SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended March 29, 1997 Commission File No. 0-6882
URT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1167907
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 East Hallandale Beach Boulevard, Hallandale, Florida 33009
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
Class B Common Stock, par value $.01 per share
This Amendment Number 1 is being filed by the Registrant in order to refile
the Notes to the Consolidated Financial Statements for the fiscal years ended
March 29, 1997, March 30, 1996 and April 1, 1995, which corrects an error in
note 4(c). Cash equivalents which was $13,657,209 in original, should have been
$1,657,209 at March 29, 1997. The error is the result of a clerical mistake.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
URT INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
Independent Auditors' Report 3
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 29, 1997 and
March 30, 1996 4
Consolidated Statements of Operations for each of the
years in the three-year period ended March 29, 1997 5
Consolidated Statements of Shareholders' Equity for each
of the years in the three-year period ended March 29, 1997 6
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended March 29, 1997 7
Notes to Consolidated Financial Statements 9
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<PAGE>
Independent Auditors' Report
Directors and Shareholders
URT Industries, Inc. and Subsidiaries
Hallandale, Florida:
We have audited the accompanying consolidated balance sheets of URT Industries,
Inc. and subsidiaries (the "Company") as of March 29, 1997 and March 30, 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended March 29, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of URT Industries, Inc.
and subsidiaries as of March 29, 1997 and March 30, 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 29, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
May 30, 1997, except as to note 2
which is as of June 9, 1997
Ft. Lauderdale, Florida
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<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 29, 1997 and March 30, 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,130,516 3,258,061
Marketable investment securities -- 1,761,336
Inventories 2,855,494 4,954,260
Prepaid inventory 39,733 254,249
Current portion due from officers/shareholders 30,832 30,832
Prepaid expenses and other current assets 293,221 350,197
Refundable income taxes -- 9,136
------------ ------------
Total current assets 6,349,796 10,618,071
Property and equipment, net 1,459,084 1,868,246
Due from officers/shareholders 77,885 110,722
Other assets 181,290 191,879
------------ ------------
$ 8,068,055 12,788,918
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term obligations 730,239 124,774
Accounts payable 1,371,869 103,038
Accrued liabilities 1,073,376 1,202,176
------------ ------------
Total current liabilities 3,175,484 1,429,988
Long-term obligations 1,337,190 810,367
Deferred rent 156,036 200,723
Minority interest in a subsidiary 57,730 173,005
------------ ------------
Total liabilities not subject to compromise 4,726,440 2,614,083
Liabilities subject to compromise -- 5,671,434
------------ ------------
Total liabilities 4,726,440 8,285,517
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized;
15,317,454 shares issued 153,175 153,175
Additional paid-in capital 5,542,152 5,542,152
Retained deficit (1,335,377) (173,591)
------------ ------------
4,359,950 5,521,736
Treasury stock, 3,159,245 common shares at cost (1,018,335) (1,018,335)
------------ ------------
Total shareholders' equity 3,341,615 4,503,401
Commitments and contingencies
------------ ------------
$ 8,068,055 12,788,918
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For each of the years in the three-year period ended March 29, 1997
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 18,109,119 23,626,489 31,960,986
Costs and expenses:
Cost of sales 11,453,125 15,316,441 20,347,493
Selling, general and administrative expenses 8,216,289 10,321,334 12,651,133
Store closing costs -- 189,623 548,701
Loss on litigation -- -- 431,692
------------ ------------ ------------
19,669,414 25,827,398 33,979,019
------------ ------------ ------------
Loss from operations (1,560,295) (2,200,909) (2,018,033)
------------ ------------ ------------
Other (expense) income:
Interest expense (88,345) (111,451) (84,478)
Interest income 155,888 202,845 204,810
Other income 108,957 5,491 --
------------ ------------ ------------
176,500 96,885 120,332
------------ ------------ ------------
Loss before reorganization costs, income
taxes, minority interest and extraordinary
gain (1,383,795) (2,104,024) (1,897,701)
Reorganization costs:
Professional fees (379,645) (88,223) --
Store closing costs -- (282,927) --
------------ ------------ ------------
(379,645) (371,150) --
Loss before income taxes, minority interest
and extraordinary gain (1,763,440) (2,475,174) (1,897,701)
Provision for income taxes -- -- 120,417
------------ ------------ ------------
Loss before minority interest and
extraordinary gain (1,763,440) (2,475,174) (2,018,118)
Minority interest in net loss of consolidated subsidiary (115,275) (313,639) (259,033)
------------ ------------ ------------
Loss before extraordinary gain (1,648,165) (2,161,535) (1,759,085)
