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                       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, 2000


[ ]      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
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(State of Other Jurisdiction of                           (I.R.S. Employer
Incorporation or Organization)                            Identification No.)


           2 Bridge Ave, Building 6 lower level, Red Bank, New Jersey 07748
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                    (Address of Principal Executive Offices)


         Issuer's Telephone Number, Including Area Code: (732) 936-9660
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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)


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                                (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 [ ]
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<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 $30,426,617.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant at November 30, 2000 was approximately
$1,400,318 based upon the last sale price (.17 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, 2000, was 12,434,495 shares of common stock.

Transitional Small Business Disclosure Format (check one):

Yes [ ] No  [X]

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TABLE OF CONTENTS

PART I........................................................................4
ITEM 1:  BUSINESS.............................................................4
ITEM 2:  PROPERTIES..........................................................16
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................................................25
ITEM 8:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE............................25

PART III.....................................................................25
ITEM 9:  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................25
ITEM 10:  EXECUTIVE COMPENSATION.............................................27
ITEM 11:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....32
ITEM 12:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................33
ITEM 13:  EXHIBITS, LIST AND REPORTS ON FORM 8-K.............................35

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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, music or entertainment related apparel, such as t-shirts. The
Company's business activities also include to a lesser extent the acquisition,
licensing, production, marketing and distribution of high quality recorded music
from the catalog. Through NEOS, the Company distributes approximately 140,000
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.

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         The Company owns or licenses certain 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 joint rights to
approximately 5,000 with a former officer of the Company (see "certain
transactions"), and the Company has non-exclusive rights to the remaining
approximately 10,000 masters. 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.

         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 to a much
lesser extent "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
a lesser extent 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

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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 strategic
partner during fiscal year 2001. We will pursue further growth through internal
growth, possible acquisitions, and move into additional product lines.

         NXTREND TECHNOLOGY "NXTREND"

         During 2000, 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.

         WAREHOUSE EXPANSION/AUTOMATION.

         During the second quarter of calendar year 2000, NEOS's relocated their
corporate headquarters/warehouse from 41,000 square feet to a facility of
approximately 90,000 square feet, located at 7 Simmons Lane, Menands, NY 12204,
the larger warehouse space allows the Company 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.

During fiscal 2000 the Company made capital investments of approximately
$1,500,000 including; carousel hardware and software, network upgrades, and
building improvements at the new NEOS facility. The Company believes these
investments will allow it to increase volume, carry additional sku's and attract
additional strategic partners.

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<PAGE>

         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 current systems allow us to more adequately service and grow with our music
retailers. We configured and upgraded our 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 2000 NEOS serviced several Internet retailers such as
Amazon.com, EveryCD.com, Tower mailorder, Internet Shopping Network (ISN), and
CDUniverse.com. During fiscal year 2001 we hope to fulfill customer orders for
additional Internet retailers and catalog companies by shipping product directly
to the individual customer. These music 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

         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 2001,subject to the
Company having available funds, the site will be designed to focus on the music
catalog and compilation albums as well as provide general corporate information
regarding Planet Entertainment Corp. (PNEC).

Company's business to business Website (WWW.NEONEB2B.COM) went online during
June 2000 and is expected to be fully integrated with a shopping cart and the
Company's new hardware/software platform during the first quarter 2001.

         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,

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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 second quarter of calendar year 2001,
subject to available funds. 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

         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. In
September 2000 NEOS hired 5 new salesmen and setup an office in Danbury, CT.,
which allowed the Company to greatly expand its existing account base.

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         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
now carries approximately 6,000 DVD titles. 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. During the year 2000 NEOS
opened two additional satellite sales offices; one in Florida and one in
Connecticut.

         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. We seek to make inroads in these areas during 2001.

         EXPORT.

         During FYE 2000 we opened a sales office in Coral Springs, Florida with
experienced sales staff that concentrate on export business. We believe there
exists a significant opportunity in exporting, particularly in deep catalogue,
DVD, and accessory items. It is our intention to grow this aspect of the
industry. Our intention is to limit this business to no more than 20% of our
overall volume.

         EXPLOIT THE SALES POTENTIAL OF DVD.

         During FYE 2000, We expanded our SKU base to include over 6,000 DVD's.
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 2001 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, (see
"certain transactions") 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
did not record the 5,000 master recordings purchased from Maestro on its books
because predecessor costs could not be determined. During 2000 the Company, as
part of a package with a former employee, transferred ownership of the Maestro
Catalog back to the previous owner (see item 12, Related Party Transactions -
the Venneri agreement). However, the Company has retained rights to co-exploit
the catalog.

         The Company 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
$184,083).

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         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.

         As part of the Venneri Agreement the company gave up all interests and
claims on a twenty-four track studio in Jackson, New Jersey and a full service
forty-eight track studio in Chester, PA. The Company transferred ownership of
all production assets to a former employee (see "Certain Transactions"). The
Company does not currently intend to be in the production business.

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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.

         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

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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. For FYE 2000 the Company did not have income from
New Millenium or Shandell Music. The Company has elected at this time not to
persue this business segment in the immediate future.

         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 Company's
website should be operational by the first half of calendar year 2001. The NEOS
website went live in June 2000. Its shopping cart capabilities will go live in
the first quarter of 2001.

         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. In fiscal 1999, approximately
$28,346,000 (67%) percent of NEOS's net sales were derived from its "one-stop"
division, and approximately $13,873,000 (33%) percent of its net sales were
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. For fiscal 2000, approximately $27,665,000 (98%) percent of NEOS's
net sales were derived from its "one-stop" division, and approximately $615,000
(2%) percent of its net sales were derived from its "rack-job" division.
Although the Company believes the loss of Meijer as a customer may continue to
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.

         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
February 2000 title to the Maestro Catalog was transferred to a former employee
(see item 12, Related Party Transactions - the Venneri agreement).

         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

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Company recorded approximately $204,362 in revenues from MMIC, of which amount
$180,615 was written off as uncollectable in fiscal 2000. (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 would remove the restrictive legend on the
694,000 shares and the net proceeds to Gulf Coast from sale of such shares of
stock would 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 aggregated $1,800,000 on or before
June 1, 2000, then the Promissory Notes would be deemed paid in full and any
remaining shares held by Gulf Coast will be returned to the Company. The amount
of stock sold by June 1, 2000 was minimal. However, the Company removed the
restriction from the remaining shares held by Gulf Coast as consideration for
the extension of the due date of the September 2000 payment to February 2001.

         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. All assets and liabilities of Al Alberts on Stage were
transferred to a former employee of the Company in February 2000 (see item 12,
Related Party Transactions - the Venneri agreement).

                                       13

<PAGE>

         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 45 shares of Preferred
Stock into 351,440 shares of Common Stock, resulting in JNC owning as of the
date hereof 455 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, 2000,  the Company and its  subsidiaries,  including
NEOS, had a total of approximately 110 employees, the majority of whom were
full-time. 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.

                                       15
<PAGE>

ITEM 2:  PROPERTIES

         The Company's principal office was relocated during fiscal 2000 to 2
Bridge Avenue in Red Bank, New Jersey. The facilities in Jackson, New Jersey and
Chester, Pennsylvania were transferred to a former employee in February 2000
(see "certain transactions").

         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 $685 per month, a month-to-month lease in Reisterstown, Maryland
relating to approximately 850 square feet at the rate of $600 per month, a five
(5) year lease in Latham, New York relating to approximately 41,000 sq. ft. at
the rate of $15,000 per month, a three (3) year lease in Danbury, CT for
approximately 1,500 sq. ft. at the rate $1,300 per month, a one year lease
relating to approximately 500 sq. ft. at the rate of $550 per month, and a five
year (5) lease in Menands, New York relating to approximately 87,000 sq. ft. at
the rate of $20,167 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, a director of the Company, and
former sole stockholder of NEOS. (SEE Item 12. "Certain Relationships and
Related Transactions.")

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 January 2000, the Company initiated a lawsuit against Maxnet, Inc.
("Maxnet"). In this lawsuit, the Company is demanding that Maxnet perform under
a July 1999 agreement that called for the sale of 2,500 musical masters to
Maxnet in consideration for the sum of $1,500,000 to be paid by the issuance of
restricted shares in Maxnet stock, plus 100,000 in master duplication costs. The
Company believes the legal action will result in the successful completion of
performance of the Maxnet agreement.

