UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 27, 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 Incorporation or (I.R.S. Employer I.D. No.)
Organization)
1180 E. Hallandale Beach Blvd., Hallandale, FL 33009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
at least the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At December 27, 1997, there were outstanding:
10,857,068 shares of Class A common stock
1,301,141 shares of Class B common stock
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-December 27, 1997
(Unaudited) and March 29, 1997 3
Condensed Consolidated Statements of Operations and
Retained Deficit-Three Months Ended December 27, 1997
and December 28, 1996 (Unaudited) 4
Condensed Consolidated Statements of Operations and
Retained Deficit-Nine Months Ended December 27, 1997
and December 28, 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows-Nine Months
Ended December 27, 1997 and December 28, 1996 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 27, 1997 and March 29, 1997
<TABLE>
<CAPTION>
Assets December 27, March 29,
------ 1997 1997
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,233,147 3,130,516
Marketable investment securities 1,117,511 --
Inventories 2,762,829 2,855,494
Current portion due from officers/shareholders 30,832 30,832
Prepaid expenses and other current assets 318,580 332,954
----------- -----------
Total current assets 6,462,899 6,349,796
Property and equipment, net 1,319,482 1,459,084
Due from officers/shareholders 53,093 77,885
Other assets 267,037 181,290
----------- -----------
$ 8,102,511 8,068,055
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations 758,510 730,239
Accounts payable 2,419,098 1,371,869
Accrued liabilities 1,197,122 1,073,376
----------- -----------
Total current liabilities 4,374,730 3,175,484
Long-term obligations 982,061 1,337,190
Deferred rent 68,545 156,036
Minority interest in a subsidiary 38,276 57,730
----------- -----------
Total liabilities 5,463,612 4,726,440
----------- -----------
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 (2,038,093) (1,335,377)
----------- -----------
3,657,234 4,359,950
Treasury stock, 3,159,245 common shares, at cost (1,018,335) (1,018,335)
----------- -----------
Total shareholders' equity 2,638,899 3,341,615
Commitments and contingencies
----------- -----------
$ 8,102,511 8,068,055
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Retained Deficit
Three months ended December 27, 1997 and December 28, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
---- ----
<S> <C> <C>
Net sales $ 5,116,742 5,360,117
----------- -----------
Costs and expenses:
Cost of sales 3,156,675 3,368,983
Selling, general and administrative 1,725,403 2,003,456
Depreciation and amortization 66,996 68,520
----------- -----------
4,949,074 5,440,959
Income (loss) from operations 167,668 (80,842)
----------- -----------
Other (charges) credits:
Interest expense (41,200) (17,908)
Interest income 18,793 145,940
----------- -----------
(22,407) 128,032
----------- -----------
Income before reorganization costs, income taxes and
minority interest 145,261 47,190
Reorganization costs:
Professional fees -- (107,722)
----------- -----------
Income (loss) before income taxes and minority interest 145,261 (60,532)
Provision for income taxes -- --
----------- -----------
Income (loss) before minority interest 145,261 (60,532)
Minority interest in net income (loss) of consolidated subsidiary 16,638 (5,887)
----------- -----------
Net income (loss) 128,623 (54,645)
Retained deficit, beginning of period (2,166,716) (1,272,768)
----------- -----------
Retained deficit, end of period $(2,038,093) (1,327,413)
=========== ===========
Basic and diluted earnings per share (note 3) $ .01 (.01)
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Retained Deficit
Nine months ended December 27, 1997 and December 28, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
---- ----
<S> <C> <C>
Net sales $ 13,049,605 13,553,987
------------ ------------
Costs and expenses:
Cost of sales 8,057,685 8,672,179
Selling, general and administrative 5,419,910 5,838,986
Depreciation and amortization 200,988 222,997
------------ ------------
13,678,583 14,734,162
------------ ------------
Loss from operations (628,978) (1,180,175)
------------ ------------
Other (charges) credits:
Interest expense (130,592) (54,839)
Interest income 81,400 236,150
------------ ------------
(49,192) 181,311
------------ ------------
Loss before reorganization costs, income taxes and
minority interest (678,170) (998,864)
Reorganization costs:
Professional fees (44,000) (302,798)
------------ ------------
Loss before income taxes and minority interest (722,170) (1,301,662)
Provision for income taxes -- --
------------ ------------
Loss before minority interest (722,170) (1,301,662)
Minority interest in net loss of consolidated subsidiary (19,454) (147,840)
------------ ------------
Net loss (702,716) (1,153,822)
Retained deficit, beginning of period (1,335,377) (173,591)
