------------              ------------                 ------------
Joseph Venneri                        3,060,000   (1)(2)*                23.3%
336 East Pleasant Grove Rd.
Jackson, N.J. 08527

John S. Arnone                        3,867,000   (1)(2)(3)*             29.1%
30 Penbrook Court
Shrewsbury, N.J. 07702

Gulf Coast Music, Inc.                  694,000                           5.3%
c/o Jeffrey Kranzdorf
757 St. Charles Avenue
New Orleans, LA 70130

Richard Bluestine                       527,300   (1)(2)*                 4.3%
100 Merrick Road
Rockville Centre, N.Y. 11570

Louis J. DelSignore                     250,000   (4)*                    2.0%
7 Northway Lane
Latham, New York 10201

Ronald J. Nicks                         100,000   (5)*                    0.4%
7 Northway Lane
Latham, New York 10201

All executive officers
and directors as a
Group (8 persons)                    11,696,300   (1)(2)(3)              73.5%
                                                  (4)(5)

----------------
*        Officers and/or Directors of the Company.

(1) Includes shares  beneficially owned by that person,  including that person's
spouse,  children,  parents,  siblings,  mothers  and  fathers-in-law,  sons and
daughters-in-law,  and brothers and  sisters-in-law.  Messrs.  Giakas,  Venneri,
Arnone,  and  Bluestine  disclaim  beneficial  ownership  of  603,000,  200,000,
653,000, and 70,000 shares,  respectively,  owned by such related parties.  Also
includes all shares which may be acquired within 60 days through the exercise of
outstanding  options or warrants.  See table under  "Management" for offices and
directorships held by the persons listed above.

                                       34

<PAGE>

(2) Also includes 100,000  warrants,  each to purchase ten (10) shares of Common
Stock  issued by the Company to Wallace M. Giakas,  John S.  Arnone,  and Joseph
Venneri,  and 16,000 warrants to purchase ten (10) shares of Common Stock issued
to Richard Bluestine,  which are exercisable for a period of ten (10) years from
the date of issuance,  or until January 29, 2007, at $20.00 per warrant,  or the
equivalent of $2.00 per share.

(3) Includes  options to purchase  125,000 shares of the Company's  Common Stock
exercisable  at $5.25 per  share  over a period  of five (5)  years  granted  to
Messrs.  Arnone and Giakas as compensation in connection with the acquisition of
Northeast One Stop,  Inc. At the time these  options were granted,  the price of
the Company's Common Stock was $5.25 per share.

(4) Includes  options to purchase  250,000 shares of the Company's Common Stock,
exercisable  at $5.25  per  share  over a period  of two (2)  years,  issued  in
connection  with the acquisition of NEOS. At the time these options were issued,
the price of the Company's Common Stock was $5.25 per share.

(5) Includes  options to purchase  100,000 shares of the Company's Common Stock,
exercisable at $5.25 per share over a period of three (3) years.


ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Since June 1996, the Company has been granted the use of certain office
and production space located in Jackson,  New Jersey from Joseph Venneri, one of
its officers,  directors and principal shareholders for a term of five (5) years
for the sum of one dollar per month. In addition, the Company has entered into a
lease agreement with the  brother-in-law of Wallace Giakas, one of the Company's
principal shareholders,  officers and directors, for the rent of office space in
Middletown, New Jersey in the amount of $1,000 per month for a term of three (3)
years.  The  Company,  through its NEOS  subsidiary,  also leases  approximately
41,000 sq. ft. from a company owned and  controlled by Louis J.  DelSignore,  an
officer and  director of the Company for a term of five (5) years at the rate of
$15,000 per month.

         Since the Company's inception, the Company has been highly dependent on
loans from its  principal  shareholders,  Messrs.  Arnone and  Giakas,  and from
others. As of August 31, 1999, the Company owed to Messrs.  Arnone and Giakas in
the aggregate $265,920 (which includes accrued interest of $35,036) representing
the balance of funds owed to such persons  (collectively,  the "Insider Loans").
The Insider Loans are  evidenced by nine (9%) percent  demand  promissory  notes
issued to Walextin,  Inc. ("Walextin"),  a privately-held  corporation owned and
controlled by Messrs.  Arnone and Giakas.  In January 1998, the Company borrowed
in the aggregate an additional $16,150 from Walextin and Whelan Inc. ("Whelan"),
also a  privately-held  corporation  owned and controlled by Messrs.  Arnone and
Giakas.  Such loans are also  payable on demand and bear  interest  at nine (9%)
percent per annum. The Company also owes to Messrs.  Arnone, Giakas, Venneri and
Bluestine  an  aggregate  of  $539,859  of  accrued  salaries.  Because  of  the
relationship  between officers and directors of the Company and former officers,
directors and beneficial owners of Walextin and Whelan,  these transactions with
Walextin and Whelan present a conflict of interest to the Company's officers and
directors.

                                       35
<PAGE>

         In  September   1996,  the  Company   entered  into  a  production  and
distribution  agreement with MMIC, to distribute the recordings and compilations
under the label  Century  Records,  and  pursuant  to which the  Company  was to
receive compensation in the form of ten (10%) percent of the cash receipts,  net
of  returns,  of the  production  and  distribution  of ten  compact  diskettes,
including six enhanced  multi-media compact diskettes.  Pursuant to the terms of
the  agreement,  MMIC was required to pay directly or reimburse  the Company for
all production  costs.  One of the Company's  officers,  directors and principal
shareholders,  Joseph  Venneri,  is also a  shareholder  of  MMIC,  and  Richard
Bluestine,  the Company's Chief  Financial  Officer and a former director of the
Company, is also 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 31, 1999.

         In 1997, the Company entered into a joint venture  agreement with MMIC.
The  agreement  provides for the  production of a minimum of 20 new releases per
year,  contingent  upon MMIC advancing to the Company,  $10,000 per album,  plus
production  and  distribution  costs.  All  net  revenue  from  the  production,
development and distribution of releases under the agreement will be split fifty
(50%)  percent  to the  Company  and  fifty  (50%)  percent  to MMIC.  Under the
agreement,  the Company is entitled  to a  distribution  royalty for foreign and
domestic  distribution of the produced compact diskettes.  No revenues have been
earned under this agreement.  Because of the  relationship  between officers and
directors of the Company and former officers, directors and beneficial owners of
MMIC,  these  transactions  with MMIC may  present a conflict of interest to the
Company.  To resolve any  apparent  conflict of  interest,  in the past  Messrs.
Bluestine  and Venneri  have not voted on any matter  involving  MMIC before the
Company's Board of Directors. Mr. Venneri has agreed to continue to abstain from
voting on any such matter.

         There are no other material agreements and/or arrangements  between the
Company, its officers, directors or shareholders,  and the Company believes that
the terms of its  agreements  with related  parties are no less favorable to the
Company than those that would be available from unrelated third parties.

ITEM 13: EXHIBITS, LIST AND REPORTS ON FORM 8-K

    (a)      Exhibits

             3        a.       Articles of Incorporation*
                      b.       By-Laws of Incorporation*

             10       Material Contracts

                      a.       Sun Entertainment Agreement*
                      b.       Atlantic Coast Digital Concepts, Inc. Agreement*
                      c.       New Millennium Communications, Ltd. Agreement*
                      d.       Nippon Columbia Agreement*


                                  36
<PAGE>

               e.       Multi-Media Industries Corporation Joint
                           Venture Agreement*
               f.       Multi-Media Industries Corporation
                           Production Agreement*
               g.       JNC Opportunity Fund Ltd. Convertible Preferred
                           Stock Purchase Agreement*
               h.       Lease Agreement with Al Alberts On Stage, Ltd.*
               i.       Executive Compensation Agreement with
                           Wallace M. Giakas*
               j.       Executive Compensation Agreement with
                           John S. Arnone*
               k.       Executive Compensation Agreement with
                           Joseph Venneri*
               l.       Purchase and Sale Agreement with Northeast
                           One Stop, Inc.*
               m.       Ronald J. Nicks Executive Compensation Agreement**
               n.       Gulf Coast Master Recording Purchase Agreement**
               o.       Gulf Coast Addendum to Master Recording Agreement**
               p.       NEOS Lease from L & P Feed**
               q.       NEOS Financing Agreement with Congress
                           Financial Corporation**
               r.       NEOS Amendment to Financing Agreement dated
                           July, 1995**
               s.       NEOS Amendment to Financing Agreement dated
                           August 1997**
               t.       NEOS Amendment to Financing Agreement dated
                           September 1998**
               u.       NEOS Guarantee**
               v.       NEOS Waiver of Line of Credit Covenant**

      11       Statement regarding Computation of Per Share Earnings

      27       Financial Data Schedule

         (b)      Reports on Form 8-K

         During the quarter  ended  August 31, 1999 the Company  filed a Current
Report on Form 8-K  dated  August  13,  1999 to  request  the  dismissal  of its
previous independent  accounting firm, AJ. Robbins,  P.C., and the engagement of
its current independent accounting firm, Lazar Levine & Felix, LLP.

----------------
*        Filed as Exhibits to Form 10-SB, File Number 000-22549, dated September
         23, 1998 and are hereby incorporated by reference.

**       Filed as  Exhibits  to  Amendment  No.  5 to Form  10-SB,  File  Number
         000-29776, dated May 21, 1999 and are hereby incorporated by reference.

                                       37
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


                                                PLANET ENTERTAINMENT CORPORATION


Date: December 10, 1999                         By: /s/ John S. Arnone
                                                  ------------------------------
                                                  Name: John S. Arnone
                                                  Title: President

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated:

Signature                        Name and Title                        Date
---------                        --------------                        ----

/s/ Wallace M. Giakas            Wallace M. Giakas,                    12/10/99
Chairman of the Board

/s/ John S. Arnone               John S. Arnone,                       12/10/99
                                 President, Chief Executive Officer,
                                 Director

--------------------------       Joseph Venneri,
                                 Director

/s/ Richard Bluestine            Richard Bluestine,                    12/10/99
                                 Chief Financial Officer

/s/ Louis J. DelSignore          Louis J. DelSignore,                  12/10/99
                                 Director

/s/ Ronald J. Nicks              Ronald J. Nicks,                      12/10/99
                                 Director

--------------------------       Robert G. Thomas,
                                 Director

--------------------------       Donald F. Maggi,
                                 Director

                                       38

<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES



                                                                      Page(s)
                                                                      -------
Financial Statements:

     Independent Auditors' Report                                         F-2

     Independent Auditors' Report - Prior Auditors                        F-3

     Consolidated Balance Sheets                                          F-4

     Consolidated Statements of Operations                                F-6

     Consolidated Statements of Comprehensive Income (Loss)               F-7

     Consolidated Statements of Stockholders' Equity                      F-8

     Consolidated Statements of Cash Flows                               F-10

     Notes to Consolidated Financial Statements                          F-12

Proforma financial statements:

     Proforma Explanatory Headnote                                       F-33

     Unaudited Proforma Consolidated Statement of Operations             F-34

     Notes to Unaudited Proforma Consolidated Statements                 F-35

                                       F-1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Planet Entertainment Corporation

We  have  audited  the  accompanying   consolidated   balance  sheet  of  Planet
Entertainment Corporation and subsidiaries as of August 31, 1999 and the related
consolidated statement of operations, comprehensive income (loss), stockholders'
equity and cash flows for the year then ended.  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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion,  the 1999 consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the  financial  position of Planet
Entertainment  Corporation  and  subsidiaries  as of August  31,  1999,  and the
results  of their  operations  and their  cash  flows for the year then ended in
conformity with generally accepted accounting principles.


