SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended March 28, 1998 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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K.
YES ___ NO _X_
The aggregate market value (based on the average closing bid and asked prices)
of the voting stock held by non-affiliates of the registrant was, as of June 1,
1998, approximately $345,000.
As of June 1, 1998, the registrant's transfer agent reported as issued and
outstanding:
10,857,068 Shares of Class A Common Stock
1,348,141 Shares of Class B Common Stock
<PAGE>
PART I
Item 1. BUSINESS
URT Industries, Inc. ("URT" or the "Company"), a Florida corporation, began
business in 1967. Since 1981, it has been engaged in the operation of retail
stores which sell prerecorded music, videos, and related products (the "Retail
Business") in the Southeastern part of the United States under the name
"PEACHES". Such business is operated by its subsidiary, Peaches Entertainment
Corporation ("PEC"), a Florida corporation. URT owns approximately 94% of PEC's
issued and outstanding shares of common stock and all of its issued and
outstanding shares of preferred stock. The remaining approximately 6% of PEC's
common stock is owned by non-affiliated persons.
The Peaches Stores
The following table sets forth the number of "Peaches" stores (the
"'Peaches' stores") which were open at the beginning of the year, which opened
during the year, which closed during the year and which were open at the end of
the year, with respect to URT's last five complete fiscal years ending with the
fiscal year ended March 28, 1998 (the "1998 fiscal year"):
1998 1997 1996 1995 1994
---- ---- ---- ---- -----
Number of stores:
At beginning of period 13 13 19 20 21
Opened during period 0 0 0 1 0
Closed during period (1) (0) (6) (2) (1)
--- --- --- --- ---
At end of period 12 13 13 19 20
Subsequent to the conclusion of the 1998 fiscal year, PEC opened a new
store in Orlando, Florida, thus bringing to thirteen the total number of
"Peaches" stores which are in operation, as of the date of this filing. Such
thirteen stores are located in the following four states: Florida (seven
stores), Virginia (three stores), North Carolina (two stores), and Alabama (one
store). The utilized space of the stores ranges from approximately 6,000 square
feet to approximately 14,000 square feet. Each store either has its own parking
area or is located in a shopping center which provides parking. PEC has options
to renew most of its leases for various periods.
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Two of the Florida stores, one in Fort Lauderdale and the other in Orlando,
are currently leased from the Chairman of URT and his brother, a former director
of URT. (See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
For information concerning real property owned by PEC, see "Properties".
Trademarks
PEC is the registered owner of and owns nationwide rights to the tradename,
service mark and trademark "PEACHES" (the "Trademarks") in connection with the
operation of the Retail Business.
Operation of the Peaches Stores
The "Peaches" stores are all similar in appearance, except for PEC's
mall-type store . They have distinct, wood panelled interiors, are decorated in
a manner which identifies them as "Peaches" stores and carry a wide selection of
prerecorded music as well as recorded and blank video tapes, accessory items and
specialty items such as T-shirts and crates. Some stores are free standing and
others are contiguous to other stores in shopping centers. At present, each
"Peaches" store is managed by an individual director who is responsible for
re-orders of merchandise and displaying merchandise sold in the store, hiring
and firing personnel and other matters relating to store administration. Certain
other matters, including pricing, relationships with landlords and the purchase
and allocation of new releases, are handled by the home office. PEC has a
computerized inventory control system in place at each of its stores.
As of the last day of the 1998 fiscal year, PEC purchased merchandise from
approximately 60 suppliers, among whom the principal ones were BMG, EMI, PGD,
SONY, Universal and WEA. Approximately 69% of the merchandise purchased during
the 1998 fiscal year came from such six principal suppliers. Seagram Co., Ltd,
the owner of Universal, has recently announced the possible purchase of PGD.
This possible action would bring the number of principal suppliers from six to
five. It is unknown what impact, if any, this acquisition would have on the
ongoing results of operations of PEC.
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 any given time, as well as the credit and other terms on which such
suppliers are willing to sell to PEC. PEC is not obligated to purchase
merchandise from any supplier. It has numerous alternate sources of supply for
inventory. However, a loss of one of its six principal suppliers may have a
materially adverse effect on PEC's results of operations.
Merchandise is delivered directly by suppliers to the stores. The usual
terms received by PEC from suppliers provide for payment to be made within 60
days from the end of the month in which a net purchase was made. In addition,
PEC normally receives an additional 30 to 120 days to pay for certain purchases
during the course of the year. Such terms are usual in the industry.
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Under current industry practice, PEC is able to return merchandise, without
limitation, to all suppliers, who charge a penalty if returns exceed certain
percentages of the dollar amounts of gross purchases. Such return policies do
not have a materially adverse effect on PEC's business.
For a period of time after PEC's voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code, on January 16, 1996, PEC was
not able to obtain delivery from most of its principal suppliers of merchandise,
and was not able to return merchandise in accordance with the return policies
described above. This resulted in higher inventory costs and lower gross profits
for PEC. However, shortly after confirmation of PEC's Amended Plan of
Reorganization (the "Plan of Reorganization") by the U.S. Bankruptcy Court on
January 17, 1997, and the effective date of such Plan of Reorganization on
February 19, 1997 (the "Effective Date"), arrangements were made with all of
PEC's principal suppliers and most of its other suppliers such that the terms
with respect to payment for merchandise and the return of unused merchandise for
credit have been the same or similar to the terms which were in effect prior to
such proceeding (the "Chapter 11 proceeding"). For more information concerning
the Chapter 11 proceeding, see "LEGAL PROCEEDINGS" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Advertising in local newspapers and media is determined by consultation
between each store director and PEC management. PEC also engages in cooperative
advertising with suppliers who pay a portion of the cost. In addition to the
director, each "Peaches" store is staffed with managers, cashiers and sales and
stock room personnel. The stores are open seven days a week.
Quarterly results are affected by the timing of holidays, the timing and
strength of new releases, new store openings/closings and sales performance of
existing stores. During the 1998 fiscal year, sales between April and June were
approximately 24% of total sales; sales between July and September were
approximately 22% of total sales; sales between October and December were
approximately 30% of total sales; and sales between January and March were
approximately 24% of total sales.
Competition
The retail sale of prerecorded music and video products is highly
competitive. There are hundreds of retail stores and department, discount and
variety stores and supermarkets which offer such merchandise to the public.
PEC's share of the retail market in the Southeastern United States is not
significant. In recent years, in addition to usual competition, there has been a
proliferation of non-traditional music outlets, such as appliance retailers and
superbookstores, some of whom have used very aggressive price cutting tactics
including selling some products below actual cost in order to attract customers
and sell non-music and video products. For a discussion of actions taken to
address such competitive factors, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Employees
As of the last day of the 1998 fiscal year, URT and PEC (hereinafter,
collectively, the
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<PAGE>
"URT Companies") had approximately 240 employees. Neither URT nor PEC is a party
to any collective bargaining agreements. Relations with employees have been good
and there have been no work stoppages.
Intercorporate Agreements
There are three agreements in place pertaining to the management of PEC.
Two of such agreements are between URT and PEC and the third is between URT and
Allan Wolk, URT's Chairman, President and Chief Executive Officer. Pursuant to
such agreements, the following arrangements are in effect: for the period from
January 1, 1996 through March 31, 2000, URT will continue to provide to PEC the
services of Mr. Wolk as PEC's Chairman, President and Chief Executive Officer;
PEC is required to pay to Mr. Wolk during such period, so long as he continues
to provide such services, a salary in the amount described below; the amount so
paid by PEC to Mr. Wolk pursuant to such arrangement shall be credited against
the amount payable by URT to Mr. Wolk pursuant to the employment agreement
between them; and URT and PEC will continue to equitably apportion taxes so long
as they continue to file a consolidated federal return. The salary so payable by
PEC to Mr. Wolk pursuant to such arrangements is $500,000 per annum, except that
such amount has been reduced to $400,000 per annum, effective March 1, 1997 and
continuing until February 28, 1999, and except further that such amount was
further reduced to $300,000 per annum, effective January 1, 1998 and continuing
until March 28, 1998.
As a result of the above-described arrangements, the portion of Allan
Wolk's total salary from the URT Companies which was assumed by PEC was reduced
from $491,667 during the fiscal year ended March 29, 1997 (the "1997 fiscal
year") to $375,000 during the 1998 fiscal year.
During both the 1998 and 1997 fiscal years, Mr. Wolk devoted approximately
75% of his contractual working time to the business of PEC.
Item 2. PROPERTIES
The headquarters for URT and PEC (the "URT Companies") are located in
Hallandale, Florida in a building which is leased by PEC. Such building contains
a total of approximately 6,000 square feet of office space.
PEC owns real property in Mobile, Alabama on which it constructed and
operates a "Peaches" store. Such property is subject to a first mortgage to an
institutional lender and to a second mortgage to URT.
All "Peaches" stores, other than the Mobile, Alabama store discussed
immediately above, are leased. For information concerning such other stores
operated by PEC, see "BUSINESS--The Peaches Stores".
Item 3. LEGAL PROCEEDINGS
The 1998 fiscal year was PEC's first full year of operations subsequent to
the
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<PAGE>
confirmation and Effective Date of the Plan of Reorganization. A portion of the
amounts allowed to creditors pursuant to the Plan of Reorganization were paid
within 60 days of the Effective Date. The additional allowed amounts owed
pursuant to the Plan of Reorganization are described more fully below:
(a) PEC's seven principal suppliers (whose allowed claims total
approximately $4,372,000) were entitled to 100% of their allowed claims as
follows: payment and inventory returns equal to approximately 70% of their
allowed claims (80% in the case of one such supplier) within approximately 60
days after the Effective Date; and the balance of the payments to such seven
principal suppliers (originally approximately $1,284,000) with interest over a
period of 24 months commencing in March, 1997. Such debt has been reduced to the
sum of $615,115, as of the end of the 1998 fiscal year. The remaining sum so due
to such suppliers is secured by a perfected first lien and security interest in
the inventory originally distributed by such suppliers or which is otherwise in
the possession of and owned by PEC.
