UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 26, 1998 Commission File No. 0-06882
URT INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-1167907
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
1180 E Hallandale Beach Blvd., Hallandale, FL 33009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At November 20, 1998, there were outstanding:
10,857,068 shares of Class A common stock
1,348,141 shares of Class B common stock
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 26, 1998 (Unaudited) and March 28, 1998 3
Condensed Consolidated Statements of Operations
and Retained Deficit - Three Months Ended
September 26, 1998 and September 27, 1997 (Unaudited) 4
Condensed Consolidated Statements of Operations
and Retained Deficit - Six Months Ended
September 26, 1998 and September 27, 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended September 26, 1998 and
September 27, 1997 (Unaudited) 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
URT INDUSTRIES, INC. AND SUBSIDIAIRES
Condensed Consolidated Balance Sheets
September 26, 1998 and March 28, 1998
<TABLE>
<CAPTION>
Assets September 26, March 28,
1998 1998
------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 694,981 1,281,098
Marketable investment securities 663,313 1,032,740
Inventories 2,643,727 2,433,433
Current portion due from officers/shareholders 45,302 45,302
Prepaid expenses and other current assets 281,567 387,048
----------- -----------
Total current assets 4,328,890 5,179,621
Property and equipment, net 1,404,942 1,364,333
Due from officers/shareholders 18,003 37,722
Other assets 208,295 201,652
----------- -----------
$ 5,960,130 6,783,328
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations 573,038 732,319
Accounts payable 2,093,655 2,014,674
Accrued liabilities 909,415 901,325
----------- -----------
Total current liabilities 3,576,108 3,648,318
Long-term obligations 518,625 578,127
Deferred rent 62,950 62,834
Minority interest in a subsidiary 40,020 27,296
----------- -----------
Total liabilities 4,197,703 4,316,575
----------- -----------
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 (2,928,275) (2,210,239)
Unrealized gain on securities available for sale 13,710 --
----------- -----------
2,780,762 3,485,088
Treasury stock, 3,159,245 common shares, at cost (1,018,335) (1,018,335)
----------- -----------
Total shareholders' equity 1,762,427 2,466,753
Commitments and contingencies
----------- -----------
$ 5,960,130 6,783,328
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIAIRES
Condensed Consolidated Statements of Operations and Retained Deficit
Three months ended September 26, 1998 and September 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Net sales $ 3,924,914 3,808,512
----------- -----------
Costs and expenses:
Cost of sales 2,336,793 2,347,920
Selling, general and administrative expenses 1,900,808 1,935,043
Depreciation and amortization 58,963 67,339
----------- -----------
4,296,564 4,350,302
Loss from operations (371,650) (541,790)
----------- -----------
Other (expense) income:
Interest expense (27,571) (43,615)
Interest income 9,661 39,265
----------- -----------
(17,910) (4,350)
----------- -----------
Loss before minority interest (389,560) (546,140)
Minority interest in net loss of consolidated subsidiary (20,839) (21,496)
----------- -----------
Net loss (368,721) (524,644)
Retained deficit, beginning of period (2,559,554) (1,642,072)
----------- -----------
Retained deficit, end of period (2,928,275) (2,166,716)
=========== ===========
Basic and diluted loss per share $ (0.03) (0.04)
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Retained Deficit
Six months ended September 26, 1998 and September 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Net sales $ 7,794,674 7,932,863
----------- -----------
Costs and expenses:
Cost of sales 4,655,597 4,901,010
Selling, general and administrative expenses 3,742,518 3,694,507
Depreciation and amortization 117,509 133,992
----------- -----------
8,515,624 8,729,509
Loss from operations (720,950) (796,646)
----------- -----------
Other (expense) income:
Interest expense (57,387) (89,392)
Interest income 25,025 62,607
----------- -----------
(32,362) (26,785)
Loss before reorganization costs and minority interest (753,312) (823,431)
Reorganization costs:
Professional fees -- (44,000)
----------- -----------
Loss before minority interest (753,312) (867,431)
Minority interest in net loss of consolidated subsidiary (35,276) (36,092)
----------- -----------
Net loss (718,036) (831,339)
Retained deficit, beginning of period (2,210,239) (1,335,377)
----------- -----------
Retained deficit, end of period $(2,928,275) (2,166,716)
=========== ===========
Basic and diluted loss per share $ (0.06) (0.07)
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended September 26, 1998 and September 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (718,036) (831,339)
---------- ----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 117,509 133,992
Deferred rent 116 (22,477)
Minority interest in net loss of consolidated subsidiary 12,724 (36,092)
Change in assets and liabilities affecting cash flows from
operating activities:
(Increase) decrease in:
Inventories (210,294) 42,439
Prepaid expenses and other current assets 105,481 62,956
Other assets (6,643) (6,277)
Increase (decrease) in:
Accounts payable 78,981 384,761
Accrued liabilities 8,090 (97,756)
---------- ----------
Net cash used in operating activities (612,072) (369,793)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (158,118) (31,305)
Repayment of due from officers/shareholders 19,719 16,363
Purchase of marketable investment securities (172,658) (1,417,365)
Sales of marketable investment securities 555,795 145,023
---------- ----------
Net cash (used in) provided by investing activities 244,738 (1,287,284)
---------- ----------
Cash flows from investing activities:
Repayment of long-term debt (218,783) (217,788)
---------- ----------
Net cash used in financing activities (218,783) (217,788)
---------- ----------
Net (decrease) increase in cash and cash equivalents (586,117) (1,874,865)
</TABLE>
6
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIAIRES
Condensed Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Cash and cash equivalents, beginning of period 1,281,098 3,130,516
---------- ----------
Cash and cash equivalents, end of period $ 694,981 1,255,651
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 9,707 38,811
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements
September 26, 1998 and September 27, 1997
(Unaudited)
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all footnotes and information necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation have been made.