                                                /s/ LAZAR LEVINE & FELIX LLP
                                                ------------------------------
                                                LAZAR LEVINE & FELIX LLP

New York, New York
October 12, 1999

                                      F-2
<PAGE>

                                 AJ. ROBBINS, PC
                  CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
                              3033 EAST 1ST AVENUE
                                    SUITE 201
                             DENVER, COLORADO 80206



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS
PLANET ENTERTAINMENT CORPORATION
MIDDLETOWN, NEW JERSEY


We  have  audited  the  accompanying   consolidated   balance  sheet  of  Planet
Entertainment  Corporation  and  subsidiaries,  as of August 31,  1998,  and the
related consolidated statements of operations, comprehensive loss, stockholders'
equity,  and cash  flows for the eight  months  ended  August  31,  1998.  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 audit.

We conducted our audit 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 audit provides 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  Planet   Entertainment
Corporation  and  subsidiaries  as of August 31,  1998,  and the  results of its
operations  and  stockholders'  equity and its cash  flows for the eight  months
ended  August  31,  1998  in  conformity  with  generally  accepted   accounting
principles.





                                             AJ. ROBBINS, PC
                                             CERTIFIED PUBLIC ACCOUNTANTS
                                               AND CONSULTANTS



DENVER, COLORADO
OCTOBER 30, 1998

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                                                                 PAGE 1 OF 2

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                 ASSETS (NOTE 8)

                                                                    AUGUST 31,    AUGUST 31,
                                                                       1999         1998
                                                                   -----------   -----------
<S>                                                                <C>           <C>
CURRENT ASSETS:
     Cash and cash equivalents                                     $   620,975   $ 3,850,162
     Accounts receivable, net of allowance for doubtful accounts
         of $617,143 and $105,000 for 1999 and 1998,
         respectively (Notes 8 and 14)                               5,062,283        17,959
     Accounts receivable, net - related party (Note 3)                 180,615       192,042
     Inventories (Notes 8 and14)                                     7,165,072            --
     Marketable securities - available for sale                      1,274,272            --
     Prepaid expenses and other current assets                         200,767       246,863
     Escrow deposit                                                         --       225,000
     Note receivable - related party (Note 4)                          100,000            --
     Deferred income taxes (Note 13)                                   244,000            --
                                                                   -----------   -----------

TOTAL CURRENT ASSETS                                                14,847,984     4,532,026
                                                                   -----------   -----------


PROPERTY AND EQUIPMENT - NET (NOTES 5 AND 10)                        1,420,786       172,410
                                                                   -----------   -----------


OTHER ASSETS:
     Record masters - net (Note 6)                                   6,566,037     6,500,000
     Goodwill - net                                                  4,541,899        70,839
     Investment in joint ventures (Notes 2 and 17a)                      9,000            --
     Organization costs - net                                           27,500        42,495
     Security deposits and other assets                                124,513           880
                                                                   -----------   -----------

                                                                    11,268,949     6,614,214
                                                                   -----------   -----------

                                                                   $27,537,719   $11,318,650
                                                                   ===========   ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                                                                             PAGE 2 OF 2

                            PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                                       CONSOLIDATED BALANCE SHEETS

                                  LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                              AUGUST 31,      AUGUST 31,
                                                                                1999            1998
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
CURRENT LIABILITIES:
     Accounts payable (Note 14)                                              $  7,418,370    $    124,197
     Accrued expenses and other current liabilities                               342,103          63,444
     Accrued interest expense - related parties                                   239,312         275,618
     Deferred revenue (Note 7)                                                    211,544         123,524
     Due to stockholders (Note 17)                                                230,884         270,884
     Note payable - related party (Note 11)                                       150,000         150,000
     Current portion of long-term debt - related parties (Note 12)                719,000         250,000
     Accrued officers' salaries                                                   539,859         141,467
     Current portion of capital lease obligations (Note 10)                        58,072              --
     Current portion of notes payable (Note 9)                                     19,456              --
                                                                             ------------    ------------

TOTAL CURRENT LIABILITIES                                                       9,928,600       1,399,134
                                                                             ------------    ------------

LONG-TERM LIABILITIES:
     Note payable - line of credit (Note 8)                                     5,435,035              --
     Note payable - related party - net of current portion (Note 11)              400,000              --
     Long-term debt - net of current portion - related parties (Note 12)          500,000         750,000
     Notes payable - net of current portion (Note 9)                               49,701              --
     Capital lease obligations - net of current portion (Note 10)                   9,050              --
     Deferred income taxes (Note 13)                                              144,000              --
                                                                             ------------    ------------

                  TOTAL LONG-TERM LIABILITIES                                   6,537,786         750,000
                                                                             ------------    ------------

TOTAL LIABILITIES                                                              16,466,386       2,149,134
                                                                             ------------    ------------

COMMITMENTS AND CONTINGENCIES (NOTES 14, 15 AND 20)

STOCKHOLDERS' EQUITY (NOTES 16 AND 18):
     Convertible  preferred  stock,  stated value $10,000 per share; 10,000,000
       shares authorized; 465 and 500 shares issued and outstanding at
       August 31, 1999 and 1998, respectively                                   4,650,000       5,000,000
     Common stock, $.001 par value; 50,000,000 shares
       authorized; 12,147,803 and 11,976,055 shares issued and outstanding
       at August 31, 1999 and 1998, respectively  (Notes 12 and 19)                12,148          11,976
     Additional paid-in capital                                                11,513,499       9,286,053
     Accumulated deficit                                                       (4,878,586)     (5,128,513)
     Other comprehensive income (loss)                                           (225,728)             --
                                                                             ------------    ------------

                                                                               11,071,333       9,169,516
                                                                             ------------    ------------

                                                                             $ 27,537,719    $ 11,318,650
                                                                             ============    ============

                      See accompanying notes to consolidated financial statements.
</TABLE>
                                                   F-5
<PAGE>
<TABLE>
<CAPTION>
                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         FOR THE YEAR    FOR THE EIGHT
                                                             ENDED       MONTHS ENDED
                                                          AUGUST 31,      AUGUST 31,
                                                             1999        1998 (NOTE 19)
                                                         ------------    ------------
<S>                                                      <C>             <C>
REVENUES:
   Net sales (Note 14)                                   $ 43,719,376    $     51,002
   Royalties                                                    5,288          23,042
   Studio rental                                               65,890          35,451
                                                         ------------    ------------

TOTAL REVENUES                                             43,790,554         109,495
                                                         ------------    ------------


COSTS AND EXPENSES:
   Cost of sales (Note 14)                                 35,736,723          11,139
   Selling, general and administrative costs                6,769,942         659,348
   Depreciation and amortization                              527,845          33,758
   Interest expense                                           421,311              --
   Interest expense, related party                            112,670          98,135
   Bad debt expense                                            19,661              --
                                                         ------------    ------------

TOTAL COSTS AND EXPENSES                                   43,588,152         802,380
                                                         ------------    ------------

INCOME (LOSS) FROM OPERATIONS                                 202,402        (692,885)

OTHER INCOME:
   Interest and dividend income                                41,942          47,421
                                                         ------------    ------------

INCOME (LOSS) BEFORE PROVISION (CREDIT)
   FOR INCOME TAXES                                           244,344        (645,464)

   Provision (credit) for income taxes (Note 13)              (34,118)             --
                                                         ------------    ------------

NET INCOME (LOSS)                                        $    278,462    $   (645,464)
                                                         ============    ============

LOSS PER SHARE:
NET INCOME (LOSS)                                        $    278,462    $   (645,464)
   Less preferred stock dividends                            (353,199)        (87,500)
   Less preferred stock dividend return of capital                 --      (3,620,690)
                                                         ------------    ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (NOTE 18)   $    (74,737)   $ (4,353,654)
                                                         ============    ============

WEIGHTED AVERAGE SHARES                                    11,996,114      11,827,308
                                                         ============    ============

LOSS PER SHARE BASIC AND DILUTED                         $       (.01)   $       (.37)
                                                         ============    ============
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


<TABLE>
<CAPTION>
                                                  FOR THE YEAR       FOR THE EIGHT
                                                     ENDED            MONTHS ENDED
                                                   AUGUST 31,          AUGUST 31,
                                                      1999                1998
                                               ----------------    -----------------

<S>                                            <C>                 <C>
NET INCOME (LOSS)                              $        278,462    $        (645,464)

Unrealized loss in investment in securities
   available for sale                                  (225,728)                  --
                                               ----------------    -----------------
COMPREHENSIVE NET INCOME (LOSS)                $         52,734    $        (645,464)
                                               ================    =================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                    PAGE 1 OF 2

                                           PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                                                           Other
                                                                                  Additional             Comprehensive
                                  Preferred Stock               Common Stock       Paid-In    Accumulated Income
                                Shares         Amount       Shares        Amount   Capital      Deficit    (Loss)      Total
                                -------      ----------   ----------     -------  ----------  -----------  ------    ----------
<S>                             <C>       <C>             <C>            <C>      <C>         <C>          <C>       <C>
BALANCES, DECEMBER 31, 1997          --   $          --   11,421,966     $11,422  $5,942,570  $  (862,359) $   --    $5,091,633
Issuance of common stock for
  services rendered                  --              --      554,089         554     247,793           --      --       248,347
Offering costs from sale of
convertible preferred
  stock for cash                     --              --           --          --    (525,000)          --      --      (525,000)
Issuance of convertible
  preferred stock                   500       1,379,310           --          --   3,620,690           --      --     5,000,000
Preferred stock dividend,
  return of capital                  --       3,620,690           --          --          --   (3,620,690)     --            --
Net loss for the period              --              --           --          --          --     (645,464)     --      (645,464)
                                -------      ----------   ----------     -------  ----------  -----------  ------    ----------
BALANCES, AUGUST 31, 1998           500      $5,000,000   11,976,055     $11,976  $9,286,053  $(5,128,513) $   --    $9,169,516
                                =======      ==========   ==========     =======  ==========  ===========  ======    ==========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                    PAGE 2 OF 2