Extraordinary gain due to reorganization (note 9) 486,379 -- --
------------ ------------ ------------
Net loss $ (1,161,786) (2,161,535) (1,759,085)
============ ============ ============
Net loss per common share $ (.09) (.17) (.14)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For each of the years in the three-year period ended March 29, 1997
<TABLE>
<CAPTION>
Common stock issued Treasury stock
--------------------------------------- ---------------------------------------
Shares Shares
------------------------- -------------------------
Class "A" Class "B" Amount Class "A" Class "B" Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 2, 1994 13,678,338 1,552,866 $ 152,312 2,270,170 187,297 $ (930,707)
Treasury stock purchased, at cost -- -- -- 271,500 52,286 (49,723)
Issuance of common stock (note 10) 86,250 -- 863 -- -- --
Benefit from subsidiary's treasury stock
transactions -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, April 1, 1995 13,764,588 1,552,866 153,175 2,541,670 239,583 (980,430)
Treasury stock purchased, at cost -- -- -- 365,850 12,142 (37,905)
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 30, 1996 13,764,588 1,552,866 153,175 2,907,520 251,725 (1,018,335)
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 29, 1997 13,764,588 1,552,866 $ 153,175 2,907,520 251,725 $(1,018,335)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Capital Retained
in excess earnings
of par (deficit) Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance, April 2, 1994 5,538,987 3,747,029 8,507,621
Treasury stock purchased, at cost -- -- (49,723)
Issuance of common stock (note 10) 16,387 -- 17,250
Benefit from subsidiary's treasury stock
transactions (13,222) -- (13,222)
Net loss -- (1,759,085) (1,759,085)
----------- ----------- -----------
Balance, April 1, 1995 5,542,152 1,987,944 6,702,841
Treasury stock purchased, at cost -- -- (37,905)
Net loss -- (2,161,535) (2,161,535)
----------- ----------- -----------
Balance, March 30, 1996 5,542,152 (173,591) 4,503,401
Net loss -- (1,161,786) (1,161,786)
----------- ----------- -----------
Balance, March 29, 1997 5,542,152 (1,335,377) 3,341,615
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
(Continued)
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended March 29, 1997
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,161,786) (2,161,535) (1,759,085)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Extraordinary gain (486,379) -- --
Depreciation and amortization 454,047 460,678 565,946
Loss on abandonment of leasehold improvements -- 190,601 --
Deferred income taxes -- -- 342,014
Deferred rent (44,687) (299,747) (4,538)
Minority interest in net loss of
consolidated subsidiary (115,275) (313,639) (259,033)
Change in assets and liabilities affecting
cash flows from operating activities:
(Increase) decrease in:
Inventories 25,200 624,477 263,579
Prepaid inventory 214,516 (254,249) --
Prepaid expenses and other current
assets 56,976 18,008 8,756
Refundable income taxes 9,136 248,093 (232,829)
Other assets 10,589 17,116 46,965
Increase (decrease) in:
Accounts payable 1,268,831 (4,027,492) (484,050)
Accrued liabilities (128,800) (445,470) 266,468
Long-term obligations -- (61,022) 334,573
Liabilities subject to compromise (1,854,514) 5,671,434 --
Changes due to reorganization activities:
Loss on abandonment of leasehold
improvements -- 296,509 --
----------- ----------- -----------
Net cash used in operating
activities (1,752,146) (36,238) (911,234)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable investment securities -- -- (2,649,534)
Sale of marketable investment securities 1,761,336 888,198 --
Purchases of property and equipment (44,885) (168,331) (922,536)
Due from officers/shareholders 32,837 26,466 26,285
Proceeds from disposition of land, property and
equipment -- 615,243 --
----------- ----------- -----------
Net cash provided by (used in)
investing activities 1,749,288 1,361,576 (3,545,785)
----------- ----------- -----------
</TABLE>
(Continued)
-7-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Repayment of long-term obligations $ (124,687) (43,519) (206,173)
Proceeds from issuance of stock -- -- 17,250
Acquisition of treasury stock -- (37,905) (49,723)
Acquisition of subsidiary stock -- -- (13,222)
----------- ----------- -----------
Net cash used in financing
activities (124,687) (81,424) (251,868)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (127,545) 1,243,914 (4,708,887)
Cash and cash equivalents, beginning of year 3,258,061 2,014,147 6,723,034
----------- ----------- -----------
Cash and cash equivalents, end of year $ 3,130,516 3,258,061 2,014,147
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 88,345 111,451 84,478
=========== =========== ===========
Income tax payments (refund), net $ -- (248,093) (11,232)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Supplemental schedule of non-cash operating and
investing activities relating to the reorganization:
<S> <C>
Liabilities subject to compromise, March 30, 1996 $5,671,434
Less: Inventory returns for credit 2,073,566
Cash paid 1,854,514
Extraordinary gain (primarily as a result of lease
rejection claims - note 9) 486,379
----------
Long-term obligation, March 28, 1997 (note 6) $1,256,975
==========
</TABLE>
See accompanying notes to consolidated financial statements.