(b) PEC's sole secured creditor, the holder of the first mortgage with
respect to the store property owned by PEC in Mobile, Alabama, whose allowed
claim was approximately $466,000, is entitled to 100% of such amount, 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 has been extended to September, 2002.
(c) The priority tax claim of the Florida Department of Revenue in the
original amount of approximately $118,000 has been payable with interest over a
period of two years commencing 30 days from the Effective Date.
PEC has made all payments, when due, of those amounts already required to
be paid under its Plan of Reorganization.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
URT's Class A and Class B Common Stock are quoted by market makers on the
over-the-counter market. The following table sets forth the closing high and
low, bid and asked quotations for the Class A Common Stock for the calendar
periods indicated, based on information supplied by the National Quotation
Bureau, Incorporated:
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Bid Prices Asked Prices
---------- ------------
High Low High Low
---- --- ---- ---
1996
Quarter ended March 31, .08 1/32 .20 .11
Quarter ended June 30, .08 .07 .11 .10
Quarter ended Sept. 30, .07 .07 .10 .09
Quarter ended Dec. 31, .07 .03 .09 .06
1997
Quarter ended March 31, .04 .03 .05 .05
Quarter ended June 30, .04 .03 .06 .05
Quarter ended September 30 .03 .03 .05 .05
Quarter ended December 31, .03 .03 .05 .05
1998
Quarter ended March 31, .03 .03 .05 .05
Quarter through June 1, .03 .03 .05 .05
The following table sets forth the closing high and low, bid and asked
quotations for the Class B Common Stock for the calendar periods indicated,
based on information supplied by the National Quotation Bureau, Incorporated:
Bid Prices Asked Prices
---------- ------------
High Low High Low
---- --- ---- ---
1996
Quarter ended March 31, 1/8 1/16 1/4 3/16
Quarter ended June 30, .125 .05 .25 .12
Quarter ended Sept. 30, .05 .05 .12 .12
Quarter ended Dec. 31, .05 .05 .12 .12
1997
Quarter ended March 31, .03 .03 .12 .12
Quarter ended June 30, .035 .025 .12 .12
Quarter ended Sept. 30, .025 .025 .12 .12
Quarter ended Dec. 31, .025 .025 .12 .12
1998
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Quarter ended March 31, .025 .025 .12 .12
Quarter through June 1, .025 .025 .12 .12
The above over-the-counter quotations represent prices between dealers, do
not include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
Dividends
There has not been any payment of dividends during the two most recently
completed fiscal years or between such period and the date of this report.
Payment of dividends in the future will depend on URT's earnings and needs.
Approximate Number of Equity Security Holders
The following table indicates the approximate number of holders of record
of each class of URT's equity securities as of June 1, 1998, based on
information supplied by URT's transfer agent:
Number of Record
Title of Class Holders
-------------- -------
Class A Common Stock, $.01 par value 4,722
Class B Common Stock, $.01 par value 1,170
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<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other
operating information of the Company. The selected financial data should
be read in conjunction with the financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
March 28, March 29, March 30, April 1, April 2,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating statement data:
Net sales $ 17,077,501 18,109,119 23,626,489 31,960,986 36,303,498
Net loss (874,862) (1,161,786) (2,161,535) (1,759,085) (153,053)
Basic and diluted earnings per share (1) (.07) (.09) (.17) (0.14) (0.01)
Weighted average number of common shares
outstanding (1) 12,158,209 12,637,634 12,637,634 12,674,448 12,695,136
Balance sheet data:
Working capital excluding liabilities
subject to compromise in 1996 1,531,303 3,174,312 9,188,083 5,168,136 6,651,083
Total assets 6,783,328 8,068,055 12,788,918 14,647,795 16,805,328
Current portion of long-term obligations 732,319 730,239 124,774 110,028 131,173
Long-term obligations 578,127 1,337,190 810,367 929,654 705,109
Liabilities subject to compromise -- -- 5,671,434 -- --
Shareholders' equity 2,466,753 3,341,615 4,503,401 6,702,841 8,507,621
Store data:
Weighted average square feet of selling space
84,512 88,012 88,012 130,157 137,145
Weighted average sales per square foot of
selling space $ 202 206 268 246 265
Number of stores open at end of period 12 13 13 19 20
</TABLE>
There were no cash dividends declared for common stock in any of the periods
presented.
(1) In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128 which requires the disclosure
of basic earnings per share and diluted earnings per share. Earnings per
share for all prior periods have been restated to reflect the provisions of
this Statement.
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, URT's management 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 part of other sections of this Annual Report 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. These risks include, but are not
limited to: changes in the competitive environment for the Company's products,
including the entry or exit of non-traditional retailers of the Company's
products to or from its markets; the release by the music industry of an
increased or decreased number of "hit releases"; general economic factors in
markets where the Company's products are sold; and other factors discussed in
this filing and the Company's other filings. 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.
The results of operations discussed herein are those of the URT Companies on a
consolidated basis. As a result, references in this Section to the "Company"
include both URT and PEC.
Results of Operations
FISCAL YEAR ENDED MARCH 28, 1998 ("1998") COMPARED TO FISCAL YEAR ENDED
MARCH 29, 1997 ("1997")
Net sales for 1998 decreased by 5.7% compared to 1997. Such decrease is
attributed to a 3.2% decrease in comparable store sales, and a 2.5% decrease in
sales due to one store that closed in 1998.
The cost of sales for 1998 was lower than that for 1997 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales decreased from
63.2% in 1997 to 61.4% in 1998 due principally to the fact that during the first
quarter of 1998 the Company began to receive discounts associated with normal
trade terms as a result of the conclusion of the Chapter 11 proceeding. Such
decrease is also attributed to increases in other purchase discounts and an
increase in certain retail selling prices.
Selling, general and administrative expenses, including depreciation and
amortization ("SG&A") in 1998 decreased by 9.0% compared to 1997. Such decrease
is attributed to a decrease in corporate overhead (6.9%) and a decrease due to
the closing of one of the Company's stores (2.3%), offset by an increase in
comparable store expenses (0.2%). SG&A expenses, as a percentage of net sales,
decreased from 45.3% in 1997 to 43.7% in 1998 due to such overhead reductions.
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The Company incurred a net loss of approximately $875,000 in 1998 versus a net
loss of approximately $1,163,000 in 1997. The reduction of net loss is
attributed to an increase in gross profit percentage and a decrease in expenses
as discussed above.
The Company's primary suppliers have taken steps to help protect the retail
marketplace from certain low cost retailers of music. These steps have included
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 immediately below, have helped the Company to
restore itself to a more competitive position. Other factors which have had a
positive effect on the Company's performance are the increase in gross profit
percentage and reduction of expenses. Also, PEC's Plan of Reorganization was
confirmed during the last quarter of 1997. The benefits of the reorganization
included the termination of the leases associated with the six unprofitable
stores which were closed during 1996, the closing of the Company's former
headquarters and warehouse, and the termination of other unprofitable business
arrangements. Other competitive advantages over certain competitors include a
large selection of inventory, convenient store locations, a high level of
customer service and the widely recognized "Peaches" name.
FISCAL YEAR ENDED MARCH 29, 1997 ("1997") COMPARED TO FISCAL YEAR ENDED
MARCH 30, 1996 ("1996")
Net sales for 1997 decreased 23.4% compared to 1996. 13.3% of such decrease is
attributed to the fact that 1996 included sales for stores that had been open
during 1996 and were closed during or near the end of 1996. The balance of such
decrease (10.1%) is attributed to comparable store sales.
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 decreased from
64.8% in 1996 to 63.2% in 1997 due to increased purchase discounts in 1997 and
the fact that 1996 reflected the effects of buying a portion of PEC's inventory
during the Chapter 11 proceeding from alternate sources with higher prices.
SG&A expenses in 1997 decreased 21.3% compared to 1996. Such decrease is
attributed to a decrease in store operating expenses of stores that had been
open during 1996, but were closed during or near the end of 1996 (13.9%), a
decrease in corporate overhead (1.9%), and a decrease in comparable store
expenses (5.5%). SG&A expenses, as a percentage of net sales, increased from
43.7% in 1996 to 45.3% in 1997 due to the fixed nature of certain expenses and
the decrease in net sales in addition to the aforementioned items.
The Company incurred a net loss of approximately $1,163,000 in 1997 versus a net
loss of approximately $2,162,000 in 1996. The significant reduction of net loss
is attributed to the success of the Chapter 11 proceeding. However, such success
was offset by professional fees and lost gross profits as a result of not
obtaining similar terms from trade creditors to those that existed prior to the
Chapter 11 proceeding until approximately the first quarter of 1998, at which
time the Company's primary suppliers provided terms with respect to purchases
and returns that were the same as those in place prior to the Petition Date.
Also, further overhead reductions were not evident until 1998.
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<PAGE>
FISCAL YEAR ENDED MARCH 30, 1996 ("1996") COMPARED TO FISCAL YEAR ENDED
APRIL 1, 1995 ("1995")
Net sales for 1996 decreased 26.1% compared to 1995. Such decrease is attributed
principally to the closing of unprofitable stores during 1996, as well as the
effect of the opening of new stores during 1996 by certain of PEC's competitors.
11.8% of such decrease was attributable to comparable store sales and 14.3% of
such decrease was attributable to stores that opened or closed during 1996
versus 1995.