                                           PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                                                           Other
                                                                                Additional               Comprehensive
                                  Preferred Stock             Common Stock       Paid-In    Accumulated   Income
                                Shares       Amount       Shares        Amount   Capital      Deficit      (Loss)      Total
                                -------    ----------   ----------     -------  ----------  -----------    ------    ----------
<S>                             <C>       <C>             <C>            <C>      <C>         <C>          <C>       <C>
BALANCES, AUGUST 31, 1998           500    $5,000,000    11,976,055     $11,976  $9,286,053  $(5,128,513) $       --   $9,169,516
Options granted to the former
  owner of NEOS in connection
  with acquisition                   --            --            --          --     814,000           --          --      814,000
Options granted for services
  rendered in connection with
  the acquisition of NEOS            --            --            --          --   1,147,750           --          --    1,147,750
Excess cash received from sale
  of common stock in litigation
  settlement                         --            --            --          --      17,627           --          --       17,627
Offering costs from sale of stock    --            --            --          --    (130,294)          --          --     (130,294)
Conversion of 35 preferred
  shares to common                  (35)     (350,000)      158,768         159     349,841           --          --           --
Dividend on 35 preferred shares      --            --        12,980          13      28,522      (28,535)         --           --
Change in unrealized loss on
  investment in securities
  available for sale                 --            --            --          --          --           --    (225,728)    (225,728)
Net income for the period            --            --            --          --          --      278,462          --      278,462
                                -------    ----------    ----------     ------- -----------  -----------  ----------  -----------
BALANCES, AUGUST 31, 1999           465    $4,650,000    12,147,803     $12,148 $11,513,499  $(4,878,586) $ (225,728) $11,071,333
                                =======    ==========    ==========     ======= ===========  ===========  ==========  ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-9
<PAGE>
<TABLE>
<CAPTION>
                                                                                          PAGE 1 OF 2

                          PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                          FOR THE YEAR  FOR THE EIGHT
                                                                             ENDED       MONTHS ENDED
                                                                           AUGUST 31,     AUGUST 31,
                                                                             1999           1998
                                                                          -----------    -----------
<S>                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                      $   278,462    $  (645,464)
   Adjustments to reconcile net income (loss)
    to net cash used by operating activities:
     Bad debt expense                                                          19,661             --
     Depreciation and amortization                                            527,845         33,758
     Stock issued for services                                                     --        248,347
     Deferred income taxes                                                    (74,600)            --
     Marketable securities received for sale
        of non-exclusive rights to masters                                 (1,500,000)            --
     Changes in:
       Accounts receivable                                                    223,477          3,067
       Accounts receivable, related party                                      95,843         (8,358)
       Prepaid expenses and other current assets                               72,485       (127,790)
       Inventory                                                             (316,505)            --
       Accounts payable and accrued expenses                                 (368,401)        80,948
       Accrued interest expense, related party                                (36,306)        98,134
       Deferred revenue                                                      (151,356)       (22,701)
       Accrued officers' salary                                               398,392         29,467
                                                                          -----------    -----------

       Cash Flows (Used) by Operating Activities                             (831,003)      (310,592)
                                                                          -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of NEOS net of cash acquired                                 (1,627,416)            --
     Purchase of fixed assets                                                (995,149)            --
     Repayments on note receivable                                            (58,776)            --
     Investment in joint venture                                               (9,000)            --
     Escrow deposit                                                                --       (225,000)
     Deposit on leased equipment                                             (105,462)            --
                                                                          -----------    -----------

       Cash Flows (Used) by Investing Activities                           (2,795,803)      (225,000)
                                                                          -----------    -----------

CASH  FLOWS FROM FINANCING ACTIVITIES:
     Repayments to employees                                                  (75,000)            --
     Advances (repayments) from (to) stockholders                             (70,000)         7,084
     Proceeds from note payable                                                32,606             --
     Proceeds from note payable, related party                                 25,000        150,000
     Proceeds from issuance of preferred/common stock                          17,627      5,000,000
     Stock issuance costs                                                    (130,294)      (525,000)
     Proceeds from note payable - line of credit                            1,264,639             --
     Repayment of long-term debt, related party                              (500,000)      (250,000)
     Payment of capitalized lease obligations                                (166,959)            --
                                                                          -----------    -----------

       Cash Flows From Financing Activities                                   397,619      4,382,084
                                                                          -----------    -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                    (3,229,187)     3,846,492

CASH AND CASH EQUIVALENTS, beginning of year/period                         3,850,162          3,670
                                                                          -----------    -----------

CASH AND CASH EQUIVALENTS, end of year/period                             $   620,975    $ 3,850,162
                                                                          ===========    ===========

CASH PAID FOR INTEREST EXPENSE                                            $   421,311    $        --
                                                                          ===========    ===========

CASH PAID FOR INCOME TAXES                                                $   263,163    $        --
                                                                          ===========    ===========

                     See accompanying notes to consolidated financial statements.
</TABLE>
                                                F-10
<PAGE>


                                                                     PAGE 2 OF 2

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


SUPPLEMENTAL  INFORMATION TO STATEMENTS OF CASH FLOWS FOR NONCASH  INVESTING AND
FINANCING ACTIVITIES:

For the year ended August 31, 1999:

In connection with the  acquisition of NEOS, the Company  executed notes payable
to the former owner of NEOS for $750,000,  granted  options to purchase  250,000
shares of the Company's common stock valued at $814,000  (pursuant to SFAS 123),
assumed  liabilities  of  $13,576,804,  granted  options to  purchase a total of
250,000  shares  of the  Company's  common  stock  valued at  $1,147,750  to two
stockholders of the Company in consideration  for advisory  services rendered in
connection  with  the  acquisition  pursuant  to  their  employment   agreements
(pursuant  to SFAS 123) and paid  cash of  $2,250,000  in  exchange  for  assets
totaling $18,538,554 ( see Note 19).

The holder of the preferred  stock converted 35 shares (valued at $350,000) plus
unpaid dividends aggregating $28,535 into 171,748 shares of the Company's common
stock.

For the eight months ended August 31, 1998:

The Company issued 554,089 shares of common stock for services.

                                      F-11
<PAGE>


                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
         POLICIES:

HISTORY AND ACTIVITY

Planet  Entertainment  Corporation  (the "Company" or "Planet") was incorporated
under the laws of Delaware on May 17, 1996 and in October  1996 was  acquired by
Ampro  International  Golf Tour,  Inc.  which  changed  its name to Planet.  The
Company was organized for the purpose of acquiring  existing libraries of master
recordings  of various  types of music and to  enhance,  market and  produce new
recordings to be licensed or marketed  domestically,  internationally and on the
internet.

ACQUISITION OF MASTERS

a)   In July  1996,  the  Company  issued  3,060,000  shares of common  stock to
     acquire 5,000 exclusive rights to master  recordings,  publishing rights to
     300 songs and a  recording  studio  located  in New  Jersey  from a related
     party.  The  master  recordings  acquired  have  not been  recorded  in the
     financial statements since the predecessor's costs could not be determined.

b)   In December 1995, an unrelated third party company,  Gulf Coast Music,  LLC
     ("Gulf Coast") agreed to acquire 7,500 music master recordings from a group
     of   companies   in  a  Chapter  11   bankruptcy   proceeding   for  future
     consideration.  This  transaction  was subject to confirmation of a plan of
     reorganization.

     In September  1996,  Planet  agreed to acquire the 7,500 master  recordings
     from Gulf Coast for 694,000  shares of its common stock and notes  totaling
     $1,250,000.

     Also  in  September  1996,  another  company  J.  Jake,  Inc.  ("J.  Jake")
     controlled by the same individual who controlled  Gulf Coast,  sold another
     2,500  master  recordings  to Planet for  806,000  shares of Planet  common
     stock.

     In  November  1996,  both the Gulf Coast and J. Jake Inc.  agreements  were
     amended. The new agreement included a combined sale of non-exclusive rights
     to 10,000 master recordings for 1,500,000 shares of Planet common stock and
     a note payable for $1,250,000.  7,500 of these master recordings were still
     subject to approval of sale by the  bankruptcy  court.  The Company has the
     right to  manufacture,  distribute,  advertise,  sell and  promote,  in all
     configurations, the performances contained on the masters.

     In  November  of  1997,   the   bankruptcy   court  approved  the  plan  of
     reorganization so that the sale of the final 7,500 recordings was approved.

     The Company  recorded  the  September  1996  purchase  of the 2,500  master
     recordings  for  $2,821,000  or $3.50  per  share  for the  806,000  shares
     transferred, based upon the trading price of the common stock issued. Also,
     the Company  recorded  the  purchase  of the 7,500  master  recordings  for
     $3,804,000, representing the $1,250,000 notes, additional costs of $125,000
     and 694,000  shares of Planet  common stock valued at $3.50 per share,  the
     then current trading price (See Note 12).

ACQUISITION OF NORTHEAST ONE STOP, INC.

On  September  1, 1998 the Company  acquired  all of the issued and  outstanding
capital stock of Northeast One Stop,  Inc.  ("NEOS") a record and  entertainment
products  distribution  company (See  Note19).  Upon  acquisition  of NEOS,  the
Company  now  derives  the  majority  of  its   revenues'   from  the  wholesale
distribution of music products and accessories.

                                      F-12
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
         (CONTINUED):

CHANGE OF FISCAL YEAR

The  Company  changed  its fiscal  year end from  December  31 to August 31 ( to
coincide with NEOS) for the period ending August 31, 1998.

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its   wholly-owned   subsidiaries;   Higher  Ground  Records,   Maestro  Holding
Corporation,  Al  Alberts  On Stage,  Ltd.  and  Northeast  One Stop,  Inc.  All
significant intercompany balances and transactions have been eliminated.

FISCAL YEAR END

The NEOS  subsidiary's  fiscal year ends on the  Saturday  closest to August 31,
which results in a 52 or 53 week year.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

In  preparing  financial  statements,  in  accordance  with  generally  accepted
accounting principles, management makes certain estimates and assumptions, where
applicable,  that  affect  the  reported  amounts  of  assets,  liabilities  and
disclosures  of contingent  assets and  liabilities at the date of the financial
statements,  as well as reported  amounts of revenues  and  expenses  during the
reported  period.  While  actual  results  could  differ  from those  estimates,
management does not expect such variances,  if any, to have a material effect on
the financial statements.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows,  the Company  considers all highly
liquid debt instruments  purchased with an original  maturity of three months or
less to be cash equivalents.

DEPRECIATION

Depreciation is provided using the straight-line method as follows:

Recording studio equipment                                        10 years
Computer and other equipment                                     5-7 years
Warehouse and office equipment                                   5-7 years
Furniture and fixtures                                           5-7 years
Rack jobbing fixtures                                            5-7 years
Vehicles                                                           5 years

                                      F-13
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998


NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED):

DEPRECIATION (CONTINUED)

Leasehold improvements are amortized over the term of the lease. Maintenance and
repairs are charged to operations and major  improvements are capitalized.  Upon
retirement,  sale or other  disposition,  the  associated  cost and  accumulated
depreciation  are eliminated from the accounts and any resulting gain or loss is
included in operations.