-8-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 29, 1997, March 30, 1996 and April 1, 1995
(1) Organization and Basis of Presentation
URT Industries, Inc. and subsidiaries (the "Company") is engaged in the
business of retailing prerecorded music, video and accessory items,
principally in the southeastern United States. The consolidated financial
statements include the accounts of URT Industries, Inc. (the "Parent") and
its wholly owned nonoperating subsidiary, whose business was discontinued
in 1984, and its 93.5 percent-owned subsidiary, Peaches Entertainment
Corporation ("Peaches").
(2) Confirmation of Amended Plan of Reorganization
On January 16, 1996 (the "Petition Date"), Peaches Entertainment
Corporation commenced reorganization proceedings under Chapter 11 of the
United States Bankruptcy Code. On January 17, 1997, the plan of
reorganization was confirmed by the Bankruptcy Court for the Southern
District of Florida ("Bankruptcy Court"). In Chapter 11, Peaches continued
to manage its affairs and operate its business as debtor-in-possession
while it developed a plan of reorganization to restructure and allow its
emergence from Chapter 11. As debtor-in-possession in Chapter 11, Peaches
could not engage in transactions outside of the ordinary course of business
without approval, after notice and hearing, of the Bankruptcy Court.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims in existence at the petition date ("prepetition")
were stayed, absent specific bankruptcy court authorization to pay such
claims, which are reflected as "liabilities subject to compromise" at March
30, 1996.
As debtor-in-possession, Peaches had the right, subject to Bankruptcy Court
approval and certain other limitations, to assume or reject certain
executory contracts, including unexpired leases. Any claim for damages
resulting from the rejection of an executory contract or an unexpired lease
was treated as a general unsecured claim in the Chapter 11 proceedings.
Peaches affirmed 13 leases (5 of which were modified on terms more
favorable to Peaches) and rejected 8 leases.
-9-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On August 5, 1996, Peaches filed its plan of reorganization with the
Bankruptcy Court. An amended plan of reorganization, as modified by the
Bankruptcy Court's order of January 17, 1997, was filed on October 23,
1996. The amended plan of reorganization was confirmed by the Bankruptcy
Court on such date (the "confirmation date"), and became effective February
3, 1997 (the "effective date"), subject to satisfaction of certain
conditions which were satisfied by February 19, 1997. The principal terms
of the confirmed plan are as follows:
o All unsecured creditors, including all of Peaches' inventory
suppliers, but excluding landlords under leases rejected by Peaches,
are entitled to 100 percent of their allowed claims (the total of
which is approximately $4,922,000). Peaches' seven principal suppliers
(whose allowed claims total approximately $4,372,000 out of such
$4,922,000) are entitled to and received payment and inventory returns
equal to approximately 70 percent of their allowed claims (80 percent
in the case of one such supplier) within approximately 60 days after
the effective date, and the balance (approximately $1,284,000) is
payable with interest at prime over a period of 24 months commencing
March 1997. The remaining unsecured creditors (whose allowed claims
total approximately $550,000) were entitled to and received the full
amount of their allowed claims on the effective date. The amounts owed
to the principal suppliers are secured by a perfected first lien and
security interest in the inventory originally distributed by the
secured parties which was sold to the Company or is otherwise in the
possession and owned by the Company.