During the last few years, non-traditional music retailers such as appliance
retailers and super bookstores have begun to sell prerecorded music and video
products. They have adopted policies of selling music product at near or below
wholesale cost as a means of attracting customers to sell other products. PEC
continued to suffer the effect of such competition during 1996 and, as a result,
filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code
in the early part of the last quarter of 1996.
The cost of sales for 1996 was lower than that for 1995 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales increased from
63.7% in 1995 to 64.8% in 1996 as a result of a reduction in retail prices due
to increased competition, a change in terms with PEC's principal suppliers
during the Chapter 11 proceeding and the effects of buying a portion of PEC's
inventory during the Chapter 11 proceeding from alternate sources with higher
prices.
SG&A expenses in 1996 decreased 18.4% compared to 1995. Such decrease is
attributed to a decrease in store operating expenses of stores that opened or
closed during 1996 versus 1995 (13.6%) and a decrease in corporate overhead
(5.2%), offset by an increase in comparable store expenses (0.3%). SG&A
expenses, as a percentage of net sales, increased from 39.6% in 1995 to 43.7% in
1996 due to the fixed nature of certain expenses and the decrease in net sales
in addition to the aforementioned items.
The Company incurred a net loss of approximately $2,162,000 in 1996 versus a net
loss of approximately $1,759,000 in 1995 due principally to the costs associated
with the closing of four stores, professional fees associated with the Chapter
11 proceeding and the reduction of net sales and gross profits as described
above. The two other stores closed during 1996 are reflected in the financial
statements for 1995.
Liquidity and Capital Resources
The Company had working capital of $1,531,303 at March 28, 1998 compared to
working capital of $3,174,312 at March 29, 1997. The Company had a current ratio
(the ratio of total current assets to total current liabilities) of 1.42 to 1 at
March 28, 1998, compared to a current ratio of 2.0 to 1 at March 29, 1997.
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At March 28, 1998, the Company had long-term obligations of $578,127, compared
to long-term obligations of $1,337,190 at March 29, 1987. Management anticipates
that the Company's ability to repay its long-term obligations will be satisfied
primarily through funds generated from its operations.
For a discussion of URT's guaranty of certain PEC obligations to creditors in
connection with the Chapter 11 proceeding, and for a discussion of URT's
agreement with PEC to take any necessary action to see that funds are available
to cover any shortfalls up to April 3, 1999, see "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS".
Management anticipates that cash generated from operations and cash equivalents
on hand will provide sufficient liquidity to maintain adequate working capital
for operations. Management used funds generated from operations as well as funds
to be received from its landlord for the building of the new store which opened
during May, 1998. Management anticipates that it would use funds generated from
operations, as well as possible financing, for the opening of any additional new
stores which it may plan to open during the next few years.
Inflation trends have not had an impact upon revenues 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.
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 the cost of these upgrades will not
have a material impact on the ongoing results of operations or financial
position of the Company. However, the Company could be adversely impacted if
year 2000 modifications are not properly completed by either the Company, or its
suppliers, banks or any other entity with whom the Company conducts business.
In February, 1997, the Financial Accounting Standards Board ("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 June, 1997, the FASB issued Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial
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statements and is effective for fiscal years beginning after December 31, 1997.
Management does not anticipate a significant impact of the adoption of Statement
130 on the Company's financial position, results of operations or cash flows.
In 1997, the FASB issued Statement of Financial Accounting Standard No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("Statement
131"). Statement 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that these enterprises report selected information about
operating segments in interim financial reports to shareholders. Statement 131
is effective for financial statements for the periods beginning after December
15, 1997. Management does not anticipate a significant impact of the adoption of
Statement 131 on the Company's financial position, results of operation or cash
flows.
-14-
<PAGE>
Item 8. FINANCIAL STATEMENTS
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
March 28, 1998 and March 29, 1997
(With Independent Auditors' Report Thereon)
-15-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
Independent Auditors' Report 17
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 28, 1998 and
March 29, 1997 18
Consolidated Statements of Operations for each of the
years in the three-year period ended March 28, 1998 19
Consolidated Statements of Shareholders' Equity for each
of the years in the three-year period ended March 28, 1998 21
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended March 28, 1998 22
Notes to Consolidated Financial Statements 24
-16-
<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 28, 1998 and March 29, 1997,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended March 28, 1998.
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 28, 1998 and March 29, 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 28, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
May 29, 1998
-17-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 28, 1998 and March 29, 1997
Assets 1998 1997
------ ---- ----
Current assets:
Cash and cash equivalents $ 1,281,098 3,130,516
Marketable investment securities 1,032,740 --
Inventories 2,433,433 2,855,494
Current portion due from officers/shareholders 45,302 30,832
Prepaid expenses and other current assets 387,048 332,954
----------- -----------
Total current assets 5,179,621 6,349,796
Property and equipment, net 1,364,333 1,459,084
Due from officers/shareholders 37,722 77,885
Other assets 201,652 181,290
----------- -----------
$ 6,783,328 8,068,055
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term obligations 732,319 730,239
Accounts payable 2,014,674 1,371,869
Accrued liabilities 901,325 1,073,376
----------- -----------
Total current liabilities 3,648,318 3,175,484
Long-term obligations 578,127 1,337,190
Deferred rent 62,834 156,036
Minority interest in a subsidiary 27,296 57,730
----------- -----------
Total liabilities 4,316,575 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 (2,210,239) (1,335,377)
----------- -----------
3,485,088 4,359,950
Treasury stock, 3,159,245 common shares at cost (1,018,335) (1,018,335)
----------- -----------
Total shareholders' equity 2,466,753 3,341,615
Commitments and contingencies
----------- -----------
$ 6,783,328 8,068,055
=========== ===========
See accompanying notes to consolidated financial statements.
-18-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For each of the years in the three-year period ended March 28, 1998
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 17,077,501 18,109,119 23,626,489
------------ ------------ ------------
Costs and expenses:
Cost of sales 10,501,123 11,453,125 15,316,441
Selling, general and administrative expenses 7,200,524 7,762,242 9,860,656
Depreciation and amortization 274,943 454,047 460,678
Store closing costs -- -- 189,623
------------ ------------ ------------
17,976,590 19,669,414 25,827,398
------------ ------------ ------------
Loss from operations (899,089) (1,560,295) (2,200,909)
------------ ------------ ------------
Other (expense) income:
Interest expense (167,085) (88,345) (111,451)
Interest income 105,614 155,888 202,845
Other income 99,264 108,957 5,491
------------ ------------ ------------
37,793 176,500 96,885
------------ ------------ ------------
Loss before reorganization costs, income taxes,
minority interest and extraordinary gain (861,296) (1,383,795) (2,104,024)
Reorganization costs:
Professional fees (44,000) (379,645) (88,223)
Store closing costs -- -- (282,927)
------------ ------------ ------------
(44,000) (379,645) (371,150)
Loss before income taxes, minority interest and
extraordinary gain (905,296) (1,763,440) (2,475,174)
Provision for income taxes -- -- --
------------ ------------ ------------
Loss before minority interest and extraordinary
gain (905,296) (1,763,440) (2,475,174)
Minority interest in net loss of consolidated subsidiary (30,434) (115,275) (313,639)
------------ ------------ ------------
Loss before extraordinary gain (874,862) (1,648,165) (2,161,535)
Extraordinary gain due to reorganization (note 2) -- 486,379 --
------------ ------------ ------------
Net loss $ (874,862) (1,161,786) (2,161,535)
============ ============ ============
</TABLE>
-19-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations, Continued
1998 1997 1996
---- ---- ----
Basic and diluted earnings per common share:
Loss before extraordinary gain $(.07) (.13) (.17)
Extraordinary gain -- .04 --
----- ---- ----
Net loss $(.07) (.09) (.17)
===== ==== ====
See accompanying notes to consolidated financial statements.
-20-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For each of the years in the three-year period ended March 28, 1998
<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 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)
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 28, 1998 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> <C>
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
Net loss -- (874,862) (874,862)
----------- ----------- -----------
Balance, March 28, 1998 $ 5,542,152 $(2,210,239) $ 2,466,753
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended March 28, 1998
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (874,862) (1,161,786) (2,161,535)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Extraordinary gain -- (486,379) --
Depreciation and amortization 274,943 454,047 460,678
Loss on abandonment of leasehold improvements -- -- 190,601
Deferred rent (93,202) (44,687) (299,747)
Minority interest in net loss of consolidated
subsidiary (30,434) (115,275) (313,639)
Change in assets and liabilities affecting cash
flows from operating activities:
(Increase) decrease in:
Inventories 422,061 25,200 624,477
Prepaid expenses and other current assets (54,094) 271,492 (236,241)
Refundable income taxes -- 9,136 248,093
Other assets (20,362) 10,589 17,116
Increase (decrease) in:
Accounts payable 642,805 1,268,831 (4,027,492)
Accrued liabilities (172,051) (128,800) (445,470)
Long-term obligations -- -- (61,022)
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 94,804 (1,752,146) (36,238)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable investment securities (2,624,119) -- --
Sale of marketable investment securities 1,591,379 1,761,336 888,198
Purchases of property and equipment (180,192) (44,885) (168,331)
Due from officers/shareholders 25,693 32,837 26,466
Proceeds from disposition of land, property and equipment -- -- 615,243
----------- ----------- -----------
Net cash provided by (used in) investing
activities (1,187,239) 1,749,288 1,361,576
----------- ----------- -----------
</TABLE>
(Continued)
-22-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Repayment of long-term obligations $ (756,983) (124,687) (43,519)
Acquisition of treasury stock -- -- (37,905)
----------- ----------- -----------
Net cash used in financing activities (756,983) (124,687) (81,424)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (1,849,418) (127,545) 1,243,914
Cash and cash equivalents, beginning of year 3,130,516 3,258,061 2,014,147
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,281,098 3,130,516 3,258,061
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 167,085 88,345 111,451
=========== =========== ===========
Income tax payments (refund), net $ -- -- (248,093)
=========== =========== ===========
</TABLE>
Supplemental schedule of non-cash operating and investing activities relating to
the reorganization:
Liabilities subject to comprise, 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 2) 486,379
----------
Long-term obligation, March 29, 1997 $1,256,975
==========
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 28, 1998, March 29, 1997 and March 30, 1996
(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 Company operates in a
single industry segment, the operation of a chain of retail entertainment
stores. The consolidated financial statements include the accounts of URT
Industries, Inc. (the "Parent" or "URT") 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 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 trade and non-trade
suppliers received 100 percent of their allowed claims which 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. 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 were paid on the effective date. Peaches recorded an extraordinary
gain of $486,379 primarily as a result of the settlement of lease rejection
claims.