REVENUE RECOGNITION

Royalties  derived from the licensing of recording  masters are recognized  upon
notification  of retail sales by the  distributor.  Studio revenue is recognized
when the services are performed.  Sales of recordings  are  recognized  when the
compact  disk,  cassette or record is shipped.  An allowance  is recorded,  when
material,  for sales returns from customers  that are not in turn  returnable to
the Company's  distributors.  No right of return exists for Higher Ground record
sales which  aggregated  $16,207 for the year ended  August 31,  1999.  Deferred
revenue   represents   advances  received  in  connection  with  production  and
distribution agreements, and deferred advertising revenues for advances received
from NEOS's suppliers.

RESERVE FOR POTENTIAL DISPUTES CONCERNING RECORD MASTERS

Upon  attaining  $100,000  in  product  sales  from the  exploitation  of record
masters, management has decided that a reserve will be placed in escrow equal to
5% of the net sales from all such  exploitation.  The level of  reserve  will be
subject  to  periodic  review by  management  of the  Company.  This  reserve is
established  to provide for potential  costs  associated  with the settlement of
potential  disputes.  There is no balance in the  reserve  account at August 31,
1999.

PUBLISHING RIGHTS

Publishing  rights,  which were  acquired  in July 1996 along with 5,000  master
recordings  (see  above),  consist  of rights  to 300  songs  and are  stated at
predecessor cost.

Amortization  of publishing  rights is computed  based on the ratio that current
years' revenues will bear to anticipated total gross revenues over the estimated
life of the publishing right (generally 5-10 years). No amortization expense has
been  recorded  for the year ended  August 31, 1999 and the eight  months  ended
August 31, 1998.

RECORD MASTERS

Record masters  consist of recordings of various types of music used to enhance,
market and produce new recordings to be licensed and marketed by the Company.

Amortization  of record  masters is  computed  based on the ratio  that  current
years' revenues will bear to anticipated total gross revenues over the estimated
life of the record master (generally 5-10 years).  Amortization  expense charged
to  operations  for the year ended  August 31, 1999 and the eight  months  ended
August  31,  1998 and  accumulated  amortization  at  August  31,  1999 and 1998
amounted to $58,963 and $0, respectively.

                                      F-14
<PAGE>


                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
         (CONTINUED):

INVENTORIES

Inventories, which consist primarily of goods held for resale, are stated at the
lower of cost  (first in,  first out basis) or market.  NEOS has a full right of
return for most products it distributes and as such,  titles which  experience a
decline in popularity are generally  returned to  distributors  and removed from
its catalogs.  NEOS's business  requires that they maintain one or two copies of
less popular titles so that they can function as a one-stop  distributor for its
customers. The carrying values of these copies are reduced accordingly

IMPAIRMENT OF LONG LIVED ASSETS

The Company evaluates its long lived assets (including  Goodwill,  see below) by
measuring the carrying  amount of the asset  against the estimated  undiscounted
future  cash  flows  associated  with  them  in  accordance  with  SFAS  No.121,
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE  DISPOSED  OF."  At the  time  such  evaluations  indicate  that  the  future
undiscounted  cash flows of  certain  long lived  assets are not  sufficient  to
recover the carrying value of such assets, the assets are adjusted to their fair
values.

Factors  considered in  determining  the  recoverability  of the record  masters
relative to impairment include existing signed contracts for exploitation of the
record masters,  numerous existing  distribution  channels,  industry popularity
trends,  potential rights disputes by others and potential conflicts  concerning
record masters for which non-exclusive exploitation rights have been granted.

No  adjustment  to the  carrying  value of the assets has been made for the year
ended August 31, 1999 and the eight months ended August 31, 1998.

ORGANIZATION COSTS

Amortization of organization costs is calculated using the straight-line  method
over five years.

The Accounting  Standards Committee has issued Statement of Position (SOP) 98-5,
Reporting  on the  Costs of  Start-up  Activities.  For  years  beginning  after
December 15, 1998, all start up costs are required to be expensed as incurred.

Amortization  expense for the year ended  August 31,  1999 and the eight  months
ended August 31, 1998 was $15,000, and $ 10,000, respectively.

Accumulated  amortization  at August 31,  1999 and 1998  aggregated  $47,500 and
$32,500, respectively.

GOODWILL

Costs in excess of net assets  acquired  (see Note 19) are being  amortized on a
straight-line basis over ten to forty years.  Amortization  expense for the year
ended  August 31, 1999 and the eight  months  ended August 31, 1998 was $123,359
and  $7,078,  respectively.   As  of  August  31,  1999  and  1998,  accumulated
amortization of goodwill aggregated $137,525 and $14,166, respectively.

                                      F-15
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED):

INCOME TAXES

The Company has adopted SFAS 109,  "ACCOUNTING  FOR INCOME TAXES" which requires
use of the asset and  liability  approach of providing  for income  taxes.  This
statement  requires  recognition of deferred tax  liabilities and assets for the
expected  future  tax  consequences  of events  that have been  included  in the
financial statements or tax returns.  Under this method deferred tax liabilities
and  assets  are  determined  based on the  differences  between  the  financial
statement  and tax basis of assets and  liabilities  using  enacted tax rates in
effect for the year in which the  differences  are  expected to  reverse.  Under
Statement 109, the effect on deferred tax assets and  liabilities of a change in
tax rates is  recognized  in income in the period that  includes  the  enactment
date.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At August 31, 1999 and 1998,  the carrying value of cash,  accounts  receivable,
accounts  payable,  accrued expenses and due to  stockholders,  approximate fair
value because of the short maturity of these items.

The carrying  amount of long-term  debt also  approximates  fair value since the
interest rates on these loans approximate market interest rates.

EARNINGS PER COMMON SHARE

Statement of Financial  Accounting Standards No. 128, "EARNINGS PER SHARE" (SFAS
No. 128) was issued in February 1997 (effective for financial  statements issued
for  periods  ending  after  December  15,  1997).  SFAS No.  128  replaces  the
presentation of primary EPS with a presentation  of basic EPS. In addition,  the
Statement requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures.

At August 31,1999 and 1998, 465 and 500 shares of convertible  preferred  stock,
respectively,  which were  convertible  into 1,621,328 and 253,962 common shares
respectively,  were  outstanding.  All of these  potential  common  shares  were
excluded from the  computation of EPS because their  inclusion would have had an
antidilutive effect on EPS. Also various exercisable stock options were excluded
from the diluted EPS because the options  exercise  prices were greater than the
average market price of the common shares.

AMORTIZATION OF OTHER INTANGIBLE ASSETS

Deferred  financing  costs,  which are  included  in other  assets and which are
comprised  of  commitment  fees and other  expenses  associated  with  obtaining
financing,  are being  amortized on a  straight-line  basis over the  respective
terms of the notes. Amortization expense for the year ended August 31, 1999, and
accumulated amortization at August 31, 1999, aggregated $6,370.

                                      F-16
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
         (CONTINUED):


CONCENTRATION OF CREDIT RISK

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable.

The  Company  maintains,  at times,  deposits  in  federally  insured  financial
institutions  in excess of  federally  insured  limits.  Management  attempts to
monitor the soundness of the financial  institutions  and believes the Company's
risk is negligible.

Concentrations  with  regard  to  accounts  receivable  are  limited  due to the
Company's large customer base.

RECLASSIFICATIONS

Certain prior year  information has been  reclassified to conform to the current
year's reporting presentation.

STOCK-BASED COMPENSATION

SFAS No. 123 "ACCOUNTING  FOR STOCK BASED  COMPENSATION",  effective  January 1,
1996, requires the Company to either record  compensation  expense or to provide
additional disclosures with respect to stock awards and stock option grants made
after  December 31,  1994.  The  accompanying  Notes to  Consolidated  Financial
Statements  include the  disclosures  required by SFAS No. 123 (see Note 16). No
compensation  expense is recognized pursuant to the Company's stock option plans
under SFAS No. 123, which is consistent with prior treatment under APB No. 25.

ADVERTISING AND PROMOTION COSTS

Advertising   and   promotion   costs,   which  are   included  in  general  and
administrative expenses, are expensed as incurred. For the year ended August 31,
1999 and for the eight  months  ended  August 31,  1998,  such costs  aggregated
$685,132 and $8,298, respectively.

MARKETABLE SECURITIES

At August 31, 1999, marketable securities have been categorized as available for
sale and, as a result,  are stated at fair value in accordance with Statement of
Financial  Standards No. 115,  "ACCOUNTING  FOR CERTAIN  INVESTMENTS IN DEBT AND
EQUITY  SECURITIES".  Unrealized  gains and losses are included in shareholders'
equity as other comprehensive income (loss).

COMPREHENSIVE INCOME

In 1997, the Company  adopted  Statement of Financial  Accounting  Standards No.
130, "REPORTING  COMPREHENSIVE INCOME" ("SFAS 130"), which establishes new rules
for the reporting and display of  comprehensive  income and its  components.  As
such,   SFAS  130  requires   unrealized   gains  or  losses  on  the  Company's
available-for-sale securities to be included in other comprehensive income.

                                      F-17
<PAGE>


                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
         (CONTINUED):


SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

In 1998, the Company adopted Financial  Accounting Standards Board Statement No.
131,  "DISCLOSURES  ABOUT  SEGMENTS OF AN ENTERPRISE  AND RELATED  INFORMATION",
which establishes standards for reporting on operating segments (see Note 21).

NOTE 2 - PRODUCTION AND DISTRIBUTION AGREEMENTS:

SUN ENTERTAINMENT

On April 22,  1997,  the Company  entered  into a licensing  agreement  with Sun
Entertainment Corporation,  pursuant to which the Company obtained non-exclusive
rights to various  master  recordings  in  consideration  for  advance  payments
against  future  royalties  that will accrue on all tapes and compact disks that
are sold by the Company.  To date the Company has not attempted to exploit these
master recordings, and has not received royalties,  recognized revenue or income
as a result of this agreement.

NEW MILLENNIUM COMMUNICATIONS, LTD.

On May 18,  1998,  the Company  entered into an  agreement  with New  Millennium
Communications,  Ltd. to form a joint  venture  operating  under the name Planet
Entertainment  Europe,  Ltd. concerning the licensing and distribution of master
recordings owned by the Company. According to the terms of the agreement, Planet
Entertainment Europe, Ltd. has the non-exclusive right to market,  reproduce and
distribute all subject master recordings for a term of 99 years, with each party
to the joint venture to recover  their  respective  costs and to distribute  any
resultant  profits  on an equal  basis.  As of  August  1999,  the  Company  has
contributed 64 compilations of its master  recordings to the joint venture,  and
distribution is expected to begin immediately. To date, however, the Company has
received no royalties, and has recorded no revenue or income as a result of this
agreement.