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
                                  ----            ---              -----

    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

    December 31, 1999            $ 1.03           $1.00            $1.03

    2000
    ----
    March 31, 2000               $ 1.68           $1.56            $1.68

    June 30, 2000                $ 0.56           $0.50            $0.53

    September 29, 2000           $ 0.25           $0.22            $0.22
-------------------

* 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 244 holders of
record as of November 30, 2000. 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 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. In
February 2000, the 5,000 masters acquired from Maestro were transferred to the
previous owner (see Note 21). However, the Company retained all rights to
exploit the masters.

         As indicated elsewhere herein, effective as of September 1, 1998, the
Company acquired NEOS. For the years ended August 31, 2000 and 1999, NEOS had
net revenues of $28,280,434 and $42,219,376 respectively, which constituted
approximately 93% and 96%, 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.

         The Company has six offices. Planet relocated its corporate
headquarters during fiscal 2000 to Red Bank, New Jersey. The lease for the
studio facility in PA was transferred to a former officer and director of the
Company in conjunction with the sale of three subsidiaries in February 2000 (see
Note 21). NEOS also relocated to a larger combined administrative and warehouse
facility in Menands, New York. NEOS is attempting to sublet or assist the
landlord in the sale its former location in Latham, New York (see Note 20). The
Company rents office space in Connecticut, Florida, Maryland and Pennsylvania.
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.

                                       19
<PAGE>

         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. In the second half of fiscal 1999, we scaled back our Rack
operation after we stopped servicing a large Rack customer that represented
approximately $9,460,000 or 22% of the Company's net sales in fiscal 1999. 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 1999 Manufacturers' Shipment and Value Report, CD album unit
shipments rose 10.8% from 847.0 million in 1998 to 938.9 million in 1999.
Cassette unit shipments continued to drop from 158.5 million in 1998 to 123.6
million in 1999 (down 22.0%). These trends have held consistent in the
statistics available for the first six months of calendar year 2000. DVD
continues to see the largest growth percentages as shipments increased from
approximately 800,000 units in the six months ended June 30, 1999 to
approximately 1,370,000 units in the six months ended June 30, 2000, a 71.3%
increase. CD albums accounted for 88% of total value and 81% of total unit
shipments in 1999. For NEOS, in the six months ended June 30, 2000, CD album
sales represented approximately 83% of gross sales while cassettes declined to
12% of gross 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.

         The Company has also, from time to time, sold copies of its
non-exclusive master recordings in groupings of 2,000 to 5,000 masters. All
copies of master recordings are sold without third party rights. In such sales,
the Company receives shares of common stock from the purchasers.

Capital Investment Strategy

         During fiscal 2000, NEOS expended approximately $1,500,000 on capital
assets. Major investments included building improvements and product-handling
equipment at the new NEOS facility (see Note 20), enhancements to the NxTrend
computer system and new networking hardware and software for our field
locations.

                                       20
<PAGE>

RESULTS OF OPERATIONS FOR THE COMPANY'S TWELVE MONTH PERIOD ENDED AUGUST 31,
2000 AS COMPARED TO THE TWELVE MONTH PERIOD ENDED AUGUST 31, 1999

         NET REVENUES. For the twelve months ended August 31, 2000 net revenues
were approximately $30,427,000 as compared to net revenues of approximately
$43,725,000 for fiscal 1999, which represented a decrease in net revenues of
$13,298,000 or 30%. Net revenues from the One Stop Business for the twelve
months ended August 31, 2000 versus the prior year, respectively, were
approximately $27,665,000 as compared to approximately $28,346,000, a slight
decrease of 2%. This decrease was due to an industry-wide lack of quality new
release product for the spring and summer selling seasons. Net revenues from the
Rack Business for the twelve months ended August 31, 2000 were approximately $
615,000 as compared to approximately $13,873,000 in the prior year, a decrease
of $13,258,000 or 96%. This decrease was primarily due to the loss of a major
Rack account in January 1999 as well as a scaled-down Rack operation. In the
twelve months ended August 31, 1999, the major Rack customer, Meijer, Inc.,
accounted for net revenues of approximately $9,460,000 or 22% of net revenues
for the Company. Net revenues from Planet Operations for the twelve months ended
August 31, 2000 versus the prior year, respectively, were approximately
$2,146,000 as compared to approximately $1,505,000, an increase of 43%. This
increase was primarily due to the $2,124,000 sale of limited rights to certain
masters.

         COST OF SALES. For the twelve months ended August 31, 2000, cost of
sales was approximately $24,870,000 or 81.7% of net revenues as compared to cost
of sales for fiscal 1999 of approximately $35,622,000 or 81.5% of net revenues.
This slight decrease as a percentage of revenues is primarily due to lower
levels of cooperative advertising income from vendors.

         OPERATING EXPENSES. For the twelve months ended August 31, 2000,
selling, general and administrative expenses ("SG&A") were approximately
$4,685,000 or 15.4% of net revenues compared to SG&A of approximately $6,589,000
or 15.1% of net revenues in fiscal 1999. This increase in SG&A as a percent of
net revenues resulted primarily from NEOS relocation-related expenses.

         INTEREST EXPENSE. For the twelve months ended August 31, 2000, interest
expense was approximately $719,000 or 2.4% of net revenues versus approximately
$534,000 or 1.2% of net revenues in fiscal 1999. This increase was primarily
caused by a higher average line-of-credit balance than the prior year.

         NET INCOME (LOSS). For the twelve months ended August 31, 2000, net
(loss) was approximately ($311,000) or (1.0%) of net revenues, as compared to a
net income of approximately $278,000 or 0.6% of net revenues for the twelve
months ended August 31, 1999. Loss from operations for NEOS for the twelve
months ended August 31, 2000 was approximately ($1,465,000) as compared to
income from operations of approximately $ 563,000 for the comparable period in
the prior year. This decrease was primarily due to the loss of a major Rack
customer in January 1999 and the scaling back of the rack operation as described
earlier. In addition, NEOS relocated to a larger facility and experienced
certain non-recurring moving expenses. The income from operations for Planet
other than NEOS for the twelve months ended August 31, 2000 was approximately $
499,000 as compared to an income (loss) from operations of approximately ($
91,000) in the comparable period in the prior year, a $590,000 improvement.
This improvement is primarily due to the revenue from the sale of limited rights
to certain masters as discussed above. The after-tax net loss of the three
subsidiaries that were sold to a former director and officer of the Company in
February 2000 (see Note 21) for the twelve months ended August 31, 2000 was
insignificant (approximately $21,000). However, the one-time after-tax gain from
the sale of these subsidiaries for the twelve months ended August 31, 2000 was
approximately $ 36,000.

                                       21
<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, 2000 were $64,901 as
compared to the prior year of $620,975, or a reduction of $556,074. This
reduction was the result of the purchase of equipment, the pay-down of accounts
payable and payments on debt. These outflows were partially offset by a
decreased inventory level, collections of accounts receivable, two refunds of
prior period asset purchases (via conversion to leases) as well as several
non-cash items.

         Net cash flow provided by operating activities for the twelve month
period ended August 31, 2000 was $230,053. The primary uses of cash were to
pay-down accounts payable ($767,005), a drop in deferred revenue ($154,337) and
the increase in marketable securities ($2,000,000). Inflows included a decrease
in inventory ($1,422,657) and accounts receivable ($1,039,234) as well as
non-cash items (i.e. depreciation, accrued expenses, etc).

         As of August 31, 2000, outstanding accounts receivable totaled
$3,471,713. This amount is net of an allowance for bad debts of $354,660. By
comparison, the consolidated accounts receivable balance as of August 31, 1999
was $5,242,898, net of an allowance of $617,143. Prior year accounts receivable
included an amount due from a major customer ($368,138), Meijer Inc., that had
stopped purchasing from the Company in January 1999. A lawsuit was initiated
against this customer and the balance satisfied as the result of a settlement
agreement (see Note 11).

         At August 31, 2000, inventory was $5,730,187 versus the prior year
inventory of $7,152,844. The Company believes the decrease is normal due to
decreased sales levels. NEOS accounts for its inventory on a first-in-first-out
basis.