(3) Liquidity
Since 1993, the Company has incurred operating losses and has an
accumulated deficit balance of approximately $2.2 million at March 28,
1998. In 1996, Peaches commenced reorganization proceedings under Chapter
11 and in the last quarter of 1997 Peaches plan of reorganization was
confirmed. The Company believes that it has benefited from the
reorganization which includes the termination of the leases associated with
the six unprofitable stores which were closed during 1996, the closing of
the Company's former headquarters and warehouses, and the termination of
other unprofitable business arrangements.
-24-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Additionally, the Company's primary suppliers have taken steps to help
protect the retail marketplace from certain low cost retailers of music.
These steps have included 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
immediately above, have helped the Company to restore itself to a more
competitive position. Other factors which have had a positive effect on the
Company's performance are the increase in gross profit percentage and
reduction of expenses. The Company's ability to achieve substained
profitable operations is dependent on continuing to obtain products at
competitive prices, restructuring operations to minimize cash expenditures
and successfully competing with larger retailers with greater capital
resources than the Company. Management believes that cash flow from
operations or additional financing available from other sources will be
sufficient to fund operations during the next fiscal year. There is no
assurance that such events will occur or such financing will be available.
(4) Summary of Significant Accounting Policies
(a) Principles 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.
(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 28,
1998, March 29, 1997 and March 30, 1996 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 $407,499 and $1,657,209 at March 28, 1998 and
March 29, 1997, 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
("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, effective April 3, 1994. Investments, which are
comprised of treasury bills with maturities greater than three months,
but not exceeding one year, are classified as available-for-sale at
March 28, 1998, and are reported at their fair market value which
approximates cost.
-25-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) Inventories
Inventories, comprised of compact discs, cassettes, digital video
disks, 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.
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) 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.
(i) 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.
-26-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(j) Use of Estimates by Management
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
(k) 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
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.
(l) Reclassifications
Certain amounts in the 1997 and 1996 consolidated financial statements
have been reclassified to conform with the 1998 presentation.
(5) 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 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 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 identical 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 loss for each of
the years in the three-year period ended March 28, 1998.
-27-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Basic and diluted earnings per share were calculated as follows:
March 28, March 29, March 30,
1998 1997 1996
---- ---- ----
Basic and diluted:
Net loss $ (874,862) (1,161,786) (2,161,535)
============ ========== ===========
Weighted average shares 12,158,209 12,637,634 12,637,634
============ ========== ===========
Net loss per share $ (.07) (.09) (.17)
============ ========== ===========
(6) Due From Officers/Shareholders
Due from officers/shareholders consist of the following at March 28, 1998
and March 29, 1997:
1998 1997
---- ----
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 $ 83,024 108,717
Less current portion (45,302) (30,832)
-------- --------
$ 37,722 77,885
======== ========
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 $7,555, $10,045 and $16,610 in
each of the years in the three-year period ended March 28, 1998,
respectively, and is included in interest income in the accompanying
consolidated statements of operations.
-28-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Property and Equipment, Net
Property and equipment consist of the following at March 28, 1998 and March
29, 1997:
1998 1997
---- ----
Land $ 395,570 395,570
Building 538,093 538,093
Leasehold improvements 1,483,791 1,760,459
Furniture and equipment 710,229 1,062,535
Building under capitalized lease 206,964 206,964
----------- -----------
3,334,647 3,963,621
Less accumulated depreciation and
amortization (1,970,314) (2,504,537)
----------- -----------
$ 1,364,333 1,459,084
=========== ===========
(8) Long-term Obligations
Long-term obligations consists of the following at March 28, 1998 and March
29, 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Capital lease obligation, due in monthly installments of $3,382,
including interest at 17.5%; final payment due March 2005 $ 163,178 174,139
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 $785,140; final balloon payment
of $245,700 due September 2002 (note 2) 406,688 442,462
Settlement agreement with former officer/shareholder, due in monthly
installments of $5,699, final payment due January 2000 125,465 193,853
Promissory notes due in installments of $26,744 for 21 months and one
payment of $347,675 (due February 1999), plus interest at prime;
collateralized by inventory and guaranteed by the Parent (note 2) 615,115 1,256,975
---------- ----------
1,310,446 2,067,429
Less current portion (732,319) (730,239)
---------- ----------
$ 578,127 1,337,190
========== =========
</TABLE>
-29-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 1998, 1997 and 1996.
The following represents future minimum lease payments under the capital
lease obligation:
Fiscal year Amount
----------- ------
1999 $ 40,600
2000 40,600
2001 40,600
2002 40,600
2003 40,600
Thereafter 80,960
----------
Total minimum lease payments 283,960
Less amount representing interest (120,782)
----------
Present value of minimum lease payments $ 163,178
==========
Maturities of long-term obligations, excluding the capital lease
obligation, to maturity, are as follows:
Fiscal year Amount
----------- ------
1999 $ 719,278
2000 92,853
2001 35,775
2002 35,775
2003 263,587
Thereafter --
----------
$1,147,268
==========
The Company has a standby letter of credit of $75,600 available to a
landlord that was not drawn upon as of March 28, 1998. The standby 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 28, 1998.
(9) Accrued Liabilities
Accrued liabilities consist of the following at March 28, 1998 and March
29, 1997:
1998 1997
---- ----
Gift certificate and credit slip liability $ 155,873 184,884
Payroll and related benefits 102,244 99,701
Sales and real estate taxes payable 141,446 188,087
Accrued overhead expenses 343,814 392,682
Other 157,948 208,022
---------- ----------
$ 901,325 1,073,376
========== ==========
-30-
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 28, 1998. Most of the leases contain renewal
options.
The aggregate minimum rental commitments under all noncancelable
operating leases at March 28, 1998 are as follows:
Fiscal year Amount
----------- ------
1999 $ 1,316,310
2000 951,002
2001 865,404
2002 707,852
2003 715,277
Thereafter 2,797,822
-----------
$ 7,353,667
===========
Rental expense under noncancelable operating leases, included in
selling, general and administrative expenses in the accompanying
consolidated statements of operations, amounted to $1,175,000,
$1,248,000 and $1,887,000, respectively, for each of the years in the
three-year period ended March 28, 1998.
Rental expense on stores owned by two directors and/or their relatives
was $131,250, $131,250 and $215,417, respectively, for each of the
years in the three-year period ended March 28, 1998.
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 during the first quarter of the next fiscal year.
(b) Legal Matters
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 an unfavorable disposition will not have a material
impact on the financial position or results of operations of the
Company.
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<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) Employment Agreements
As amended January 1, 1996, the Company entered into an amended and
restated employment agreement with an officer, through March 31, 2000
with an aggregate annual average base compensation of approximately
$720,000, including the amounts payable by Peaches to such officer
under the revised Management Agreement [see note 10(d)]. In October
1997, the annual base compensation was reduced by $150,000. In
addition, the officer shall be credited, as compensation, with the
monthly amounts payable by him to the Company under promissory note
(note 6).
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. The Company is to pay an amount of
$273,550 over a period of four years (note 8). Under the original
terms of employment the officer would have been entitled to in excess
of $870,000 in aggregate.
(d) Management Agreement
On March 29, 1993, as amended, URT entered into a management and
intercorporate agreement (the "Management Agreement") with Peaches
whereby Peaches was required to pay URT an annual fee; URT was
required to provide Peaches with the services of the person who is the
president and chairman; URT was required to pay Peaches for certain
accounting and administrative services performed by Peaches; and so
long as URT and Peaches filed consolidated income tax returns, their
respective liabilities for such taxes would be equitably apportioned
as provided in such agreement. These transactions were eliminated in
the consolidation. Effective as of the close of business on December
31, 1995, the Management Agreement was terminated and replaced with
three new agreements which became effective January 1, 1996 through
March 31, 2000. In lieu of paying a management fee to URT, the three
new agreements require payment to URT's president and chairman as long
as he continues to provide services similar to those performed under
the original Management Agreement of $500,000 per annum, except that
such amount has been reduced to $400,000 per annum, effective March 1,
1997 and continuing until February 28, 1999, and except further that
such amount was further reduced to $300,000 per annum, effective
January 1, 1998 and continuing until March 28, 1998.
(11) Shareholders' Equity
Authorized shares of common stock as of March 28, 1998 and March 29, 1997
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.