SHANDEL MUSIC

In February  1999,  the Company  entered into an agreement with Shandel Music to
form a limited  liability company in South Africa under the label Planet Africa,
to distribute the Company's products throughout Africa,  Australia,  New Zealand
and Israel ("the territory").  According to the agreement,  all catalogue sales,
after costs,  will be divided equally.  The Company has granted exclusive rights
to  distribute  the releases in the  territory to Planet  Africa.  To date,  the
Company has received no  royalties  and has  recognized  no revenue or income in
connection with this agreement.

                                      F-18
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 2 - PRODUCTION AND DISTRIBUTION AGREEMENTS (CONTINUED):

RENAISSANCE RECORDS INC.

In March 1999, the Company entered into an agreement with  Renaissance  Records,
Inc. to form a joint  venture  operating  under the name Planet  Nashville,  LLC
("Planet Nashville").  Planet Nashville, which is owned equally by both parties,
is  authorized  to  distribute  and sell  recordings  derived from the Company's
masters. All revenue and expenses of the joint venture will be shared equally by
both parties.  For the year ended August 31, 1999,  the Company has not recorded
any income in connection with this agreement.

The Company is a party to several other joint venture agreements which at August
31, 1999 are deemed to be immaterial.

NOTE 3 - ACCOUNTS RECEIVABLE - RELATED PARTY:

Accounts  receivable - related  party  represents  amounts due from  Multi-Media
Industries Corporation ("MMIC"). Two of the Company's officer's and shareholders
are also  shareholders  of MMIC. In 1996, the Company  entered into a production
and  distribution  agreement as well as a related  joint  venture with MMIC.  In
1997,  the Company  recorded  $204,362 in revenues from MMIC, of which  $180,615
remains  uncollected  as of  August  31,  1999.  (See  Notes  11, 12 and 17) for
additional related party disclosures).


NOTE 4 - NOTE RECEIVABLE - RELATED PARTY:

Installment  note receivable from a related party,  Renaissance  Records,  Inc.,
aggregates  $100,000  at August  31,  1999 with  interest  at 6% per annum  from
inception  through  August 1, 1999 and 12% per  annum  thereafter.  This note is
secured by accounts receivable of Renaissance Records Inc. (See also Note 2.)


NOTE 5 - PROPERTY AND EQUIPMENT:

Property and equipment which is reflected at cost, consists of the following:

                                                  AUGUST 31,    AUGUST 31,
                                                    1999          1998
                                                  ----------   ----------
Recording studio equipment                        $  204,537   $  200,000
Computer and other equipment                       1,480,982       10,094
Leasehold improvements                                29,778           --
Warehouse and office equipment                     1,197,785           --
Furniture and fixtures                               126,296           --
Rack jobbing fixtures                                143,603           --
Vehicles (Note 9)                                    142,097           --
                                                  ----------   ----------
                                                   3,325,078      210,094
Less: accumulated depreciation and amortization    1,904,292       37,684
                                                  ----------   ----------
                                                  $1,420,786   $  172,410
                                                  ==========   ==========

                                      F-19
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 6 - RECORD MASTERS:

Record Masters at August 31, 1999 and 1998 consist of the following:

                                    1999            1998
                                 ----------      ----------
Cost                             $6,625,000      $6,500,000
Less: accumulated amortization       58,963              --
                                 ----------      ----------
                                 $6,566,037      $6,500,000
                                 ==========      ==========
See also Note 1

NOTE 7 - DEFERRED REVENUE:

On July 8, 1997, the Company entered into an agreement  granting Nippon Columbia
Company, Ltd. ("NCC") and its subsidiaries,  the right to produce and distribute
music CD's and video  tapes in Japan,  Hong  Kong,  Taiwan  and  Singapore.  The
agreement  is for a term of one year and four  months,  commencing  September 1,
1997,  and was extended on a quarterly  basis by the Company  provided NCC makes
certain  minimum  payments and purchases  during the term of the agreement.  The
Company  recognizes royalty revenue of $1 per sale of each compact disc licensed
to NCC.

The Company  received a $150,000  advance under the agreement which was recorded
as deferred  revenue.  For the year ended  August 31, 1999 and the eight  months
ended August 31, 1998, $5,288 and $22,701,  respectively,  were earned under the
agreement.  At August 31,  1999,  the  balance of deferred  revenues  aggregates
$118,226.

In  addition  to the  above,  at  August  31,  1999,  the  balance  of  deferred
advertising  revenues for advances  received  from NEOS's  suppliers  aggregated
$93,307.


NOTE 8 - NOTES PAYABLE AND LINE OF CREDIT:

In April 1999,  NEOS  entered  into a new working  capital line of credit and an
equipment  line of credit  with a  financial  institution,  which  provides  for
maximum borrowings of $8,500,000 and $1,500,000,  respectively. The two lines of
credit are  payable in April 2002.  Both lines of credit bear  interest at prime
plus 1% per annum and are secured by all the assets of NEOS and the  guaranty of
Planet.  Direct  borrowings  under the working  capital line,  which is based on
eligible  accounts  receivable  and inventory as defined in the  agreement,  was
$5,435,035  at August  31,  1999.  Both  lines also  contain  various  financial
covenants.  There was no borrowing  under the equipment line of credit at August
31, 1999.


NOTE 9 - NOTES PAYABLE:
                                                                   AT AUGUST 31,
                                                                       1999
                                                                   -------------
Two auto loans payable in monthly installments aggregating $1,999,
   including interest at 7.25% and 7.75% per annum, secured by
   autos and maturing in November 2003                               $69,157
Less current maturities                                               19,456
                                                                     -------
                                                                     $49,701
                                                                     =======

                                      F-20
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 9 - NOTES PAYABLE (CONTINUED):

At August 31, 1999, the annual scheduled  principal  payments of these loans are
$19,456,  $20,982,  $14,446, $11,313 and $2,960 for each of the next five years,
respectively.


NOTE 10 - CAPITALIZED LEASE OBLIGATIONS:

The Company  leases  various  equipment  under  capitalized  leases  expiring in
various years through 2001. The assets and liabilities  under capital leases are
recorded at the lower of the present value of the minimum lease  payments or the
fair value of the assets. The assets are depreciated over their estimated useful
lives.  Depreciation  expense of assets  under  capital  leases is  included  in
depreciation expense for the year ended August 31, 1999 and amounted to $68,831.

At August 31, 1999 assets under capital leases are as follows:

Computer and other equipment                                           $103,609
Warehouse and office equipment                                          139,366
Furniture and fixtures                                                   23,896
Rack jobbing fixtures                                                    66,923
                                                                       --------
                                                                        333,794
Less: accumulated depreciation                                          118,491
                                                                       --------
                                                                       $215,303
                                                                       ========

Minimum  annual future lease  payments under the capital leases as of August 31,
1999 and for each of the next two years and in the aggregate are:

Fiscal year ending August 2000                                         $ 61,712
Fiscal year ending August 2001                                            9,118
                                                                       --------
Total minimum lease payments                                             70,830
Less amount representing interest                                        (3,708)
                                                                       --------
Present value of net minimum lease payments
   with interest at approximately 11%-26%                                67,122
Less current portion                                                     58,072
                                                                       --------
Long-term portion                                                      $  9,050
                                                                       ========

                                      F-21
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 11 - NOTES PAYABLE - RELATED PARTY:

On January 27, 1997, the Company  borrowed  $100,000 at 10% interest due January
27, 1998 from an investment company. In December 1997, the Company converted the
$100,000  note and  $10,000  of  accrued  interest  to  1,100,000  shares of the
Company's common stock.

On January 19,  1998,  the Company  borrowed an  additional  $150,000  from this
investment  company/shareholder.  The  unsecured  note  is due on  demand,  with
interest  payable on January 19, 1999 at 10% per annum.  The note holder  waived
this interest payment but interest continues to accrue.

On August 25, 1999,  the Company  borrowed an additional  $400,000 from the same
shareholder. This unsecured note is due September 1, 2000, with interest payable
quarterly beginning on December 1, 1999 at 9% per annum.


NOTE 12 - LONG-TERM DEBT - RELATED PARTIES:

Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                                 AUGUST 31,
                                                                       ----------------------------
                                                                          1999              1998
                                                                       -----------      -----------
<S>                                                                    <C>              <C>
Unsecured   note   payable  to  Gulf  Coast   Music,   LLC,  a
stockholder of the Company,  due September 2001, with interest
at 9.75%  per  annum.  Payments  of  $250,000  principal  plus
interest are due annually beginning September 1997 (i).                $   500,000      $ 1,000,000

Note  payable to former  stockholder  of NEOS in the  original
amount of $750,000,  as partial payment for the acquisition of
NEOS on  September  1, 1998.  This  note,  which is secured by
common stock of the Company,  is payable  $375,000 on February
28,  1999  and   August 31,   1999.   On  September  1,  1999,
subsequent  to this  balance  sheet date,  this note was fully
paid (see Note 19).                                                        375,000               --

Unsecured  demand note payable to former  stockholder  of NEOS
with interest at 9% per annum.                                             344,000               --
                                                                       -----------      -----------

Total                                                                    1,219,000        1,000,000
Less current portion                                                       719,000          250,000
                                                                       -----------      -----------

Long-term portion                                                      $   500,000      $   750,000
                                                                       ===========      ===========
</TABLE>

                                                F-22
<PAGE>


                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 12 - LONG-TERM DEBT - RELATED PARTIES (CONTINUED):

(i)  Prior to  December  1998,  the  Company  had not  made all of the  required
payments due under the terms of the note with Gulf Coast  Music,  LLC since Gulf
Coast had not completed its obligation to deliver  unencumbered title to certain
of the master recordings.  In December 1998, all disputes had been resolved, and
the Company obtained  unencumbered  title to the master  recordings (See Notes 1
and 20).

At August 31, 1999, the annual  scheduled  principal  payments of long-term debt
are  $719,000,  $250,000  and  $250,000  for  each  of  the  next  three  years,
respectively.