         At August 31, 2000, the Company's accounts payable and accrued expense
balance was $6,954,090 versus the prior year balance of $7,639,421, 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
NEOS to add the balance of any subordinated debt due to the former shareholder
of NEOS to the net worth calculation to meet the required level. NEOS was in
technical default of the adjusted net worth covenant at August 31, 2000, which
was waived by CFC. Specifically, working capital and adjusted net worth as of
August 31, 2000 were $3,547,365 and ($51,639), respectively. As of August 31,
2000, NEOS had an aggregate of $5,297,988 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.

                                       22
<PAGE>

         Net cash flow used by investing activities for the twelve month period
ended August 31, 2000 was $232,128. The primary cash outflow for the Company was
the purchase of fixed assets totaling $1,446,720. Sources of cash included two
refunds of prior period asset purchases ($685,000 from conversion to leases) and
a building improvement loan ($525,000).

         Net cash flow used by financing activities for the twelve month period
ended August 31, 2000 was $553,999. The primary uses of cash were the repayment
of; long-term debt ($375,000), the CFC line of credit ($137,047) and capital
lease obligations ($56,952).

         As of August 31, 2000, the Company had outstanding an aggregate of
$3,275,444 in notes (including accrued interest of $362,291), and accrued
salaries. Such amounts consist of:

(a)      $500,000 on the Gulf Coast Music, LLC (Gulf Coast) Note,
(b)      $344,000 principal amount 9% demand note to the former owner of NEOS
         issued prior to the NEOS Acquisition,
(c)      $230,884 principal amount 9% demand note due to a privately held
         corporation owned by Messrs. Giakas and Arnone representing working
         capital advances made by such entities to the Company,
(d)      $10,000 principal amount 10% demand note also due to Messrs. Giakas and
         Arnone,
(e)      $ 5,000 principal amount 10% demand note also due to Messrs. Giakas and
         Arnone,
(f)      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,
(g)      $15,000 principal amount 9% demand note to Whelan, Inc., a privately
         held corporation owned by Messrs. Arnone and Giakas,
(h)      Accrued officers' salaries of $738,564,
(i)      $519,705 principal amount 9.5% leasehold improvement note due to the
         landlord of the NEOS Menands location.

         NEOS has several capital leases in the aggregate amount of $700,465
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,
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.

                                       23
<PAGE>

YEAR 2000 ISSUES

         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 was
approximately $650,000. The Company was not able to separately quantify
expenditures for Year 2000 compliance.

         The Company did not experience any interruption in service or problems
with suppliers.

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.


         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 was effective in the Company's first quarter
of the fiscal year ended August 31, 2000. The effect of the implementation of
Statement did not have any significant impact on the Company.

         In March 2000, the Financial Accounting Standards Board (FASB) issued
interpretation No. 44 (FIN 44) "Accounting for Certain Transactions involving
Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB No. 25 for certain issues, including the definition of an
employee, the treatment of the acceleration of stock options and the accounting
treatment for options assumed in business combinations. FIN 44 became effective
on July 1, 2000, but is applicable for certain transactions dating back to
December 1998. The adoption of FIN 44 did not have a material impact on the
Company's financial position or results of operations.

         In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements" (SAB No. 101). SAB No. 101 expresses the views of the SEC staff in
applying generally accepted accounting principles to certain revenue recognition
issues. The Company will adopt the provisions of SAB No. 101 in the first
quarter of fiscal 2001 and expects that its adoption will have no material
impact on its financial position or results of operations.

                                       24
<PAGE>

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
         ----               ---        ----------------

 John S. Arnone             43         President, Chief Executive Officer,
                                       Director

 Scott W. Stewart           42         Chief Financial Officer, Chairman of
                                       Audit Committee

 Louis J. DelSignore        62         Director, Planet Entertainment
                                       Corporation, Chairman, Northeast One
                                       Stop, Inc.

 Ronald J. Nicks            47         President, Chief Executive
                                       Officer, Northeast One Stop, Inc.

 Robert G. Thomas           57         Director

 Donald F. Maggi            41         Director



         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.

                                       25
<PAGE>

         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 1992 through 1994, Mr. Arnone was president of Lancaster Leeds &
Co., a private investment and merchant banking firm located in New York, New
York, and managing director of Chapman, Spira & Carson, Inc., a private
investment and merchant banking firm located in New York, New York. From 1994
through 1996, Mr. Arnone was president of J. W. Cabott & Co., Inc., a private
investment firm, as well 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.

         SCOTT W. STEWART, C.P.A. is Chief Financial Officer of the Company. Mr.
Stewart is a Certified Public Accountant with experience in the retail
distribution and financial services industries. From 1985 through 1992, Mr.
Stewart was a director of Kay-Bee Toy Stores heading up the financial reporting,
inventory control and planning departments. Most recently, he was controller for
Chicago Title and Trust's credit division. He received his accounting degree
from Siena College and worked for Ernst & Young, CPA's in their Albany office.
Mr. Stewart devotes his full professional time to the business of the Company.

         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 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.

                                       26
<PAGE>

         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
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, 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 the
years ended August 31, 1999 and 2000.

                                       27
<PAGE>
<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
                                            2000        $137,500     $    6,109          -0-         $  140,609

Wallace M. Giakas        Chairman of the    1997        $ 31,250     $3,359,493          -0-         $3,390,743
Resigned 5/18/2000       Board, Secretary
                                            1998        $ 20,833     $       -0-         -0-         $   20,833
                                            1999        $125,000     $  573,875(1)       -0-         $  698,875
                                            2000        $100,372     $    6,109                      $  106,481

Joseph Venneri           Executive Vice     1997        $ 36,200     $3,359,493          -0-         $3,395,693
Resigned 2/28/2000       President,
                         Director
                                            1998        $ 20,833             -0-         -0-         $   20,833
                                            1999        $125,000             -0-         -0-         $  125,000
                                            2000        $ 68,748             -0-         -0-         $   68,748

Richard Bluestine        Executive Vice     1997        $ 18,750     $  537,519          -0-         $  556,269
Resigned 6/01/2000       President,
                         Chief Financial
                         Officer, Chair-
                         man of Audit
                         Committee
                                            1998        $ 12,500             -0-         -0-         $  12,500
                                            1999        $ 41,667             -0-         -0-         $  41,667
                                            2000        $ 41,668             -0-         -0-         $  41,668

Scott W. Stewart         Chief Financial    1999        $ N/A          N/A               N/A         $  N/A
                         Officer, Chair-    2000        $ 72,500     $       -0-         -0-         $  72,500
                         man of Audit
                         Committee

Louis J. DelSignore      Director           1998        $ N/A          N/A               N/A         $  N/A
                                            1999        $145,000     $       -0-(2)      -0-         $ 145,000
                                            2000        $ 52,000     $       -0-         -0-         $  52,000


Ron Nicks                Director           1998        $ N/A          N/A               N/A         $  N/A
Resigned from                               1999        $125,000     $ 25,000(3)         -0-         $ 150,000
BOD 4/04/2000                               2000        $150,000     $    -0-            -0-         $ 150,000
</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. These options have since EXPIRED without being
exercised.

                                       28
<PAGE>

(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. These options were subsequently replaced with a stock award
(see "4" below).

         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, 2000, the Company
had accrued officers' salaries in the aggregate amount of $738,564.

         On January 29, 1997, the Board of Directors approved the employment
agreements, effective January 1, 1997, for John S. Arnone. 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 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. 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
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.

                                       29
<PAGE>

         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 was
extended for one year at an annualized salary of $52,000. Effective in December
2000, Mr. Delsignore has become a consultant to the company.

         In addition, the Company 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 (subsequently increased to $150,000 per year) and options
to acquire 150,000 shares of the Company's Common Stock at a price of $5.25 per
share.

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;

                                       30

<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, 2000 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 two months (60 days) of service
are eligible to contribute to the Plan immediately. 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, 2000 was $33,577.
No other retirement, pension or similar programs have 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.