o Landlords under the leases rejected by Peaches in connection with the
bankruptcy filing were entitled to 30 percent of the allowed claims
with respect to such leases, all of which was paid on the effective
date.
o The mortgage holder will receive 100 percent of the allowed claim,
with interest, in accordance with the amortization schedule previously
in effect, except that the balloon payment on such mortgage which
would otherwise have been due in September 1997 was extended to
September 2002. All mortgage payments under the amortization schedule
were paid timely during the Chapter 11 proceedings.
o The priority tax claim in the approximate amount of $118,000, which is
owed to the Florida Department of Revenue, will be payable with
interest at 8 percent over two years from the effective date.
o The priority administrative claims, including professional fees in the
approximate amount of $200,000 which have been incurred in connection
with the reorganization, were paid on the effective date.
In order for Peaches to be able to effect the plan of reorganization on the
terms described above, the Parent, in exchange for the issuance to it of 20
million shares of Peaches authorized common stock (including 218,730
treasury shares), has contributed $350,000 to the capital of Peaches,
waived an aggregate of $75,000 of dividends payable by Peaches to the
Parent, guaranteed, subject to the terms of the Plan, the approximately
$1,284,000 which is due the principal suppliers in accordance with the
foregoing, and loaned $700,000 to Peaches. The loan will be repaid to the
Parent with interest at prime over a period of four years beginning on the
third anniversary of the effective date, is subordinate to the amounts
-10-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
owed to the principal suppliers, and is secured by inventory and all the
assets of Peaches. As a result of the above transaction, the Parent is the
beneficial owner of approximately 93.5 percent of Peaches' issued and
outstanding shares of common stock and all of its issued and outstanding
shares of preferred stock.
In March 1997, the Parent and Peaches agreed that if Peaches' financial
statements for its 1997 fiscal year show total shareholders' equity of less
than $1,000,000, the above-described $700,000 loan would be reduced by an
amount equal to the lesser of $200,000 or the difference between $1,000,000
and the total shareholders' equity of Peaches as of the end of its 1997
fiscal year, without taking such debt reduction into account, and cause the
amount of such aggregate debt reduction to be transferred to the capital
account of Peaches in exchange for shares of a new class of cumulative
preferred stock, entitled Series C preferred stock, in an amount as shall
be determined by dividing the amount of such aggregate debt reduction by
$100. Any Series C preferred stock to be so issued will have a par value of
$100 and a cumulative preferred dividend of 10% per annum. The approval of
the holders of a majority of the shares of Series C preferred stock, voting
as a separate class, shall be required with respect to all matters on which
the shareholders have a right to vote. On June 9, 1997, the above agreement
was rescinded.
(3) Liquidity
As discussed in note 2, the Company's Amended Plan of Reorganization was
confirmed by the bankruptcy court and became effective February 3, 1997.
The Company believes that it has benefited from its reorganization which
includes the closing of six unprofitable stores which were closed during
1996 and the modification of five store leases, the closing of the former
headquarters and warehouse, and the termination of other unprofitable
business arrangements. Also, the Company's primary suppliers have taken
steps to help protect the retail marketplace from certain low cost
retailers of music. These steps include not disbursing cooperative
advertising funds to retailers which engage in low cost selling practices
in violation of the minimum advertised pricing policies of such suppliers.
Management believes that such initiatives, in combination with the other
factors mentioned above, should help the Company to restore itself to a
competitive position in subsequent fiscal years.
(4) Summary of Significant Accounting Policies
(a) Principals of Consolidation
The consolidated financial statements include the accounts of URT
Industries, Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated. Reference to the
Company encompasses any or all of the aforementioned entities.
-11-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Fiscal Year
The Company's fiscal year consists of 52 or 53 weeks ending on the
Saturday closest to the end of March. The fiscal years ended March 29,
1997, March 30, 1996 and April 1, 1995 consisted of 52 weeks,
respectively.
(c) Cash Equivalents
The Company considers highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Cash equivalents totaled $1,657,209 and $2,385,945 at March 29, 1997
and March 30, 1996, respectively. The carrying amount of cash and cash
equivalents approximates fair market value because of the short-term
maturity of these investments. The fair values are estimated based on
quoted market prices for these or similar instruments.