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<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Income Taxes
The provision for income taxes consists of:
1998 1997 1996
---- ---- ----
Current:
Federal $ -- -- --
State -- -- --
------ ------ ------
-- -- --
Deferred:
Federal -- -- --
State -- -- --
------ ------ ------
-- -- --
------ ------ ------
$ -- -- --
====== ====== ======
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax benefit at applicable statutory tax rate of
loss before income taxes $(308,000) (395,000) (842,000)
Add:
State income tax benefit, net of federal benefit (34,000) (43,000) (81,000)
Change in valuation allowance 707,000 282,000 874,000
Capitalized reorganization expenses and other
permanent differences -- 52,000 --
Adjustments to net operating loss carryovers and
other deferred tax assets (387,000) 78,000 --
Other 22,000 26,000 49,000
--------- --------- ---------
Income tax provision for the year $ -- -- --
========= ========= =========
</TABLE>
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<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 28, 1998 and March 29, 1997
are presented below.
<TABLE>
<CAPTION>
Deferred tax assets: 1998 1997
---- ----
<S> <C> <C>
Inventories, principally due to additional costs capitalized
for tax purposes $ 80,000 106,000
Property and equipment, net, principally due to differences
in depreciation 249,000 235,000
Accrued rent, principally due to accrual for financial
reporting purposes 31,000 65,000
NOL carryforward 2,282,000 1,522,000
Accrued expenses 65,000 72,000
Other 36,000 36,000
----------- -----------
Total gross deferred tax assets 2,743,000 2,036,000
Less valuation allowance (2,743,000) (2,036,000)
----------- -----------
Net deferred tax assets $ -- --
=========== ===========
</TABLE>
At March 28, 1998, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $6,102,000 which is available
to offset future federal taxable income, if any, through 2013.
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 28, 1998 and March
29, 1997 was $2,743,000 and $2,036,000, respectively. The net change in the
total valuation allowance for the years ended March 28, 1998 and March 29,
1997 was an increase of approximately $707,000 and $282,000, respectively.
(13) 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.
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<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) 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. The number of stores and types of
competitors faced by the Company's stores increased significantly,
including non-mall discount stores, consumer electronics superstores and
other mall based music, video and book specialty retailers expanding into
non-mall multimedia superstores of their own. The Company's stores operate
in a retail environment in which many factors that are difficult to predict
and outside the Company's control can have a significant impact on store
and Company sales and profits. These factors include the timing and
strength of new product offerings and technology, pricing strategies of
competitors, openings and closings of competitors' stores, the Company's
ability to continue to receive adequate product from its vendors on
acceptable credit terms, effects of weather and overall economic
conditions, including inflation, consumer confidence, spending habits and
disposable income.
Peaches purchased approximately 74 percent and 76 percent of its
merchandise from seven principal suppliers during the fiscal year ended
March 28, 1998 and March 29, 1997, respectively. 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. However, loss of one of the
Company's principal suppliers may have a material adverse effect on the
Company's results of operations and financial position.
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<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of the date of this filing, the directors and executive officers of URT
are:
Name Position Age
---- -------- ---
Allan Wolk Chairman of the Board,
President (Chief Executive
Officer) and Director 60
Brian Wolk Executive Vice-President, Chief Legal 32
Officer and Director
Jason Wolk Executive Vice-President, Chief
Financial Officer (Principal Financial
and Accounting Officer), Treasurer and Director 30
Allan Wolk has been the Chief Executive Officer and a director of URT and
PEC since their formation. He has been engaged in the prerecorded music business
for more than 40 years, principally in the rack merchandising and retail
segments thereof.
Brian Wolk, an attorney, has been employed by the URT Companies in various
capacities and at various times since 1982 and has been employed by them, full
time, since 1992. He is a son of Allan Wolk. He has been a director of URT and
PEC since 1994 and a vice-president of both companies since June, 1995. He was
appointed Executive Vice-President and Chief Legal Officer of both companies in
March, 1996.
Jason Wolk, a certified public accountant, has been employed by the URT
Companies in various capacities and at various times since 1983 and has been
employed by them, full time, since 1994. He is a son of Allan Wolk. Prior to his
full time employment by the URT Companies, he had been employed as an accountant
by KPMG Peat Marwick LLP. He has been a director of URT and PEC since 1994 and a
vice-president and the secretary of both companies since June, 1995. He was
appointed Treasurer and Chief Financial Officer (Principal Financial and
Accounting Officer) of both companies in September, 1995, and was appointed
Executive Vice-President of both companies in March, 1996.
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<PAGE>
The term of office of each director continues until the next annual meeting
of the stockholders and until his or her successor is elected. Mr. Wolk has an
employment agreement with URT (See "EXECUTIVE COMPENSATION--Employment
Contracts").
Item 11. EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued by the URT
Companies for services rendered in all capacities during the 1998 fiscal year
and the two prior fiscal years to (i) URT's chief executive officer ("CEO") and
(ii) each of the other most highly compensated executive officers of the URT
Companies whose cash compensation exceeded $100,000 and who served as executive
officers during the 1998 fiscal year:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Long
Options/ Term
Other Stock Incen. All
Annual Restricted App. Plan Other
Name and Fiscal Salary Bonus Compensa- stock Rights Pay-outs Compensa-
position Year ($) ($) tion($) award(s)($) (#) ($) tion($)
- -------- ---- --- --- ------- ----------- --- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allan Wolk, 1998 679,474 -0- 110,358(1) -0- -0- -0- -0-
Chairman, 1997 616,714 -0- 101,446(1) -0- -0- -0- -0-
Pres. & CEO 1996 662,500 -0- 95,431(1) -0- -0- -0- 308,222(2)
</TABLE>
- ----------
(1) Such amounts include life insurance premiums ($75,138) for the 1998 fiscal
year) and amounts credited to Mr. Wolk under his employment agreement
against amounts owed to URT.
(2) Such amount represents a one-time distribution to Mr. Wolk as a result of
the termination, effective May 12, 1995, of the PEC defined benefit pension
plan and trust.
Employment Contracts
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<PAGE>
Mr. Wolk is employed under an employment agreement dated October 1, 1994
(the "1994 Agreement"), which was amended as described below. The term of Mr.
Wolk's employment under the 1994 Agreement, as so amended, continues until March
31, 2000. The 1994 Agreement reduced the annual rate of his base salary to
$725,380 for the period from October 1, 1994 through March 31, 1995, to $575,380
for the next eighteen month period ending September 30, 1996 and to $784,048 for
the balance of the term of employment (as compared to an annual base salary at
the rate of $834,048 under the March 31, 1992 employment agreement (the "1992
Agreement") which the 1994 Agreement replaces). A 1997 amendment to the 1994
Agreement further reduced Mr. Wolk's annual compensation by an additional
$150,000 per year, to $634,048 per year, effective as of October 1, 1997 and
continuing through the balance of the term of employment. During the 1998 fiscal
year, Mr. Wolk agreed to forego $16,667 in salary compensation due to him with
respect to the six month period ended September 30, 1997 and agreed to forego an
additional $21,012 in salary compensation due to him with respect to the three
month period ended March 28, 1998, thereby reducing his salary compensation with
respect to such year by a total additional $37,679. Pursuant to the arrangements
described above under "BUSINESS - Management Agreements between URT and PEC",
PEC pays a salary to Mr. Wolk in the amount described in such section, and such
amount is credited against the compensation payable by URT to Mr. Wolk pursuant
to the 1994 Agreement, as so amended (hereinafter referred to, with the
above-described amendments, as the "1994 Agreement").
The 1994 Agreement eliminated provisions contained in the 1992 Agreement
under which Mr. Wolk was entitled to cost of living increases based on increases
in the consumer price index and changes in U. S. individual income tax rates. It
reduced certain monthly credits to which he was entitled under the 1992
Agreement effective October 1, 1994 from $5,435 per month to $2,935 per month
but retained the provision that if he died or became disabled during the term of
such agreement, the credits which he would have received through March 31, 2000
(but in the reduced amount under the 1994 Agreement) if he had survived and not
become disabled would be accelerated to the date of death or disability. The
1994 Agreement also provided that URT would pay or reimburse him for the
premiums on term or other life insurance coverage to be selected by URT and
payable to his designee in the amount of $2,600,000 for the duration of his life
(rather than being reduced to $1,500,000 after age 70 as provided in the 1992
Agreement). Mr. Wolk was also permitted under the 1994 Agreement (as he had been
under the 1992 Agreement) to repay certain loans which are hereinafter described
in "Certain Relationships and Related Transactions"), over the term of his
employment.
The 1994 Agreement also continued to provide (as had the 1992 Agreement)
that during his employment period URT would furnish Mr. Wolk with an automobile,
reimburse him for business expenses, including socially related business
expenses incurred by him, and provide him with hospital and medical benefits;
that upon termination of his employment, he would not compete with the URT
Companies for a period of three years and for the additional period during which
he accepted severance payments; that upon the termination of his period of
employment and URT's refusal to continue to employ him on terms no less
favorable than those contained in his employment agreement or in the event of
the earlier termination of his employment for any reason other than
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<PAGE>
death, URT was required to pay him as severance payments, an amount equal to his
annual base salary which was in effect at the time of termination and
thereafter, upon each anniversary of the termination date until his death, 50%
of such annual base salary (except for the elimination of provisions which had
been in the 1992 Agreement under which he could have been entitled to additional
amounts if adjustments were made due to increases in the consumer price index,
changes in the income tax laws or certain other contingencies), as reduced by
any payments he received under any pension or profit sharing plan of the URT
Companies and if applicable, any disability insurance policy; that so long as he
was entitled to receive severance payments, URT was required to continue to
furnish him with an automobile, pay the premiums on the above described life
insurance coverage and provide medical insurance coverage for him and his family
which would continue during his lifetime and that of his wife, if she survived
him; that as a condition of receiving such severance payments and benefits, he
was required to be available to the URT Companies as a consultant; that if any
persons, excluding officers and directors of URT, should acquire effective
control of URT while he was in its employ, he would be entitled to receive, in
addition to all other payments required to be made to him under his employment
agreement, an amount equal to the maximum amount permitted to be paid by URT
without such payment being considered a "parachute payment" under the Internal
Revenue Code; that such provision was designed to deter corporate raiders and
would require that a substantial payment be made to him in the event that any
such persons acquired effective control of URT. The amount to which Mr. Wolk
would be entitled under the circumstances described above would depend on his
compensation during the five tax years immediately preceding any such change in
control. If, for illustrative purposes, a change in control had occurred between
the end of the 1998 fiscal year and the date of this filing, the payment to Mr.