NOTE 13 - INCOME TAXES:

The composition of deferred tax assets and (liabilities) are as follows:

                                       FOR THE            FOR THE EIGHT
                                      YEAR ENDED           MONTHS ENDED
                                      AUGUST 31,            AUGUST 31,
                                         1999                  1998
                                      ----------          -------------
Total deferred tax assets              $ 620,000           $ 460,000
Total valuation allowance               (376,000)           (460,000)
                                       ---------           ---------

Net total deferred tax assets          $ 244,000           $      --
                                       =========           =========
Total deferred tax liabilities         $ 144,000           $      --
                                       =========           =========

The tax effects of temporary  differences  and carry  forwards that give rise to
deferred tax assets and liabilities are as follows:

                                       FOR THE            FOR THE EIGHT
                                      YEAR ENDED           MONTHS ENDED
                                      AUGUST 31,            AUGUST 31,
                                         1999                  1998
                                      ----------          -------------
Deferred tax assets:
   Accrued interest                    $  96,000           $  36,000
   Accrued officers' salary              216,000                  --
   Inventory capitalization               36,000                  --
   Allowance for doubtful accounts        57,000                  --
   Other                                   4,000              11,000
   Net operating loss carry forwards     211,000             413,000
                                       ---------           ---------

      Gross deferred tax assets          620,000             460,000
   Valuation allowance                  (376,000)           (460,000)
                                       ---------           ---------

      Total deferred tax assets        $ 244,000           $      --
                                       =========           ---------
Deferred tax liabilities:
   Goodwill                            $  77,000           $      --
   Property and equipment                 67,000                  --
                                       ---------           ---------
      Total deferred tax liabilities   $ 144,000           $      --
                                       =========           =========

                                      F-23
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 13 - INCOME TAXES (CONTINUED):

No provision  for income  taxes was recorded for the eight months ended  August,
1998 as the Company  incurred  losses  during that  period.  The Company has net
operating loss carryovers of approximately $527,000 which expire during 2012 and
2013. The Company is providing a valuation allowance in connection with deferred
tax assets based upon an estimate of the assets considered  realizable in future
periods.  This allowance  will be evaluated at the end of each year  considering
both positive and negative evidence  concerning the realizability of the assets,
and will be increased or decreased accordingly.

The provision (benefit) for income taxes is comprised of the following:

                                                    FOR THE      FOR THE EIGHT
                                                  YEAR ENDED      MONTHS ENDED
                                                  AUGUST 31,       AUGUST 31,
                                                     1999            1998
                                                  ----------     -------------
CURRENT:
   Federal                                         $     --         $   --
   State                                             40,482             --
                                                   --------         ------
      Total current provision                        40,482             --
                                                   --------         ------

DEFERRED:
   Federal                                          (65,275)            --
   State                                             (9,325)            --
                                                   --------         ------

      Total deferred income taxes (benefit)         (74,600)            --
                                                   --------         ------
      Total provision (benefit) for income taxes   $(34,118)        $   --
                                                   ========         ======


The following is a reconciliation  of the maximum  statutory federal tax rate to
the Company's effective tax rate:

                                                    FOR THE      FOR THE EIGHT
                                                  YEAR ENDED      MONTHS ENDED
                                                  AUGUST 31,       AUGUST 31,
                                                     1999            1998
                                                  ----------     -------------

Statutory rate                                           35%            --
State and local taxes                                     5%            --
Tax benefit of timing differences                       (54%)           --
                                                   --------         ------
Effective tax rate                                      (14%)           --
                                                   ========         ======

                                      F-24
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 14 - ECONOMIC DEPENDENCY:

For the year ended August 31, 1999,  sales to one customer were in excess of 10%
of net sales and amounted to approximately  $9,460,000.  At August 31, 1999, the
amount due from this customer aggregated  approximately $368,000.  There were no
sales to any one  customer  in excess  of 10% of net sales for the eight  months
ended August 31, 1998.

Effective  January 15, 1999, the Company no longer serviced the above referenced
customer.  Sales to this customer  (Meijer) by NEOS,  for the years ended August
31, 1999 and August 31, 1998 aggregated  approximately 22% and approximately 40%
of sales, respectively. The Company has taken legal action against this customer
regarding  the  receivables  outstanding  at that date,  as well as certain rack
equipment  still  in  use in the  customer's  store  locations  (See  Note  20 -
Litigation).

For the year ended August 31, 1999,  purchases  from four vendors were in excess
of 10% of net purchases and amounted to approximately  $10,494,000,  $6,033,000,
$6,030,000 and $5,577,000, respectively. At August 31, 1999, accounts payable to
these vendors aggregated approximately  $2,294,000,  $1,065,000,  $1,030,000 and
$1,364,000, respectively. Certain vendors payables are secured by their specific
inventories.

There were no  purchases  from any one vendor in excess of 10% of net  purchases
for the eight months ended August 31, 1998.


NOTE 15 - PROFIT SHARING PLAN:

In May 1999,  the Company  established  a 401(k) profit  sharing plan,  ("401(k)
Plan") which covers all eligible employees.  Under the terms of the 401(k) Plan,
all  employees who have  attained the age of 21 years and have  completed  1,000
hours of service are eligible to  contribute to the Plan at the next entry date.
The 401(k) Plan provides for a matching  contribution  of 50% of the first 4% of
the employee  contribution.  The Company's  matching  contribution  for the year
ended August 31, 1999 was $12,011.


NOTE 16 - STOCK OPTIONS AND WARRANTS:

On October 1, 1996, the Company adopted a plan known as the Planet Entertainment
Corporation  Stock Plan (the  "Plan")  pursuant to which the Board of  Directors
shall issue awards,  options and grants.  Pursuant to the Plan, 1,000,000 shares
of the Company's  common stock have been reserved for issuance as awards.  As of
August 31, 1999 no awards, options or grants have been issued.

In  September  1998,  the Company  granted  options (not part of the Plan) to an
employee to purchase 150,000 shares of the Company's  common stock.  Each option
is  exercisable  at $5.25 per share.  The options were issued at the fair market
value  of the  stock  at the  date of  grant.  75,000  options  are  exercisable
immediately  for a period of 3 years.  The  remaining  options vest at a rate of
25,000 shares per year and are  exercisable  for 3 years from the date of grant.
As of August 31, 1999 no options have been exercised.

On January  29,  1997,  316,000  warrants  were issued to certain  officers  and
directors  to  purchase  3,160,000  shares  of common  stock.  Each  warrant  is
exercisable at $20 per warrant to purchase 10 shares (effectively $2 per share).
The  warrants  were  issued  at the fair  value of the  stock on the date of the
grant.  The warrants are  exercisable  immediately  and for a period of 10 years
beginning  January  29,  1997.  As of August 31,  1999,  no  warrants  have been
exercised.

                                      F-25
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 16 - STOCK OPTIONS AND WARRANTS (CONTINUED):

As a result of the  acquisition  of NEOS,  the Company issued to two officers of
the Company,  options (not part of the plan) to purchase an aggregate of 250,000
shares of the  Company's  common  stock,  exercisable  at $5.25 per share over a
period of five years. These officers waived all incentive based compensation due
under the terms of their agreements and accepted these options. In addition, the
Company issued to the seller of NEOS (See Note 19),  options to purchase 250,000
shares of the  Company's  common  stock  exercisable  at $5.25 per share  over a
period of two years.

In September 1998 and March 1999, the Company  granted  options (not part of the
Plan) to  purchase  25,000  shares of the  Company's  common  stock  each to one
employee and two employees, respectively. These options are exercisable at $5.25
per share over a period of three years.

The Company applies APB 25 and related interpretations in the accounting for the
Plan.  Accordingly,  no compensation cost has been recognized for option grants.
Had  compensation  cost for the Plan been determined  using the fair value based
method,  as defined in SFAS 123, the Company's net earnings  (loss) and earnings
(loss) per share would have been  adjusted  to the  proforma  amounts  indicated
below:

                                       FOR THE YEAR ENDED   FOR THE EIGHT MONTHS
                                        AUGUST 31, 1999        AUGUST 31, 1998
                                       ------------------   --------------------
Net earnings (loss):
   As reported                             $  278,462             $(645,464)
   Proforma                                  (965,908)             (645,464)
Basic and diluted loss per share:
   As reported                                   (.01)                 (.37)
   Proforma                                      (.11)                 (.37)

The fair value of each option grant was estimated on the date of the grant using
the  Black-Scholes  option-pricing  model  with the  following  weighed  average
assumptions: expected volatility of 100 %; risk free interest rate of 5.38%; and
expected lives of 1 to 3 years.


NOTE 17 - RELATED PARTY TRANSACTIONS:

In addition to transactions with related parties discussed  throughout the notes
to the financial statements,  the following related party transactions have also
occurred:

DUE TO STOCKHOLDERS:

Due to stockholders  represents 9% interest  bearing,  working capital advances,
made by two stockholders. The advances are due upon demand.

                                      F-26
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 17 - RELATED PARTY TRANSACTIONS (CONTINUED):

AGREEMENTS WITH MULTI-MEDIA INDUSTRIES CORPORATION (MMIC):

(A)  JOINT VENTURE AGREEMENT:

On July 22, 1997, the Company entered into a joint venture  agreement with MMIC,
an entity whose stockholders are also stockholders of the Company. The agreement
requires  the  production  of a  minimum  of 20 new  music  releases  per  year,
contingent upon attaining a specified level of funding. All net revenue from the
production, development and distribution of releases under the agreement will be
split 50% to the Company and 50% to MMIC.  Under the  agreement,  the Company is
entitled to a distribution royalty for foreign and domestic  distribution of the
produced  compact  disks.  No revenues have been earned under this  agreement to
date.

(B)  PRODUCTION:

In  September  1996,  the Company  entered into a  production  and  distribution
agreement with MMIC under the label Century  Records,  which calls for Planet to
receive  compensation  of 10% of  the  cash  receipts,  net of  returns,  of the
production and distribution of 10 enhanced  multi-media  compact disks.  MMIC is
required to pay  directly or  reimburse  the  Company for all  production  costs
incurred by the Company.  Compensation earned for the year ended August 31, 1999
and the eight months ended August 31, 1998 was $0 and $3,069, respectively.


NOTE 18 - STOCKHOLDERS' EQUITY:

PREFERRED STOCK:

On May 31, 1998,  the Company  sold  $5,000,000  (500 shares) of 7%  non-voting,
convertible  preferred  stock to a private  investment  fund.  The Company  also
issued  warrants  to the  fund  to  purchase  75,000  shares  of  common  stock,
exercisable  at $9.625 for 5 years.  The  preferred  stock pays a cumulative  7%
annual  dividend on a quarterly  basis in cash or shares of common  stock and is
convertible  to common  stock at 58% (as amended) of the average of the 5 lowest
of the prior 10 days trading  prices of the common stock at the issue date.  The
preferred stock automatically  converts to common stock on such basis at the end
of two years.  The  Company has the right to redeem the  preferred  stock on the
same  terms as the  conversion.  At  August  31,  1999 and  1998 the  amount  of
dividends  in  arrears  on  the  preferred  stock  were  $414,108  and  $87,500,
respectively.

Based  upon an  amendment  to the  original  agreement,  the  Company  agreed to
indemnify the private  investment  fund against any losses,  claims,  damages or
liabilities  that may arise from any action or claim brought under Section 16(b)
of the  Securities  Exchange  Act of 1934 and based upon or  resulting  from the
lowering of the discount rate pursuant to this transaction.  During August 1998,
the  Company  recorded  a  dividend  as a return  of  capital  to the  preferred
stockholders  for  the  42%  beneficial  discount  given  with  respect  to  the
conversion  price, in accordance with Emerging Issues Task Force Topic No. D-60,
which indicates that "a discount resulting from an allocation of proceeds to the
beneficial  conversion  feature  is  analogous  to  a  dividend  and  should  be
recognized as a return to the preferred  shareholders over the minimum period in
which the  preferred  shareholders  can  realize  the  return."  As the stock is
convertible upon issuance, the dividend has been reflected accordingly.