(d) Marketable Investment Securities
The Company adopted Statement of Financial Accounting Standards No.
115 ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, effective April 3, 1994. There was no cumulative
effect as a result of adopting SFAS 115 in 1995. Investments, which
are comprised of treasury bills with maturities exceeding one year,
are classified as available-for-sale at March 30, 1996, and are
reported at their fair market value which approximates cost.
(e) Inventories
Inventories, comprised of compact discs, cassettes, videos and
accessories, are stated at the lower of cost (principally average)
including freight in, or market.
(f) Property and Equipment
Property and equipment are stated at cost. The assets are depreciated
over their estimated useful lives ranging from 5 to 31.5 years using
both straight-line and accelerated methods. The Company's policy is to
retire assets from its accounts as they become fully depreciated.
(g) Income Taxes
The Company files a consolidated income tax return with its
subsidiaries. Provision is made for deferred income taxes which result
from certain items of income and expense being reported for tax
purposes in periods different than those reported for financial
reporting purposes. These items relate principally to the methods of
accounting for store leases with future scheduled rent payment
increases, inventory and the utilization of different methods of
depreciation for financial statement and income tax purposes.
-12-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company accounts for income taxes under the provisions of
Financial Accounting Standards Board's ("SFAS") No. 109, which
generally requires recognition of deferred tax liabilities and assets
for the future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined on differences between the
financial reporting and tax bases of assets and liabilities and are
measured by applying enacted tax rates and laws for the taxable years
in which those differences are expected to reverse. Under SFAS No.
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.
(h) Loss Per Common Share
Loss per common share was computed by dividing net loss, after
deducting preferred dividend requirements, by the weighted average
number of common shares outstanding during each of the periods which
was 12,637,634, 12,637,634 and 12,674,448 for the years ended March
29, 1997, March 30, 1996 and April 1, 1995, respectively.
(i) Store Closing Costs
Store closing costs are recorded in the period the Company decides to
close the store. Such costs include the book value of abandoned
leasehold improvements, provision for the present value of future
lease obligations, less estimated sub-rental income as well as other
costs incident to the store closing.
(j) Reorganization Costs
Reorganization costs include: (a) professional fees relating to legal,
accounting and consulting services provided in connection with the
Chapter 11 proceedings and (b) costs and expenses associated with the
closing of locations.
(k) Use of Estimates by Management
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long Lived Assets to be
Disposed Of, on March 31, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
-13-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement
did not have a material impact on the Company's financial position,
results of operations or liquidity.
(m) New Accounting Standard
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings per Share, which supersedes ABP Opinion No. 15, Earnings per
Share, was issued in February 1997. SFAS 128 requires dual
presentation of basic and diluted earnings per share (EPS) for complex
capital structures on the face of the income statement. Basic EPS is
computed by dividing income by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution from the exercise or conversion of securities into common
stock, such as stock options. SFAS 128 is required to be adopted for
year-end 1998; earlier application is not permitted. Management does
not expect the basic or diluted EPS measured under SFAS 128 to be
materially different than the primary or fully-diluted EPS measured
under APB No. 15.
(n) Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform with the 1997 presentation.
(5) Due From Officers/Shareholders
Due from officers/shareholders consist of the following at March 29, 1997
and March 30, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Unsecured loans made to one officer/shareholder and one former
officer/shareholder; proceeds of the loans were used to purchase
shares of the Company's Class A and Class B common stock in the
open market from an unrelated party, interest 8 percent $ 108,717 141,554
Less current portion (30,832) (30,832)
--------- ---------
$ 77,885 110,722
========= =========
</TABLE>
The promissory note agreements with the two officers/shareholders are
payable with interest at 8 percent in 96 equal, consecutive monthly
installments through March 31, 2000.
Under amended and restated employment agreements with these
officers/shareholders (note 10c), the required loan payments will be
credited as compensation for the officer/shareholder. Effective March 1996,
a former officer/shareholder is required to repay the loan in consecutive
monthly installments of $471.
Interest income on these loans amounted to $10,045, $16,610 and $18,460 in
each of the years in the three-year period ended March 29, 1997,
respectively, and is included in interest income in the accompanying
consolidated statements of operations.