Wolk would have been approximately $2,723,000.
The 1994 Agreement also permits Mr. Wolk to obtain a loan from URT on a
single occasion not to exceed $400,000 for a period of up to five years at an
interest rate of 3% per annum, which is required to be collateralized by
adequate security and made upon such other terms and conditions as URT's
directors with the advice of counsel deem necessary to protect URT.
Compensation Committee Interlocks
and Insider Participation
URT does not have a compensation committee or other board committee
performing equivalent functions. During the 1997 fiscal year, all deliberations
concerning executive officer compensation or any other arrangements between URT
and any executive officers were conducted by URT's full board of directors,
provided, however, that no director voted on compensation payable to him as an
executive officer or any other arrangement between him and URT.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information concerning the number of shares of
each class
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<PAGE>
of URT's common stock which was owned by each person who, on June 1, 1998,
owned, beneficially, more than 5% thereof, and the number of shares of each
class of such stock owned beneficially, directly or indirectly, by each
executive officer and director and by all directors and executive officers as a
group on such date:
<TABLE>
<CAPTION>
Amount & Nature
of Beneficial Percent
Title of Class Name Ownership of Class
- -------------- ---- --------- --------
<S> <C> <C> <C>
Class A Common Executive Officers
Stock, par value and Directors
$.01 per share
Allan Wolk 3,194,186(1) 29.4%
Allan Wolk and
Lawrence Strauss,
as Trustees 33,072(2) *
Brian Wolk 12,980(3) *
Jason Wolk 17,480(3) *
------------
All officers and
directors as a
group (3 persons) 3,257,718 30.0
Other
Scorpio Music, Inc.
P. O. Box A
Trenton, N.J. 08691 1,195,550(4) 11.0%
Amount & Nature
of Beneficial Percent
Title of Class Name Ownership of Class
- -------------- ---- --------- --------
<S> <C> <C> <C>
Class B Common Executive Officers and Directors
Stock, par value
$.01 per share Allan Wolk 786,654(5) 58.4%
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
============
All officers and
directors as a
group (1 person) 786,654 58.4%
</TABLE>
(1) Includes 3,150,786 shares owned by Allan Wolk, 25,920 shares owned by his
wife and 17,480 shares held by him for his daughter. However, Mr. Wolk has
renounced all voting and investment power with respect to those shares of
URT which are held by him for his daughter. He believes that his wife will
vote the shares owned by her in favor of proposals which he favors, but
disclaims beneficial ownership of any shares owned by her or held for the
benefit of his daughter.
(2) Such shares are held by Lawrence Strauss and Allan Wolk as trustees for the
benefit of children of Sheffield Wolk, Mr. Wolk's brother. Allan Wolk has
renounced all voting and investment power with respect to those shares of
URT which are so held in trust for the benefit of children of Mr. Wolk's
brother. All such powers as trustee are exercised exclusively by the
co-trustee, and Mr. Wolk disclaims beneficial ownership of such shares.
(3) Such shares are held in the name of Allan Wolk, as custodian. However, Mr.
Wolk has renounced all voting and investment power with respect to those
shares of URT which are held by him for his two sons, and disclaims
beneficial ownership of such shares. Such shares, being listed separately
here, are not included under the shares listed as beneficially owned by
Allan Wolk.
(4) Based on information supplied by URT's transfer agent. Does not include
160,000 shares reported in a Schedule 13D, dated June 14, 1989, as owned by
John T. Gervasoni, Scorpio's reported president and 100% shareholder, as to
which no confirmation of ownership has been made by URT's transfer agent.
(5) Includes 780,174 shares owned by Allan Wolk and 6,480 shares owned by his
wife. Mr. Wolk believes that his wife will vote the shares owned by her in
favor of proposals which he favors, but disclaims beneficial ownership of
such shares.
(*) Less than one percent.
As set forth in the above table and footnotes, Allan Wolk and members of
his immediate family own approximately 30% or URT's Class A common stock and
approximately 58% of URT's Class B common stock. The two classes of URT'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. By reason of such ownership and his
position as Chairman of URT, Mr. Wolk may be deemed to have effective control of
URT.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their purchase in 1983 from an unaffiliated third party
seller, Allan Wolk and his brother, Sheffield Wolk, a former director of URT,
are the owners of the land and building on which the PEC store in Fort
Lauderdale, Florida is located. Such property was and continues to be subject to
a lease with PEC as tenant, which had been negotiated by the prior owner. During
the
-41-
<PAGE>
1995 fiscal year, PEC made and paid for certain renovations to the premises.
Based on the provisions of the lease, the owners agreed to be responsible for
$26,225 of the cost of such renovations which, with interest, is being deducted
by PEC over a period of 36 months.
In December, 1984, PEC entered into a long-term lease with Allan Wolk and
Sheffield Wolk for premises owned by them in Orlando, Florida. The lease term
commenced in December, 1984, and is for a period of twenty years with two
additional five year terms. The lease is a triple net lease. The lease provides
for a net minimum rental rate of $125,000 per annum from the rental commencement
date through March 31, 1985; a rate of $140,000 per annum during the following
five year period; a rate of $145,000 per annum during the next five year period;
a rate of $160,000 during the next five year period; and increases of $5,000
during every five year period thereafter. Notwithstanding the foregoing,
commencing with the sixth rental year, if net sales at the store during any
rental year are less than $1,800,000, the annual net minimum rental rate for
such year will be the same as that which had been in effect during the preceding
five year period. The lease was approved by disinterested directors and, in the
opinion of management, is as reasonable as those which could have been obtained
from unaffiliated third parties.
Because of the profitability of the above-referenced Fort Lauderdale and
Orlando stores, the leases for such two stores were among the leases which PEC
elected to assume during its Chapter 11 proceeding with the approval of the
Bankruptcy Court.
In March, 1992, URT, as consideration, in part, for the agreement of Allan
Wolk to reduce the amount of compensation which would have been payable to him
under the employment agreement with him which was then in effect, agreed to
refinance certain indebtedness which was then outstanding from Mr. Wolk to URT,
by replacing the promissory notes with respect to such indebtedness by a new
promissory note in the original principal amount of $207,640. The replacement
promissory note permits such indebtedness to be repaid over a period of eight
years, from April 1, 1992 through March 31, 2000, with interest at the rate of
8.0% per annum, in 96 consecutive monthly installments in the amount of $2,935
each. The loan is unsecured. Mr. Wolk used the funds lent to him to purchase
shares of URT's Class A and Class B Common Stock from independent third parties.
The disinterested directors authorized URT to finance such purchases as
above-described, because they believed that such action would give Mr. Wolk
continued incentive to remain with URT and to work to increase the value of its
shares. Under the above-described provisions of Mr. Wolk's 1994 Agreement (which
took effect on October 1, 1994), he is entitled to be credited, as additional
compensation the amount of $2,935 per month during the period of his employment
until the amount owed is paid.
As a result of the arrangements described in the preceding paragraph,
during the 1998 fiscal year, Mr. Wolk was credited with a total of $35,220 with
respect to the above-described indebtedness. As of March 28, 1998, the
outstanding principal amount of Mr. Wolk's loan was $64,902 and the highest
amount outstanding on Mr. Wolk's loan during the 1998 fiscal year was $93,672.
In April, 1989, URT's board of directors authorized URT to enter into
agreements with its
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<PAGE>
officers and directors under which they would be entitled to be indemnified by
URT and have their expenses advanced to them in the event of any claim against
them in their capacities as officers and directors. Such agreements were entered
into with all then-existing officers and directors of URT on or about May 22,
1989. On or about July 14, 1995, and pursuant to the further authorization of
the board of directors on such date, URT entered into indemnification agreements
with the two additional officers and directors, Brian Wolk and Jason Wolk, who
were appointed to their respective positions subsequent to 1989. The
indemnification agreements so entered into with Brian Wolk and Jason Wolk are in
the same form as the indemnification agreements entered into in 1989 with the
then-existing officers and directors.
In order to enable PEC to effect its Plan of Reorganization, URT, in
exchange for the issuance to it of 20,000,000 shares of PEC's authorized common
stock (including 218,730 treasury shares), took the following steps: contributed
$350,000 to the capital of PEC; waived an aggregate of $75,000 of dividends
payable by PEC to URT with respect to the period running from January 1, 1996 to
March 31, 1997; loaned $700,000 to PEC; and agreed that, subject to the terms of
the Plan of Reorganization, it would guarantee the approximately $1,284,000 then
payable to PEC's principal suppliers after the Effective Date pursuant to the
arrangements described in "LEGAL PROCEEDINGS" above. In order to facilitate the
issuance of such shares to URT, URT also waived its right to convert to common
stock the Series A preferred stock of PEC which is owned by URT. The loan from
URT (as modified in the manner described below) is required to be paid back by
PEC with interest at the prime rate charged by Chase Manhattan Bank, N.A. over a
period of four years beginning on the third anniversary of the Effective Date.
The debt so owed by PEC to URT is subordinate to the amounts owed to PEC's
principal suppliers, and is secured by a second mortgage on PEC's Mobile,
Alabama property.
