UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 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 Incorporation or (I.R.S. Employer I.D. No.)
Organization)
1180 E Hallandale Beach Blvd., Hallandale, FL 33009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 March 8, 1999, there were outstanding:
10,857,068 shares of Class A common stock
1,301,141 shares of Class B common stock
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets -
December 26, 1998 (Unaudited) and March 28, 1998 3
Condensed Consolidated Statements of Operations and Retained
Deficit - Three Months Ended December 26, 1998 and December 27, 1997 (Unaudited) 4
Condensed Consolidated Statements of Operations and Retained Deficit - Nine Months
Ended December 26, 1998 and December 27, 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended December 26, 1998 and December 27, 1997 (Unaudited) 6
Notes to Condensed Consolidated 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 14
SIGNATURES 15
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 26, 1998 and March 28, 1998
<TABLE>
<CAPTION>
Assets December 26, March 28,
1998 1998
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,870,908 $ 1,281,098
Marketable investment securities 590,664 1,032,740
Inventories 2,821,832 2,433,433
Current portion due from officers/shareholders 45,302 45,302
Prepaid expenses and other current assets 336,068 387,048
----------- -----------
Total current assets 5,664,774 5,179,621
Property and equipment, net 1,358,404 1,364,333
Due from officers/shareholders 8,916 37,722
Other assets 204,939 201,652
----------- -----------
$ 7,237,033 $ 6,783,328
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations 493,436 732,319
Accounts payable 3,033,582 2,014,674
Accrued liabilities 1,094,939 901,325
----------- -----------
Total current liabilities 4,621,957 3,648,318
Long-term obligations 488,625 578,127
Deferred rent 61,911 62,834
Minority interest in a subsidiary 90,436 27,296
----------- -----------
Total liabilities 5,262,929 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 (2,716,920) (2,210,239)
Accumulated other comprehensive income - net unrealized
appreciation on investment securities 14,032 --
----------- -----------
2,992,439 3,485,088
Treasury stock, 3,159,245 common shares, at cost (1,018,335) (1,018,335)
----------- -----------
Total shareholders' equity 1,974,104 2,466,753
Commitments and contingencies
----------- -----------
$ 7,237,033 $ 6,783,328
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Retained Deficit
Three months ended December 26, 1998 and December 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 5,331,522 $ 5,116,742
----------- -----------
Costs and expenses:
Cost of sales 3,141,285 3,156,675
Selling, general and administrative expenses 1,890,707 1,725,403
Depreciation and amortization 59,014 66,996
----------- -----------
5,091,006 4,949,074
Income from operations 240,516 167,668
----------- -----------
Other (expense) income:
Interest expense (24,377) (41,200)
Interest income 6,387 18,793
Other income 39,245 --
----------- -----------
21,255 (22,407)
----------- -----------
Income before minority interest 261,771 145,261
Minority interest in net income of consolidated subsidiary 50,416 16,638
----------- -----------
Net income 211,355 128,623
Retained deficit, beginning of period (2,928,275) (2,166,716)
----------- -----------
Retained deficit, end of period (2,716,920) (2,038,093)
=========== ===========
Basic and diluted earnings per share $ 0.02 $ 0.01
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Retained Deficit
Nine months ended December 26, 1998 and December 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 13,126,196 $ 13,049,605
------------ ------------
Costs and expenses:
Cost of sales 7,796,882 8,057,685
Selling, general and administrative expenses 5,633,225 5,419,910
Depreciation and amortization 176,523 200,988
------------ ------------
13,606,630 13,678,583
Loss from operations (480,434) (628,978)
------------ ------------
Other (expense) income:
Interest expense (81,764) (130,592)
Interest income 31,412 81,400
Other income 39,245 --
------------ ------------
(11,107) (49,192)
Loss before reorganization costs and minority interest (491,541) (678,170)
Reorganization costs:
Professional fees -- (44,000)
------------ ------------
Loss before minority interest (491,541) (722,170)
Minority interest in net income (loss) of consolidated subsidiary 15,140 (19,454)
------------ ------------
Net loss (506,681) (702,716)
Retained deficit, beginning of period (2,210,239) (1,335,377)
------------ ------------
Retained deficit, end of period $ (2,716,920) $ (2,038,093)
============ ============
Basic and diluted loss per share $ (0.04) $ (0.06)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended December 26, 1998 and December 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (506,681) $ (702,716)
----------- -----------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 176,523 200,988
Deferred rent (923) (87,492)
Minority interest in net income (loss) of consolidated
subsidiary 63,140 (19,454)
Change in assets and liabilities affecting cash flows from
operating activities:
(Increase) decrease in:
Inventories (388,399) 92,665
Prepaid expenses and other current assets 50,980 14,374
Other assets (3,287) (85,747)
Increase (decrease) in:
Accounts payable 1,018,908 1,047,229
Accrued liabilities 193,614 123,746
----------- -----------
Net cash provided by operating activities 603,875 583,593
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (170,594) (61,385)
Repayment of due from officers/shareholders 28,806 24,792
Purchase of marketable investment securities (1,032,621) (2,624,267)
Sales of marketable investment securities 1,488,729 1,506,756
----------- -----------
Net cash provided by (used in) investing activities 314,320 (1,154,104)
----------- -----------
Cash flows from investing activities:
Repayment of long-term debt (328,385) (326,858)
----------- -----------
Net cash used in financing activities (328,385) (326,858)
----------- -----------
Net increase in cash and cash equivalents 589,810 897,369
</TABLE>
6
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
December 26, December 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 $ 1,870,908 $ 2,233,147
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 28,600 $ 115,722
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 26, 1998 and December 27, 1997
(Unaudited)
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all footnotes and information necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. However,
in the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation have been made.