------------ ------------
Retained deficit, end of period $ (2,038,093) (1,327,413)
============ ============
Basic and diluted earnings per share (note 3) $ (.06) (.09)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended December 27, 1997 and December 28, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (702,716) (1,153,822)
----------- -----------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 200,988 222,997
Deferred rent (87,492) (15,558)
Minority interest in net loss of subsidiary (19,454) (147,840)
Changes in assets and liabilities affecting cash flows from operating
activities:
(Increase) decrease in:
Inventories 92,665 46,078
Prepaid expenses and other current assets 14,374 105,270
Other assets (85,747) 16,149
Increase (decrease) in:
Accounts payable 1,047,229 806,435
Accrued liabilities 123,746 420,864
----------- -----------
Net cash provided by operating activities 583,593 300,573
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (61,385) (31,546)
Repayment of due from officers/shareholders 24,792 26,907
Purchase of marketable investment securities (2,624,267) --
Sales of marketable investment securities 1,506,756 1,761,336
----------- -----------
Net cash (used in) provided by investing
activities (1,154,104) 1,756,697
----------- -----------
Cash flows from financing activities:
Repayment of long-term obligations (326,858) (100,210)
----------- -----------
Net cash used in financing activities (326,858) (100,210)
----------- -----------
Net (decrease) increase in cash and cash
equivalents (897,369) 1,957,060
Cash and cash equivalents, beginning of period 3,130,516 3,258,061
----------- -----------
Cash and cash equivalents, ending of period $ 2,233,147 5,215,121
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 115,722 54,839
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-6-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 27, 1997 and December 28, 1996
(Unaudited)
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all footnotes and information necessary for a
fair presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles. However,
in the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation have been made.
The consolidated financial statements include the accounts of URT
Industries, Inc. (the "Parent") and its wholly owned nonoperating
subsidiary, and its majority-owned operating subsidiary, Peaches
Entertainment Corporation (93.5 percent of the outstanding stock of which
was owned by the Parent, as of December 27, 1997). All significant
intercompany accounts have been eliminated. Reference to the Company
encompasses all or any of the aforementioned entities.
It is suggested that the accompanying unaudited condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes included in the Company's annual report on Form 10-K
for the year ended March 29, 1997.
The results of operations for the nine months ended December 27, 1997, are
not necessarily indicative of the operating results to be expected for the
year ending March 28, 1998. The Company's business is seasonal.
Historically, approximately 30 percent of the Company's sales have occurred
in the third fiscal quarter.
Certain reclassifications have been made to the (unaudited) December 28,
1996 quarterly consolidated financial information to conform to the
presentation used in the (unaudited) December 27, 1997 quarterly
consolidated financial information.
(2) Reorganization and Emergence From Chapter 11
On January 16, 1996 (the "Petition Date"), Peaches Entertainment
Corporation commenced reorganization proceedings under Chapter 11 of the
United States Bankruptcy Code. An amended plan of reorganization was
confirmed by the Bankruptcy Court on January 17, 1997 (the "confirmation
date"), and became effective February 3, 1997 (the "effective date"),
subject to satisfaction of certain conditions which were satisfied February
19, 1997. All of the allowed claims were either paid on the effective date
or are reflected in current and long-term obligations in the financial
statements, payable primarily over a two year period from the effective
date. The mortgage holder will receive 100 percent of the allowed claim,
with interest, except the balloon payment was extended from September 1997
to September 2002.
(3) Earnings Per Share
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
128"), which establishes new
-7-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
standards for computing and presenting earnings per share ("EPS"). Earnings
per share for all prior periods have been restated to reflect the
provisions of this Statement. Basic and diluted earnings per share have
been computed by dividing net income (loss) by the weighted average number
of shares outstanding during the period. The two-class method of computing
earnings per share was not utilized as both 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. Accordingly, earnings
per share is identified for each class of stock.