                                       31
<PAGE>

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of November 30, 2,000 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)
------------------------              ------------                 ------------
John S. Arnone                        3,867,000   (1)(2)(3)*             25.2%
30 Penbrook Court                                 (4)
Shrewsbury, N.J. 07702

Wallace M. Giakas                     3,892,000   (1)(2)(3)              25.4%
4 Tall Oaks Ct.                                   (4)
Farmingdale, N.J. 07727

Joseph Venneri                        1,000,000   (6)                     6.5%
336 East Pleasant Grove Rd.
Jackson, N.J. 08527

Gulf Coast Music, Inc.                  644,000                           4.2%
c/o Jeffrey Kranzdorf
757 St. Charles Avenue
New Orleans, LA 70130

Louis J. DelSignore                      15,000   (4)*                    0.0%
7 Northway Lane
Latham, New York 10201

Ronald J. Nicks                         150,000   (5)                     1.0%
7 Northway Lane
Latham, New York 10201

Donald F Maggi                           15,000   (4)*                    0.0%
10 Verrazano Drive
Middletown, N.J. 07748

Robert Thomas                            15,000   (4)*                    0.0%
RR 3,  BOX 431
Millbrook, N.Y. 12545

All executive officers
and directors as a
Group (8 persons)                     4,212,000   (1)(2)(3)              26.5%
                                                  (4)(5)

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

                                       32
<PAGE>

(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, and
Arnone, disclaim beneficial ownership of 603,000, 200,000, and 653,000,
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.

(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 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 15,000 shares of the Company's Common Stock,
exercisable at $1.03 per share over a period of five (5) years granted to
Messers. Arnone, Giakas, DelSignore, Thomas and Maggi as compensation for Board
of Directors service. At the time these options were granted, the price of the
Company's Stock was $1.03 per share.

(5) 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.

(6) The Company believes that Mr. Venneri owns approximately 1,000,000 shares as
of November 30, 2000.

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         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.

                                       33
<PAGE>

         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, 2000, the Company owed to Messrs. Arnone and Giakas in
the aggregate $320,159 (which includes accrued interest of $59,275) 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") and Whelan, Inc. ("Whelan"), both
privately- held corporations owned and controlled by Messrs. Arnone and Giakas.
Such loans are payable on demand and bear interest at rates ranging from nine
(9%) to ten (10%) percent per annum. The Company also owes to Messrs. Arnone,
Giakas an aggregate of $624,804 of accrued salaries. The Company also owes to
Messrs. Bluestine (a former officer of the Company) an aggregate of $113,760 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 represent a conflict of interest to the Company's
officers and directors.

         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. A former officer of the Company and a principal
shareholder, Joseph Venneri, is also a shareholder of MMIC, and Richard
Bluestine, a former officer and director of the Company and a shareholder, 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 was never collected. In fiscal
2000, this amount was written off as uncollectable.

         During the second quarter of fiscal 2000, the Company transferred 100%
of its interests in three subsidiaries-Maestro Holding Corporation (Maestro), Al
Alberts on Stage, Ltd. (Studio), and Higher Ground Records (Higher Ground) to a
former officer and director, Joseph Venneri, in lieu of accrued salaries in the
amount of $ 192,353 as of February 29, 2000 (the "Venneri agreement"). As a
result of this transaction, the employment agreement with this individual was
terminated and outstanding warrants to purchase 1,000,000 shares of the
Company's common stock were cancelled.

         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.

                                       34
<PAGE>

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*
                      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, A. J. 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.

                                       35

<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 14, 2000                         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/ JOHN S. ARNONE               John S. Arnone,                       12/14/00
--------------------------       President, Chief Executive Officer,
                                 Director

/s/ SCOTT W. STEWART             Scott W. Stewart                      12/14/00
--------------------------       Chief Financial Officer


/s/ LOUIS J. DELSIGNORE          Louis J. DelSignore,                  12/14/00
--------------------------       Director


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


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

                                       36
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES


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

     Independent Auditors' Report                                        F-2

     Consolidated Balance Sheets                                         F-3

     Consolidated Statements of Operations                               F-5

     Consolidated Statements of Comprehensive Income (Loss)              F-6

     Consolidated Statements of Stockholders' Equity                     F-7

     Consolidated Statements of Cash Flows                               F-9

     Notes to Consolidated Financial Statements                          F-11

Exhibit 11                                                               F-34

Exhibit 27                                                               F-35

                                       F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Planet Entertainment Corporation

We have audited the accompanying consolidated balance sheets of Planet
Entertainment Corporation and subsidiaries as of August 31, 2000 and 1999 and
the related consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows for the years 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 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, 2000 and 1999, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.


                                                   -----------------------------
                                                   LAZAR LEVINE & FELIX LLP

New York, New York
November 1, 2000  Except as:
to Note 8, which is dated December 14, 2000.

                                       F-2

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                               - ASSETS (NOTE 8) -

<TABLE>
<CAPTION>

                                                                    AUGUST 31,    August 31,
                                                                   -----------   -----------
                                                                       2000          1999
<S>                                                                <C>           <C>
CURRENT ASSETS:
     Cash and cash equivalents                                     $    64,901   $   620,975
     Accounts receivable, net of allowance for doubtful accounts
         of $354,660 and $617,143 for 2000 and 1999,
         respectively (Notes 8 and 14 )                              3,471,713     5,062,283
     Accounts receivable, net - related party (Notes 3 and 17)              --       180,615
     Inventories (Notes 8 and14)                                     5,730,187     7,152,844
     Marketable securities - available for sale                        609,224     1,274,272
     Prepaid expenses and other current assets                         157,633       197,065
     Note receivable - legal settlement  (Note 11)                     250,000            --
     Note receivable - related party (Note 4)                           70,000       100,000
     Deferred income taxes (Note 13)                                 1,050,000       244,000
     Net assets of discontinued operations (Note 21)                        --       113,510
                                                                   -----------   -----------

TOTAL CURRENT ASSETS                                                11,403,658    14,945,564
                                                                   -----------   -----------


PROPERTY AND EQUIPMENT - NET (NOTES 5, 9 AND 10)                     2,372,148     1,265,369
                                                                   -----------   -----------


OTHER ASSETS:
     Record masters - net (Note 6)                                   6,440,957     6,566,037
     Goodwill - net                                                  4,364,692     4,479,564
     Investment in joint ventures (Notes 2 and 17)                       9,000         9,000
     Organization costs - net                                               --        27,500
     Security deposits and other assets                                145,291       123,633
                                                                   -----------   -----------

                                                                    10,959,940    11,205,734
                                                                   -----------   -----------


                                                                   $24,735,746   $27,416,667
                                                                   ===========   ===========
</TABLE>

                                       F-3

          See accompanying notes to consolidated financial statements.

<PAGE>
                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                    - LIABILITIES AND STOCKHOLDERS' EQUITY -

<TABLE>
<CAPTION>

                                                                                AUGUST 31,      August 31,
                                                                                   2000            1999
                                                                               ------------    ------------
<S>                                                                            <C>             <C>
CURRENT LIABILITIES:
     Accounts payable (Note 14)                                                $  6,830,529    $  7,399,038
     Accrued expenses and other current liabilities                                 123,561         240,383
     Accrued interest expense - related parties                                     362,291         239,312
     Deferred revenue (Note 7)                                                       57,207         211,544
     Due to stockholders (Note 17)                                                  245,884         230,884
     Note payable - related party (Note 12)                                       1,144,000         869,000
     Accrued officers' salaries                                                     738,564         539,859
     Current portion of capital lease obligations (Note 10)                         292,735          58,072
     Current portion of notes payable (Note 9)                                       33,586          19,456
                                                                               ------------    ------------

TOTAL CURRENT LIABILITIES                                                         9,828,357       9,807,548
                                                                               ------------    ------------

LONG-TERM LIABILITIES:
     Note payable - line of credit (Note 8)                                       5,297,988       5,435,035
     Note payable - related party - net of current portion (Note 12)                250,000         900,000
     Notes payable - net of current portion (Note 9)                                486,119          49,701
     Capital lease obligations - net of current portion (Note 10)                   407,730           9,050
     Deferred income taxes (Note 13)                                                304,000         144,000
                                                                               ------------    ------------

                  TOTAL LONG-TERM LIABILITIES                                     6,745,837       6,537,786
                                                                               ------------    ------------

TOTAL LIABILITIES                                                                16,574,194      16,345,334
                                                                               ------------    ------------

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; 455 and 465 shares issued and outstanding at
       August 31, 2000 and 1999, respectively                                     4,550,000       4,650,000
     Common stock, $.001 par value; 50,000,000 shares
       authorized; 12,434,495 and 12,147,803 shares issued and outstanding
       at August 31, 2000 and 1999, respectively  (Notes 12 and 19)                  12,435          12,148
     Additional paid-in capital                                                  11,690,656      11,513,499
     Accumulated deficit                                                         (5,200,763)     (4,878,586)
     Other comprehensive income (loss)                                           (2,890,776)       (225,728)
                                                                               ------------    ------------

                                                                                  8,161,552      11,071,333
                                                                               ------------    ------------

                                                                               $ 24,735,746    $ 27,416,667
                                                                               ============    ============
</TABLE>

                                       F-4

          See accompanying notes to consolidated financial statements.