On or about November 29, 1997, URT, in order to further strengthen PEC's
financial condition, agreed to forgive repayment of one-half of the $700,000
which was loaned by URT to PEC, together with the interest then accrued on the
$350,000 so forgiven. The remaining $350,000 of the indebtedness is required to
be repaid by PEC to URT in accordance with the terms of the original loan
documents described above.
On or about July 9, 1998, URT agreed that in the event that funds generated
from PEC's operations and the proceeds of any debt financing which may be
obtained are insufficient to meet PEC's then current projected operating
requirements, for the fiscal year ending April 3, 1999, then URT will take any
necessary action to see that funds are available to cover any shortfalls up to
April 3, 1999.
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<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
Page
1. Consolidated Financial Statements
Table of Contents 16
Independent Auditors' Report 17
URT Industries, Inc. and Subsidiaries
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 28, 1998 and
March 29, 1997. 18
Consolidated Statements of Operations for each of the
years in the three year period March 28, 1998. 19
Consolidated Statements of Shareholders' Equity for
each of the years in the three year period ended
March 28, 1998. 21
Consolidated Statements of Cash Flows for each of the
years in the three year period ended March 28, 1998. 22
Notes to Consolidated Financial Statements. 24
2. Financial Statement Schedules
Schedules have been omitted which are not applicable or
where the required information is shown in the financial
statements or the notes thereto.
3. Exhibits.
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<PAGE>
Exhibit No.
3.1 Articles of Incorporation of URT Industries, Inc. ("URT") and all
amendments thereto through January 11, 1973, incorporated by reference
to Exhibit No. 3.1 to URT's Registration Statement No. 2-36263.
3.1-1 Amendment to URT's Articles of Incorporation dated January 2, 1975,
incorporated by reference to Exhibit No. 3.1-1 to URT's Registration
Statement No. 2-59153.
3.1-2 Amendment to URT's Articles of Incorporation dated November 10, 1976,
incorporated by reference to Exhibit No. 3.1-2 to URT's Registration
Statement No. 2-59153.
3.1-3 Amendment to URT's Articles of Incorporation dated September 21, 1979,
incorporated by reference to Exhibit No. 3.1-3 to URT's Registration
Statement No. 2-63747.
10(mm) Lease dated December 13, 1984 between Allan Wolk and Sheffield Wolk
and PEC applicable to Orlando, Florida premises, incorporated by
reference to Exhibit No. 13.47 to URT's Registration Statement No.
2-63747.
10(ss) Amendment to Lease dated February 25, 1986 between Allan Wolk and
Sheffield Wolk and PEC applicable to Orlando, Florida premises
incorporated by reference to Exhibit 10(ss) to URT's Form 10-K Annual
Report filed on June 27, 1986.
10(kkk) Indemnification Agreement dated May 22, 1989 between Allan Wolk and
URT, incorporated by reference to Exhibit 10(kkk) to URT's Form 10-K
Annual Report dated June 27, 1989.
10(lll) Indemnification Agreement dated May 22, 1989 between David Jackowitz
and URT, incorporated by reference to Exhibit 10(lll) to URT's Form
10-K Annual Report dated June 27, 1989.
10(nnn) Indemnification Agreement dated May 22, 1989 between Ann Krouse and
URT, incorporated by reference to Exhibit 10(nnn) to URT's Form 10-K
Annual Report dated June 27, 1989.
10(ppp) By-Laws of URT, as amended and restated, incorporated by reference to
Exhibit 10 (ppp) to URT's Form 10-K Annual Report dated June 28, 1990.
10(xxx) Promissory Note dated March 31, 1992 made by Allan Wolk to URT, as
payee, incorporated by reference to Exhibit 10(xxx) to URT's Form 10-K
Annual Report dated June 25, 1992.
-45-
<PAGE>
10(bbbb) Promissory Note dated March 31, 1992 made by David Jackowitz to URT,
as payee, incorporated by reference to Exhibit 10(bbbb) to URT's Form
10-K Annual Report dated June 25, 1992.
10(eeee) Amended and Restated Employment Agreement, dated October 1, 1994,
between Allan Wolk and URT, incorporated by reference to Exhibit
10(eeee) to URT's 10-K Annual Report dated June 29, 1995.
10(jjjj) Letter Agreement dated January 1, 1996 between URT and PEC pertaining
to termination of Management and Intercorporate Agreement dated March
29, 1993.
10(kkkk) Letter Agreement dated January 1, 1996 between URT and PEC pertaining
to services of Allan Wolk, incorporated by reference to Exhibit
10(kkkk) to URT's 10-K Annual Report dated April 25, 1997.
10(llll) Letter Agreement dated January 1, 1996 between Allan Wolk and URT,
incorporated by reference to Exhibit 10(llll) to URT's, 10-K Annual
Report dated April 25, 1997.
10(mmmm) Indemnification Agreement dated July 14, 1995 between Brian Wolk and
URT, incorporated by reference to Exhibit 10(mmmm) to URT's 10-K
Annual Report dated April 25, 1997.
10(nnnn) Indemnification Agreement dated July 14, 1995 between Jason Wolk and
URT, incorporated by reference to Exhibit 10(nnnn) to URT's 10-K
Annual Report dated April 25, 1997.
10(oooo) PEC's Amended Plan of Reorganization, dated October 23, 1996,
incorporated by reference to Exhibit 1 to PEC's Form 8-K dated April
7, 1997.
10(pppp) Order Confirming PEC's Amended Plan or Reorganization, as Modified,
dated January 17, 1997, incorporated by reference to Exhibit 2 to
PEC's Form 8-K dated April 7, 1997.
10(qqqq) URT Promissory Note dated January 27, 1997 made by PEC to URT,
incorporated by reference to Exhibit 10.66 of PEC's 10-K Annual Report
dated April 25, 1997.
10(rrrr) Security Agreement dated January 27, 1997 between URT and PEC,
incorporated by reference to Exhibit 10.67 of PEC's 10-K Annual Report
dated April 25, 1997.
10(ssss) Mortgage Agreement with Assignment of Rents, Security Agreement and
Fixture Filing dated January 27, 1997 by PEC in favor of URT,
incorporated by reference to Exhibit 10.68 of PEC's 10-K Annual Report
dated April 25, 1997.
10(tttt) Reimbursement Agreement dated January 27, 1997 between URT and PEC,
incorporated by reference to Exhibit 10.69 of PEC's 10-K Annual Report
dated April
-46-
<PAGE>
25, 1997.
10(uuuu) Subordination Agreement dated January 27, 1997 between URT, PEC and
selected creditors, incorporated by reference to Exhibit 10.70 of
PEC's 10-K Annual Report dated April 25, 1997.
10(vvvv) Subordination Agreement dated January 27, 1997 between URT, PEC and
creditor, incorporated by reference to Exhibit 10.71 of PEC's 10-K
Annual Report dated April 25, 1997.
10(wwww) Surrender and Waiver Agreement dated January 27, 1997 between URT and
PEC, incorporated by reference to Exhibit 10.72 of PEC's 10-K Annual
Report dated April 25, 1997.
10(xxxx) Waiver Agreement dated March 1, 1997 between URT and PEC, incorporated
by reference to Exhibit 10.73 of PEC's 10-K Annual Report dated April
25, 1997.
10(yyyy) Stock Purchase Agreement dated March 24, 1997 between URT and PEC,
incorporated by reference to Exhibit 10.74 of PEC's 10-K Annual Report
dated April 25, 1997.
10(zzzz) Letter agreement dated March 17, 1997 between URT and PEC pertaining
to salary of Allan Wolk.
10.1 Letter Agreement dated October 1, 1997 between URT and Allan Wolk
pertaining to services and salary of Allan Wolk.
10.2 Loan Forgiveness Agreement dated November 29, 1997 between URT and
PEC.
10.3 Letter Agreement dated May 26, 1998 between URT and PEC pertaining to
salary of Allan Wolk.
10.4 Letter Agreement dated May 26, 1998 between URT and Allan Wolk
pertaining to salary of Allan Wolk.
10.5 Letter Agreement dated July 9, 1998 between URT and PEC pertaining to
operating requirements.
22 Subsidiaries of URT.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on or about February 10, 1998
for the purpose of reporting a filing delay with respect to a Report
on Form 10-Q which has since been filed.
-47-
<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
URT INDUSTRIES, INC.
By: /s/ Allan Wolk
-------------------------------
Allan Wolk,
Chairmain of the Board
Dated: July 13, 1998
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 July 13, 1998
--------------------------------
Allan Wolk,
Chairman of the Board ,
President (Principal
Executive Officer) and Director
By: /s/ Brian Wolk July 13, 1998
--------------------------------
Brian Wolk, Executive
Vice President, Chief Legal
Officer and Director
By: /s/ Jason Wolk July 13, 1998
--------------------------------
Jason Wolk, Executive
Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer), Treasurer,
Secretary and Director
-48-
Exhibit 10(zzzz)
[LETTERHEAD OF URT INDUSTRIES, INC.]
March 17, 1997
Peaches Entertainment Corporation
1180 East Hallandale Boulevard
Hallandale, FL 33009
Gentlemen:
It is the purpose of this letter agreement to confirm that, in
consideration of the benefit expected to accrue to URT Industries, Inc. ("URT"),
by amending, in the manner described below, the agreement dated January 1, 1996
between URT and its subsidiary, Peaches Entertainment Corporation ("PEC"),
pertaining to the services of Allan Wolk (the "Intercorporate Agreement"), URT
agrees that the salary payable by PEC to Allan Wolk pursuant to the
Intercorporate Agreement shall be and is hereby reduced from Five Hundred
Thousand Dollars ($500,000) per annum to Four Hundred Thousand Dollars
($400,000) per annum for a period of two years effective March 1, 1997 and
continuing until February 28, 1999. Other than as set forth immediately above,
the Intercorporate Agreement shall remain in full force and effect.