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share computations for net income (loss) for
the three and nine month periods ended December 27, 1997 and December 28,
1996, respectively.
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------- -----------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
Basic:
<S> <C> <C> <C> <C>
Net income (loss) $ 128,623 (54,645) (702,716) (1,153,822)
============= ============= ============= ===========
Weighted average shares 12,158,209 12,158,209 12,158,209 12,158,209
============= ============= ============= ===========
Basic earnings per share $ .01 (.01) (.06) (.09)
============= ============= ============= ===========
Diluted:
Net income (loss) $ 128,623 (54,645) (702,716) (1,153,822)
============= ============= ============= ===========
Weighted average shares 12,158,209 12,158,209 12,158,209 12,158,209
============= ============= ============= ===========
Diluted earnings per share $ .01 (.01) (.06) (.09)
============= ============= ============= ===========
</TABLE>
(4) Marketable Securities
The Company's debt and equity securities are considered available-for-sale
at December 27, 1997. Securities classified as available-for-sale are
reported at fair market value with unrealized gains and losses included in
stockholders' equity. Realized gains and losses are included in interest
income.
-8-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(5) Income Taxes
The Company follows Statement of Financial Accounting Standard ("SFAS") No.
109, "Accounting for Income Taxes." The Company files a consolidated tax
return with its subsidiaries. For the nine-month period ended December 27,
1997, there was no (benefit) provision for income taxes as the Company had
net operating loss carryforwards for federal income tax purposes.
(6) Year 2000 Impact
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations. The Company has assessed that it will be required to upgrade
portions of its software which was originally purchased from outside
vendors, so that its computer systems will properly utilize dates beyond
December 31, 1999. These upgrades are currently available, and the Company
believes that these upgrades will not have a material impact on the ongoing
results of operations or financial position of the Company. However, if
such modifications and conversions are not possible or are not completed
timely, the Year 2000 Issue could have a material impact on the operations
of the Company.
In addition, the Company is assessing the status of its suppliers'
resolution of their potential Year 2000 problems, and what impact, if any,
it will have on the Companies' ongoing results of operations.
(7) Subsequent Event
In January 1998, the Company entered into a lease agreement for the
operation of a new store in Orlando, Florida. This will be the Company's
fourth store in the Orlando area. This store is expected to open either
late in the Company's fourth quarter ending March 28, 1998 or early first
quarter of the next fiscal year.
-9-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations for the Nine Months Ended December 27, 1997,
Compared to the Nine Months ended December 28, 1996.
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe," "anticipate," "estimate,"
"project" and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as a part of this filing or other filings. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their respective dates, and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated or projected.
Results of Operations
Net sales for the nine months ended December 27, 1997 (such nine month period is
hereafter referred to as "1997") decreased by approximately 3.7 percent compared
to the nine months ended December 28, 1996 (such nine month period is hereafter
referred to as "1996"). Such decrease is attributed to a decrease in comparable
store sales (1.8 percent), and a decrease due to a store closing during the
Company's third quarter of 1997 (1.9 percent).
The cost of sales for 1997 was lower than that for 1996 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales has decreased
from 64.0 percent in 1996 to 61.7 percent in 1997 primarily due to the fact that
the Company began to receive discounts associated with normal trade terms
throughout 1997, increases in other purchase discounts and an increase in
certain retail selling prices.
Selling, general and administrative (SG&A) expenses in 1997 decreased by 7.2
percent compared to 1996. Such decrease is attributable to a decrease in
comparable store expenses (5.5 percent), and a decrease due to a store closing
during the Company's third quarter of 1997 (1.8 percent). SG&A expenses as a
percentage of net sales decreased from 43.1 percent in 1996 to 41.5 percent in
1997 due to overhead reductions.
Recently, Peaches 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, have helped the Company to restore itself to
a more competitive position. Other factors which, in management's opinion, which
have helped the Company to restore itself to a more competitive position are the
closing of the six unprofitable stores which were closed during 1996, the
closing of the former headquarters and warehouse, the termination of other
unprofitable business arrangements and concentration on advantages which Peaches
has over certain of its competitors, including large inventory, convenient store
locations and a high level of customer service, which includes the ability of
the customer to sample virtually all music before purchasing and an extremely
efficient special order program.