-14-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Property and Equipment, net
Property and equipment consist of the following at March 29, 1997 and March
30, 1996:
1997 1996
----------- -----------
Land $ 395,570 395,570
Building 538,093 538,093
Leasehold improvements 1,760,459 1,895,438
Furniture and equipment 1,062,535 1,635,361
Building under capitalized lease 206,964 206,964
----------- -----------
3,963,621 4,671,426
Less accumulated depreciation and amortization (2,504,537) (2,803,180)
----------- -----------
$ 1,459,084 1,868,246
=========== ===========
(7) Long-term Obligations
Long-term obligations consists of the following at March 29, 1997 and March
30, 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Capital lease obligation, due in monthly installments of $3,382,
including interest at 17.5%; final payment due March 2005 $ 174,139 183,353
Mortgage payable, due in equal installments of $2,981 per month,
plus interest at prime plus .5%; collateralized by the mortgaged
property with depreciated cost of $802,178; final balloon
payment of $284,500 due September 2002 (note 2) 442,462 478,238
Settlement agreement with former director/shareholder, due in
monthly installments of $5,699, final payment due January 2000 193,853 273,550
Promissory notes due in installments of $26,744 for 21 months and
two payments of $347,675 (due February 1998 and 1999), plus
interest at prime; collateralized by inventory and guaranteed
by the Parent (note 2) 1,256,975 --
----------- -----------
2,067,429 935,141
Less current portion (730,239) (124,774)
----------- -----------
$ 1,337,190 810,367
=========== ===========
</TABLE>
The capital lease pertains to the building portion of property owned by one
director and one former director. The rent expense on the land portion of
this lease was approximately $113,000 for 1997 and 1996 and $99,000 for
1995.
-15-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following represents future minimum lease payments under the capital
lease obligation:
Fiscal year Amount
----------- ------
1998 $ 40,600
1999 40,600
2000 40,600
2001 40,600
2002 40,600
Thereafter 121,560
---------
Total minimum lease payments 324,560
Less amount representing interest (150,421)
---------
Present value of minimum lease payments $ 174,139
=========
Maturities of long-term obligations, excluding the capital lease
obligation, to maturity, are as follows:
Fiscal year Amount
----------- ------
1998 $ 719,277
1999 746,023
2000 92,853
2001 35,775
2002 35,775
Thereafter 263,587
----------
$1,893,290
==========
The Company has a standby letter of credit of $64,800 available to a
landlord that was not drawn upon as of March 29, 1997. The letter of credit
is fully collateralized by a certificate of deposit, which is included in
other assets. In addition, the Company has an irrevocable letter of credit
of $150,000 that was not drawn upon as of March 29, 1997.
(8) Accrued Liabilities
Accrued liabilities consist of the following at March 29, 1997 and March
30, 1996:
1997 1996
---------- ----------
Gift certificate and credit slip liability $ 184,884 371,647
Payroll and related benefits 99,701 196,699
Sales and real estate taxes payable 188,087 280,191
Accrued overhead expenses 392,682 233,998
Other 208,022 119,641
---------- ----------
$1,073,376 1,202,176
========== ==========
-16-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Liabilities Subject to Compromise
Liabilities subject to compromise at March 30, 1997 include the following:
Lease rejection claims $ 600,000
Trade and other miscellaneous claims 5,071,434
----------
$5,671,434
==========
Liabilities subject to compromise under the Chapter 11 proceedings include
substantially all trade and other payables as of the petition date. As
discussed in note 2, payment of these liabilities, including the maturity
of debt obligations, were stayed while Peaches continued to operate as a
debtor-in-possession.
On January 17, 1997, Peaches' plan of reorganization was confirmed by the
Bankruptcy Court and the Company recorded an extraordinary gain of $486,379
primary as a result of the settlement of lease rejection claims (note 2).
(10) Commitments and Contingencies
(a) Leases
The Company is a lessee under various operating leases, several of which
provide for percentage rent. An insignificant amount of percentage rent was
incurred in each of the years in the three-year period ended March 29,
1997. Most of the leases contain renewal options. In connection with the
Chapter 11 filing, Peaches affirmed 13 leases (5 of which were modified on
terms more favorable to Peaches) and rejected 8 leases.