The consolidated financial statements include the accounts of URT
Industries, Inc. (the "Parent") and its wholly owned nonoperating
subsidiary, and its majority-owned operating subsidiary, Peaches
Entertainment Corporation (87.5 percent of the outstanding stock of which
was owned by the Parent, as of September 26, 1998). All significant
intercompany accounts have been eliminated. Reference to the Company
encompasses all or any of the aforementioned entities.
It is suggested that the accompanying unaudited condensed financial
statements be read in conjunction with the financial statements and notes
included in the Company's annual report on Form 10-K for the year ended
March 28, 1998.
The results of operations for the six months ended September 26, 1998, are
not necessarily indicative of the operating results to be expected for the
year ending April 3, 1999. The Company's business is seasonal in nature,
with the highest sales and earnings historically occurring in the third
quarter of the fiscal year, which includes the holiday selling season.
Inventories, which consist of compact discs, tapes and accessories, are
stated at the lower of cost (principally average) or market.
Certain reclassifications have been made to the (unaudited) September 27,
1997 quarterly financial information to conform to the presentation used in
the (unaudited) September 26, 1998 financial information.
(2) 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 loss per share have been computed by dividing net loss,
less preferred dividends by the weighted average number of shares
outstanding during the period.
8 (Continued)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements
September 26, 1998 and September 27, 1997
(Unaudited)
Basic and diluted loss per share were calculated as follows:
<TABLE>
<CAPTION>
Six months Six months
ended ended
------------- -------------
September 26, September 27,
1998 1997
<S> <C> <C>
Basic and diluted:
Net income (loss) less preferred dividends $ 718,036 831,339
============ ============
Weighted average shares 12,158,209 12,158,209
============ ============
Basic and diluted loss per share (.06) (.07)
============ ============
</TABLE>
(3) Marketable Securities
The Company's debt and equity securities consisting of Treasury bills and
equity investments, are considered available-for-sale at September 26, 1998
with cost approximating fair market value. Securities classified as
available-for-sale are reported at fair market value with unrealized gains
and losses included in stockholders' equity. Realized gains and losses are
included in interest income.
(4) Income Taxes
The Company follows Statement of Financial Accounting Standard ("SFAS") No.
109, Accounting for Income Taxes. The Company files a consolidated tax
return with its subsidiaries. Any applicable tax charge or credits are
allocated on a separate return basis. For the three month period ended
September 26, 1998, there was no (benefit) provision for income taxes as
the Company has excess net operating loss carryforwards for federal income
tax purposes.
(5) New Accounting Pronouncements
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 statements
and is effective for fiscal years beginning after December 31, 1997. The
adoption of Statement 130 did not have a material impact on the Company's
financial position, results of operations or cash flows.
9 (Continued)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements
September 26, 1998 and September 27, 1997
(Unaudited)
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. The adoption of Statement
131 will not have an effect on the Company because it operates in a single
segment.
10 (Continued)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussions and Analysis of Financial Condition and Results
of Operations
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe," "anticipate," "estimate,"
"project" and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as a part of this filing or other filings. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their respective dates, and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated or projected.
Sales. The Company's net sales increased during the second quarter ended
September 26, 1998 of the Company's fiscal year ending April 3, 1999 by $116,000
or 3 percent, compared to the second quarter of fiscal 1998. The increase in
sales is a result of the opening of one new store in the first quarter of fiscal
1999 offset by the closing of one store in the third quarter of fiscal 1998.
Comparable store sales for the second quarter were down 1.7 percent. Sales for
the twenty-six weeks ended September 26, 1998 were down $138,000 or 1.7 percent
which is primarily due to the fact that comparable sales for the twenty-six
weeks ended September 26, 1998 were down 2.9 percent.
Cost of Sales. The Company's cost of sales as a percentage of net sales,
decreased from 61.6 percent in the previous year's second quarter to 59.5
percent for the second quarter ended September 26, 1998, as well as from 61.8
percent in the previous year first twenty-six weeks to 59.7 percent in the
current year's twenty-six weeks ended September 26, 1998. The decreases in cost
of sales as a percentage of sales are primarily attributable to increases in
certain retail prices and increases in purchase discounts.