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                           2000            1999
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
REVENUES:
   Net sales (Note 14)                                                 $ 30,308,380    $ 43,719,376
   Royalties                                                                118,237           5,288
                                                                       ------------    ------------

TOTAL REVENUES                                                           30,426,617      43,724,664
                                                                       ------------    ------------

COSTS AND EXPENSES:
   Cost of sales (Note 14)                                               24,869,517      35,621,952
   Selling, general and administrative costs                              4,685,134       6,588,843
   Depreciation and amortization                                            637,963         497,816
   Interest expense                                                         595,544         421,311
   Interest expense, related party                                          122,979         112,670
   Bad debt expense                                                         481,951           9,699
                                                                       ------------    ------------

TOTAL COSTS AND EXPENSES                                                 31,393,088      43,252,291
                                                                       ------------    ------------

INCOME (LOSS) FROM OPERATIONS                                              (966,471)        472,373

OTHER INCOME:
   Interest and dividend income                                                 300          41,942
                                                                       ------------    ------------

INCOME (LOSS) BEFORE PROVISION (CREDIT)
   FOR INCOME TAXES                                                        (966,171)        514,315

   Provision (credit) for income taxes (Note 13)                           (639,612)         39,382
                                                                       ------------    ------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                                   (326,559)        474,933
                                                                       ------------    ------------

DISCONTINUED OPERATIONS:  (Note 21)
    (Loss) from discontinued operations (net of an
         income tax benefit of $ 3,400 and $ 73,500 for the years
         ended August 31, 2000 and 1999, respectively)                      (20,526)       (196,471)
    Gain on disposal of discontinued operations (net of income taxes
        of $ 5,800 for the year ended August 31, 2000)                       35,777              --
                                                                       ------------    ------------

INCOME (LOSS) FROM DISCONTINUED OPERATIONS                                   15,251        (196,471)
                                                                       ------------    ------------

NET INCOME (LOSS)                                                      $   (311,308)   $    278,462
                                                                       ============    ============

NET INCOME (LOSS) PER COMMON SHARE:
  BASIC & DILUTED
    Income (Loss) from Continuing Operations                           $       (.05)   $        .01
    Income (Loss) from Discontinued Operations                                    *            (.02)
    Gain on Disposal of Discontinued Operations                                   *              --
                                                                       ------------    ------------

 BASIC & DILUTED Earnings Per Share-Total                              $       (.05)   $       (.01)
                                                                       ============    ============
</TABLE>


 *LESS THEN $(.01) PER SHARE

                                      F-5

          See accompanying notes to consolidated financial statements.

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


                                                       2000            1999
                                                   ------------    ------------


NET INCOME (LOSS)                                  $   (311,308)   $    278,462

Unrealized loss in investment in securities
   available for sale                                (2,665,048)       (225,728)
                                                   ------------    ------------

COMPREHENSIVE NET INCOME (LOSS)                    $ (2,976,356)   $     52,734
                                                   ============    ============

                                      F-6

          See accompanying notes to consolidated financial statements.

<PAGE>
                                                                     Page 1 of 2

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                                             Other
                                      Preferred Stock          Common Stock       Additional              Comprehensive
                                    ------------------   ----------------------    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>

                                      F-7

          See accompanying notes to consolidated financial statements.

<PAGE>
                                                                     Page 2 of 2

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                                             Other
                                      Preferred Stock          Common Stock       Additional              Comprehensive
                                    ------------------   ----------------------    Paid-In    Accumulated    Income
                                     Shares    Amount       Shares     Amount      Capital      Deficit      (Loss)        Total
                                    ------- ----------   ----------  ----------  -----------  -----------  -----------  -----------
<S>                                   <C>   <C>          <C>         <C>         <C>          <C>          <C>          <C>
BALANCES, AUGUST 31, 1999             465   $4,650,000   12,147,803  $   12,148   11,513,499  $(4,878,586) $  (225,728) $11,071,333
Issuance of common stock for
    services rendered                  --           --      107,000         107       66,468           --           --       66,575
Conversion of 10 preferred shares
    to common stock                   (10)    (100,000)     162,075         162       99,838           --           --           --
Dividend on 10 preferred shares                              17,617          18       10,851      (10,869)          --           --
Change in unrealized loss on
    Investments in securities
    available for sale                 --           --           --          --           --           --   (2,665,048)  (2,665,048)
Net loss for the period                --           --           --          --           --     (311,308)          --     (311,308)
                                    ------- ----------   ----------  ----------  -----------  -----------  -----------  -----------
BALANCES, AUGUST 31, 2000             455   $4,550,000   12,434,495  $   12,435  $11,690,656  $(5,200,763) $(2,890,776) $ 8,161,552
                                    ======= ==========   ==========  ==========  ===========  ===========  ===========  ===========
</TABLE>

                                      F-8

          See accompanying notes to consolidated financial statements.

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                         2000           1999
                                                                     -----------    -----------
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss) income                                                 $  (311,308)   $   278,462
   Adjustments to reconcile net income (loss) to net cash
   used by operating activities:
     Bad debt expense                                                    481,951         19,661
     Depreciation and amortization                                       653,233        527,845
     Stock issued for services rendered                                   66,368             --
      Gain on disposal of discontinued operations,                       (42,754)            --
          plus cash included in the sale
     Deferred income taxes                                              (646,000)       (74,600)
     Marketable securities received for sale of non-exclusive
       rights to masters                                              (2,000,000)    (1,500,000)
     Changes in:
       Accounts receivable                                             1,039,234        223,477
       Accounts receivable, related party                                     --         95,843
       Prepaid expenses and other current assets                          43,134         72,485
       Inventory                                                       1,422,657       (316,505)
       Accounts payable and accrued expenses                            (767,005)      (368,401)
       Accrued interest expense, related party                           122,979        (36,306)
       Deferred revenue                                                 (154,337)      (151,356)
       Accrued officers' salary                                          321,901        398,392
                                                                     -----------    -----------

       Cash flows provided (used) by operating activities                230,053       (831,003)
                                                                     -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of NEOS net of cash acquired                                    --     (1,627,416)
     Purchase of fixed assets                                         (1,446,720)      (995,149)
     Repayments on note receivable                                        30,000        (58,776)
     Investment in joint venture                                              --         (9,000)
       Building improvement note                                         525,000             --
       Refund of prior period fixed asset purchase                       685,000             --
     Deposit on leased equipment                                         (25,408)      (105,462)
                                                                     -----------    -----------

       Cash flows (used) by investing activities                        (232,128)    (2,795,803)
                                                                     -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayments to employees                                                  --        (75,000)
     Advances (repayments) from (to) stockholders                         15,000        (70,000)
     Proceeds from note payable                                               --         32,606
     Proceeds from note payable, related party                                --         25,000
     Proceeds from issuance of preferred/common stock                         --         17,627
     Stock issuance costs                                                     --       (130,294)
     Proceeds (repayments) from (to) note payable - line of credit      (137,047)     1,264,639
     Repayment of long-term debt, related party                         (375,000)      (500,000)
     Payment of capitalized lease obligations                            (56,952)      (166,959)
                                                                     -----------    -----------

       Cash flows (used) provided by financing activities               (553,999)       397,619
                                                                     -----------    -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                 (556,074)    (3,229,187)

CASH AND CASH EQUIVALENTS, beginning of year                             620,975      3,850,162
                                                                     -----------    -----------

CASH AND CASH EQUIVALENTS, end of year                               $    64,901    $   620,975
                                                                     ===========    ===========

CASH PAID FOR INTEREST EXPENSE                                       $   595,544    $   421,311
                                                                     ===========    ===========

CASH PAID FOR INCOME TAXES                                           $    49,219    $   263,163
                                                                     ===========    ===========

</TABLE>
                                      F-9

          See accompanying notes to consolidated financial statements.