The aggregate minimum rental commitments under all noncancelable operating
leases at March 29, 1997 are as follows:
Fiscal year Amount
----------- ------
1998 $1,195,769
1999 1,038,225
2000 698,232
2001 653,551
2002 334,395
Thereafter 2,900,248
----------
$6,820,420
==========
Rental expense under noncancelable operating leases, included in selling,
general and administrative expenses in the accompanying consolidated
statements of operations, amounted to $1,248,000, $1,887,000 and
$2,410,000, respectively, for each of the years in the three-year period
ended March 29, 1997.
Rental expense on stores owned by two directors and/or their relatives was
$131,250, $215,417 and $251,667, respectively, for each of the years in the
three-year period ended March 29, 1997.
-17-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Legal Matters
The Company has been party to a lawsuit involving the Company's
closing of a store which it had based in Charlotte, North Carolina and
its refusal to pay rent with respect to such store from and after
February 1991. In February 1995, the court entered a judgment ordering
the Company to pay the sum of $405,460 to plaintiff. The Company
recorded a charge to operations for the year ended April 1, 1995
related to the loss on such litigation and paid such amount in March
1995.
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of its business. In the
opinion of management, all such matters are without merit or involve
such amounts that unfavorable disposition will not have a material
impact on the financial position or results of operations of the
Company.
(c) Employment Agreements
As amended January 1, 1996, the Company entered into an amended and
restated employment agreement with an officer, which expires March 31,
2000. In addition, the officer shall be credited, as compensation,
with the monthly amounts payable by him to the Company under
promissory note (note 5).
The respective employment agreement provides the officer with the use
of an automobile, full medical coverage, reimbursement for life
insurance policies, paid vacations and severance pay if the Company
refuses to renew the employment agreement upon expiration, or in the
event of termination upon mutual consent or termination in certain
other events.
On March 18, 1996, the United States Bankruptcy Court Southern
District of Florida approved the settlement of an employment agreement
with one of its former officers. Peaches is to pay an amount of
$273,550 over a period of four years (note 7). Under the original
terms of employment, the officer would have been entitled to in excess
of $870,000 in the aggregate.
(11) Shareholders' Equity
Authorized shares of common stock as of March 29, 1997 and March 30, 1996
were 10,000,000 Class B and 20,000,000 Class "A" shares, both classes
having a par value of $.01. The two classes of the Company's common stock
are identical except that each class votes separately so that all matters
requiring the vote of stockholders require the approval of both classes of
common stock voting as separate classes.
The Company had agreed to sell to two officers shares of Class "A" common
stock in 96 equal consecutive monthly installments, starting April 1, 1992,
each installment involving the purchase of an aggregate of 14,375 shares
for $2,875 ($.20 per share). The amounts required to purchase such shares
were required to be credited as compensation to the two officers. Effective
October 1, 1994, the agreements were terminated.
-18-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Pension Plan
Effective September 15, 1994, the Company curtailed its noncontributory
defined benefit plan. As a result of this curtailment all future benefit
accruals were eliminated and accrued benefits became fully vested. The net
impact of this curtailment and settlement in plan liabilities is a loss of
$24,949 which is reflected in selling, general and administrative expenses
in fiscal year 1995.
(13) Income Taxes
The provision for income taxes consists of:
1997 1996 1995
--------- -------- --------
Current:
Federal $ -- -- (222,000)
State -- -- --
--------- -------- --------
-- -- (222,000)
Deferred:
Federal -- -- 296,000
State -- -- 46,000
--------- -------- --------
-- -- 342,000
--------- -------- --------
$ -- -- 120,000
========= ======== ========
Reasons for differences between income tax provision and the amount
computed by applying the statutory federal income tax rate of 34 percent to
loss before income taxes and minority interest were:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax benefit at applicable statutory
tax rate of loss before income taxes $(395,000) (842,000) (645,000)
Add:
State income tax benefit, net of federal
benefit (43,000) (81,000) (64,000)
Change in valuation allowance 282,000 874,000 811,000
Capitalized reorganization expenses and
other permanent differences 52,000 -- --
Adjustments to net operating loss
carryovers and other deferred tax
assets 78,000 -- --
Other 26,000 49,000 18,000
--------- --------- ---------
Income tax provision for the year $ -- -- 120,000
========= ========= =========
</TABLE>
-19-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 29, 1997 and March 30, 1996
are presented below.