The consolidated financial statements include the accounts of URT
Industries, Inc. (the "Parent") and its wholly owned nonoperating
subsidiary, and its majority-owned operating subsidiary, Peaches
Entertainment Corporation (87.5 percent of the outstanding stock of which
was owned by the Parent, as of December 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 consolidated
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 nine months ended December 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) December 27,
1997 quarterly financial information to conform to the presentation used in
the (unaudited) December 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 earnings (loss) per share have been computed by dividing
net earnings (loss), by the weighted average number of shares outstanding
during the period.
(Continued)
8
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 26, 1998 and December 27, 1997
(Unaudited)
Basic and diluted loss per share were calculated as follows:
Nine months Nine months
ended Ended
----------- -----------
December 26, December 27,
1998 1997
Basic and diluted:
Net loss $ (506,681) $ (702,716)
=========== ===========
Weighted average shares 12,158,209 12,158,209
=========== ===========
Basic and diluted loss per share (0.04) (0.06)
=========== ===========
(3) Marketable Securities
The Company's debt and equity securities consisting of Treasury bills and
equity investments, are considered available-for-sale at December 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 and other 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
December 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 presentation 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. Comprehensive income consists of net income and net unrealized gain
(losses) on securities. The Statement requires only additional disclosures
in the consolidated financial statements; it does not affect the Company's
financial position on results of operations. Comprehensive income (loss)
for the quarter and nine month period ended December 28, 1998 of $225,387
and $(492,649), respectively, included net income (loss) as reported in the
accompanying condensed consolidated statements of operations plus a $14,000
after-tax effect of unrealized appreciation on marketable equity
securities. The adoption of Statement 130 did not have a material impact on
the Company's financial position, results of operations or cash flows.
(Continued)
9
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 26, 1998 and December 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 is not expected to have an effect on the Company because it operates in
a single segment.
(Continued)
10
<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 third quarter ended December
26, 1998 of the Company's fiscal year ending April 3, 1999 by approximately
$214,780 or 4.2 percent, compared to the third 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 third quarter were down 1.3
percent. Sales for the thirty-nine weeks ended December 26, 1998 increased by
approximately $77,000 or .59 percent.
Cost of Sales. The Company's cost of sales as a percentage of net sales,
decreased from 61.7 percent in the previous year's third quarter to 58.9 percent
for the third quarter ended December 26, 1998, as well as from 61.7 percent in
the previous year first thirty-nine weeks to 59.4 percent in the current year's
thirty-nine weeks ended December 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
increased to 36.6 percent for the third quarter ended December 26, 1998 compared
to 35 percent the prior year third quarter. Such increase 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 44.3 percent of the
thirty-nine weeks ended December 26, 1998 compared to 43.1 percent the
thirty-nine weeks ended December 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 Income (Loss). The Company had net income of approximately $211,000 for the
third quarter ended December 26, 1998 compared to net income of approximately
$129,000 for the third quarter ended December 27, 1997. The increase in net
income is primarily attributable to the increase in gross profit percentage
discussed above. The net loss for the thirty-nine weeks ended December 26, 1998
was approximately $507,000 compared to a net loss of approximately $703,000 for
the thirty-nine weeks ended December 27, 1997. The decrease in net loss is
primarily attributable to the increase in gross profit discussed above.
(Continued)
11
<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 December 26, 1998, the Company had long-term
obligations of $488,625. Management anticipates that its ability to repay its
long-term obligations will be satisfied primarily through funds generated from
its operations or from possible financing.
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. The
Company has not incurred any costs as of December 26, 1998 relating to year 2000
compliance. The Company anticipates that the cost of the upgrade of its software
from outside vendors will be approximately $20,000. The Company expects to
purchase its upgraded software in April, 1999, and that testing and
implementation will be completed by June, 1999. 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. The
Company's five largest music suppliers dominate the music distribution industry.
The Company believes that those five major suppliers will be 2000 ready.
However, the Company currently has no practical alternatives if these major
suppliers experience problems. Thus, there can be no absolute assurance that
there will not be a material adverse effect on the Company's operations,
liquidity or financial condition, if Year 2000 modifications are not properly
completed in a timely manner 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.
(Continued)
12
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
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 is not expected to have an effect on the
Company because it operates in a single segment.
(Continued)
13
<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 February 16, 1999, the Company filed a Form 8-K dated
February 16, 1999 for the purpose of reporting on the projected
date of this filing.
(Continued)
14
<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: 3/12/99 /s/ Allan Wolk
--------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: 3/12/99 /s/ Jason Wolk
--------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the nine month period ended
December 26, 1998, and is qualified in its entirety by reference to such
financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-3-1999
<PERIOD-END> DEC-26-1998
<CASH> 1,870,908
<SECURITIES> 590,664
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,821,832
<CURRENT-ASSETS> 5,664,774
<PP&E> 3,508,305
<DEPRECIATION> 2,149,901
<TOTAL-ASSETS> 7,237,033
<CURRENT-LIABILITIES> 4,621,957
<BONDS> 488,625
0
0
<COMMON> 153,175
<OTHER-SE> 1,820,929
<TOTAL-LIABILITY-AND-EQUITY> 7,237,033
<SALES> 13,126,196
<TOTAL-REVENUES> 13,126,196
<CGS> 7,796,882
<TOTAL-COSTS> 7,796,882
<OTHER-EXPENSES> 5,809,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,764
<INCOME-PRETAX> (506,681)
<INCOME-TAX> 0
<INCOME-CONTINUING> (506,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (506,681)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