<PAGE>

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

For the year ended August 31, 2000:

Capitalized lease obligations totaling $685,000 were incurred during the year
ended August 31, 2000 when the Company entered into various leases, primarily
for warehousing equipment. This equipment had previously been purchased for
cash.

The holder of the preferred stock converted 10 shares (valued at $100,000) plus
unpaid dividends aggregating $10,869 into 179,692 shares of the Company's common
stock.

The Company transferred 100% of its interests in three subsidiaries to a former
officer and director in the month of February 2000 (see Note 21).

The Company issued a total of 107,000 shares of common stock to an attorney and
an employee in lieu of certain outstanding obligations totaling $66,575.

In November 1999, the Company transferred ownership of two vehicles, one each,
to two major shareholders, one a current and the other a former officer and
director, in lieu of accrued compensation.


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.

                                      F-10

          See accompanying notes to consolidated financial statements.

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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 exclusive rights to 5,000 master recordings, publishing rights to
     300 songs and a recording studio located in New Jersey from a related
     party. The master recordings acquired were not recorded in the financial
     statements since the predecessor's costs could not be determined. In
     February 2000, all of these assets were transferred to the previous owner,
     a former officer and director of the Company (see Note 21). However, Planet
     retained all rights to exploit the masters for perpetuity in all formats
     for all territories.

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 Note 19). Upon acquisition of NEOS, the
Company now derives the majority of its revenues' from the wholesale
distribution of music products and accessories.

                                      F-11
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries; namely Northeast One Stop, Inc. as well as the
applicable periods for three subsidiaries transferred to a former officer and
director of the Company in February 2000 (Higher Ground Records, Maestro Holding
Corporation, and Al Alberts On Stage, Ltd.- see Note 21) which are retroactively
reflected as net assets of discontinued operations. 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-12

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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. 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 both August
31, 2000 and 1999.

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 years ended August 31, 2000 and 1999 amounted to $125,080
and $58,963, respectively. Accumulated amortization at August 31, 2000 and 1999
amounted to $184,043 and $58,963, respectively.

                                      F-13

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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 years
ended August 31, 2000 and 1999.

ORGANIZATION COSTS

Prior to adopting Accounting Standards Committee Statement of Position (SOP)
98-5, Reporting on the Costs of Start-up Activities, organization costs were
amortized over five years. For years beginning after December 15, 1998, all
start up costs are required to be expensed as incurred.

Amortization expense for the years ended August 31, 2000 and 1999 was $27,500
and $15,000, 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 years
ended August 31, 2000 and 1999 was $92,207 and $123,359, respectively. As of
August 31, 2000 and 1999, accumulated amortization of goodwill aggregated
$229,732 and $137,525, respectively.

                                      F-14
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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

INCOME TAXES

The Company utilizes 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, 2000 and 1999, the carrying value of cash, accounts receivable,
accounts payable, accrued expenses and due to stockholders, approximate fair
value because of the short term 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) 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, 2000 and 1999, 455 and 465 shares of convertible preferred stock,
respectively, which were convertible into 7,310,832 and 1,621,328 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 years ended August 31, 2000 and
1999 amounted to $4,167 and $6,370, respectively. Accumulated amortization at
August 31, 2000 and 1999, aggregated $10,537 and $6,370, respectively.

                                      F-15

<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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 the cost of sales, are
expensed as incurred. For the years ended August 31, 2000 and 1999, such costs
aggregated $149,256 and $685,132, respectively.

MARKETABLE SECURITIES

At August 31, 2000 and 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
stockholders' 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 established 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-16
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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

SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

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 22).

RECENT PRONOUNCEMENTS

In March 2000, the Financial Accounting Standards Board (FASB) issued
interpretation No. 44 (FIN 44) "Accounting for Certain Transactions involving
Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB No. 25 for certain issues, including the definition of an
employee, the treatment of the acceleration of stock options and the accounting
treatment for options assumed in business combinations. FIN 44 became effective
on July 1, 2000, but is applicable for certain transactions dating back to
December 1998. The adoption of FIN 44 did not have a material impact on the
Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements"
(SAB No. 101). SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to certain revenue recognition issues.
The Company will adopt the provisions of SAB No. 101 in the first quarter of
fiscal 2001 and expects that its adoption will have no material impact on its
financial position or results of operations.


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 2000, 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.

                                      F-17
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 2  -  PRODUCTION AND DISTRIBUTION AGREEMENTS (CONTINUED):

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.

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 years ended August 31, 2000 and 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, 2000 are deemed to be immaterial.


NOTE 3  -  ACCOUNTS RECEIVABLE - RELATED PARTY:

Accounts receivable - related party represented amounts due from Multi-Media
Industries Corporation ("MMIC"). Two major shareholders and former officers of
the Company 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 remained uncollected as of August 31, 1999. In fiscal 2000, this amount
was determined to be uncollectable and was fully provided for (See Notes 12 and
17 additional related party disclosures).


NOTE 4  -  NOTE RECEIVABLE - RELATED PARTY:

Installment note receivable from a related party, Renaissance Records, Inc.,
aggregated $70,000 and $100,000, respectively, at August 31, 2000 and 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,
                                                           2000          1999
                                                        ----------    ----------

Computer and other equipment                            $2,258,955    $1,480,982
Leasehold improvements                                     673,672        29,778
Warehouse and office equipment                           1,327,833     1,197,785
Furniture and fixtures                                     145,079       116,202
Rack jobbing fixtures                                      143,603       143,603
Vehicles (Note 9)                                            8,025       142,097
                                                        ----------    ----------
                                                         4,557,167     3,110,447
Less: accumulated depreciation and amortization          2,185,019     1,845,078
                                                        ----------    ----------
                                                        $2,372,148    $1,265,369
                                                        ==========    ==========

                                      F-18
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 6  -  RECORD MASTERS:

Record Masters at August 31, 2000 and 1999 consist of the following:

                                                           2000          1999
                                                        ----------    ----------

Cost                                                    $6,625,000    $6,625,000
Less: accumulated amortization                             184,043        58,963
                                                        ----------    ----------
                                                        $6,440,957    $6,566,037
                                                        ==========    ==========
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 was 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 recognized royalty revenue of $1 per sale of each compact disc licensed
to NCC. In January 2000, Nippon and the Company terminated the agreement and
released each other from any claims and obligations.

The Company has received a $150,000 advance under the agreement mentioned above,
which was recorded as deferred revenue. For the years ended August 31, 2000 and
1999, $118,226 and $5,288, respectively, were earned under the agreement. At
August 31, 2000 and 1999, the balance of deferred revenues aggregates $ -0- and
$118,226, respectively.

In addition to the above, at August 31, 2000 and 1999, the balance of deferred
advertising revenues for advances received from NEOS's suppliers aggregated
$57,207 and $93,307, respectively.


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
$5,297,988 and $5,435,035 at August 31, 2000 and 1999, respectively. Both lines
also contain various financial covenants. The Company was in technical default
of one financial covenant at August 31, 2000 which the financial institution
agreed to waive in an amendment dated December 14, 2000. The Company is
currently negotiating the terms of this amendment. There was no borrowing under
the equipment line of credit at both August 31, 2000 and 1999.

                                      F-19
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


<TABLE>
<CAPTION>
NOTE  9   -     NOTES PAYABLE:
                                                                     AT AUGUST 31, At August 31,
                                                                         2000          1999
                                                                      ----------    ----------
<S>                                                                   <C>           <C>
Newbuilding leasehold improvement loan payable in monthly
   installments aggregating $6,794, including interest at 9.5%
   per annum, maturing in March 2005(i)                               $  519,705            --

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(ii)                                    --        69,157
                                                                      ----------    ----------

Totals                                                                   519,705        69,157
Less current maturities                                                   33,586        19,456
                                                                      ----------    ----------

                                                                      $  486,119    $   49,701
                                                                      ==========    ==========
</TABLE>

(i) The new building improvement loan is for $525,000 plus interest at 9.5% per
annum and is being repaid over a ten year period with annual payments of
$81,520. However, if the Company does not exercise its first five year lease
extension, the entire unamortized balance will become due upon the expiration of
the initial five year lease period.