Please sign below to evidence our agreement.
Very truly yours,
URT Industries, Inc.
By: /s/ Brian Wolk
------------------------------
Executive Vice-President
Agreed to and approved:
Peaches Entertainment Corporation
By: /s/ Jason Wolk
-------------------------------
Executive Vice-President
Exhibit 10.1
[LETTERHEAD OF URT INDUSTRIES, INC.]
October 1, 1997
Mr. Allan Wolk
1180 East Hallandale Beach Boulevard
Hallandale, Florida 33009
Dear Mr. Wolk:
It is the purpose of this letter to confirm our agreement to the amend the
Amended and Restated Employment Agreement, dated as of the first day of October,
1994 (the "Employment Agreement"), between URT Industries, Inc., and yourself
("Employee") in the manner described below:
1. Effective as of the date of this letter (the "Effective Date"),
subparagraph (a) of Paragraph 2 of the Employment Agreement is hereby deleted
and replaced by a new subparagraph (a) providing as follows:
"(a) Employee shall devote so much of his working time to the business
affairs of the Company as may be required to properly perform his
duties as (i) Chairman of the Company's Board of Directors and Chief
Executive Officer, and (ii) pursuant to a letter agreement dated
January 1, 1996 between the Company and its subsidiary, Peaches
Entertainment Corporation ("PEC"), Chairman, President and Chief
Executive Officer of PEC; and"
2. Subparagraphs (v), (vi) and (vii) of Paragraph 3 of the Employment
Agreement are hereby amended such that Employee's annual rate of base salary
under the Employment Agreement, during the thirty (30) calendar month period
beginning with the Effective Date and ending on March 31, 2000, shall be reduced
by $150,000.00 per year from the amount that would otherwise be payable under
such Agreement.
-49-
<PAGE>
Other than as set forth above, the Employment Agreement shall remain in
full force and effect.
Please sign below to confirm your agreement to the foregoing.
Very truly yours,
URT INDUSTRIES, INC.
By: /s/ Brian Wolk
-------------------------------
Executive Vice-President
AGREED TO AND APPROVED:
/s/ Allan Wolk
- ---------------------------------
Allan Wolk
-50-
Exhibit 10.2
LOAN FORGIVENESS AGREEMENT
AGREEMENT dated as of the 29th day of November, 1997 between URT
INDUSTRIES, INC. ("URT"), a Florida corporation with offices at 1180 East
Hallandale Beach Boulevard, Hallandale, Florida 33009, and PEACHES ENTERTAINMENT
CORPORATION ("PEC"), a Florida corporation with offices at 1180 East Hallandale
Beach Boulevard, Hallandale, Florida 33009.
WHEREAS, in order to cause PEC's Plan of Reorganization, as
modified, to be approved and confirmed by the U.S.
Bankruptcy Court, URT lent $700,000 to PEC and, in exchange,
PEC delivered to URT its promissory note in such principal
amount dated January 27, 1997 (the "Note"), and
WHEREAS, URT wishes to further assist PEC by forgiving a
portion of the principal and interest payable under the
Note,
IT IS, THEREFORE, AGREED:
1. In consideration of $1.00 and other good and valuable consideration
received by it, URT agrees to and does hereby forgive and waive its right
to receive one-half (1/2) of the Seven Hundred Thousand Dollar ($700,000)
principal amount due to it under the Note, together with all interest on
the principal amount so forgiven which accrued from the date of the Note to
the date of this Agreement. Accordingly, the Note shall be treated as if
partially pre-paid in the amount set forth above, and the unpaid principal
balance on the Note, as of the date of this Agreement, shall be Three
Hundred and Fifty Thousand Dollars ($350,000), which shall be repaid in
four equal installments on the Installment Payment Dates, as such term is
defined in the Note, with interest on such Three Hundred and Fifty Thousand
Dollars ($350,000) to be paid at
<PAGE>
the times and at the rate set forth in the Note.
2. Except as set forth above, the Note shall remain in full force and effect,
and nothing contained herein shall be deemed a modification or waiver of
any of URT's rights under the Security Agreement dated January 27, 1997
between URT and PEC, or the Mortgage with Assignment of Rents, Security
Agreement and Fixture Filing dated as of January 27, 1997 between URT and
PEC.
IN WITNESS WHEREOF, each of the undersigned has executed this document as
of the date and year first set forth above.
URT INDUSTRIES, INC.
By: /s/ Brian Wolk
---------------------------------
Name: Brian Wolk
Title: Executive Vice-President
PEACHES ENTERTAINMENT CORPORATION
By: /s/ Jason Wolk
---------------------------------
Name: Jason Wolk
Title: Executive Vice-President
Exhibit 10.3
[Letterhead of URT Industries, Inc.]
May 26, 1998
Peaches Entertainment Corporation
1180 East Hallandale Beach Boulevard
Hallandale, FL 33009
Gentlemen:
It is the purpose of this letter agreement to confirm that, in
consideration of the benefit expected to accrue to URT Industries, Inc. ("URT"),
by amending, in the manner described below, the agreement dated January 1, 1996
between URT and its subsidiary, Peaches Entertainment Corporation ("PEC"),
pertaining to the services of Allan Wolk (the "Intercorporate Agreement"), as
previously amended pursuant to the letter agreement dated March 17, 1997 between
URT and PEC, URT agrees that with respect to the three month period beginning
January 1, 1998 and ending March 28, 1998, the salary payable by PEC to Allan
Wolk pursuant to the Intercorporate Agreement, as so amended, shall be and is
hereby further reduced from a rate of Four Hundred Thousand Dollars ($400,000)
per annum to a rate of Three Hundred Thousand Dollars ($300,000) per annum.
Other than as set forth immediately above, the Intercorporate Agreement shall
remain in full force and effect.
Please sign below to evidence our agreement.
Very truly yours,
URT Industries, Inc.
By: /s/Brian Wolk
-----------------------------
Executive Vice President
Agreed to and approved:
Peaches Entertainment Corporation
By: /s/Jason Wolk
-----------------------------
Executive Vice President
Exhibit 10.4
[Letterhead of URT Industries, Inc.]
May 26, 1998
Mr. Allan Wolk
1180 East Hallandale Beach Boulevard
Hallandale, FL 33009
Dear Mr. Wolk:
It is the purpose of this letter to confirm our agreement to further amend
the Amended and Restated Employment Agreement, dated as of the first day of
October, 1994 (the "Employment Agreement"), between URT Industries, Inc.
("URT"), and yourself ("Employee"), as previously amended pursuant to the letter
agreement dated October 1, 1997 between URT and yourself, in the manner
described below.
1. Employee acknowledges having received salary compensation, during the
six month period commencing March 30, 1997 and ending September 30, 1997, which
is $16,666.67 less than the compensation to which he would otherwise be
entitled, and agrees to forego such $16,666.67 in compensation.
2. Employee acknowledges having received salary compensation, during the
three month period commencing January 1, 1998 and ending March 28, 1998, which
is $21,012 less than the compensation to which he would otherwise be entitled,
and agrees to forego such $21,012 in compensation.
Other than as set forth above, the Employment Agreement shall remain in
full force and effect.
Please sign below to confirm your agreement to the foregoing.
Very truly yours,
URT INDUSTRIES, INC.
By: /s/Brian Wolk
------------------------------
Executive Vice President
AGREED TO AND APPROVED:
/s/ Allan Wolk
- -----------------------------
Allan Wolk
Exhibit 10.5
[Letterhead of URT Industries, Inc.]
July 9, 1998
Peaches Entertainment Corporation
1180 East Hallandale Beach Blvd.
Hallandale, FL 33009
Gentlemen:
It is the purpose of this letter agreement to confirm that, in
consideration of the benefit which would be expected to accrue to URT
Industries, Inc. ("URT"), URT hereby agrees that, in the event that funds
generated from the operations of Peaches Entertainment Corporation ("PEC"), and
the proceeds of any debt financing which may be obtained, are insufficient to
meet PEC's current projected operating requirements during the fiscal year
period ending April 3, 1999, then URT will take any necessary action to see that
funds are available to cover any shortfalls up to April 3, 1999.
Please sign below to evidence our agreement.
Very truly yours,
URT Industries, Inc.
By: /s/ Brain Wolk
----------------------------
Executive Vice-President
Agreed and Approved:
Peaches Entertainment Corporation
By: /s/ Jason Wolk
----------------------------------
Executive Vice-President
Exhibit 22
URT INDUSTRIES, INC. SUBSIDIARIES
Subsidiary State of Incorporation
---------- ----------------------
United Record & Tape Industries, Inc. Florida
Peaches Entertainment Corporation Florida
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the year ended March 28, 1998
and is qualified in its entirety by reference to such financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> MAR-28-1998
<CASH> 1,281,098
<SECURITIES> 1,032,740
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,433,433
<CURRENT-ASSETS> 5,179,621
<PP&E> 3,334,647
<DEPRECIATION> (1,970,314)
<TOTAL-ASSETS> 6,783,328
<CURRENT-LIABILITIES> 3,648,318
<BONDS> 578,127
0
0
<COMMON> 153,175
<OTHER-SE> 2,313,578
<TOTAL-LIABILITY-AND-EQUITY> 6,783,328
<SALES> 17,077,501
<TOTAL-REVENUES> 17,077,501
<CGS> 10,501,123
<TOTAL-COSTS> 10,501,123
<OTHER-EXPENSES> 7,475,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,085
<INCOME-PRETAX> (905,296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (874,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (874,862)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