The Company incurred a net loss of approximately $703,000 in 1997 versus a net
loss of approximately $1,154,000 in 1996. The reduction in net loss is
attributed to an increase in gross profit percentage and a decrease in expenses
as discussed above.
-10-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company had working capital of $2,088,169 at December 27, 1997 compared to
working capital of $3,174,312 at March 29, 1997 and a current ratio (the ratio
of total current assets to total current liabilities) of 1.5 to 1 at December
27, 1997 compared to a current ratio of 2.0 to 1 at March 29, 1997. At December
27, 1997, the Company had long-term obligations of $982,061. Management
anticipates that its ability to repay its long-term obligations will be
satisfied primarily through funds generated from its operations.
Management anticipates that cash generated from operations and cash equivalents
on hand will provide sufficient liquidity to maintain adequate working capital
for operations. Management would attempt to obtain financing for the opening of
any new stores during the next few years.
Inflation trends have not had an impact upon revenue because increases in costs
have been passed along to customers.
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the third fiscal quarter, which includes the Christmas
selling season.
For a discussion of recent developments and uncertainties affecting the
Company's liquidity and capital resources, see notes 2 and 3 (Confirmation of
Amended Plan of Reorganization and Liquidity) to the financial statements which
are included in the Company's annual report on Form 10-K for the year ended
March 29, 1997.
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations. The Company has
assessed that it will be required to upgrade portions of its software which was
originally purchased from outside vendors, so that its computer systems will
properly utilize dates beyond December 31, 1999. These upgrades are currently
available, and the Company believes that these upgrades will not have a material
impact on the ongoing results of operations or financial position of the
Company. However, if such modifications and conversions are not possible or are
not completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
In addition, the Company is assessing the status of its suppliers' resolution of
their potential Year 2000 problems, and what impact, if any, it will have on the
Companies' ongoing results of operations.
In February 1997, the FASB issued Statement of Financial Accounting Standard No.
128, "Earnings Per Share" ("Statement 128"). Statement 128 is effective for
financial statements issued for periods ending after December 15, 1997.
Statement 128 establishes standards for computing and presenting earnings per
share ("EPS"), simplifies the standards previously found in APB No. 15,
"Earnings Per Share," and makes them comparable to international EPS standards.
In December 1997, the Company adopted the provisions of Statement 128. Earnings
per share for all prior periods have been restated to reflect the provisions of
this Statement.
In January 1998, the Company entered into a lease agreement for the operation of
a new store in Orlando, Florida. This will be the Company's fourth store in the
Orlando area. This store is expected to open either late in the Company's fourth
quarter ending March 28, 1998 or early first quarter of the next fiscal year.
The Company will use mostly cash generated from operations and partial bank
financing to build the new store.
-11-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on or about February 10,
1998 and an additional Report on Form 8-K on or about November 12,
1997 for the purpose of reporting a filing delay with respect to this
Form 10-Q and a prior Form 10-Q.
-12-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URT INDUSTRIES, INC.
Registrant
Date: 2/27/98 /s/ Allan Wolk
------------------- --------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: 2/27/98 /s/ Jason Wolk
------------------- --------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the nine-month period
ended December 27, 1997, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-28-1998
<PERIOD-END> Dec-27-1997
<CASH> 2,233,147
<SECURITIES> 1,117,511
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,762,829
<CURRENT-ASSETS> 6,462,899
<PP&E> 3,978,463
<DEPRECIATION> 2,658,981
<TOTAL-ASSETS> 8,102,511
<CURRENT-LIABILITIES> 4,374,730
<BONDS> 0
0
0
<COMMON> 153,175
<OTHER-SE> 2,485,724
<TOTAL-LIABILITY-AND-EQUITY> 8,102,511
<SALES> 13,049,605
<TOTAL-REVENUES> 13,049,605
<CGS> 8,057,685
<TOTAL-COSTS> 8,057,685
<OTHER-EXPENSES> 5,620,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (130,592)
<INCOME-PRETAX> (722,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> (702,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (702,716)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