(ii) In October 1999, the Company transferred ownership of the two vehicles and
the outstanding loans to two major shareholders, one an officer and the other a
former officer of the Company in lieu of accrued compensation. The Company
agreed to continue to make the required monthly payments on behalf of the two
shareholders until the respective loans are paid in full.


NOTE 10 -  CAPITALIZED LEASE OBLIGATIONS:

The Company leases various equipment under capitalized leases expiring in
various years through 2003. 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 years ended August 31, 2000 and 1999 and amounted
to $220,683 and $68,831, respectively.

At August 31, 2000 and 1999 assets under capital leases are as follows:

                                                    2000          1999
                                                 ----------    ----------
Computer and other equipment                     $  879,425    $  103,609
Leasehold improvements                               17,113        17,113
Warehouse and office equipment                      177,535       139,366
Furniture and fixtures                                6,783         6,783
Rack jobbing fixtures                                66,923        66,923
                                                 ----------    ----------
                                                  1,147,779       333,794
Less: accumulated depreciation                      339,174       118,491
                                                 ----------    ----------
                                                 $  808,605    $  215,303
                                                 ==========    ==========

                                      F-20
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999

NOTE 10 - CAPITALIZED LEASE OBLIGATIONS (CONTINUED):

Minimum annual future lease payments under the capital leases as of August 31,
2000 and in the aggregate are:

Fiscal year ending August 31, 2001                         $   347,204
Fiscal year ending August 31, 2002                             336,257
Fiscal year ending August 31, 2003                              96,944
                                                           -----------
Total minimum lease payments                                   780,405
Less amount representing interest                               79,940
                                                           -----------
Present value of net minimum lease payments
   with interest at approximately 11%-26%                      700,465
Less current portion                                           292,735
                                                           -----------

Long-term portion                                          $   407,730
                                                           ===========


NOTE 11 -  LEGAL SETTLEMENT:

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") to recover uncollected amounts due. In this lawsuit, the Company
alleged that Meijer and Summit United were 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 was approximately $200,000. In addition, the
Company sued 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. During the year ended August 31, 2000, a settlement
agreement was reached for a total of $500,000 with a $250,000 payment received
immediately and the balance over 10 months with interest at 5% per annum.

                                      F-21
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 12 -  NOTES PAYABLE - RELATED PARTIES:

Notes payable-related parties consists of the following:
<TABLE>
<CAPTION>

                                                                  August 31,
                                                          -------------------------
                                                              2000          1999
                                                          -----------   -----------
<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   $   500,000

Unsecured note payable to Briolette Investments
 Limited, a stockholder of the Company, due September
2000, with interest at 9% per annum. Interest payments
were due quarterly beginning December 1999 (ii)               400,000       400,000

Unsecured demand note payable to Briolette Investments
Limited, a stockholder of the Company, interest due
January 1999, with interest at 9% per annum (ii)              150,000       150,000

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
was payable in two installments of $375,000 in February
1999 and August 1999. As of August 31, 2000, this note
was paid in full                                                  -0-       375,000

Unsecured demand note payable to former stockholder of
NEOS with interest at 9% per annum                            344,000       344,000
                                                          -----------   -----------
Total                                                       1,394,000     1,769,000
Less current portion                                        1,144,000       869,000
                                                          -----------   -----------

Long-term portion                                         $   250,000   $   900,000
                                                          ===========   ===========
</TABLE>

(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).

(ii) The note holder waived the required interest and principal payments but
interest continues to accrue.

At August 31, 2000, the annual scheduled principal payments of long-term debt
are $1,144,000 and $250,000 for the next two years, respectively.

                                      F-22
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 13 -  INCOME TAXES:

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

                                            AUGUST 31, 2000     August 31, 1999
                                             ------------        ------------
Deferred tax assets:
   Accrued interest                          $    145,000        $     96,000
   Accrued officers' salary                       295,000             216,000
   Inventory capitalization                        37,000              36,000
   Allowance for doubtful accounts                146,000              57,000
   Other                                           87,000               4,000
   Net operating loss carry forwards              603,000             211,000
                                             ------------        ------------

      Gross deferred tax assets                 1,313,000             620,000
   Valuation allowance                           (263,000)           (376,000)
                                             ------------        ------------

      Total deferred tax assets              $  1,050,000        $    244,000
                                             ============        ============
Deferred tax liabilities:
   Goodwill                                  $    153,000        $     77,000
   Property and equipment                         151,000              67,000
                                             ------------        ------------
      Total deferred tax liabilities         $    304,000        $    144,000
                                             ============        ============

                                      F-23
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 13 -  INCOME TAXES (CONTINUED):

The Company has net operating loss carryovers of approximately $1,600,000 which
expire during 2013 and 2014. 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 YEAR    For the Year
                                               ENDED AUGUST 31, Ended August 31,
                                                    2000             1999
                                                 -----------     -----------

CURRENT:
   Federal                                       $        --     $        --
   State                                                  --          40,482
                                                 -----------     -----------
     Total current provision                              --          40,482
                                                 -----------     -----------

DEFERRED:
   Federal                                          (559,660)        (65,275)
   State                                             (79,952)         (9,325)
                                                 -----------     -----------

     Total deferred income taxes (benefit)          (639,612)        (74,600)
                                                 -----------     -----------
     Total provision (benefit) for income taxes  $  (639,612)    $   (34,118)
                                                 ===========     ===========

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

                                                 FOR THE YEAR    For the Year
                                               ENDED AUGUST 31, Ended August 31,
                                                    2000             1999
                                                 -----------     -----------

Statutory rate                                         35%             35%
State and local taxes                                   5%              5%
Tax benefit of timing differences                     (92%)           (54%)
                                                 -----------     -----------
Effective tax rate                                    (52%)           (14%)
                                                 ===========     ===========

                                      F-24
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 14 -  ECONOMIC DEPENDENCY:

For the year ended August 31, 2000 there were no customers whose sales were in
excess of 10% of consolidated net sales.

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. In fiscal 2000,
the receivable balance was recovered as part of the settlement of a lawsuit the
Company had initiated against this customer (see Note 11).

For the year ended August 31, 2000, purchases from four vendors were in excess
of 10% of net purchases and amounted to $8,379,000, $4,129,000, $3,933,000 and
$3,029,000, respectively. At August 31, 2000, accounts payable to these vendors
aggregated approximately $2,007,000, $777,000, $1,373,000 and $664,000,
respectively.

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.


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 60 days
of service are eligible to contribute to the Plan immediately. 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 years ended August 31,
2000 and 1999 was $33,577 and $12,011, respectively.


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, 2000 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.

                                      F-25
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 16 -  STOCK OPTIONS AND WARRANTS (CONTINUED):

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. However, in February 2000, 100,000 of these warrants
were cancelled as part of the transfer of three subsidiaries of the Company to a
former officer and director. As of August 31, 2000, none of the remaining
warrants have been exercised.

As a result of the acquisition of NEOS (See Note 19), 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, options to purchase
250,000 shares of the Company's common stock exercisable at $5.25 per share over
a period of two years. The sellers options have expired without being exercised.

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. However, in May 2000, these options were
cancelled and replaced with three year options exercisable at $1.25 per share.
One half of each individual's options vest immediately with the other half
vesting twelve months from the grant date.

In February 2000, the Company granted options (not part of the Plan) to purchase
15,000 shares of the Company's common stock each to the five Board of Director
members at $1.03 per share over a period of three years. All options vested
immediately. Also, 7000 shares were granted to an employee for services
rendered.