                                      F-27
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 18 - STOCKHOLDERS' EQUITY (CONTINUED):

These  dividends  have  reduced  income  available  to common  shareholders  and
accordingly, earnings per share.

The  agent  for the  transaction  was  paid a 10%  ($500,000)  fee and  received
warrants to purchase 150,000 shares of common stock  exercisable at $9.625 for 5
years.  In  addition,  the  Company  paid  $25,000  of direct  expenses  for the
transaction.

During  the year ended  August  31,  1999,  the  holder of the  preferred  stock
converted  35 shares plus unpaid  dividends  aggregating  $28,535  into  171,748
shares of the Company's common stock.

COMMON STOCK:

During the period ended August 31, 1998,  the Company  issued  554,089 shares to
various consultants for services rendered.

NOTE 19 - ACQUISITION OF NORTHEAST ONE STOP, INC.:

On September  1, 1998,  the Company  acquired all of the issued and  outstanding
capital stock of Northeast One Stop, Inc.  ("NEOS"),  a record and entertainment
products  distribution  company.  The purchase price was $4,961,750 comprised of
(a)  $2,250,000 in cash of which  $100,000 was placed in escrow as of August 31,
1998,  (b) a $750,000  promissory  note,  of which  $375,000 was paid within six
months  from the date of closing and  $375,000  which was paid on  September  1,
1999, (c) options to purchase a total of 250,000 shares of the Company's  common
stock  valued at  $1,147,750.,  and (d)  options to  purchase a total of 250,000
shares of the  Company's  common stock  valued at  $814,000.  The options in (c)
above were issued to two  stockholders  of the  Company,  in  consideration  for
advisory  services  rendered in connection with the acquisition  pursuant to the
their employment  agreements (see Note 20). The options in (d) above were issued
to the seller of NEOS at a price of $5.25 per share for a term of two years from
the date of closing.  The options were valued pursuant to the provisions of SFAS
123. The promissory note is secured by the Company's common stock.

For financial statement purposes the acquisition was accounted for as a purchase
since Planet exchanged cash and notes payable aggregating $3,000,000 in exchange
for all of the outstanding common stock of Northeast One Stop, Inc.

                                      F-28
<PAGE>
<TABLE>
<CAPTION>
                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 19 - ACQUISITION OF NORTHEAST ONE STOP, INC. (CONTINUED):
<S>                                                                      <C>
The purchase price for NEOS is allocated as follows:
Cash                                                                     $   522,584
Inventory                                                                  6,848,567
Accounts receivable                                                        5,646,804
Property and equipment                                                       784,376
Other assets                                                                 141,799
Accounts payable and accrued expenses                                     (8,180,609)
Notes payable                                                             (4,655,947)
Capitalized lease obligations                                               (234,081)
Other liabilities                                                           (506,167)
Goodwill                                                                   4,594,424
                                                                         -----------

      Total purchase price (including acquisition costs of $1,147,750)     4,961,750

Less:
    Cash paid at signing of letter of intent                                (100,000)
    Notes payable                                                           (750,000)
    Options granted to seller of NEOS                                       (814,000)
    Options granted, acquisition costs - additional paid-in capital       (1,147,750)
                                                                         -----------

Cash paid at closing                                                     $ 2,150,000
                                                                         ===========
</TABLE>
Prior to the acquisition,  the Company had a fiscal year end of December 31. The
Company's results of operations have been restated to conform with the Northeast
One Stop, Inc. year end of August 29, 1998. The following  summarized  unaudited
proforma financial information assumes the acquisition had occurred on September
1, 1997:
                                                            UNAUDITED PROFORMA
                                                                YEAR ENDED
                                                             AUGUST 31, 1998
                                                            ------------------
Net revenues                                                  $35,152,348
Net loss                                                      $  (233,672)
Net loss attributable to common stockholders
    after giving affect to preferred stock
    dividends                                                 $(4,204,362)
Net loss per common share                                     $      (.37)

The  proforma  results do not  necessarily  represent  results  which would have
occurred if the acquisition had taken place on the basis assumed above,  nor are
they indicative of the results of future combined operations.


NOTE 20 - COMMITMENTS AND CONTINGENCIES:

INSURANCE

The Company does not maintain  insurance  to cover  damages from fire,  flood or
other  casualty  losses to its music  master  libraries.  Costs  resulting  from
uninsured  property  losses will be charged against income upon  occurrence.  No
uninsured  casualty  property  losses were incurred or charged to operations for
the year ended August 31, 1999, or the eight months ended August 31, 1998.

                                      F-29
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED):

RECORDING AGREEMENTS

Higher Ground Records has entered into several artist recording  contracts.  The
contracts are for an initial period of one year with options to renew for one to
two years.  Recording costs are to be paid by Higher Ground Records and recouped
from  future  royalties  due the  artist.  In  accordance  with the terms of the
contracts,  all masters,  records and  reproductions  are the property of Higher
Ground Records.

EMPLOYMENT AGREEMENTS/COVENANT NOT TO COMPETE - NEOS

In conjunction  with the  acquisition of NEOS, the Company secured the continued
employment of the former sole stockholder of NEOS for a one-year  period,  which
provides for annual  compensation  of $145,000.  This agreement has been amended
and extended for an  additional  six month period.  It allows the  individual to
work part-time at an annualized salary of $52,000.  In addition,  as part of the
acquisition  agreement,  the former  sole  shareholder  of NEOS has agreed for a
period of 5 years from the date of  acquisition  and within 1,500 miles from any
facility from which the Company  currently  conducts business not to directly or
indirectly  engage in any activity  and/or  business which competes  directly or
indirectly  with the  Company  without the  express  permission  of the Board of
Directors.

The Company has secured an employment and executive  compensation agreement with
an employee of NEOS for a term of three years at an annual rate of $125,000. The
agreement includes an incentive bonus based on NEOS's  profitability.  There are
also options to purchase 150,000 shares of the Company's Common Stock at a price
of $5.25 per share.  These options vest over a period of three years with 75,000
options  vesting on the agreement  date  (September  21, 1998) and the remaining
75,000 options vesting in equal annual installments of 25,000 on each subsequent
anniversary date of this agreement (See Note 16).

OTHER EMPLOYMENT AGREEMENTS

On August 14, 1998, the Company entered into employment agreements with three of
its executive  officers.  The agreements are for a term of ten years and provide
for first year  compensation of $125,000 per officer with annual increases of at
least  10% per annum  each year as well as an  incentive  bonus  based  upon the
Company's profitability and acquisition activities.

LEASE AGREEMENT

The Company leases land and a building  which house a recording  studio under an
agreement  with  the  former  shareholders  of  Al  Alberts  On  Stage,  Ltd,  a
subsidiary.  The initial term is for a period of five years  commencing March 1,
1997, with lease payments of  approximately  $24,000 per year. At the end of the
first term, the Company has the option to acquire the premises for $10, with the
assumption of certain  liabilities  principally  consisting  of the  outstanding
mortgage  balance at that time.  The Company also rents office space in Maryland
and  Pennsylvania  under  operating  leases   aggregating   monthly  rentals  of
approximately  $1,255 per month.  These leases expire in November 1999 and April
2000, respectively.

In connection  with the  acquisition  of NEOS (see Note 19), NEOS entered into a
new lease for an office and operating  facility with an entity controlled by the
former stockholder and now director of the Company. The term of the lease is for
five years  commencing  October 1, 1998 with annual payments of $144,000 for the
first year and $180,000 for each year thereafter.  In addition to the base rent,
NEOS is subject to 50% of real estate and other taxes.

                                      F-30
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED):


The Company was also granted an option to purchase  the leased  facility at fair
market value less 10% within five years from the date of acquisition of NEOS.

The following is a schedule of future  minimum lease  payments  under  operating
leases for the years shown:

                         RELATED PARTY            OTHER                  TOTAL
                         -------------           --------              ---------
        2000              $ 177,000                31,043              $ 208,043
        2001                180,000                24,000                204,000
        2002                180,000                12,000                192,000
        2003                180,000                    --                180,000
        2004                 15,000                    --                 15,000
                          ---------              --------              ---------

                          $ 732,000              $ 67,043              $ 799,043
                          =========              ========              =========

Rent  expenses  was  $189,306 and $18,373 for the year ended August 31, 1999 and
the eight months ended August 31, 1998, respectively.

LITIGATION

There are  currently no  threatened  or pending  legal  proceedings  against the
Company.  From time to time,  the Company has  received  notices  from a limited
number of third  parties  claiming  an  ownership  interest  in  certain  master
recordings   published  by  the  Company  and  sold  through  its  distributors,
demanding,  among other things,  that the Company immediately cease distributing
these master recordings,  or in the alternative,  demanding that the Company pay
them  royalties.  The Company has  responded by providing  these  entities  with
information  regarding the Company's chain of title to these recordings,  and in
two instances the Company has  suspended  the future  release of the  recordings
until the matters are resolved.  There can be no assurances that either of these
matters will be resolved to the Company's satisfaction or that additional claims
will not be brought against the Company in the future by other third parties, or
that any such claims will not be  successful.  If such a claim were  successful,
the Company's business could be materially adversely affected.

In July 1999,  the Company  initiated a lawsuit  against a former major customer
Meijer,  Inc.  ("Meijer") (See Note 14) and Summit United Service,  LLC ("Summit
United"). In this lawsuit, the Company alleges that Meijer and Summit United are
liable to the Company for certain  display rack  fixtures  that were supplied to
Meijer in order to merchandise  and sell music and music related  products.  The
net  book  value of the  display  rack  fixtures  at  issue  in the  lawsuit  is
approximately  $200,000. In addition, the Company is suing for reasonable rental
value of the  display  rack  fixtures,  advertising  credits  in the  amount  of
$67,379,  a new store  allowance  credit in the amount of $171,041  and improper
deductions  for  returned  product in the amount of  $300,644.  As of August 31,
1999, no counter claim or other claims have been asserted or threatened  against
the Company  arising  out of these  transactions.  Management  of the Company is
vigorously prosecuting this lawsuit which is in the discovery process.

                                      F-31
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEAR ENDED AUGUST 31, 1999 AND THE EIGHT MONTH PERIOD
                              ENDED AUGUST 31, 1998

NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED):

Management  of the  Company  believes  that the  outcome  of all  pending  legal
proceedings,  in the aggregate,  will not have a material  adverse effect on the
Company's financial condition or the results of operations.

AGREEMENT - GULF COAST MUSIC, LLC

In connection  with the acquisition of Masters from Gulf Coast (See Note 1), the
Company  was  indebted  to Gulf Coast in the  amount of  $500,000  plus  accrued
interest as of August 31, 1999 (see Note 12).