<TABLE>
<CAPTION>
Deferred tax assets: 1997 1996
----------- -----------
<S> <C> <C>
Inventories, principally due to additional costs
capitalized for tax purposes $ 106,000 87,000
Property and equipment, net, principally due to
differences in depreciation 235,000 166,000
Accrued rent, principally due to accrual for financial
reporting purposes 65,000 98,000
Provision for store closings -- 80,000
NOL carryforward 1,522,000 1,121,000
Accrued expenses 72,000 173,000
Other 36,000 29,000
----------- -----------
Total gross deferred tax assets 2,036,000 1,754,000
Less valuation allowance (2,036,000) (1,754,000)
----------- -----------
Net deferred tax assets $ -- --
=========== ===========
</TABLE>
At March 29, 1997, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $4,241,000 which is available
to offset future federal taxable income, if any, through 2012.
A valuation allowance is provided to reduce deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets
reflect management's estimate of the amount which will be realized from
future profitability which can be predicted with reasonable certainty. The
valuation allowance for deferred tax assets as of March 29, 1997 and March
30, 1996 was $2,036,000 and $1,754,000, respectively. The net change in the
total valuation allowance for the years ended March 29, 1997 and March 30,
1996 was an increase of approximately $282,000 and $874,000, respectively.
(14) Fair Value of Financial Instruments
The fair value of the Company's long-term debt is estimated by discounting
the future cash flows for each instrument at rates currently offered to the
Company for similar debt instruments of comparable maturities, which
approximates the carrying value.
The fair value of due from officers/shareholders was determined using
interest rates based on the credit worthiness of the note holders; the fair
values approximate carrying values.
(15) Business and Credit Concentrations
The retail sale of prerecorded music and video products is highly
competitive. The Company's share of the retail market in the Southeastern
United States is not significant. However, management believes the Company
has certain competitive advantages, including more convenient store
locations, a large selection of inventory and superior customer service.
-20-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Peaches purchased approximately 77 percent of its merchandise from six
principal suppliers during the fiscal year ended March 29, 1997. Purchases
from given suppliers are, to a great extent, determined by which of them
are manufacturing or distributing the most popular prerecorded music
products at a given time, as well as the credit and other terms on which
such suppliers are willing to sell to the Company.
The Company is not obligated to purchase merchandise from any supplier. The
loss of any particular supplier would not have a materially negative effect
on the Company's results of operations; however, a combination of lost
suppliers may have a materially negative effect on the Company's results of
operations. In addition, expenses would be greater if such alternate
sources were utilized.
(16) Condensed Financial Information
The following table summarizes condensed financial statement information
for the subsidiary included in the consolidated financial statements:
Balance Sheet 1997 1996
------------- ---- ----
Total current assets $ 4,571,572 $7,414,557
============ ==========
Total assets $ 6,170,065 $9,442,616
============ ==========
Total current liabilities $ 3,058,113 $1,330,866
============ ==========
Total liabilities subject to compromise $ -- $5,671,434
============ ==========
Total liabilities $ 5,256,152 $8,013,390
============ ==========
Total shareholders' equity $ 913,913 $1,429,226
============ ==========
Statement of Operations 1997 1996 1995
----------------------- ---- ---- ----
Net Sales $ 18,109,119 23,626,489 31,960,953
============ ============ ============
Loss from operations $ (914,534) (1,956,016) (1,864,979)
============ ============ ============
Reorganization costs $ (379,645) (371,150) --
============ ============ ============
Net loss $ (865,313) (2,416,051) (1,995,408)
============ ============ ============
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment Number 1 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 22, 1997
URT Industries Industries, Inc.
(the "Registrant")
By: /s/ Allan Wolk
---------------------------
Allan Wolk
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Title Date
----- ----
By: /s/ Allan Wolk September 22, 1997
----------------------------------
Allan Wolk,
Chairman of the Board,
President (Principal Executive
Officer) and Director
By: /s/ Brian Wolk September 22, 1997
----------------------------------
Brian Wolk, Executive
Vice President and Director
By: /s/ Jason Wolk September 22, 1997
----------------------------------
Jason Wolk, Executive
Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer) Treasurer,
Secretary and Director