Selling, General and Administrative. Selling, general and administrative
expenses including depreciation, expressed as a percentage of net sales
decreased to 49.9 percent for the second quarter ended September 26, 1998
compared to 52.5 percent the prior year second quarter. Such decrease is
primarily attributable to the closing of one underperforming store in the third
quarter of 1998 fiscal year offset by the opening of the Company's new store in
Orlando, Florida. Selling, general and administrative expenses including
depreciation, expressed as a percentage of net sales increased to 49.5 percent
of the twenty-six weeks ended September 26, 1998 compared to 48.2 percent the
twenty-six weeks ended September 27, 1997. The increase is primarily
attributable to the fact that there were expenses incurred throughout the
Company's first quarter of 1999 fiscal year relating to the new store although
the new store did not actually open until late in the Company's first quarter of
1999 fiscal year.
Net Loss. The Company incurred a net loss of approximately $369,000 for the
second quarter ended September 26, 1998 compared to a net loss of approximately
$525,000 for the second quarter ended September 27, 1997. The decrease is
primarily attributable to the increase in gross profit percentage discussed
above. The net loss for the twenty-six weeks ended September 26, 1998 was
approximately $718,000 compared to a net loss of approximately $831,000 for the
twenty-six weeks ended September 27, 1997. The net loss for the twenty-six weeks
ended September 26, 1998 includes costs associated with the opening of the new
store in Orlando, Florida. There is approximately $127,000 of the $718,000 net
loss for the twenty-six weeks ended September 26, 1998 that is attributable to
the new store opening costs.
11 (Continued)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources. Cash generated from operations and cash
equivalents are the Company's primary source of liquidity. Management
anticipates that the cash generated from operations and cash evaluations on hand
will provide sufficient liquidity to maintain adequate working capital for
operations. Management used funds generated from operations as well as funds
received from its landlord for the building of the new store which opened in May
1998. Management anticipates that it would use funds generated from operations
as well as possible financing, for the opening of any new stores, which it may
plan to open during the next few years. For a discussion of recent developments
and uncertainities affecting the Company's liability and capital resources, see
note 3 to the financial statements on form 10-K for the year ended March 28,
1998.
Long-Term Obligations. At September 26, 1998, the Company had long-term
obligations of $518,625. Management anticipates that its ability to repay its
long-term obligations will be satisified primarily through funds generated from
its operations.
OTHER MATTERS
Impact of Inflation. Although the Company cannot accurately determine the
precise effect of inflation on its operations, management does not believe
inflation has had a material effect on the results of operations in the last
three fiscal years. When the cost of merchandise items has increased, the
Company has been able to pass the increase on to its customers.
Seasonality. The Company's business is seasonal in nature, with the highest
sales and earnings historically occurring in the third fiscal quarter, which
includes the Christmas selling season.
Year 2000 Compliance. 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 data-sensitive software may
recognize a date using "00" as 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
materially operations or financial position of the Company. The Company is also
in the process of completing its inventory of computer information technology
and noninformation technology hardware systems to assess year 2000 compliance.
Management generally believes that its primary suppliers will be 2000 ready and
there is not likely to be a significant disruption in product supply. The
Company intends to develop contingency plans. However, there can be no absolute
assurance that there will not be a material adverse effect on the Company 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.
New Accounting Policies. 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 statements and is effective for fiscal year beginning after December
31, 1997. The adoption of Statement 130 did not have a material impact on the
Company's financial position, results of operations or cash flows.
12 (Continued)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
On or about November 11, 1998, the Company filed a Form 8-K dated
November 11, 1998 for the purpose of reporting on the projected date
of this filing.
13 (Continued)
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URT INDUSTRIES, INC.
Registrant
Date: 11/25/98 /s/ Allan Wolk
------------------------ --------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: 11/25/98 /s/ Jason Wolk
------------------------ --------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the six month period ended
September 26, 1998, and is qualified in its entirety by reference to such
financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> SEP-26-1998
<CASH> 694,981
<SECURITIES> 663,313
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,643,727
<CURRENT-ASSETS> 4,328,890
<PP&E> 3,492,766
<DEPRECIATION> 2,087,824
<TOTAL-ASSETS> 5,960,130
<CURRENT-LIABILITIES> 3,576,108
<BONDS> 0
0
0
<COMMON> 153,175
<OTHER-SE> 1,609,252
<TOTAL-LIABILITY-AND-EQUITY> 5,960,130
<SALES> 7,794,674
<TOTAL-REVENUES> 7,794,674
<CGS> 4,655,597
<TOTAL-COSTS> 4,655,597
<OTHER-EXPENSES> 3,860,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,387
<INCOME-PRETAX> (718,036)
<INCOME-TAX> 0
<INCOME-CONTINUING> (718,036)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (718,036)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