On August 26, 1999, the Company agreed to  periodically  remove the  restrictive
legend from the 694,000  shares of Company  stock owned by Gulf Coast which were
also part of the purchase price. Gulf Coast will make reasonable efforts to sell
this stock on the open market in minimum  and maximum  amounts of 1,000 to 2,000
shares per day. As  unrestricted  shares are sold,  the Company  will remove the
restrictive  legend from additional shares until the restrictions on all 694,000
shares are removed.  On June 1, 2000,  the Company  will remove the  restrictive
legend on all  remaining  shares held by Gulf Coast.  This date will be extended
one day for every day after  September  7,  1999,  that it takes  Gulf  Coast to
present its  certificate  to have the  restrictions  removed and open a discount
brokerage account.

If by June 1, 2000, any  combination of cash payments on the promissory note and
interest  made by the Company,  and  proceeds  actually  received  from sales of
Company stock by Gulf Coast,  totals $1,800,000,  the remaining  promissory note
shall be  considered  paid in full and any  remaining  stock  held by Gulf Coast
shall be returned to the Company.

NOTE 21 - SEGMENT INFORMATION:

The Company operates in five business segments; music record masters production,
music studio operations,  record label production,  rack distribution sales, and
one-stop  distribution  sales.  All  operations  and revenues are  conducted and
earned in the  United  States.  The  following  table  presents  sales and other
financial information by business segment:
<TABLE>
<CAPTION>
                                                                             DEPRECIATION
                                                              OPERATING           AND          TOTAL          CAPITAL
           1999                                REVENUES     EARNINGS (LOSS)  AMORTIZATION      ASSETS      EXPENDITURES
           ----                              ------------   ---------------  ------------   ------------   ------------
<S>                                          <C>             <C>             <C>            <C>            <C>
Rack distribution sales                      $ 13,873,397    $   (447,400)   $    144,821   $  6,227,475   $    326,903
One-Stop distribution sales                    28,345,979         858,546         294,032     12,643,661        663,710
Music record master
  production                                    1,505,288          61,229          58,963      8,436,604             --
Music studio operations                            49,683        (197,947)         30,029        217,751          4,536
Record label productions                           16,207         (72,026)             --         12,228             --
                                             ------------    ------------    ------------   ------------   ------------
                                             $ 43,790,554    $    202,402    $    527,845   $ 27,537,719   $    995,149
                                             ============    ============    ============   ============   ============

      1998 (8 months)
      ----
Music record master
  production                                 $     23,042    $   (631,538)   $     10,000   $  6,954,370   $         --
Music studio operations                            35,451         (71,363)         23,758        222,126             --
Record label productions                           51,002          10,016              --         71,207             --
                                             ------------    ------------    ------------   ------------   ------------
                                             $    109,495    $   (692,885)   $     33,758   $  7,247,703(i)$         --
                                             ============    ============    ============   ============   ============
</TABLE>

(i) Does not include  corporate  cash and  restricted  cash  assets  aggregating
$4,070,947.

                                      F-32
<PAGE>


                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                          PROFORMA EXPLANATORY HEADNOTE
                           YEAR ENDED AUGUST 31, 1998

The following unaudited proforma  consolidated  financial statements give effect
to the  acquisition  by Planet  Entertainment  Corporation  (the  "Company")  of
Northeast One Stop, Inc. ("NEOS") and are based on the estimates and assumptions
set forth herein and in the notes to such statements.  This proforma information
has been prepared utilizing the historical  financial  statements of the Company
and notes  thereto,  and the historical  financial  statements of NEOS and notes
thereto.  The proforma  financial  data does not purport to be indicative of the
results  which  actually  would have been  obtained  had the  acquisitions  been
effected  on the dates  indicated  or the  results  which may be obtained in the
future.

The proforma consolidated statements of operations for the year ended August 31,
1998 include the operating results of the Company and NEOS for such period.

Effective  September  1,  1998,  the  Company  acquired  all of the  issued  and
outstanding  common stock of NEOS.  The purchase  price for NEOS was  $4,961,750
comprised of  $2,250,000  in cash and $750,000 in notes,  which has been paid in
full, options to purchase 250,000 shares of the Company's common stock valued at
$1,147,750,  issued to two shareholders of the Company for acquisition  services
rendered  and  additionally,  options  granted  to the  stockholder  of  NEOS to
purchase 250,000 shares of the Company's common stock, exercisable at a price of
$5.25 per share,  exercisable  for a term of two years from the date of closing,
valued at $814,000. The cash paid at closing was obtained by the Company through
its sale of 500 shares of the  Company's 7%  non-voting,  convertible  preferred
stock (for net proceeds of $4,475,000) on May 31, 1998.
<TABLE>
<CAPTION>
<S>                                                                     <C>
The purchase price of NEOS is allocated as follows:
Cash                                                                    $   522,584
Inventory                                                                 6,848,567
Accounts receivable                                                       5,646,804
Property and equipment                                                      784,376
Other assets                                                                141,799
Accounts payable and accrued expenses                                    (8,180,609)
Notes payable                                                            (4,655,947)
Capitalized lease obligations                                              (234,081)
Other liabilities                                                          (506,167)
Goodwill                                                                  4,594,424
                                                                        -----------

     Total purchase price (including acquisition costs of $1,147,750)     4,961,750
Less:
   Cash paid at signing of letter of intent                                (100,000)
   Notes payable                                                           (750,000)
   Options granted to seller of NEOS                                       (814,000)
   Options granted, acquisition costs - additional paid-in capital       (1,147,750)
                                                                        -----------

Cash paid at closing                                                    $ 2,150,000
                                                                        ===========
</TABLE>
                                      F-33
<PAGE>
<TABLE>
<CAPTION>
                            PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                         UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS



                                               Planet
                                           Entertainment
                                           Corporation and     Northeast
                                             Subsidiaries    One Stop, Inc.
                                            For the Twelve   For the Year
                                             Months Ended        Ended          Proforma     Consolidated
                                            August 31, 1998 August 29, 1998   Adjustments      Proforma
                                              -----------     -----------      ----------    ------------
<S>                                           <C>             <C>              <C>           <C>
REVENUES:
   Sales, net                                 $    44,035     $34,793,341      $       --    $ 34,837,376
   Royalty                                         26,817              --              --          26,817
   Studio                                         288,155              --              --         288,155
                                              -----------     -----------      ----------    ------------
      Total revenues                              359,007      34,793,341              --      35,152,348
                                              -----------     -----------      ----------    ------------
COSTS AND EXPENSES:
   Cost of sales                                   18,247      29,152,959              --      29,171,206
   Selling, general and administrative          1,058,523       4,161,426              --       5,219,949
   Depreciation and amortization                   47,149         238,165         113,123         398,437
   Interest expense                                    --         430,687              --         430,687
   Interest expense - related party               154,098              --              --         154,098
   Bad debt expense                                    --          38,106              --          38,106
   Amortization of loan costs                          --          28,526              --          28,526
                                              -----------     -----------      ----------    ------------
      Total costs and expenses                  1,278,017      34,049,869         113,123      35,441,009
                                              -----------     -----------      ----------    ------------
INCOME (LOSS) FROM OPERATIONS                    (919,010)        743,472        (113,123)       (288,661)
                                              -----------     -----------      ----------    ------------
OTHER INCOME:
   Dividend income                                 47,421              --              --          47,421
   Interest income                                     --           2,289              --           2,289
   Other                                               --           5,279              --           5,279
                                              -----------     -----------      ----------    ------------
      Total other income                           47,421           7,568              --          54,989
                                              -----------     -----------      ----------    ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES                                     (871,589)        751,040        (113,123)       (233,672)

PROVISION FOR INCOME TAXES                             --        (275,107)        275,107              --
                                              -----------     -----------      ----------    ------------
NET INCOME (LOSS)                             $  (871,589)    $   475,933      $  161,984    $   (233,672)
                                              ===========     ===========      ==========    ============
NET INCOME (LOSS)                                (871,589)    $   475,933      $  161,984    $   (233,672)
   Less preferred stock dividends                 (87,500)             --        (262,500)       (350,000)
   Less preferred stock dividend
   return of capital                           (3,620,690)             --              --      (3,620,690)
                                              -----------     -----------      ----------    ------------
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON STOCKHOLDERS           $(4,579,779)    $   475,933      $ (100,516)   $ (4,204,362)
                                              ===========     ===========      ==========    ============
NET (LOSS) PER COMMON SHARE BASIC                                                            $       (.37)
                                                                                             ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                                                                      11,436,595
                                                                                             ============

                        See accompanying notes to unaudited proforma consolidated
                             financial statements and explanatory headnote.
</TABLE>
                                                  F-34
<PAGE>


                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
        NOTES TO UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS

NOTE 1 - PROFORMA ADJUSTMENTS

The adjustments  relating to the unaudited  proforma  consolidated  statement of
operations are computed  assuming the  acquisition  of Northeast One Stop,  Inc.
("NEOS") was consummated at the beginning of the applicable period presented.


NOTE 2 - ADDITIONAL AMORTIZATION

The  unaudited  proforma  consolidated  statement of  operations  for the twelve
months  ended  August  31,  1998  reflect  amortization  of  goodwill  using the
straight-line  method  over 40 years.  Goodwill  consists  of the  excess of the
purchase price of NEOS over the estimated fair values of the assets acquired and
liabilities assumed,  including the issuance to two stockholders of the Company,
options to purchase  250,000  shares of the  Company's  common  stock  valued at
$1,147,750,  in consideration  for advisory services rendered in connection with
the  acquisition and also the issuance to the seller of NEOS options to purchase
250,000 shares of the Company's common stock valued at $814,000.


NOTE 3 - PLANET ENTERTAINMENT CORPORATION - CHANGE IN YEAR END

Planet  Entertainment  Corporation  changed its fiscal year from  December 31 to
August 31. For proforma  purposes,  the period from  September 1 to December 31,
1997 has been added to the eight  months ended August 31, 1998 to reflect a full
twelve months as follows:

                                      September 1,   January 1,
                                          to             to
                                      December 31,   August 31,
                                         1997           1998          Proforma
                                      -----------    -----------    -----------
Revenues                              $   249,512    $   109,495    $   359,007
Costs and expenses                        475,637        802,380      1,278,017
                                      -----------    -----------    -----------

Loss from operations                     (226,125)      (692,885)      (919,010)
Other income                                   --         47,421         47,421
                                      -----------    -----------    -----------

Loss before provision for income taxes   (226,125)      (645,464)      (871,589)

Provision for income taxes                     --             --             --
                                      -----------    -----------    -----------

Net loss                              $  (226,125)   $  (645,464)   $  (871,589)
                                      ===========    ===========    ===========

NOTE 4 - PROVISION FOR INCOME TAXES

The  unaudited  proforma   consolidated   statement  of  operations  include  an
adjustment to eliminate the provision for income taxes of NEOS,  recognizing the
benefit from utilization of Planet Entertainment Corporation's net loss.

                                      F-35