The Company applies APB 25 and related interpretations in 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 year Ended
                                          AUGUST 31, 2000       August 31, 1999
                                          ---------------       ---------------
Net earnings (loss):
   As reported                             $   (311,308)         $    278,462
   Proforma                                    (363,058)             (965,908)
Basic and diluted loss per share:
   As reported                                     (.05)                 (.01)
   Proforma                                        (.05)                 (.11)

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 for both August 31, 2000 and 1999: expected volatility of 100 %;
risk free interest rate of 5.38%; and expected lives of 1 to 3 years.

                                      F-26
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


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.

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. No compensation was earned for the years ended August
31, 2000 and 1999, 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 was to automatically convert to common stock on such basis at
the end of two years, however, the Company waived this provision. The Company
has the right to redeem the preferred stock on the same terms as the conversion.
At August 31, 2000 and 1999 the amount of dividends in arrears on the preferred
stock were $725,278 and $414,108, respectively.

The Company has 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.

                                      F-27
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 18 -  STOCKHOLDERS' EQUITY (CONTINUED):

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.

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, 35 shares plus unpaid dividends
aggregating $28,535 were converted into 171,748 shares of the Company's common
stock.

During the year ended August 31, 2000, the holder of the preferred stock
converted 10 shares plus unpaid dividends aggregating $10,869 into 179,692
shares of the Company's common stock.

COMMON STOCK:

During the period ended August 31, 2000, the Company issued 100,000 shares to an
attorney for services rendered. Also, 7,000 shares were granted to an employee
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 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 and have since expired without being exercised. 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>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 19 -  ACQUISITION OF NORTHEAST ONE STOP, INC. (CONTINUED):
<TABLE>
<CAPTION>

The purchase price for NEOS is allocated as follows:
<S>                                                                      <C>
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.


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 years ended August 31, 2000 and 1999.

RECORDING AGREEMENTS

Ownership of Higher Ground Records was transferred to a former officer and
director of the Company in February 2000 (see Note 1 and 21). In periods prior
to the sale, the subsidiary entered into several artist recording contracts. The
contracts were for an initial period of one year with options to renew for one
to two years. Recording costs were 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 were 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 indefinitely. 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.

                                      F-29
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 20 -  COMMITMENTS AND CONTINGENCIES (CONTINUED):

EMPLOYMENT AGREEMENTS/COVENANT NOT TO COMPETE - NEOS (CONTINUED):

The Company also 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.
This agreement has been extended for an additional year at an annual rate of
$150,000. The agreement includes an incentive bonus based on NEOS's
profitability. There is also options to purchase 150,000 shares of the Company's
Common Stock at a price of $5.25 per share.

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. However, in February 2000,
one of these agreements was cancelled as part of the sale of three subsidiaries
of the Company to a former officer and director.

OTHER EMPLOYMENT AGREEMENTS

In August 2000 and in September 2000, subsequent to the balance sheet date, the
Company entered into employment agreements with several new employees. The
agreements are for a term of three years and provide for first year compensation
ranging from $50,000 to $105,000 with incentives based upon various factors
including individual sales levels as well as Company profitability.

LEASE AGREEMENTS

The Company rents office space in Connecticut, Florida, Maryland and
Pennsylvania under operating leases aggregating monthly rentals of approximately
$3,135 per month. The Connecticut and Pennsylvania leases expire in September
2003 and April 2001, respectively. The Florida and Maryland offices are on
month-to-month lease extensions.

The lease for Al Alberts On Stage, Ltd. was transferred to a former officer and
director of the Company in conjunction with the sale of three subsidiaries of
the Company in February 2000.

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. 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.

NEOS relocated into a larger combined headquarters and warehouse space in June
2000. The facility is leased for five years and three months effective January
2000 with two optional five year extensions and annual rental payments of
$142,000 for the first year and $242,000 for each year thereafter. The landlord
also provided financing for improvements to the office portion of the building
(see Note 9).

                                      F-30
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 20 -  COMMITMENTS AND CONTINGENCIES (CONTINUED):

LEASE AGREEMENTS (CONTINUED)

NEOS is attempting to sublet or assist the landlord in the sale of the previous
headquarters/warehouse location described above. The lease on that property
expires in September 2003.

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

                            Related
                             Party           Other           Total
                           ----------      ----------      ----------
        2001               $  180,000         263,084      $  443,084
        2002                  180,000         257,989         437,989
        2003                  135,000         258,464         393,464
        2004                       --         243,379         243,379
        2005                       --          60,501          60,501
                           ----------      ----------      ----------
                           $  495,000      $1,083,417      $1,578,417
                           ==========      ==========      ==========

Rent expense was $316,308 and $189,306 for the years ended August 31, 2000 and
1999, 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 January 2000, the Company initiated a lawsuit against Maxnet, Inc. ("Maxnet")
in Monmouth County Superior Court in New Jersey. In this lawsuit, the Company is
demanding that Maxnet perform under a July 1999 agreement that called for the
sale of 2,500 musical masters to Maxnet in consideration for the sum of
$1,500,000 to be paid by the issuance of restricted shares in Maxnet stock, plus
$100,000 in master duplication costs. The Company believes the legal action will
result in the successful completion of performance of the Maxnet Agreement

                                      F-31
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 20 -  COMMITMENTS AND CONTINGENCIES (CONTINUED):

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, 2000 (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 agreed to 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 were sold, the Company agreed to
remove the restrictive legend from additional shares until the restrictions on
all 694,000 shares are removed. 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, totaled $1,800,000,
the remaining promissory note would be considered paid in full and any remaining
stock held by Gulf Coast would be returned to the Company. If this combined
amount was less than $1,800,000, the net revenues actually received from any
stock sales would reduce the remaining balance on the note.

The amount of stock sold by June 1, 2000 was minimal. However, the Company
removed the restriction from the remaining shares held by Golf Coast as
consideration for the extension of the due date of the September 2000 payment to
February 2001.


NOTE 21 -  DISCONTINUED OPERATIONS

During the second quarter of fiscal 2000, the Company transferred 100% of its
interests in three subsidiaries-Maestro Holding Corporation (Maestro), Al
Alberts on Stage, Ltd. (Studio), and Higher Ground Records (Higher Ground) to a
former officer and director in lieu of accrued salaries in the amount of $
192,353 at February 29, 2000. As a result of this transaction, the employment
agreement with this individual was terminated and outstanding warrants to
purchase 1,000,000 shares of the Company's common stock were cancelled.

These transactions resulted in an after-tax gain of $ 35,777 which is reflected
in the Statement of Operations for the twelve months ended August 31, 2000.
Prior period financial statements were restated as a result of this transaction.

                                      F-32
<PAGE>

                PLANET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999


NOTE 22 -  SEGMENT INFORMATION:

The Company operated in five business segments until February 2000 when three of
the Companies subsidiaries were sold to a former officer and director of the
Company (see Note 5 of the Notes to Consolidated Financial Statements). The
three subsidiaries comprised the music studio operations (i.e. Maestro and Al
Alberts on Stage) and the record label productions segments (i.e. Higher Ground
Records). The three remaining segments are; music record masters production,
rack distribution sales, and one-stop distribution sales. All operations and
revenues are conducted and earned in the United States. The following table
presents sales and other financial information by business segment for the
continuing operations:
<TABLE>
<CAPTION>

                                                                 DEPRECIATION
                                                  OPERATING          AND           TOTAL         CAPITAL
                                   REVENUES     EARNINGS (LOSS)  AMORTIZATION      ASSETS      EXPENDITURES
                                 ------------    ------------    ------------   ------------   ------------
        2000
        ----
<S>                              <C>             <C>             <C>            <C>            <C>
Rack distribution sales          $    615,146    $   (249,115)   $     10,258   $    342,127   $         --
One-Stop distribution sales        27,665,288      (1,369,173)        502,625     16,764,199      1,446,720
Music record master production      2,146,183         651,817         125,080      7,629,420             --
                                 ------------    ------------    ------------   ------------   ------------

                                 $ 30,426,617    $   (966,471)   $    637,963   $ 24,735,746   $  1,446,720
                                 ============    ============    ============   ============   ============


        1999
        ----
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     12,642,661        663,710
Music record master production      1,505,288          61,227          58,963      8,432,021             --
                                 ------------    ------------    ------------   ------------   ------------

                                 $ 43,724,664    $    472,373    $    497,816   $ 27,303,157   $    990,613
                                 ============    ============    ============   ============   ============
</TABLE>

                                      F-33